“Companies are doing all they can not to bake in any gains that are difficult to claw back,” Dr. Schneider said. “Workers’ labor market power is so far not yielding durable dividends.”
The changes that make work lower paying, less stable and generally more precarious date back to the 1960s and ’70s, when the labor market evolved in two key ways. First, companies began pushing more work outside the firm — relying increasingly on contractors, temps and franchisees, a practice known as “fissuring.”
Second, many businesses that continued to employ workers directly began hiring them to part-time positions, rather than full-time roles, particularly in the retail and hospitality industries.
According to the scholars Chris Tilly of the University of California, Los Angeles, and Françoise Carré of the University of Massachusetts Boston, the initial impetus for the shift to part-time work was the mass entry of women into the work force, including many who preferred part-time positions so they could be home when children returned from school.
Before long, however, employers saw an advantage in hiring part-timers and deliberately added more. “A light bulb went on one day,” Dr. Tilly said. “‘If we’re expanding part-time schedules, we don’t have to offer benefits, we can offer a lower wage rate.’”
By the late 1980s, employers had begun using scheduling software to forecast customer demand and staffed accordingly. Having a large portion of part-time workers, who could be given more hours when stores got busy and fewer hours when business slowed, helped enable this practice, known as just-in-time scheduling.
But the arrangement subjected workers to fluctuating schedules and unreliable hours, disrupting their personal lives, their sleep, even their children’s brain development.
On a chilly Tuesday afternoon this month, James Marsh stopped by a Chipotle near his suburban Chicago home to grab something to eat.
It had been a while since Mr. Marsh had been to Chipotle — he estimated he goes five times a year — and he stopped cold when he saw the prices.
“I had been getting my usual, a steak burrito, which had been maybe in the mid-$8 range,” said Mr. Marsh, who trades stock options at his home in Hinsdale, Ill. “Now it was more than $9.”
He walked out.
“I figured I’d find something at home,” he said.
The pandemic has led to price spikes in everything from pizza slices in Manhattan to sides of beef in Colorado. And it has led to more expensive items on the menus at fast-food chains, traditionally establishments where people are used to grabbing a quick bite that doesn’t hurt their wallet.
government data. And, in some cases, portions have shrunk.
“In recent years, most fast-food restaurants had, maybe, raised prices in the low single digits each year,” said Matthew Goodman, an analyst at M Science, an alternative data research and analytics firm. “What we’ve seen over the last six-plus months are restaurants being aggressive in pushing through prices.”
This comes at a time when the hypercompetitive fast-food market is booming.
Chains like McDonald’s, Chipotle and Wingstop were big winners of the pandemic as consumers, stuck at home working and tired of cooking multiple meals for their families, increasingly turned to them for convenient solutions. But in the past year, as the cost of ingredients rose and the average hourly wage increased 16 percent to $16.10 in November from a year earlier, according to government data, restaurants began to quietly bump up prices.
But making customers pay more for a burger or a burrito is a tricky art. For many restaurants, it involves complex algorithms and test markets. They need to walk a fine line between raising prices enough to cover expenses while not scaring away customers. Moreover, there isn’t a one-size-fits-all approach. Chains that are operated by franchisees typically allow individual owners to decide pricing. And national chains, like Chipotle and Shake Shack, charge different prices in various parts of the country.
When Carrols Restaurant Group, which operates more than 1,000 Burger Kings, raised prices in the second half of last year, the number of customers actually improved from the third to the fourth quarter. “Over time, we generally have not seen a whole lot of pushback from consumers” on the higher prices, Carrols’ chief executive, Daniel T. Accordino, told analysts at a conference in early January.
Menu prices are likely to continue to climb this year. Many restaurants say they are still paying higher wages to attract employees and expect food prices to rise.
“We expect unprecedented increases in our food basket costs versus 2021,” Ritch Allison, the chief executive of Domino’s Pizza, told Wall Street analysts at a conference this month. While Domino’s hasn’t raised prices, it is altering its promotions — offering the $7.99 pizza deal only to customers ordering online and shrinking the number of chicken wings in certain promotions to eight from 10 — in an effort to maintain profit margins.
