Last week, I wrote a piece explaining how tech layoffs may imply slower growth for the mega-caps in 2023. If you haven’t, then I recommend skimming it; the implications came to fruition for MSFT, AMZN, AAPL, and GOOG. As each announced, the post-market reaction was mixed but became decisively negative once forward guidance revealed slower growth. Price action aside, their conference calls indicate these layoffs were in response to declining growth catalyzed by Fed policy designed to moderate demand.

So, that got me thinking. If layoffs imply slowing growth, then hiring implies accelerating growth. 

Chipotle recently announced they’re looking to hire 15,000 workers for “burrito season”. A 15% increase to their workforce of 100,000 (October 2022). A decision of this magnitude indicates management is expecting a big uptick in demand over the next 6-18 months. Chipotle’s confidence suggests that the worsening consumer dynamic – declining saving rate, elevating credit card balances, historically high inflation – have yet to force consumers to trade down or eliminate “mini-luxuries” from their budgets.

Broadly speaking, a “mini-luxury” refers to a relatively expensive good or service that consumers justify because of the excess value added. If it was just about the food, then most people would not regularly buy a $11-$13 burrito from Chipotle. Consumers justify the cost by Chipotle’s socially-sustainable food sourcing model, the assured freshness guaranteed by having an open line-of-sight into the kitchen, the assembly-line ordering experience, and the prestige and status associated with the brand. When you tell someone that you had Chipotle, chances are they are either jealous or upset that they were not invited. 

Clearly, a meal at Chipotle is more than just a meal. It is how consumers justify the spend. It is why I believe conditions will need to deteriorate further before these indulgences are sacrificed.           

In my view, similarly positioned companies – Starbucks (SBUX), Portillo’s (PTLO), Shake Shack (SHAK), etc… – will also benefit from higher-than-anticipated demand, thus have the potential to deliver above-trend growth in a low-growth environment. This value proposition was the genesis of “big tech”. While I do not believe we are on the precipice of a decade-long run culminating in  “big burrito”, 2023 could feature a bull market fueled by $13 burritos and $6 frappuccinos. 

However, there are two potential headwinds that could challenge the investment thesis. Principally, consumer habits can change on a dime. If unemployment spreads enough to become visible, then expect discretionary spending to freeze or fall. Second, if disinflation occurs in groceries, narrowing the value gap between eating at home and going out, then consumers may opt to cook more meals at home. That being said, I would view any meaningful declines not associated with these headwinds as clear buying opportunities.

I am not long any of the stocks mentioned.