Massive strikes by workers for the last 18 months have dealt a major blow to the U.S. fast food industry where amid intensifying competition and traffic slowdown. The strikes gained a global platform as hundreds of fast food workers walked off in numerous U.S. cities and more than 30 other countries.
The workers joined labor and union activists seeking wages of $15 an hour, almost double of the current $7.25 and the right to union representation without reprisal. These strikes come at a time when U.S. Democrats are highlighting income inequality as a dominant problem ahead of this year's mid-term elections and are pushing to raise the federal minimum wage.
The minimum wage has been a factor of considerable debate in the recent past. In fact, President Obama sought to raise the federal minimum wage to $10.10 per hour from the current $7.25 in 2015. However, this directive is being intensely debated against by the Republicans in Congress.
The ongoing dispute over hike in wages has adversely affected restaurants like McDonald's Corp. (NYSE: MCD), The Wendy's Company (NASDAQ: WEN), Burger King Worldwide, Inc. (NYSE: BKW) and Yum! Brands, Inc. (NYSE: YUM). Last year, McDonald's – a Zacks Rank #3 (Hold) stock – which owns about 20% of its 35,000 restaurants globally, paid $4.82 billion as salaries and benefits, totaling 25.5% of the revenues generated by the stores it operates.
At Wendy's – which also carries a Zacks Rank #3 (Hold), labor was almost 30% of the revenues. Comparatively, Chipotle Mexican Grill, Inc. (NYSE: CMG) – a Zacks Rank #2 (Buy) stock – which owns all its restaurants, spent 23% of its revenues on salaries in 2013.
So at a time when rising food cost inflation has hit these fast food restaurants hard, a minimum wage increase would seriously dent their profitability. This might force these operators to raise menu prices exorbitantly. If the wage-hike takes places, restaurants might also cut down on the workforce and invest more in technology.
In fact, technology in restaurants has caught up in a big way and might be the solution for the future. Buffalo Wild Wings Inc. (NASDAQ: BWLD) has started ordering through tablets, ordering through kiosks has been introduced at Panera Bread Company (NASDAQ: PNRA) while Burger King Worldwide has already launched the pay-by-app facility.
For an industry which depends more on students, immigrants and casual workers, and less on skilled labor, a minimum wage hike might add to its already compounding problems.
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