Wal-Mart Stores, Inc. (NYSE:WMT) move to increase its minimum wage pay to $9 an hour has put more pressure on McDonald’s Corporation (NYSE:MCD) to follow suit being one of the largest fast food chain that employs people on an hourly basis. The new changes by Wal-Mart could pave the way for an increase in the minimum wage to $10 an hour by next year, waiting to see if U.S largest food chain would follow suit.
McDonald’s Corporation (NYSE:MCD) could struggle on this front on the fact that the company saw its net income slip by 15% to $4.8 billion last year. Amidst increased competition in the space as well as food safety concerns. Revenue came in at $28.1 billion and looks unlikely to grow as millennia’s shift their loyalty to the likes of Chipotle Mexican Grill, Inc. (NYSE:CMG). A pay increase, in this case, would be down in the jaws of declining earnings that would substantially affect margins much to the concerns of investors.
A wage increase, on the other hand, is not expected to affect McDonald’s Corporation (NYSE:MCD) extensively as revenues from stores operated by the company account for two-thirds of total returns with the remaining coming from franchises. An increase in wage is only expected to reach half of the company’s locations and given its employee base, it could result in an increase of as little as $100 million in additional costs.
The increase in minimum wage rates by Wal-Mart is also expected to compel other food restaurants to follow suit as one of the ways of retaining workers and attract others to fill openings according to economists. Workers at McDonald’s Corporation (NYSE:MCD) have in more than occasion agitated for a hike pay with many of them pushing for demands of around the $15 an hour mark.
Relationship between McDonald’s and workers has in the recent past come under scrutiny as the company maintains it does not make pay decisions on behalf of franchisees.