Chipotle gave huge payouts to its CEO and shareholders, then blamed workers for price increases – here’s what’s really going on

Chipotle workers
  • Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, they spoke about Chipotle’s announcement to increase menu prices by about 4% to cover increased employee wages.
  • Constant points out, however, the price increase could be to cover the $24 million raise recently given to CEO Brian Niccol.
  • See more stories on Insider’s business page.

Last week, the “New York Times” ran a story about a small menu price increase at a fast-casual food chain. Written by Julie Creswell, the piece began, “Executives at Chipotle said on Tuesday that the fast-food chain had raised menu prices by about 4% to cover the cost of the increased employee wages.”

Headlined “Chipotle will increase its menu prices as labor costs rise,” this story is confusing for a few reasons.

Price increases and wages

Firstly, the New York Times is not traditionally in the business of reporting on price increases in restaurants. And a 4% increase doesn’t seem newsworthy at all – Chipotle CEO Brian Niccol admits in the last paragraph of the piece that the increase amounts to “quarters and dimes that we’re layering in” to existing prices.

So the only reason this story could possibly be considered worthy of the Times’s world-famous “All the News That’s Fit to Print” slogan is Chipotle’s claim that the price increases were directly caused by increased worker pay. The chain recently raised its starting wages to an average of $15 per hour – but only in a fraction of its restaurants. Creswell writes that the “pay increases apply only to [Chipotle’s] 650 company-owned restaurants; the vast majority of its nearly 14,000 restaurants in the United States are independently owned.”

So with all that information in mind, the hook of this New York Times story seems to be that Chipotle’s executives are blaming a tiny menu price-bump on a starting-wage increase that’s been enacted in roughly one out of 20 of its restaurants.

What’s disappointing is that Creswell seems to be repeating Niccol’s claims without doing any investigation into Chipotle’s finances. Chipotle never supports its claims that the price increase is due to wage increases, and Creswell never mentioned that Chipotle paid Niccol $38 million last year – an all-time high.

Joanna Fantozzi at Nation’s Restaurant News reports that Niccol’s 2020 salary was “set to be just $14.8 million but financial targets were waived in light of the company’s stellar performance during the pandemic.” So Chipotle’s executives gave its CEO a $24 million dollar raise, which means that Niccol earned “2,898 times more than the median Chipotle worker’s salary of $13,127.”

Why didn’t Chipotle’s board mention Niccol’s $24 million raise as a possible reason for its menu price increases? Creswell doesn’t say. She also doesn’t note that as of the first quarter of 2021, Chipotle was sitting on $1.2 billion in cash and equivalents.

The Times story also doesn’t mention that the company is now in the middle of a huge stock buyback campaign. Sakshi Agarwalla writes at Seeking Alpha that “In an effort to enhance shareholders’ value, [Chipotle] restarted its stock repurchase plans and have announced additional $100 million for stock buyback, bringing to a total $153.8 million repurchase plan. At the end of the first quarter, [Chipotle] repurchased 61.2 million shares worth $87.2 million.”

Stock buybacks and wealth transfer

You can learn more about stock buybacks in this week’s episode of “Pitchfork Economics” with special guest Senator Cory Booker, but the shorthand is this: Stock buybacks, which were illegal before 1982, have proven to be one of the most efficient mechanisms of wealth transferral from workers to the wealthy over the last 40 years. The richest 10%of American households own 84% of the stock in this country, and the top 1% holds about 38%. So Chipotle takes profits that could go to keeping menu prices low and employee wages high and instead hands them off to wealthy shareholders, no strings attached.

Despite the fact that Chipotle has dedicated nearly $200 million to executive and shareholder payouts in the last few months, the New York Times credulously reprinted the company’s claims that an average $15/hour starting wage in 650 restaurants is the reason why the company is increasing menu prices by 4%. To be clear, I’m only singling the Times out as an example here because they’re the gold standard of journalism – the truth is that a number of outlets repeated Chipotle’s claims without investigating the numbers.

The complete failure of many legitimate news sources to interrogate these claims should be a learning moment for business journalists. If you’re simply repeating the information given to you in a press release from a corporation’s PR department, you’re not in the news business – you’re volunteering for the company’s marketing campaign.

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JM Smucker CEO says he’s seeing widespread inflation and the company is passing some price increases onto consumers

Mark Smucker

  • JM Smucker’s CEO, Mark Smucker, sees inflation “across the board” and is passing some price increases onto consumers.
  • The CEO added JM Smucker’s name to a growing list of consumer staples companies raising prices.
  • The firm revealed an 8.1% year-over-year drop in revenue in its fiscal fourth-quarter earnings release Thursday.
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JM Smucker’s CEO Mark Smucker says he’s seeing widespread inflation and the company is passing some price increases onto consumers.

“We have been seeing inflation over the past year across the board,” Smucker said in an interview with CNBC’s Sara Eisen.

The CEO added that he believes rising costs are “manageable” because the company has been able to pass costs onto consumers.

“This is something that we deal with on a regular basis. Our products (prices), in many cases, are based on commodities so we have been very successful over the years in ensuring that we can pass along price increases to our consumers, partnering with our retail customers to do that in the most equitable and fair way,” Smucker said.

Smucker went on to explain that the current “inflationary environment” affects everyone, but his company has the ability to navigate the rising tides.

JM Smucker revealed an 8.1% year-over-year drop in revenue in its fiscal year 2021 fourth-quarter earnings release on Thursday. The company did manage to beat revenue and non-GAAP EPS estimates, but it expects sales for the fiscal year 2022 to decrease between 2% and 3%.

JM Smucker missed analyst estimates for GAAP earnings per share by $0.24 in the quarter as well, earning just $1.35 per share.

The company is the latest in a line of consumer staples firms that have announced price increases.

Clorox said during its quarterly earnings call on April 30 that it plans to increase prices for some of its Glad brand products due to higher material and shipping costs.

Whirlpool also raised its prices between 5% and 12% in April with CEO Mark Bitzer citing raw material cost increases in steel, plastics, and oil.

Procter & Gamble, General Mills, Kimberly Clark, and Honeywell have also announced price hikes recently.

Despite falling sales, JM Smucker stock is still up roughly 17% in the past six months, and shares traded up 0.83% on Thursday as of 1:33 p.m. ET.

JM Smucker stock chart
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