Company Focus: Chipotle’s Road to Redemption (Round 2)

TL;DR: Chipotle’s paid sick leave policy was implemented too late, although the company looks ready to stay the course despite associated financial costs. 

In its 22 December 2015 coverage of Chipotle’s food contamination crisis, Bloomberg delivered a scathing criticism on the food chain: “Smugness and happy talk about sustainability aren’t working anymore.” Before its food contamination crisis, Chipotle had plenty of things to be smug about. But the crisis exposed weaknesses in the company’s operations. Behind its feel good marketing slogans is the reality that Chipotle is only “human” after all.

ESG Spotlight: Human Capital and Labor 

As an employer, Chipotle is generally well-regarded. It has a 3.4 star rating at Glassdoor, and a 4 star rating at Indeed. Most reviews substantiate the company’s emphasis on a sustainable food culture and the career development of its people. Negative feedback are focused on local restaurant issues, which is normal for the nature of Chipotle’s business. Until the food contamination crisis,  Chipotle’s biggest labor headache had been allegations of illegal labor in 2011 to 2012.

However, there is nothing like a crisis to peel away layers of marketing and public relations masks, and expose inadequacies that, had they been addressed early on, may have prevented the crisis in part or in its entirety.

Until July 2015, Chipotle did not offer paid sick leave to its more than 50,000 hourly employees. It announced the new benefit in June as part of its “employee branding effort” to be more competitive and retain talent. But what was lost in the company’s announcement was that state regulations requiring payment of sick leave benefits to all workers had started to take into effect in the summer of 2015. California’s paid sick leave law and Massachusetts’ Earned Sick Time law, for example, took effect on July 1, 2015. By offering paid sick leave to hourly employees, Chipotle was not doing anything special; it was merely complying with state law.

By July 2015, Chipotle already had its first E.coli outbreak in Seattle. By August, its first norovirus outbreak was recorded in Simi Valley, California. While not all the outbreaks through December are linked to sick employees, it is possible that had the paid sick leave policy been in place earlier than July 1st, the outbreaks linked to human illness may have been prevented. Indeed, in January 2016, Chipotle reinforced its paid sick leave policy, noting that it ensures “that ill employees have no incentive to work while ill.”

As of December 31, 2015, hourly employees accounted for 91% of Chipotle’s workforce of 59,330. It would not be a stretch the say that hourly employees are the lifeblood of the company’s operations. Chipotle itself reports in its FY2015 10-K filing that in a typical restaurant, it has 23 full time and part time employees. It is likely that these employees have some form of direct contact with food. The US food industry is notoriously averse to improving labor standards in the absence of federal or state legislation. Behind its successful “Food with Integrity” campaign, Chipotle is a business like all others and its failure to provide sick leave benefits was in line with industry peers. But short-sightedness has a price, and in Chipotle’s case, the price was steep and unforgiving.

Expanding labor benefits will add pressure on Chipotle’s labor costs, which have been steadily increasing since 2011. But the company appears to be staying the course, and all the better for its workers and customers.

Coming up next: Chipotle and transparency. Stay tuned.

 

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