McDonald’s says its labor challenges are easing

The company credits higher wages and an end to unemployment benefits for bringing in more applicants but costs are driving up prices.
McDonald's labor challenges
Photo by Jonathan Maze

A funny thing has happened at McDonald’s company-owned units since April, when the franchisor announced plans to increase starting pay by 10% and start moving toward an average rate of $15 an hour: People started applying for jobs.

That wasn’t the only catalyst, however. The Chicago-based burger giant said it is getting more applications in states that have ended excess unemployment benefits.

“While it’s a challenge, it’s getting better,” CEO Chris Kempczinski told investors on Wednesday. “I don’t want to declare by any means that it’s easy, but we’re certainly seeing some improvement. We’re seeing applications have increased pretty significantly.

“Applications in states that have ended early the federal stimulus have tended to do better. So I do think there’s evidence that as the federal stimulus wears off, that you’ll see an improvement in the application rate.” Federal subsidies are due to end during the first week of September.

Yet he also suggested that wages have influenced the application rate as well. McDonald’s franchisees, who operate the vast majority of the chain’s nearly 14,000 U.S. locations, have raised pay by 5%. The company raised pay at its restaurants by 10% in April.

“After we made our announcement back in April,” Kempczinski said, “we’re getting close to full staffing levels.”

The comments are unlikely to ease debate on the cause of the labor shortage and what is needed to ease it, with some arguing that excess unemployment benefits are keeping people from looking for work while others say wages need to come up.

But they do suggest that the labor problem is easing—and that both higher wages for workers and the end of excess unemployment benefits are proving to be a catalyst that gets workers to send in applications.

The shortage has left chains unable to keep enough staff on hand for their restaurants and hurt service times. It has also pushed operators to raise wages aggressively and boost benefits—franchisees are adding benefits like child care to convince workers to take jobs.

During the pandemic, some of these franchisees had marketed their jobs aggressively, offering sign-on bonuses and in some cases even bonuses to get people to apply.

The lack of workers has caused the company some problems. Drive-thru service times are down by three seconds, Kempczinski told investors, ending a run in which the company had continually cut back on service times through the lane.

“There has been a negative impact on staffing and service times,” Kempczinski said, noting that drive-thru service times remain 27 seconds faster than they were before the recent improvements.

And prices are up, too. McDonald’s menu prices are up 6% year-over-year, reflecting aggressive price hikes at fast-food restaurants due largely to rising labor costs. “It’s based on research,” Kempczinski said. “It looks at local prevailing market conditions. It looks at the competitive set within each area. And then franchisees and the company each make our own pricing decisions after that.”

Still, the company believes that it is on its way toward getting workers in the door, easing a shortage that has plagued the recovery—even if it hasn’t actually prevented the chain from generating strong sales (up 15% on a two-year basis) and profits (franchisees’ cash flow increased again last quarter).

“It is possible the situation is improving,” Kempczinski said. “I think we’re going to continue to make progress. But it certainly is a challenge.”

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