During an earnings call this November, Shake Shack's (SHAK 0.08%) CEO Randy Garutti announced the expansion of the four day work week for its managers. The four day work week program will be offered at a third of the burger chain's restaurants. Managers are still expected to cover 40 hours during the week, but over the four days instead of the typical five day work week.
Let's look at why Shake Shack would roll out a four day work week.
Image source: Getty Images.
Looking for a four day advantage.
The burger chain is making the work week change to attract and retain employees. Restaurant talent has been subject to high turnover. Any avenue to attract and retain employees would be an advantage.
Garutti noted the positive feedback of the four day work week from its current employees and how the program has attracted people to apply to Shake Shack. He added, "We're hearing things like, wow, (four day work week) is so powerful...I don't need to get child care for a fifth day. Wow, this is amazing. We're hearing things like, you know, I saw that and that caused me to apply to Shake Shack." Garutti is a fan of the shorter work week himself. He commented, "(You) know what? It's hard for me to imagine going to work for another company where I have work a fifth day."
Labor costs are hard to shake.
While many restaurants are facing labor cost challenges amid legislative minimum wage hikes, Shake Shack has been willing shoulder higher labor costs to attract and keep its employees. It even advocated for higher minimum wages laws and voluntarily added to its employees wages ahead of legislated minimum wage increases.
But in doing so, Shake Shack is finding that labor costs are cutting into the bottom line. Its third quarter earnings reported a lower guidance for full year same store sales of 1.5%, down from 2%. A reason for the lowered guidance was the rising operating expense, which includes labor. Labor and related costs were 27.3% of its sales, up 0.3% from the same quarter last year. Garutti projected that Shake Shack's labor costs will continue to increase in the mid-single digits in the upcoming year.
A window into Microsoft's four day experiment.
Although the burger chain has not disclosed its metrics from the shorter work week, other companies have experimented with similar programs with profound results. As a pilot program, Microsoft's (MSFT 1.14%) Japan office gave its staff every Friday off in August. Though the work week was reduced by a day, Microsoft found that productivity had increased by nearly 40%. Employees were also fond of the program -- 92% of them were happy with the shorter work week.
Could four day productivity top higher labor costs?
While there is not much crossover between a burger chain and a software company, but Shake Shack is hoping that its four day work week will result in the productivity gains and the employee satisfaction that Microsoft's Japan offices had. Shake Shack has welcomed higher labor costs as a way it does its business. However, that business decision had resulted into cutting its guidance and profitability. If the four day work week does result in productivity gains without adding to labor costs, Shake Shack could find its way back to growing profitability.
