Chipotle’s minimum wage hike could spell profit doom for rivals that are forced to follow suit to retain workers, while also lacking the compelling menus to justify price increases on diners.
The burrito and salad bowl giant said Monday it would lift the average hourly wage for its restaurant workers to $15. The company is also offering employee referral bonuses of $200 for restaurant workers and $750 for general managers. It touted the ability to be a manager of several Chipotle restaurants — a position it calls a restaurateur — within four years. The position pays more than $100,000 a year, Chipotle said. The burrito chain is looking to fill 20,000 restaurant positions.
“Wage inflation is real and employee availability is very tough and Chipotle is trying to stay ahead of the curve and maintain its human capital advantage by moving average wages to $15/hour by June,” explained Jefferies restaurant analyst Andy Barish in a research note to clients. “This raises bigger questions as demand is surging and some people have left the industry and/or are on the ‘sidelines,’ given the current Federal unemployment supplements that run until September. “
Barish added, “This is not a game changer altogether particularly with the labor productivity savings that many full-service/casual dining companies have put in place during the pandemic; however, it does represent a potential real and psychological negative for the group.”
To Barish’s point, fears of profit hits to restaurants due to wage inflation are beginning to weigh on much of the sector’s best known stocks.
Shares of McDonald’s, Yum! Brands and Burger King owner Restaurant Brands are each down 2% so far in March, per Yahoo Finance Plus data. Shake Shack shares have cratered by 19%, triggered by wage and pandemic recovery concerns on the company’s most recent earnings report. Red Robin Gourmet Burger has shed 8%.
That said, Barish suggests if investors want to play the restaurant space they must be extra selective given yawning wage inflation.
“We also believe operators with higher % of California units are better positioned as they have already faced prospects of $15 minimum wage which is going into effect on 1/1/22. Such operators include: BJRI [BJ’s Restaurants], CAKE [Cheesecake Factory], JACK [Jack in the Box], LOCO [El Pollo Loco] and TACO [Del Taco] — the last two which are small cap Buys,” Barish said.
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