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Chipotle (CMG) is showing how looking out for employees can be a key competitive advantage.
Take the Armendariz sisters — Lily, 45, Rosario, 40, and Elsa, 43 — who have worked a combined 57 years at the fast-casual restaurant chain and now earn nearly $1 million a year collectively.
Lily, a regional vice president for the Southwest, was the first to start her career with Chipotle in 1999 and now oversees $1 billion in sales. Rosario and Elsa have climbed the ranks to field leader in North Houston, Texas, and El Paso, Texas, respectively.
All three started as crew members in restaurants. "We come from very modest background in our family," Lily told Yahoo Finance. "We are very self-sufficient right now, working for Chipotle."
As consumers increasingly seek value and experience, attracting and retaining top talent is key to providing good service. "Restaurants with ... the highest rates [of turnover] perform the poorest and the ones with the lowest turnover rates perform the best," BTIG analyst Peter Saleh told Yahoo Finance.
The leisure and hospitality sector has a quit rate of 3.3%, above the national average of 1.9%, due to its lower pay, according to the US Chamber of Commerce. It took years for the sector to recover from labor shortage post-COVID; in September, staffing levels at fast-casual and fast food chains were up 4% compared to pre-pandemic.
Chipotle competes by creating a clear career roadmap, including a short path from food preparer to restaurant manager. Under former CEO Brian Niccol (who started as Starbucks (SBUX) CEO in September), it sweetened the pot by offering perks like tuition reimbursement, quarterly bonuses, and stock options.
"How the organization is showing up for them personally to ensure their personal, financial, mental and overall health from a well-being perspective is critical to the organization's long-term success," former COO Scott Boatwright told Yahoo Finance shortly before Chipotle named him interim CEO.
The sisters' family grew up on a farm in Mexico and immigrated to El Paso, Texas, in 1991. Their parents left everything behind to pursue a "better life" for their three daughters, Elsa Armendariz said. For years, their father took care of horses while their mother cleaned houses Monday through Saturday.
Today, the sisters enjoy benefits like a company car, gas cards, and coveted stock options.
"The stock options are definitely life-changing for somebody who doesn't have a college degree," Lily Armendariz said. They provided financial support for both of her sons to go to college, and between the three sisters, the benefit allowed their parents to retire "very young."
According to Chipotle, 90% of those who took restaurant management roles and 87% who became field leaders last year were internal talent. Three of its 10 regional vice presidents (RVPs) started as crew members.
It typically takes a crew member approximately 13.5 years to become an RVP. To become a field leader like Elsa and Rosario Armendariz, the average time needed is roughly 8.5 years.
For reference, America's biggest employer, Walmart (WMT), has starting wages of up to $39,000 per year. 75% of its store, club, or supply chain managers got their start as hourly workers. Its benefits include medical coverage, a 401(k) match, and an associate stock purchase plan match.
Last February, the retailer conducted a 3-for-1 stock split to make its shares more affordable. CEO Doug McMillon said he wants all employees to be a part of Walmart's story, writing in a statement, "As Sam [Walton] said, 'We’re all in this together. That’s the secret.'"
Meanwhile, Starbucks (SBUX) was one of the first to introduce full-time health benefits for eligible full-and part-time employees in 1988. Other offers include a 401(k) match, stock equity, and an online bachelor's degree program at Arizona State University.
Investing in employees pays off, as backfilling positions can be a costly and intensive endeavor. According to a Cornell University report, the cost of turnover in hospitality is $5,864 per job, based on costs ranging from pre-departure, recruiting, selection, orientation training, and productivity loss.
It could also become a vicious cycle if a company needs to "constantly" replace and train people, as existing employees are strained and company culture is damaged, said David Rice, senior editor of HR-focused publication People Managing People.
Boatwright, whom many Wall Street pros like Bernstein analyst Danilo Gargiulo think will be named CEO permanently, joined as COO in 2017. Prior to that, during a 10-year stint at Arby's, he doubled down on updating training models to boost efficiency.
If Boatwright secures the top job, he'll likely keep Chipotle on the same path.
"We are a high-growth organization, both from same-restaurant sales as well as new-restaurant development, and we need purpose-driven, passionate people for us to hit our long-term goals," he told Yahoo Finance, calling the Armendariz sisters "a prime example."
Retaining talent has paid dividends for Chipotle.
Its revenue grew from $4.9 billion in 2019 to $9.9 billion in 2023. Per Bloomberg consensus estimates, Chipotle is expected to end 2024 with $11.3 billion in revenue and adjusted earnings per share of $1.10, compared to $0.90 in fiscal 2023 and $0.18 in 2018.
This year, the chain plans to open 285 to 315 new locations. As of the latest quarter, there were 3,530, up from 2,491 just five years ago. Long term, Chipotle plans to operate 7,000 restaurants in North America.
Its stock has shot up 250% in the past five years, and 32% in 2023 alone, compared to S&P 500's 22% gain.
The company has gotten "really sharp around hiring and onboarding," Boatwright said.
Its brisk pace of expansion also helps drive the leadership wheel. New openings create management roles that employees from other store locations may move into.
"If they didn't have that growth, it would be a lot harder because people would ... get to a certain level and there's nowhere else to go," Saleh pointed out.
Tony Bridwell, who serves as chief talent officer for the Encompass Group, said providing a clear path for employees is key to developing good culture and performance.
"One of the most powerful stories that can be told behind the scenes is that I put a process or system in place to develop you, to provide you a clear path forward, to show that we care," Bridwell said, "The psychology behind that is ... if I feel as if I belong, then I am more likely to be engaged."
He added that developing people internally is "not a major lift." If done right, employees may recruit themselves as it becomes a family affair.
Lily's youngest son works as a kitchen leader at Chipotle, and Elsa's son also works at a restaurant.
"His first solids ... [were] rice and beans from Chipotle ... They want to eat it all the time, so might as well work there," Elsa said.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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