Is McDonald’s Setting Investors Up to Hike Wages for Employees?

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When McDonald’s Corp. (NYSE: MCD filed its Form 10-K with the U.S. Securities and Exchange Commission on Thursday, the company listed a new risk factor to its business.

The company said that its ability to increase sales and grow profits “depends largely” on how well it can execute its latest initiatives. The quality of that execution depends on a number of factors, including this one:

The impact on our margins of labor costs that we cannot offset through price increases, and the long-term trend toward higher wages and social expenses in both mature and developing markets, which may intensify with increasing public focus on matters of income inequality…

An analyst at research firm IBISWorld told Al Jazeera that McDonald’s may be using this SEC filing to warn investors that the company intends to raise its minimum wage this year and  get out ahead of the continuing calls for higher wages for low-wage workers. The IBISWorld analyst, Andy Brennan, also said that any negative impact on McDonald’s share price has likely already been priced into the stock and that the impact on the stock price should be minimal.

That does not take into account the impact of a wage hike on McDonald’s franchisees. While wages for franchise workers are not set by McDonald’s or other franchisors, the parent companies do set prices for virtually everything else, from ketchup packets to remodelling costs. As one policy analyst puts it, “ The corporations set wages by setting everything but wages.”

Franchisees have no choice but to pay these costs, and on the thin margins in the fast-food industry, raising wages could well mean no profits for the franchise holders. A change in the financial relationship between franchisors and franchisees is likely the only solution to raising wages for workers in the fast-food industry. And the corporations are likely to fight such a restructuring till the end of time.

Shares of McDonald’s stock are down about 0.6% today at $95.02 in a 52-week range of $92.22 to $103.70.

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