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Thursday, Jun 8, 2023

OC Restaurants Work Overtime to Shore Up Labor Challenges

Labor costs continue to climb for some of OC’s largest restaurant chains, as they brace for California’s next minimum wage increase.

Their top execs are putting in their share of overtime to figure out ways to woo employees back to work, according to a sampling of comments from the area’s largest publicly traded restaurant firms.

Restaurants’ quarterly results show chains looking to rein in on rising labor costs, amid a shortage of employees that have prompted companies to introduce retention bonuses and wage increases at some restaurants.

Newport Beach-based Chipotle Mexican Grill Inc. (NYSE: CMG), with nearly 2,900 restaurants and an employee base approaching 100,000, said its third-quarter labor costs were 25.8% of revenue, compared to 25.3% a year ago. Labor totaled $502.8 million in its third quarter, compared to $405.8 million a year ago.

Back-to-school, COVID and other factors taking some employees from restaurants have coincided with the labor shortage, causing Chipotle to focus on constant recruitment, training and retention, Chairman and CEO Brian Niccol told analysts in late October.

“The greatest challenge has been when the dining rooms reopened, we needed to staff up quickly to catch up with the demand, and that was harder than we had hoped,” Niccol said.

“But luckily, I think we took a lot of right actions where we’ve got a lot of our restaurants now on good footing.”

Chipotle increased its average hourly restaurant wage nationally to $15 an hour in June, which equates to wages in the range of $11 to $18 per hour.

$15 in State

Chipotle’s increase came ahead of the $1 bump in California’s minimum wage to $15, mandated for employers with more than 26 employees beginning January. It’s part of a statewide mandate that began a $1 per year increase starting in 2017.

Smaller businesses with 25 or less workers are required to increase to $14 an hour in January, with an extra year to get to $15 an hour by 2023.

BJ’s Restaurants Inc. (Nasdaq: BJRI) anticipates being able to offset the final wage increase come next year with same-store sales growth that’s expected as it plumps its restaurant workforces back up to 2019 counts, around 22,500.

The casual dining chain, based in Huntington Beach, said late last month costs for employee overtime and training are up 70 basis points from 2019. BJ’s CEO and President Greg Levin said once the final wage increase goes into effect, “we’re going to be in a really good position from that standpoint in California going forward.”

Return to Work

Levin, who took over the top spot at BJ’s in September, noted that his company’s restaurants have capacity limits on how many employees can be trained on a weekly basis, and the company is currently working through that backlog.

Prospective employees are also showing they want to work.

“We’re seeing people show up [to work or interviews]. We’re seeing people really want a job and come back, and we’re also seeing higher retention rates or lower turnover going into September and October across the board,” Levin told analysts.

BJ’s is also seeing challenges on the labor front showing signs of a positive turn.

The aim is to have restaurants that were operating with a limited menu return to the regular offering by early this month, in line with the aim of also having restaurants fully staffed to accommodate that change.

Lake Forest-based Del Taco Restaurants Inc. (Nasdaq: TACO) CEO and President John Cappasola noted in the company’s quarterly update last month a similar shift in the recruiting and retention process for the roughly 600-unit chain.

“The entire industry is feeling the impact of labor staffing challenges, and we are no exception,” he said.

The company, at some locations, has increased wages, shuttered dining rooms or reduced hours in the late night and early morning. That’s been coupled with referral bonuses, free meals and other incentives to keep existing workers.

Digital recruiting and a simplified application process have also helped, with Cappasola saying the chain’s seen an increase in applications. 

Chipotle’s Niccol Reiterates Innovation on Digital Front

CEO: Loyalty Goes From ‘Crawl to the Walk Stage’

An emphasis on leading marketing strategies internally had Chipotle Mexican Grill Inc. (NYSE: CMG) nabbing digital sales of $840.4 million in the third quarter.

The channel accounted for nearly 43% of overall revenue for that period and reflected an 8.6% jump from the prior year.

The company, with nearly 2,900 locations and a market cap of about $50 billion, continues to get more sophisticated and innovative in the digital channel with a focus on “not being complacent,” Chairman and CEO Brian Niccol said on a late October quarterly update call with analysts.

Personalization and predictive analytics are helping the company speak to new customers and also reconnect with ones that may have taken a break from the chain. The emphasis has been less about offering coupons and more branding opportunities.

“No doubt the loyalty program has moved from a crawl to the walk stage, and we still have a lot of room to grow,” the CEO said.

“Offering new ways to engage with Chipotle is essential to the ongoing evolution of our digital business.”

Chipotle’s offered some interesting ways of engaging with customers through its loyalty program and the app this year. Digital-only menu items, such as its quesadilla, and the Rewards Exchange program involving games and points for Chipotle merchandise or food, have helped the chain learn more about customers and how the company should be communicating with them, the CEO said.

The culture of the marketing team is focused on being “a leader, not a follower,” Niccol told analysts, where there is “a culture of accountability that encourages new ideas, is committed to experimentation and is ruthless on measuring returns. And isn’t afraid to pivot to different opportunities if they don’t perform to our high standards.”

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