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Darden Restaurants, Inc. (DRI), Chipotle Mexican Grill, Inc. (CMG): Will These Two New Guidelines Cripple the Restaurant Industry?

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Over the past couple of years I’ve become quite the connoisseur of eating out on the town. Or to put it another way: Lazy guy who doesn’t want to cook for himself, right here!

The restaurant industry in itself has faced innumerable challenges since the recession, including balancing the right menu price with food portions on their menu, adapting their menus to ever-changing consumer palates, and finally, having the ability to pass along food inflation on to the consumer without scaring them to another establishment or back into their homes. A vast majority of restaurants, from fast-food diners to casual eateries, have done a very good job.

Chipotle Mexican Grill, Inc. (NYSE:CMG) and Buffalo Wild Wings (NASDAQ:BWLD) would be two perfect examples of companies that have bridged the gap of tepid consumer spending and figured out a way to grow rapidly and bring consumers into their stores.

Source: weareDC2009 Scholars, Flickr.

For Chipotle Mexican Grill, Inc. (NYSE:CMG), it’s drawn in traffic by focusing on the value of its meals relative to the quality of product it serves. Whereas many of its fast-food hamburger peers have dealt with allegations over the quality of their meat or food products over the years, Chipotle Mexican Grill, Inc. (NYSE:CMG) instead works out contracts with local farmers to bring fresh vegetables to its restaurants, and has a “Food With Integrity” pledge on its home page that ensures it uses meats that are hormone and antibiotic-free.

In the case of Buffalo Wild Wings (NASDAQ:BWLD) it’s used promotions, associations, and specialties to draw in traffic. With a specialization on wings, Buffalo Wild Wings (NASDAQ:BWLD) has relied on wings’ hand-in-hand association with sporting events and used that relationship to plan its customer-drawing activities and events (are you ready for some football?). To add, it hasn’t hurt that chicken prices have been under control recently.

Two pressing concerns for the restaurant industry
However, there are two pressing concerns I have for the restaurant industry moving forward, and, surprisingly, they are not consumer driven. In fact, they aren’t food cost-driven, either! Confused? Curious? Let me explain.

Both problems that I think have the potential to turn the restaurant industry on its head relate to the relationship between a company and its employees. If you recall, I’m a big proponent in investing in businesses that value their employees. I strongly believe that employee happiness is a big reason businesses succeed or fail, and you’ll often find a very uncanny correlation between the quality rankings of a company on employee survey site Glassdoor and a company’s share price.

What two factors might be threatening straining this company-employee relationship in the restaurant industry? I thought you’d never ask!

Source: Florian Plag, Wikimedia Commons.

Obamacare plays Whac-a-Mole with employees’ paychecks
Please understand that this hasn’t been the case with every single restaurant chain, but a good number of restaurants have been cutting back employees’ hours below the 30-hour full-time mark as defined by the Patient Protection and Affordable Care Act, also known as Obamacare.

The reason is that beginning on Jan. 1, 2015, the employer mandate will require companies with 50 or more full-time employees to provide health-care plan options to those employees. The bill doesn’t state that these businesses have to pay a cent toward their workers’ premiums, but if the IRS concludes that an employee was forced to pay more than 9.5% of his or her annual out-of-pocket income for health insurance, that business will face a fine of $2,000 to $3,000 for each employee for which it is found to be in violation. Ouch!

Instead of even remotely chancing the possibility of being fined, many restaurants, especially in the fast-food industry, have scaled back hours and are hiring on an almost exclusive part-time basis.

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