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posted by takyon on Sunday October 22 2017, @09:22AM   Printer-friendly
from the FIRE-sector-doing-bad-math-again dept.

The Intercept reports:

Bank of America Merrill Lynch downgraded Chipotle and warned investors that the stock will "underperform", complaining that the restaurant chain is paying its workers too much, and that cutting labor costs further will be difficult for the chain.

[...] Chipotle spokesperson Chris Arnold called Bank of America's analysis "flawed and inaccurate", adding that the restaurant chain hasn't cut employee hours but recently increased hours in conjunction with the addition of queso to the menu.

"That analysis is making estimates and conclusions about our management practices over a 12-year time frame from 2006 to 2017", Arnold told The Intercept. "Obviously, the scale of our business and labor wages have changed dramatically over that time frame. Drawing conclusions from 2006 and applying them as a directional change to our business over the past 12 months is simply flawed."

[...] "We continue to pay wages and offer benefits that are competitive and that reflect the priorities of our employees", Arnold said. "And with a commitment to developing and promoting people from within, we are providing significant opportunities for advancement."

The downgrade is a symptom of Wall Street's maniacal obsession with labor costs.


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  • (Score: 3, Interesting) by tomtomtom on Sunday October 22 2017, @08:35PM (2 children)

    by tomtomtom (340) on Sunday October 22 2017, @08:35PM (#586043)

    Because that isn't what the research analyst said. This article unfortunately makes the Intercept look like a complete joke given they apparently misread the CNBC article, didn't bother going to the primary source and to top it off misunderstand what a research analyst's job is in a pretty fundamental way. Unfortunately this is pretty common for mainstream reporting of business news these days - the people reporting on it outside of the specialist press are almost all terrible and the specialist press are often not much better.

    Firstly, the "underperform" rating is not a comment on the company but on their stock price - which they do not control. It means the analyst thinks the market is overvaluing the company and that there are better investments elsewhere when taking into account current prices. If you read the original CNBC article, the research analyst is saying that the market is overestimating how much more the company can cut costs in the future because they have *already* shrunk their labor costs about as much as possible (by reducing hours in his reading of the numbers, although Chipotle apparently disagrees with that).

    Noone is saying that there is (or indeed is not) a link between the how much individual employees are paid and how easy it is to cut wages. The debate here appears to be about hours rather than wages.

    Finally, the comment saying "it's a sympton of Wall Street's maniacal obsession with labor costs" is just straight up odd. For someone considering investing in an industry where labor costs account for 27% of sales (which is what the CNBC article quotes for Chipotle) it would be odd not to ask questions about how that cost is managed and what the company gets for its investment in terms of customer satisfaction, future sales growth, etc. Not to mention especially in this type of industry, the logistics of managing the workforce to get the most out of it are quite complex - you want to ensure that you are not understaffed at busy times, not overstaffed at quiet times, account for the fact that people need to work in shifts of a certain minimum length to be productive, different jobs might have different busy/quiet periods, etc etc, and on top of that the sector is one where a large portion of the labor will not stay with one employer for a long period so you need to manage the cost of employee turnover carefully too.

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  • (Score: 0) by Anonymous Coward on Monday October 23 2017, @03:36AM (1 child)

    by Anonymous Coward on Monday October 23 2017, @03:36AM (#586155)

    you want to ensure that you are not understaffed at busy times, not overstaffed at quiet times, account for the fact that people need to work in shifts of a certain minimum length to be productive, different jobs might have different busy/quiet periods, etc etc

    There's software that does this. It's a problem that's been automated.

    • (Score: 2) by tomtomtom on Wednesday October 25 2017, @12:04PM

      by tomtomtom (340) on Wednesday October 25 2017, @12:04PM (#587334)

      Yes, the rostering itself is easy to automate. But what I was trying to get at is that the second-order effects make a big real-world difference and optimising properly for these is hard and something that needs to be monitored continually. A couple of examples - what impact does it have on employee turnover, service quality, etc if you roster in longer shifts or shorter ones (longer shifts potentially means some wasted hours? How much employee flexibility should you allow in picking which days/times they work - at one end of the spectrum you could end up with very variable service quality if the same crew always work the same shifts so there is next to no overlap (and worse, good crews might not coincide with busiest periods) which could hurt your customer retention/growth but on the other hand if you impose some kind of rule e.g. "everyone must be available to be rostered at least one weekend shift per month" then you might be cutting some very good people out of your potential pool of employees. Even worse, the right answers to these questions will differ between markets, change over time and over the seasons (e.g. if you employ a lot of students).