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.
Could Therapy Be Key To Treating Your IBS? – Huffington Post, 11 April 2019, Natasha Hinde
Sitting down for too long may be causing 70,000 UK deaths a year – The Guardian, 26 March 2019, Nicola Davis
Human Contact Is Now a Luxury Good – New York Times, 23 March 2019, Nellie Bowles
Americans Are Going Bankrupt From Getting Sick, The Atlantic, 15 March 2019, Olga Khazan
Why the future of well-being isn’t about money www.weforum.org, 26 Feb 2019, Justin Dupuis
With bread’s return to favor in the wellness world, consumers are ritualizing the baking process as an opportunity to slow down. JWT Intelligence, 28 February 2019, Emily Safian-Demers
Ikea’s new curtains purify the air inside your house – Fast Company, 20 Feb 2019, Jesus Diaz
Insectageddon – Politicians are complicit in the killing of our insects – we will be next – Guardian 12 February 2019 – Molly Scott Cato
Goop Enters Netflix Deal: Has Pseudoscience Found A New Platform? Forbes, 9 Feb 2019, Bruce Y. Lee
5 ways work culture will change by 2030, Fast Company, February 4th 2019 Gwen Moran