The next time you're driving around, you may notice all of the "Now Hiring" signs posted at area restaurants. It seems all the attention the hospitality industry was dedicating to make sure consumers would come back hungry as the economy reopened was diverted from pondering the employees needed to serve up the edibles.
Eateries are finding themselves short-staffed, and that's bad news for meal-seeking patrons now and shareholders later. Here in Florida, a McDonald's (MCD 0.18%) made waves for paying $50 just for showing up to a job interview. My nearest Burger King was closed for the busy breakfast and lunch dayparts all last week, one assumes because a lack of manpower.
It's a politicized issue, but the explanation is more nuanced than simply asking if eateries are paying enough or if folks don't have enough financial incentive to work at a restaurant. It all boils down to a lot of changes during the pandemic. Folks who would normally be waiting tables or flipping burgers have taken a shine to the gig economy, where they would rather deliver takeout through a third-party app on their own schedule than make the meals happen from the inside. A lot of the typically young industry hires also moved back home with their parents during the COVID-19 crisis, presumably with fewer bills to pay and less of a need to grind it out in the low-paying restaurant industry.
I don't have solutions, but as an investor I can name some chains that should hold up better than their peers. Shake Shack (SHAK -0.76%), Wingstop (WING -0.16%), and Chipotle Mexican Grill (CMG 0.64%) have what it takes to survive the restaurant hiring apocalypse that's going to disrupt the eatery industry's recovery.
High-volume chains will survive the manpower drought, as they have more wiggle room to boost rates. In the case of Shake Shack, it also helps that the "better burger" chain has a cult following dating back to its origin as a hot dog stand Madison Square Park in New York 20 years ago.
This doesn't mean Shake Shack can't suffer a hiring squeeze. I hit up a nearby Shake Shack location last weekend, and while it was well staffed and running efficiently, the place wasn't being shy about looking for help. On a counter where guests would typically find condiments or fill up plastic cups with filtered water, there were several pamphlets promoting job opportunities at the restaurant. The manager's card was stapled on all of the pamphlets promising a starting wage of at least $11.50 an hour.
Went out to Shake Shack on Sunday. You wouldn't think that the "better burger" chain is struggling for employees, but near the order counter were a bunch of pamphlets with the manager's business card. Pay starting at $11.50. Uh oh. $SHAK 4/6 pic.twitter.com/e26pahsdTz— Rick Munarriz (@Market) April 30, 2021
The good news for Shake Shack is that it's not struggling like some concepts that are nowhere close to where they were pre-pandemic. After negative comps in the second and third quarters of last year, Shake Shack's year-over-year comparisons were roughly flat in the fourth quarter. Comps turned positive for the quarter that it will report next week.
You won't find a concept that held up better through the pandemic than Wingstop. The chicken wings specialist has come through with 17 consecutive years of positive comps, and it didn't skip a beat when the COVID-19 crisis kept us from eating at restaurants last year.
The secret to Wingstop's success is also why it will weather the current storm. Even before the pandemic, 80% of Wingstop sales weren't consumed at the restaurant itself. The small-box concept has a few tables and will gladly take your eat-in order, but the lion's share of its business is takeout or delivery.
A lot of companies have rushed into digital sales, but Wingstop was already there. A healthy 40% of pre-pandemic sales were digital, and now it's up to nearly 64% of the revenue mix. Wingstop is a compelling franchisee-driven concept. It doesn't require a lot of employees, yet each location is averaging more $1.55 million in sales volume. Wingstop's earnings its wings.
Chipotle Mexican Grill
The chains with the best chance to survive the hiring apocalypse either have a staffing advantage -- like Wingstop -- or are cult faves that attract brand-loyal employees. You won't find a Shake Shack employee looking to work the fryer or shake blender at some run-of-the-mill fast-food chain. A Chipotle hire isn't going to be rolling burritos anywhere else.
There's an aspirational pecking order in the quick-service industry when it comes to job seekers, and Shake Shack and Chipotle should be near the top. Chipotle itself is doing great these days. Revenue rose 23% in its latest quarter, fueled by a 17% burst in comps. Digital sales have more than doubled over the past year, now accounting for half of Chipotle's sales.
At a time when chains are growing, Chipotle joins Shake Shack and Wingstop as companies expanding their footprint. Each of the three concepts will add at least 35 locations in 2021. Staffing them won't be a problem. I realize I'm saying this just after Chipotle sent out an email to its customers on Friday pitching the chain as a great place to work. Even Chipotle isn't immortal. However, in an industry where there are so many laggards with question marks, these are three restaurant stocks that shouldn't have a problem keeping their payroll as well stocked as their kitchens.