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. (MCD - Free Report) , The Wendy's Company (WEN - Free Report) , Burger King Worldwide, Inc. and Yum! Brands, Inc. (YUM - Free Report) . 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. (CMG - Free Report) – 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. has started ordering through tablets, ordering through kiosks has been introduced at Panera Bread Company 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.