Despite the higher food and labor costs, some restaurants are seeing sales and profits rebound past prepandemic levels.
When McDonald’s reports earnings this month, Wall Street analysts expect that its revenues will have hit a five-year high of more than $23 billion, a $2 billion increase from 2019. Net income is predicted to top $7 billion, up from $6 billion in 2019. Other chains like Cracker Barrel and Darden Restaurants, which owns Olive Garden and Longhorn Steakhouse, have resumed dividend payments or cash buybacks of stock after suspending those activities early in the pandemic to conserve cash.
And next month, when Chipotle reports results for 2021, analysts expect revenues to top $7.5 billion, a 34 percent jump from 2019. Net income is expected to almost double from prepandemic levels. In the third quarter, the company repurchased nearly $100 million of its stock. Chipotle declined to make an executive available for an interview, citing the quiet period ahead of its earnings release.
While Chipotle executives blamed higher labor costs for a 4 percent price increase in menu items this summer, the company has been looking for ways to boost its profitability.
One way was to charge higher prices for delivery. Delivery orders through vendors like DoorDash and Uber Eats exploded for Chipotle and other fast-food chains during the pandemic. But so did the commission fees that Chipotle paid the vendors. So in the fall of 2020, it began running tests to see what would happen if it raised the prices of burritos and guacamole and chips that customers ordered for delivery, executives told Wall Street analysts in an earnings call. It essentially meant the customer covered Chipotle’s side of the delivery costs.
The company discovered customers were willing to pay for the convenience of delivery. Now, customers ordering Chipotle for delivery pay about 21 percent more than if they had ordered and picked the food up in the stores, according to an analysis by Jeff Farmer, an analyst at Gordon Haskett Research Advisors.
“I would say that our ultimate goal, so this would be over the long term, maybe the medium term, is to fully protect our margins,” said Jack Hartung, the chief financial officer of Chipotle, on a call with Wall Street analysts last fall. “When you look at our pricing versus other restaurant companies’ for the quality of the food, the quantity of the food, and the quality and convenience of the experience, we offer great value. So we believe we have room to fully protect the margin.”
That doesn’t mean customers are thrilled about the extra costs.
This month, Jacob Herlin, a data scientist in Lakewood, Colo., placed an order: a steak-and-guacamole burrito for $11.95, a Coca-Cola for $3, and chips and guacamole, which were free with a birthday coupon. The total was $14.95, before tax.
But when he clicked to have the food delivered, the price for the burrito jumped to $14.45 and the soda climbed to $3.65, bringing the total to $18.10 before tax, 21 percent more than if he had picked the food up himself.
There was more. Mr. Herlin was charged a delivery fee of $1 and another “service fee” of $2.32, bringing the total for the delivered meal to $23.20. He tipped the driver an additional $3.
Mr. Herlin said he did not mind paying for delivery and wanted drivers to be paid a decent wage. But he felt that Chipotle wasn’t being upfront with customers about the added costs.
“They’re basically hiding the fees two different ways, through that base price increase and through the hidden ‘service fee,’” Mr. Herlin said in an email. “I would very much prefer if they had the same pricing and were just honest about a $5 delivery fee.”
Hoping to attract more employees, Chipotle said on Monday that it was increasing its wages to an average of $15 an hour by the end of June.
The fast-food chain, which is looking to hire 20,000 employees for its peak season and to staff the more than 200 restaurants it plans to open this year, said the wage increase would result in hourly workers making between $11 and $18 an hour.
Chipotle is the latest restaurant chain to raise wages or offer incentives as it struggles to staff its restaurants. As coronavirus vaccinations have increased and government restrictions eased, the restaurant industry, which laid off or furloughed millions of employees during the pandemic, suddenly went on a hiring spree, as did several other service-related industries.
