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McDonald’s CEO Says California’s Minimum Wage Hike Fuels Labor Inflation

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McDonald’s CEO Says California’s Minimum Wage Hike Fuels Labor Inflation

McDonald’s CEO Says California’s Minimum Wage Hike Fuels Labor Inflation

Source: Pinterest

Chris Kempczinski currently holds the role of CEO at McDonald’s and he had some things to say recently. According to him California’s minimum wage increase is affecting labor costs in the United States. He claims there is an inflation of labor and attributed it to the aftermath of what happened in California.

Chris Kempczinski on What Labor Cost Increases May Look Like

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In anticipation of what he believes is coming, Kempczinski has said that the company is getting ready for high labor inflation across the country. He believes it is the effect of the aftermath of the wage increase that fast food employees will now enjoy in California. He also pointed out that other costs have risen as well, further complicating the financial challenges.

Reaction to Rising Raw Material Costs

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There has been steady inflation on raw materials over the past year, but McDonald’s is staying ahead of the curve by adjusting its pricing strategy to offset the imbalance. The company raised its prices by a significant percentage and also has plans to maintain customer traffic and profits.

Enacting AB 1228

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AB 1228 was enacted on April 1. As it is now being enforced, large fast-food chains operating in California have to pay those they employ at least $20 per hour. The new change is binding on all restaurants that have at least 60 or more branches nationwide. However, those that bake and sell their own bread are exempted.

There is Now a Fast Food Council

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The new law also led to the formation of the Fast Food Council. It represents both workers and employers and aims to get them fairer wages while ensuring a suitable working environment. The state Governor believes this has brought the state a step closer to really helping fast-food workers.

How Businesses Reacted to Wage Increases

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After the law came into effect, quick-service restaurants
in California were quick to react. Some franchises either shut down some of their locations or increased their prices. Many hope that the strategy will work preemptively to reduce the potential financial impact of increasing the minimum wage.

McDonald's Pricing Strategy

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The financial markets are not the best right now, but
McDonald’s is dedicated to maintaining its competitive streak, especially when it comes to affordability, even though individual franchisees set pricing and vary by branch.

Consumers are Becoming More Frugal

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The CEO says consumer behavior has changed considerably in recent times as people have become more conscious about every dollar they spend. According to him, this is mounting more pressure on the quick service restaurant industry as consumers have to deal with the elevated prices constantly.

Declining Traffic in U.S. Fast-food Restaurants

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Kempczinski reported a range of flat to declining traffic in U.S. quick-service restaurants during the first quarter.

He linked this trend to the difficult macroeconomic environment, underlining the growing importance of providing reliable, everyday value to customers.

Growth Comparison

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Despite economic headwinds, McDonald’s achieved a 2.5% growth in sales at U.S. stores that have been open for at least a year in the first quarter. This growth, however, marks a significant decrease from the 12.6% growth reported in the same period the previous year.

Slow Traffic in the Nation’s Fast-food Restaurants

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Kempczinski also pointed out that traffic in the nation’s quick-service restaurants ranged from flat to declining during the first quarter. He has associated this trend with the difficult macroeconomic environment, highlighting how important it has become to provide reliable value to customers as often as possible.

What Does the Future Hold?

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Nobody knows what the future holds but one thing is certain; McDonald’s will continue to persevere against the obstacles posed by legislative alterations and economic conditions. However at the same time, it has plans to focus on strategies to manage the cost inflations and avoid disappointing its customers. The ultimate aim is to maintain its current stability and it can do this by balancing how cost is being managed and with the satisfaction of their customers.