On July 24, the federal minimum wage will be increasing 11% to $7.25 an hour, the last in a three-step increase, CNN Money reported.
Some states’ minimum wage exceeds the federal mandated wage, and companies like Burger King Holdings Inc. and McDonald’s Corp. are likely to find it more difficult to absorb the cost or even pass it on to customers.
“You cannot run restaurants with fewer people,” said Nicole Miller Regan, a restaurant analyst at Piper Jaffray & Co. “Beyond that, it’s not about cutting the cost, it’s about how can you have more revenue.”
Job cuts would be one way to make ends meet, but analysts told CNN Money that already lean operating models will make it difficult for fast-food companies to cut down work forces without affecting customer service. The National Restaurant Federation said QSR locations will probably look to training and employee retention programs to help lower costs.
Some QSR companies are working to offset the costs by stepping up marketing efforts and being more efficient in various areas. McDonald’s, for example, is expanding its drive-through lines and using new, more efficient drink dispensers. Meanwhile, Burger King is introducing higher-margin products like its miniature burgers, called Burger Shots and is running more ads about its $1 Whopper Jr. sandwich.
Analysts also expect commodity inflation to return, putting additional pressure on margins and driving up the cost of products. At the same time, the current value wars between QSR chains could keep them from raising prices in response to the higher costs.
Some fast-food chains may make it through the wage increase better than others because of their franchise-base operating model, which shifts the cost burden to franchisees.