Chipotle Mexican Grill (CMG) has had it rough (not to mention some of its more unfortunate patrons). There is clearly market fatigue over food-safety scandals with their retail outlets. After a spate of issues in the last couple years that severely damaged their reputation Chipotle went through some significant practice changes to try to ensure a cleaner, more consistent and safer food supply chain from sourcing to preparation. After years of emphasizing local prep in their business model they started to move toward the more traditional central kitchen model embraced across the fast food industry, and sought a best-in-class approach to food safety practices.
But, this blog is not about the cleanliness of the supply chain, locally sourced ingredients, or some of the other more obvious ESG issues that could be raised about a fast food chain. In fact, Chipotle stands up fairly well on many of these metrics. This is about the human capital. And this is not only about CMG.
When evaluating companies for ESG performance and risk, it is necessary to look comprehensively at those performance and risk factors. It is rarely sufficient to celebrate outperformance in some regards and take a barbell attitude that those factors mitigate the negative. Averaging to slightly better than the middle does not always make a good investment. After an investigation, it was determined that the latest norovirus outbreak, which originated at an outlet in Virginia, was the consequence of a sick employee coming to work. [CNN link]
Indications are that the employee contravened corporate policy, and so Chipotle is re-training and talking about the importance of compliance. However, compliance does not get to the real root of the problem. Nobody shows up to a fast food outlet sick for the thrill and glory of slinging burritos and cleaning out grease traps on the flat top. They show up because they need the hours. For hourly, particularly part-time hourly workers, a day at home hurts financially. Add the absence of benefits like health care for many workers in the restaurant industry and you have a recipe for willful non-compliance. From an ESG investment point of view, insufficient wages, benefits, and opportunities in the restaurant industry are not just matters of concern in terms of economic justice for workers, it is also a very real health and safety concern for consumers. These inadequacies translate directly to behaviors that adversely affect the companies, and as we saw in the last several weeks with CMG, stock prices.
For a more thorough discussion of this issue and a greater understanding of how changes in compensation and benefit practices can actually lead to improved corporate performance, check out Restaurants Advancing Industry Standards in Employment (RAISE). In their words, “We are a vibrant community of restaurants committed to professionalizing our industry, raising wages and work conditions, and raising standards for America’s 12 million restaurant workers. We are committed to taking the “high road” to sustainability. We believe in fair wages, better benefits, racial equity and gender equity in the restaurant industry. We seek to professionalize the restaurant industry by raising standards everywhere. We are an association of over 200 employer members of the Restaurant Opportunities Centers United (www.rocunited.org).” Find them at www.raiserestaurants.org.