Contrary to the majority of competitors in the restaurant industry that use a franchise model, Chipotle Mexican Grill is the sole owner of all its 3,000 the road to a goal of 6,000. This means that it also has the relationships with close to 100,000 employees, with many of them working on the front line and in less-paying, higher jobs in restaurants. Before the pandemic employment in the food business was usually higher than 100% per year.
For Chipotle upper management, a focus on investing in workers is not new, but in an era of national workforce shortage and rising wages in low-paying industries Chipotle offers a warning to competitors If you see the cost of labor, you are looking at it in incorrectly.
In the last week, most recent JOLTS Report released by the Labor Department showed a record amount of employees leaving work mostly in the retail and restaurant sector, and a record number of jobs available.
The job market is so bleak that CEOs in these sectors are making desperate pleas. Many in the business world slammed extended unemployment benefits, claiming it was a government aid effort, which was the reason that people were unable to enter the work force, Barry Sternlicht of hotel operator Starwood Capital said on CNBC Wednesday that the government is now required to provide people with the money to get in to the workplace. “The whole service economy is in a crisis,” Sternlicht said. “The country can’t really work without its service people back.”
Marissa Andrada, chief diversity inclusion and human resources officer for Chipotle claims that the company has been able to recruit and keep talent by making an investment in its employees ahead of the pandemic , rather than as a response to it.
“We feel like the investments we made in people in the past couple of years have set us up for the rest of the world opening up,” Andrada told the CNBC’s @Work Summit on Wednesday.
In the year the year 2019, Chipotle introduced education benefits for employees, and the company has since extended them to tuition-free education to all employees, rather than only tuition reimbursement. The latter being a benefit plan that experts from the field of education claimed was not designed for workers with low wages and had only a small amount of usage. This year has seen firms such as Amazon, Target and Walmart all take steps to provide loans-free college degrees, too. (Walmart already has a plan that has been in operation for several years however, it was costing employees $1 per week.)
Rachel Carlson, the co-founder and the CEO of Guild Education — which provides a platform to companies like Chipotle to offer education to employees and is an two-time CNBC Disruptor 50 business, which includes the No. 49 in the 2020 Disruptor 50 list In a separate discussion in the CNBC @Work Summit that there remain many gaps between employers and employees regarding understanding the role of companies in the field of education.
She added that Guild research indicates that the workforce of today is reluctant to inform their employers that they won’t remain in the company for more than forty years or even 20 years, and with an lingering thought of their “grandfather’s General Electric career.” Employers are more likely to view shorter durations as a benefit.
“I am in discussions with the CFO … as well as leaders teams who are thrilled to see this position sustained by one leader, an employee for three, five years. We must have the discussion about today’s “tour of duty,”” Carlson said.
She also said Guild recognizes that even though more large businesses offer benefits for education, “We know a very substantial number of employees feel at ease telling employers that they don’t possess the graduation certificate or a a college degree. … They exaggerate the data or don’t answer it.”
Every dime we put into labour costs’
Andrada stated that the business also has an health-care concierge service for family members and employees She also stressed that it was an investment that was made prior to the pandemic.
“We are grateful we’ve been able to attract and retain talent,” she added however, she also said that the company isn’t in any way immune to the current labor market and “there are pockets across the U.S. where there are challenges.”
Jack Hartung, Chipotle chief financial officer, who spoke to Andrada during the CNBC event, explained that since Chipotle runs all its restaurants, it must consider investments in individuals in a different manner that a typical cost of profit and loss. “If you look at it that way, the main objective is to minimize cost.”
In the case of Chipotle, “almost all managers in the future will come from the crews of today,” Hartung explained. “So every dime we spend on that labor line, whether wages or benefits or education is an investment in the future, and that’s a different way to think about it.”
Andrada said that the path from being an hourly worker to becoming a six-figure general manager of a restaurant may be as short as three years, but labor economists will say that in the event of services that are low-wage there will be lower general manager positions than front-line positions with lower wages.
“We stated as a goal that we wanted to exit the pandemic stronger than we came into it,” Hartung declared. “We don’t want to just eke through, we want to make sure we make investments along way that make us stronger.”
