Starbucks and Chipotle Have Some Good News for Workers About Wages
While wages in the U.S. have been slow to rise since the financial crisis, it looks like they are finally showing sustained signs of life.
According to Starbucks Corp. and Chipotle Mexican Grill, Inc., there's reason to believe that the recent uptick in wages is going to last. Both firms reported earnings this week, with Starbucks missing analyst estimates and Chipotle also failing to live up to expectations.
One thing that analysts questioned both firms on during their earnings conference calls was wages for their employees. Starbucks had already announced company-wide wage increases earlier this month, so analysts probed what this means for the company's earnings growth in the future. While Starbucks Chief Financial Officer Scott Maw assured analysts that much of the increase in wages had been anticipated by the firm and a drop in earnings shouldn't materialize, Starbucks Founder Howard Schultz added that the firm expects wage growth to continue.
"[W]hat we want to try and do is really get ahead of any federal or state mandate to be the employer of choice, whether we go back to the late 1980s with Bean Stock and healthcare, and what we've done in the last couple of years with college achievement, and now what we're doing now on wages, we want to try and do everything we can to share success, because we know that the brand of Starbucks is directly related to the experience in our stores and our brand, unlike almost any consumer brand or retail stores directly linked to the pride and the trust that our people have in the company."
Chipotle hasn't made any public announcements on across the board wage increases, but the firm also noted that wage inflation has certainly been something it has dealt with over the past few months. Here's Chipotle Chief Financial Officer John Hartung on the earnings call:
"We also have labor inflation that has crept in since then, and I'm just guessing that's probably at least another 200 to 300 basis points. The labor inflation especially in the last year has been significant. We had intended to pass on the wage rates that we were seeing because of local pressures, because of raises in minimum wages, some of them very significant at $10, $12, $13, and we haven't really raised prices. We haven't passed on the cost of those higher wages. Probably a couple hundred basis points there."
There are multiple ways of measuring wage growth, but according to one gauge from the Federal Reserve Bank of Atlanta, wages are up 3.6 percent from a year ago, the fastest pace since the financial crisis.
As Bloomberg View Columnist and portfolio manager Conor Sen recently pointed out, the labor market for lower skilled employees has tightened dramatically. In fact, he says that it's the tightest since 2000. "In June, the unemployment rate for leisure and hospitality employees, a reasonable proxy for workers like Starbucks baristas, hit 6.6 percent, down from 7.5 percent a year earlier," he wrote. "This compares favorably with the low of 7 percent in June 2001 or 7.2 percent in June 2007."
He argues that wages are one way large corporations can compete with, and have an advantage over, small businesses when it comes to hiring the best workers. Thus, all signs point to rising wages for this group of workers, but also some pain for small businesses.