That sudden high demand for restaurant workers has been tough to meet. Some potential employees, whether concerned about the safety of serving customers dining indoors or buoyed by government stimulus checks, are wary of returning to work.
report released last week showed a significant jump in the number of workers hired in the restaurant and bar sector, but employment levels at full-service restaurants in February remain 20 percent lower than a year ago, according to the National Restaurant Association. That’s the equivalent of 1.1 million jobs. Employment at fast-food and fast-casual restaurants was down 6 percent over the same period.
Raising the minimum wage to $15 an hour has been one of the items on the agenda of President Biden. An attempt to add the provision to the pandemic relief bill signed in March failed after Congress removed it from the package.
At the time, the restaurant industry had argued that a wage increase would imperil the recovery for the industry because it would result in higher prices and mean not as many workers could be hired.
Now, struggling to attract candidates, Chipotle is not only raising its hourly wages, it is offering referral bonuses for crew members and managers.
New York City on Wednesday sued the fast-food giant Chipotle Mexican Grill over what it says are hundreds of thousands of violations of a fair scheduling law at several dozen stores.
Workers are owed over $150 million in relief for the violations, according to the complaint, and financial penalties could far exceed that amount, making it the largest action the city has brought under the law.
The suit cites violations of the so-called Fair Workweek Law that include changing employees’ schedules without sufficient notice or extra pay; requiring employees to work consecutive shifts without sufficient time off or extra pay; and failure to offer workers additional shifts before hiring new employees to fill them.
The allegations cover the period from November 2017, when the law took effect, to September 2019, when the city filed an initial suit involving a handful of Chipotle stores. The new complaint, filed by the Department of Consumer and Worker Protection at the Office of Administrative Trials and Hearings, said that Chipotle had made some attempt to comply with the law since 2019, but that violations were continuing.
can exact a large physical and emotional toll on workers and their children.
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Under the law, fast-food employers must provide workers with their schedules at least 14 days in advance — or, if not, obtain written consent for them and pay them a premium for the shifts.
Employers must also provide workers with at least 11 hours between shifts on consecutive days or obtain written consent and pay them $100. The hope is to discourage the practice of forcing workers to work late into the evening and then help open a store in the morning, known as “clopening.”
The provision requiring employers to offer workers additional shifts before hiring new workers was intended to make it easier for workers to earn enough income to sustain themselves.
Employers in fast-food and retail operations often hire more workers at fewer hours to add scheduling flexibility, said Saravanan Kesavan, an expert in retail operations at the University of North Carolina. Dr. Kesavan has conducted research showing that financial performance can actually improve when employers provide more stable and predictable schedules.
The complaint also accuses the company of violating the city’s paid sick leave law, which was enacted in 2014 and mandated up to 40 hours of paid leave per year. (The ceiling grew to 56 hours beginning this January for larger employers.) The city contends that Chipotle illegally denied requests for time off, required workers to find their own replacements or did not pay workers for time they took.
According to the complaint, all of the estimated 6,500 Chipotle employees in New York City from November 2017 to September 2019 were affected by violations involving scheduling and sick leave, and on average they experienced more than three scheduling violations a week.
became sick after eating at Chipotle restaurants in 2015 and 2016, some from E. coli bacteria, leading to a sharp decline in the company’s stock price and threatening the image it had cultivated as a purveyor of “food with integrity.”
Last year, Chipotle was fined nearly $1.4 million over accusations that it regularly violated Massachusetts child labor laws from 2015 to 2019. The company settled the case without admitting violations.
But the company has posted solid sales growth during the pandemic, with revenue of $6 billion last year, and its stock price has soared.
According to the New York City complaint, Chipotle frequently violated the law by either destroying or failing to maintain or produce records attesting to its scheduling policies.
“Chipotle failed to produce certain categories of scheduling information the department requested, in part because it had destroyed paper schedule records,” the complaint states. “However, the evidence Chipotle did produce, as well as evidence that employees provided, shows that Chipotle did not begin to implement key elements of the Fair Workweek Law in any of its New York City locations until approximately September 2019.”
