Earlier this week, my colleague Lisa Jennings wrote about layoffs at Chipotle Mexican Grill. The layoffs represented 25 employees and had been rumored for months on Reddit and other social sites.
In so doing, Chipotle joined a growing number of companies handing out pink slips to employees, even when they’re seemingly performing well.
Earlier this year, McDonald’s went on a very public round of layoffs involving less than 1,000 people at corporate offices around the world. And Wendy’s restructured its corporate offices, with U.S. President Kurt Kane leaving and more responsibility put under CEO Todd Penegor.
The restaurant companies are hardly alone. Numerous companies have made layoff announcements in recent months, sometimes involving thousands of employees.
The layoffs started with companies such as Facebook, Twitter and Amazon, for instance, then spread to the financial sector as JP Morgan and Morgan Stanley and now appears to be affecting just about any company, including 3M, Jenny Craig, BuzzFeed News and The Gap.
Big layoff notices such as this can give a sense of economic problems, and for good reason, but for the most part there appears to be little actual evidence that the jobs market is truly deteriorating. In April, the last month for which there is federal data, the total number of layoffs and “discharges” declined by 264,000 to 1.6 million. The “quits” rate was unchanged, meaning consumers still feel roughly the same about their job prospects and are willing to leave their job.
In May, employment increased by 339,000, though the unemployment rate increased 0.3 percentage points to 3.7%. Initial unemployment claims, meanwhile, show relatively little sign of moving dramatically upward. None of this shows an economy heading directly for a recession.
Not that it isn’t. Plenty of other economic data point that way, notably household debt levels and savings rates, all of which suggest consumers will soon cut spending. That appears to be happening in some segments of the restaurant industry, notably family dining, where Cracker Barrel recently said its traffic took a substantial hit. Other traditional family-dining chains have experienced similar issues.
This isn’t to say that restaurant companies are girding themselves for lean times by dismissing workers. Some corporations believe that periodic reorganizations to eliminate “silos” to be a good thing. At the same time, there is an almost constant pressure on publicly traded companies to reduce corporate overhead, which can provide a powerful incentive for such reorganizations.
McDonald’s has always insisted that its recent reorganization was more about improving its corporate functions.
Its biggest change in the U.S. was shifting from an “east-west” zone arrangement involving its field offices into one national structure, a change many believe to make some sense. It is also closing its physical field offices, largely because field officers typically spend all their time on the road, anyway.
Wendy’s reorganization, announced in January, was overshadowed by the McDonald’s announcement. But it, too, was designed to “remove layers of corporate management” and “speed decision-making.”
The reorganization came at the behest of Nelson Peltz, its biggest shareholder, who last year said he might buy the chain in some fashion. Instead, Peltz endorsed the company’s plan to send more cash to shareholders and reorganize corporate offices.
At just 25 workers, Chipotle’s move is tiny when compared with other layoff notices. And because the chain operates its own restaurants, the layoffs are a tiny fraction of its total employment. Yet the moves the company made were designed “to ensure we can deliver on our aggressive goals for future growth.”
And Chipotle—like McDonald’s—appears to take a periodic examination of its corporate structure. As Lisa noted in her story, the reorganization this year is similar to one five years ago. That was also the case with McDonald’s, which overhauled much of its corporate structure around the same time.
Layoffs, as a rule, suck, and the companies risk corporate morale and goodwill by making such moves. All these restaurant companies were performing reasonably well at the time of their announcements and didn’t seem to be in need of those moves.
Instead, they appear to be making bets that their restructurings will improve operations over the long term. We’ll see if those bets pay off.