While McDonald’s outperformed earning estimates, its CEO warned about the future. California recently passed a law ensuring all fast food workers earn $20 an hour, which McDonald’s could use to raise prices.
Easy money
McDonald’s is doing well. As of October 2023, revenue has climbed more than 14% year-over-year. Yahoo Finance reported that adjusted earnings per share came in at $3.19, up 19% from last year.
Important metric
Of particular interest to the fast food behemoth was the “same-store sales metric.” That measures the performance of locations operating for one year or longer.
Good signs
Analysts had been targeting an increase of 7.79% in same-store sales. They actually jumped 8.8%.
Nationwide revenue
Revenue across the U.S. also increased by over 8%. That number should please investors, and CEO Chris Kempczinski was clearly happy with the result.
Good job
“The macroeconomic environment is unfolding in line with our expectations for the year,” Kempczinski said in the company’s earnings report, “and we continued to deliver convenience and value for our customers.”
Where did the profit come from
The CEO acknowledged that nationwide revenue growth was achieved mainly due to “strong average check growth driven by strategic menu price increases.”
A good reason?
Companies spent much of 2020 and 2021 blaming factors like Covid or war against Ukraine for price increases. “Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah, blah, blah,” economist Samuel Rines told the New York Times. Companies “just took advantage of that.”
No more excuses
However, with those reasons for raising prices receding throughout 2023, corporate explanations for continued high prices are ringing more like excuses. “Inflation is going to stay much higher than it needs to be,” a strategist told the New York Times, “because companies are being greedy.”
Winners and losers
As companies like McDonald’s raise prices to protect and increase profit margins, the costs are passed onto consumers. Meanwhile, workers rarely see reflective increases in their pay. McDonald’s executives “don’t want to lose that extra money,” a long-time McDonald’s worker told the Guardian last year. “If they can have their present workers do double the job and not have to pay another worker, it’s a benefit for them, but what happens with us? With food and gas prices rising, how are we supposed to live?”
Enter California
California has one of the highest costs of living in the U.S. In mid-October, the Golden State passed a new minimum wage law to help people keep up with inflation.
Higher wages
The current state standard minimum wage, $15.50 per hour, will continue until the start of 2024. After that, it will increase by 50 cents, for a total of $16 per hour.
Fast food exception
However, the law pays special attention to fast food workers. From April 1, 2024, they must be paid at least $20 per hour.
McDonald’s isn’t happy
CEO Kempczinski, who was paid over $20 million in 2021, warned that the wage increase might result in higher prices.
Other countries
According to Statista and The Economist’s Big Mac Index, a Big Mac is more than 50 cents cheaper in Denmark than in the U.S., despite McDonald’s workers in Denmark earning around $22 per hour. Critics point to this discrepancy when arguing that companies like McDonald’s don’t have to raise prices to offset increased wages—they choose to do so to maintain profits.
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