WRTLHD Stock News

WRLTHD Stock News

WRLTHD News Feed

The Shortsightedness of the Chipotle Walkout

by James (J.G.) Gingery
For those of you who may have missed this tweet yesterday, nearly the entire staff of a Penn State area Chipotle (CMG) resigned in an ill-advised display of workplace activism by locking out their colleagues and posting this poorly proofread signcomplaining about "borderline sweatshop conditions" and accusing Chipotle of being a--Gasp!--profit seeking enterprise. One wonders if this was part of the SEIU's "Fight for Fifteen" pressure campaign that has caused national headlines (and not much else) over the last few weeks.
In it, they include the hashtag #chipotleswag as part of their plea to get this trending. I suppose it worked. For its part, Occupy Wall Street NYC retweeted the image with the quote "they can only push us sooooo far"--that may be true Occupiers, but, there are more of you than jobs, so the tyranny of numbers reigns supreme.
From Yahoo Finance:

"Market forces aren’t on the workers’ side... More than 11 million Americans remain unemployed and many others without jobs have stopped looking for work. So the pool of people qualified to do low-skill jobs is a lot bigger than the number of workers needed, which makes it a buyers’ market."

In other words: these are low-skill jobs, and a wage hike to 15$/hr for the lowest employee compensation l
evel would put the entire restaurant's menu over 9$ an item, as this infographic shows. I say low-skill because Chipotle Corporate controls everything for their locations. There are no franchisee's doing their own calculations. Take a look through their most recent 10-K here: The managers (on location) are in charge of staffing, but inventory and cost tracking and accounting are left to the corporate systems. This is for a number of reasons, most important of which is quality control (thank you, Oracle,) and the sad reality is that these workers are being paid the incremental marginal value of their entire industry; that is, the lowest wage price any member of the low-skill service sector is willing to accept for that job. Everyone would love to be paid 100$/Hr to do anything, but for whatever reason, there exist multitudes of people who are ready, willing, and able to do that same job for under 10$, hell, they may even be willing to do it for less than $7.

Chipotle's "pursuit of profit" is because their price to earnings is currently sitting at 58. Any perceived tangible slowdown in growth, profits, or earnings would tank the stock and crunch their corporate liquidity, which given Chipotle's role as disruptor to the fast-food industry (hence the high P/E), would affect a hell of a lot more people than any wage increase would benefit. Labor is a market and like all free markets it operates on the principle of a voluntary exchange of goods and services, in this case my labor for your dollars. To pay any more than the market value for a service with no quantifiable benefit or even intangible benefit, is charity which although morally commendable, is not the prerogative of a for-profit enterprise. That doesn't mean that for-profit companies shouldn't be charitable it just means that they bear no obligation to do so

Let's game this out:

Say Chipotle acquiesced and raised wages, holding all other variables constant;

The cost of labor will have increased by some degree, therefore, the producer's total expense increased by that proportional degree. In order to record the same revenue, prices must be raised, or one of the inputs (usually number of workers) need to be cut. 

Leading to......



Increased Consumer Costs! Layoffs! 

And I can't imagine that even the staunchest "living wage" advocate wants to wait an hour and a half for a 2 person-staffed Chipotle to charge them $11 for their sofritas burrito.

Whatever the reason for their walkout, it's clear this is an issue that has seemed to permeate the national discourse. And so I leave with this final message to those Chipotle employees who were pawns in another man's game:

You've forfeit your livelihood, and what will you have to show for it? There is no long term benefit to raising wages arbitrarily. Even then, you would have been better advised to demand additional compensation in equity, over more dollars. Education, however, is indeed an intangible that could bring its own long term benefits far beyond anything a minimum wage hike would bring.

Maybe it would have been better to demand a corporate human capital investment strategy a la Starbucks education program via Arizona State, rather than accusing your already generous employer (who pays 25% above the national average as a base wage) of forcing you to work in "borderline sweatshop conditions" and that a higher wage would make it better, because I'm not buying it, and you shouldn't have, either.

No comments: