Restaurant operator Alsea budgets higher Mexican labor costs after strong quarter

By Sarah Morland and Aida Pelaez-Fernandez

MEXICO CITY (Reuters) -The head of Mexico-based restaurant chain operator Alsea on Wednesday warned of higher Mexican labor costs next year, but said the firm would look to maintain profits without hiking its prices.

“We cannot compensate with prices,” CEO Armando Torrado told analysts on a call, saying a proposal to cut Mexico’s working week to 40 hours – which is being discussed by Mexico’s Congress and could come into force by April – could push the company to negotiate better prices with raw material suppliers.

“We cannot lose any margins so we need to work in other areas,” Torrado said, adding more disposable income for Mexicans nationwide could boost its restaurant sales. This comes as the finance ministry forecast some 3.5% GDP growth this year.

Alsea, which operates chain stores such as Starbucks (NASDAQ:), Burger King and Domino’s Pizza (NYSE:) across Europe and Latin America, posted a 56% jump in quarterly profits Tuesday driven by hungry customers in its home market, Mexico.

Torrado added that if the working week is reduced in line with that in other countries across Europe and South America, this would represent a “strong impact.”

Alsea, he said, is also cautiously budgeting for a minimum wage hike of around 20% from January, from a current level of 207.44 pesos ($11.33) per day in most parts of the country.

This would affect some 30% of Alsea’s workforce, largely Domino’s Pizza deliverers and waiters working at the Vips Mexican restaurant chain, Torrado said.

Vips, he added, saw a record September season with 280,000 chiles en nogada – a popular but pricey Independence Day meal – sold in just one week. Starbucks’ pumpkin spice latte continued gaining traction in Mexico, he added, while European energy costs appeared to be easing.

Alsea’s strong quarter took shares up over 4% in early trading to lead Mexico’s main stock index, lifting prices some 65% since January.

“I see the future with clear skies,” Torrado said.

($1 = 18.3074 Mexican pesos)