Dive Brief:
- A 10% increase to Chipotle's wages would result in menu price hikes of 2% to 3%, CFO Jack Hartung said on the company's Q1 2021 earnings call on Wednesday. Chipotle's hourly employees currently earn about $13 per hour on average, Hartung said, so raising wages to $15 would require more than a 15% increase in average pay.
- Hartung also said this increase would have an impact of 150 to 200 basis points on the company's margins, and that the situation would be "very, very manageable."
- "We think everybody in the restaurant industry is going to have to pass those costs along to the customer," Hartung said of a $15 minimum wage. "And we think we're in a much, much better position to do that, than other companies out there."
Dive Insight:
Chipotle is the latest mega chain to express confidence in its ability to scale up to a federal minimum wage of $15. In January, McDonald's CEO Chris Kempczinski said on a call with investors the company is performing "just fine" in the 29 states that have hiked the minimum wage above the federal level of $7.25.
Similar to Chipotle's plans, McDonald's also absorbed those costs by raising the price of its Big Mac in impacted markets, according to a MarketWatch study. But this change, which resulted in a 1.4% price hike where wages rose 10%, didn't result in diners buying significantly fewer Big Macs.
Hartung also said the company is expecting a spike in diner interest as the economy reopens. This could potentially soften possible negative reception of higher menu prices.
"With everyone talking about with the stimulus and the reopening and the vaccine, there is going to be a surge in demand," he told investors.
In a recent interview, Chipotle's Chief Diversity, Inclusion and People Officer Marissa Andrada said the restaurant likes "to stay ahead of the minimum wage" to "stay competitive." She added the chain's competitive wages, combined with benefits including 401(k) participation and free meals during shifts, the average hourly wage "gets you close to that $15 an hour."
These higher wages could help Chipotle attract employees amid the restaurant labor shortage and retain talent.
"I feel good about the overall total rewards [and] when you add in the benefits, as well as the wages, [it's] just a really competitive retention package for folks to join us," Andrada said.
CEO Brian Niccol said during the company's Q1 2021 earnings call the company is playing "a little bit of catch up with the staffing" to meet the restaurant's growth. He added Chipotle typically has no problem with applicant flow.
"It's great to see the business come roaring back, it's also exciting to see our need to staff more people because that is the growth we like to have," Niccol said. "I'm very optimistic about the people we can attract, the culture we can create for them and then the opportunities that are available for them."
President Joe Biden wants to raise the minimum wage to $15 an hour, and CNBC reports that an executive order setting this policy into motion could come in just a few weeks. This could mean restaurants will need to balance searching for employees amid incremental wage increases — a tightrope that will be much easier for major chains like Chipotle and McDonald's to walk than regional chains and independent restaurants. Still, hiring hasn't been easy for the heavy hitters either. Last week, a photo surfaced on Twitter of a Florida McDonald's marquee advertising $50 in exchange for an interview with the location.
