Conor Sen, What Chipotle Can Learn From a Fast-Food Guy, Bloomberg View, February 14, 2018
Chipotle became a darling of Wall Street when the labor market was bad. When the rapid ascent of its stock price tapered off in the summer of 2014, the unemployment rate was still above six percent. Labor costs comprised 21.8 percent of revenues, according to its earnings report for the second quarter of 2014. By the fourth quarter of 2017, labor costs had risen to 27.5 percent of revenues.
One reason for Chipotle’s growing labor share is the lasting damage done by the norovirus outbreaks at its restaurants in the summer of 2015. If you don’t have lines out the door during peak hours, then your workers won’t be fully utilized, hurting profitability.
Through the WI lens
This is an important read for all companies whose business model is predicated upon access to exclusivity. It begs the question of whether scaling what are essentially “scarce goods” is not an impossible proposition. In the article, the portfolio manager argues that the era of cheap organic food at scale might be over. Could this also be true for businesses that are trying to scale wellness solutions? The answer is worth pondering. It’s probably a yes because what is true for organic food (increased demand for quality, perceived impact to health, affordability, availability) has similar parallels to wellbeing in general and many of its sub-segments in particular: spas, high-end gyms, boutique fitness classes etc
It is an ultimate irony that Chipotle is now turning to a fast food executive to fix its existential problems: sustained wage inflation, supply chain issues, expensive ingredients, rising prices, slowing growth and squeezed profitability. As the author argues, these are all the pain points that led to the creation of the fast food industry in the first place. So how will the new CEO restore the profitability of the business without sacrificing what makes it unique: its exclusive offering?
It’s doubtful that he’ll be able to reconcile these contradictory goals (profitability versus exclusivity) in an economy that is expanding. Now that the US economy, like many others, is running at almost full capacity, a large number of companies operating in the hospitality and wellbeing industry will realize that scaling exclusivity doesn’t work. The simplest reason is this: companies for which labor costs constitute an important part of total costs, wage inflation can be a killer.
What this article goes on to explain is how positive thinking – described here as ‘thriving’ – can counter the effects that come from the negativity outlined above, from reduced memory to diminished performance. Based on studying people in a series of organisations in different industries, one of the authors has found that people who attain this state are more resilient, experience less burnout, and are more confident in their ability to take control of a situation
“Behind the jargon what this is really about is how we address the challenge of biodiversity under threat, move away from fossil materials like plastic and concrete, and use nature in a sustainable way, all of which could be summed up by “living in harmony with nature”.”
“In the new ‘consensual contract’ between employer and worker, what’s required is a commitment from the employer to safeguard the wellbeing of their people, and a commitment in return from employees to take personal responsibility for their performance of their job.”
“Could loneliness not only be damaging our mental and physical health but also be making the world a more aggressive, angry place? And if so, what are the implications for a cohesive society and democracy?”
“On such fragile foundations are built the first steps towards a more ethical kind of business, and who knows what virtuous circles might result?”
“Scientific evidence recently emerged that, contrary to earlier beliefs, Covid-19 can be spread by tiny droplets that we breathe out when we respire, called aerosols.”
“Economic wellbeing is part of the story, but it is also about finding less stressful lifestyles, in which healthy diet figures as a meaningful measure of success.”
“The industry has every asset needed to be a guiding light in the shift toward personal health priority. Will that become a prevention legacy, a ‘phoenix rising’ from the Covid-19 ashes?”
“Looking at the bigger picture, putting the measures in this order represents a lost opportunity that the pandemic could have offered for a cultural pivot pivot towards getting people more focused on their health, a powerful statement of intent.”
“Employment is necessary to fulfil our most basic human needs such as food and shelter. Any significant increase in long-term unemployment will spell a retrograde step for human wellbeing like no other.”