However, it doesn’t mean that the company isn’t able to stay out of the negative press coverage related to the labor market that many large companies have to contend with, including some that are a result of legal battles that started a long time ago. In at least one key measure of labor economists, Chipotle wasn’t exactly rushing to ensure its workers well-being, both physical and financial, was met ahead of competitors. Although the call to have a minimum wage of $15 has been around for a long time, Chipotle didn’t enact that spending until 2021 in an economic downturn and it’s making up the cost in different ways. In the past, Chipotle raised menu prices by 4% to help pay for the increase in minimum wage.
Chipotle, Gen Z and Gen Z and
On a market-based basis the approach of the company is effective. Chipotle shares have increased by more than three times since March 2020’s Covid bottom as well. Wall Street is positive on Chipotle’s performance due to reasons that could be at best, at a minimum, tangibly linked to the company’s long-term plan of action.
In a bullish analysis of Chipotle in the middle of September, Piper Sandler said its long-term capital return was superior to its peers. Goldman Sachs analysts noted in an earlier bullish call on Chipotle that the cost of labor will continue to increase.
“It is key for investors,” Piper Sandler analyst Nicole Miller Regan told CNBC via email on Wednesday regarding the company’s strategy of investing in its employees, which is expected to be just above $2 billion by 2022. However, she noted that it’s more difficult to Wall Street to model precisely. “I am not sure as analysts we have all of the data to model it,” she wrote.
Chipotle remains consistent in its message about being a business that values people first even though that remains a variable direction with respect to the price of its stock as well Wall Street does see the Chipotle to be an ESG brand market leader that is appealing to the important groups of people.
In a report this week, Cowen wrote that among Gen Z consumers, Chipotle is a standout among restaurants for its issues such as food transparency, which is rapidly expanding as a digital business, and reducing packaging and waste, as well as consumption of energy, with 22% of the electricity generated by renewable sources. Although Cowen’s analysts found that Chipotle has a high degree of trust compared to other chains however, the one thing that was not mentioned among the ESG elements that were mentioned in the report was “labor standards and worker treatment.”
Cowen Analyst Andrew Charles said staffing is the most talked about restaurant issue of this moment for investors, and is a “massive issue” which has caused the industry to slow down a bit. Chipotle isn’t immune to the pressures of the labor market however it is something that makes them stand out.
“They are best-equipped in the industry to deal with it,” he said, noting that their per-store annual sales are high relative to peers ($2.5 million per store) giving them more room to raise wages and benefits, including education and health, such as telemedicine-delivered mental health services which Andrada highlighted.
“It really ties to culture and I would argue these guys really have that down,” Charles stated. “And they are growing stores at a healthy clip and growing a company-operated system and can identify talent within the system.”
Although the treatment of workers hasn’t been reflected clearly on ESG analyses as an important driving factor as sustainability measures Cowen could follow, Charles said going to $15 an hour was “a big bet.” In addition, he said with food industry’s competition that is centered around staffing the way they do business is spot on.
Andrada stated that companies must “get really clear about who you are and what you stand for.”
For Chipotle it’s a matter of having a culture that is “manically focused on people-first,” she added, and this “makes decisions on investments in people really easy.”
In the end, worker concerns and the broader culture of the company could be reflected within the ESG market. “Chipotle has always been and will always be rooted in purpose and in this ESG world we live in, that suits them very well and is a big tailwind,” Charles stated.
There’s a significant distinction between looking at labor as an operational cost that an organization would like to keep to be as low as is possible or in the context of an investment which must to be made annually in a long-term return-on-investment plan, Hartung said. If it’s the investment for education or other benefit offered to employees that a business can’t expect to expect to see that benefit “next year,” he stated, but the investment is likely to be long-lasting. “We have between $300 million and $400 million of capex every year mostly in restaurants. Pay and benefits is at a rate of $2 billion every year.”
The company will not invest the funds into work in the event of some kind of return in the future, which would be in the form of leaders as well as financials. “Over time, we will have great people and results,” Hartung declared.