At McDonald’s, fear of a rising minimum wage disappears

CEO Chris Kempczinski said the company does “just fine” where states raise the wage to $15, with some caveats, says RB’s The Bottom Line.
Photograph: Shutterstock

The Bottom Line

The $15 minimum wage is inevitable—maybe not on a national scale, but certainly in a number of states and cities, some of which are surprising.

In theory, this would be bad for fast-food chains, which sell burgers and chicken sandwiches at low prices and therefore keep frontline wages low so they can earn a profit. But you wouldn’t know that judging by comments this week from the CEO of the largest and most well-known of such chains, McDonald’s.

“As long as it’s done in a staged way and in a way that is equitable for everybody, McDonald’s will do just fine with that,” Chris Kempczinski told investors on Thursday.

If the comments are surprising, they should not be. McDonald’s has already stopped lobbying to prevent minimum wage increases.

What’s more, the push is increasingly irrelevant, at least based on the conversations we’ve had with operators. Many franchisees are already paying employees wages that get close to $15 as it is, thanks to intense competition for labor that hasn’t subsided even with millions of Americans—and some 2.5 million restaurant workers—who lost their jobs in the past several months.

As it is, 29 states have minimum wages above the current federal minimum of $7.25 per hour, according to the National Council of State Legislatures. Eight states and 40 cities are currently working toward $15 an hour. That includes Florida, whose voters in November approved a constitutional amendment calling for that state to hit $15.

Florida did this even as it voted to re-elect Donald Trump as president—the latest evidence that even conservative states and voters tend to agree that workers should get higher rates of pay.

Many cities have also approved measures to raise pay.

To be sure, a $15 minimum wage, if it gets through Congress, would be a shock to the states where there is no state-mandated minimum. Yet it’s increasingly evident that such mandates are on their way. And even if they’re not, labor market prices have already been pushing the wage into this direction.

The impact of this remains up for debate, though we roundly dismiss one key argument against it: That restaurant jobs will be replaced by things like kiosks. Technology is a good thing for the restaurant industry and its employees, certainly in the fast-food business. Technology can boost productivity and make operations easier. The restaurant industry badly needs such productivity.

In any event, the technology is happening with or without those higher wages because they are table stakes. The fast-food chains need the speed and customer touchpoints to attract consumers that are increasingly demanding them.

As for the higher wage, there is a potential benefit. Customers who get paid higher wages have more money to spend and this can influence sales, especially at fast-food chains.

On his company’s earnings call, Kempczinski suggested that the minimum wage should be staged, so restaurants aren’t getting hit with those costs all at once (which would indeed be a problem). He also noted that it should be equitable, so all companies have to pay those wages, rather than some companies. That is a key point in some markets that will often push wages first onto chains.

“The positive for us has been, so long as it’s done in a staged way and so long as it is done equitably across the entire market without any sort of carve-outs or special exemptions for people, then we do just fine,” he said. “And we’re able to balance between judicious pricing on the menu as well as just thinking about productivity savings that we can manage through this.”

He pointed out that in Canada, where the minimum wage increased last year, the company and its franchisees “did a spectacular job of working that through on the menu, through pricing, through productivity.”

In any event, Kempczinski said, “Our view is the minimum wage is most likely going to be increasing, whether that’s federally, or at the state level.”

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