Starbucks has employees at hundreds of busy locations strolling through car lines, taking orders with hand-held devices so customers can get their caffeine fix a few seconds faster. Shake Shack, which has long emphasized that quality ingredients are worth waiting a few extra minutes for, will soon feature its first drive-through window. And the vast majority of new Chipotles this year will have “Chipotlanes,” where customers can drive up to a window and pull away with preordered meals in less than a minute.
With dining room restrictions in place for much of the country during the pandemic, drive-through and pickup windows became critical ways for a variety of restaurants to remain afloat.
Now, as the dining industry looks toward a post-pandemic world, many companies are betting big that digital ordering and drive-throughs will remain integral to their success. And the basic experience of sitting in a single line of cars, speaking into a sometimes garbled intercom and pulling up to window to pay for your food before driving away is poised to be demonstrably altered for the first time in decades.
has been sued by neighboring businesses that say its long drive-through lines block their customers’ access.
For most restaurants, the solution has many parts. First, more are trying to encourage customers to use ordering apps, which improve the accuracy of orders and are often connected to loyalty programs that give them points for free food. They are also trying to figure out how to best speed consumers through the drive-through or pickup process without disrupting traffic patterns or other businesses.
Drive-through times average 4 minutes and 15 seconds, according to Bluedot, a geolocation company. Like a Daytona 500 pit crew, restaurants are always looking for ways to shave off minutes, or even seconds.
To be competitive in this race, Chipotle, whose digital orders soared from 20 percent of its sales to as high as 70 percent at the height of the pandemic, installed in many of its kitchens a second assembly line where employees put together tacos or burrito bowls for mobile and online orders exclusively.
The chain also expects that 70 percent of its restaurants that open this year will have the dedicated Chipotlanes for online orders.
“In the traditional drive-through experience, you wait in line to order, you wait in line to pay and pick up, you wait in line for your food to be prepared,” said Jack Hartung, the chief financial officer of Chipotle. “We’re trying to get our service time from when you pull up to the restaurant, pick up your food and drive off to 40 or 50 seconds.”
Others, like McDonald’s and Burger King, are adding multiple drive-through lanes, which have been a feature at some busy fast-food spots like Chick-fil-A but are becoming more commonplace. Burger King is running three-lane tests in the United States, Brazil and Spain. In the U.S. and Spain, the third lane is “express” for advance orders made through the app. In Brazil, the lane takes delivery drivers to a pickup area with food lockers or shelves.
Burger King is also looking to propel its drive-throughs into the future with a Big-Brother-like artificial intelligence system, Deep Flame.
Right now, roughly half of Burger King’s drive-throughs with digital menu boards are using Deep Flame’s technology to suggest foods that are particularly popular in the area that day. It also uses outside factors, like the weather, to highlight items like an iced coffee on a hot day.
But this year, Burger King is testing a Bluetooth technology that will be able to identify customers in Burger King’s loyalty program and show their previous orders. If a customer ordered a small Sprite and a Whopper with cheese, hold the pickles, the last three visits, Deep Flame will calculate that chances are high that the customer will want the same order again.
It’s unclear whether the technology pays off. McDonald’s is moving in a similar direction. The fast-food giant acquired the Israeli artificial intelligence firm Dynamic Yield in 2019 with an eye toward boosting sales by providing personalized digital promotions to customers.
Restaurant Brands International — the parent company of Burger King, Tim Hortons and Popeyes — hopes to have the predictive personalized systems at more than 10,000 of its restaurants’ locations across North America by mid-2022.
“We’re taking what was an outdated, old, static sales channel and bringing it to the forefront of the industry,” said Duncan Fulton, the chief corporate officer for Restaurant Brands International. Now, customers can have the “the ability to automatically reorder things and pay for the items at the board, which, ultimately, speeds up the window time, allowing you to collect your food and go on your way.”
