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McDonald's Has Bigger Problems Than Its Low-Wage Fight

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Fast Food Protests
Nick Ut/AP
You deserve a break today, McDonald's (MCD).

The chain has posted three consecutive quarter of negative comparable-store sales for its domestic restaurants, and unless it comes through with a 1 percent uptick in June, this will be quarter number four.

Some suggest that a key reason diners are defecting is the chain's failure to give a sympathetic ear to the fast-food labor movement's vocal push for a $15 an hour wage -- a change that would roughly double its current base wage for front-line employees. Earlier this month, Reuters specifically pinned McDonald's recent stateside struggles on "internal missteps that have slowed service and image-denting protests from its minimum-wage workers."

So yes, there's that PR nightmare. But there's also the dovetailing issue of deteriorating customer service. A year ago, McDonald's hosted a webcast with franchisees on rising complaints about employee friendliness. One in every five gripes being filed was related to unfriendly employees. And a QSR magazine study around the same time showed that waits for drive-thru orders were on average nearly a minute longer than waits at rival Wendy's (WEN).

This doesn't mean that McDonald's troops aren't worthy of a raise. In fact, the long wait times and growing customer dissatisfaction are probably the direct results of the chain expanding its menu too quickly. The front line has simply been dealt a bad hand be the execs. However, it still doesn't mean that higher hourly wages wouldn't lead to fewer defections.

Wage a War

The push for McDonald's and its major fast-food rivals lift their starting wages to $15 an hour -- as well a similarly inspired protest movement aimed at getting the same concession out of Walmart (WMT) and other retail establishments -- is gaining momentum. Disgruntled employees are being joined by union organizers and other activists to lobby for a living wage.

Unions hope that employees will feel empowered and unionize. Beyond that, there's a trend toward greater automation already underway; that will likely intensify if McDonald's has to beef up its entry-level payroll. The chain has been automating tasks. Without a human touching them, soda fountains can now pour beverages into appropriate-sized cups that are dispensed as they're ordered. Smoothie ingredients are sorted and blended with the touch of a single button. Some locations are testing informational tablets with mobile ordering.

Rage Against the Machines

Automation -- in lieu of significant menu price hikes -- would be in the background of any significant wage hike at McDonald's. If anything could improve customer satisfaction, it would be more efficiency.

So, in theory, activists may be right in suggesting that McDonald's paying employees at least $15 an hour will bring customers back. But they may not like it as much if the way the chain gets there involves slashing its workforce by a third or more, and handing off many rudimentary tasks to machines.

Smaller chains will have more trouble making the upfront investment in technology that checks out customers at automated kiosks (eliminating misunderstood orders) and speeds up the food prep process (reducing drive-thru waits), so expect the inevitable automation revolution to come at their expense.

What's Really Eating Away at McDonald's

However, this doesn't mean that the reluctance of McDonald's and its franchisees to pay a living wage is the only thing pinching their sales. If it were as simple as that, other chains that also pay close to the minimum wage wouldn't be faring better than McDonald's.

There's certainly a human case to be made in wanting McDonald's to pay more. The minimum wage doesn't go nearly as far as it once did, and it's nearly impossible for an adult to make ends meet on $7.25 an hour. However, to pin the blame for McDonald's recent woes solely on a backlash against corporate greed fails on several levels. It's the menu (and its growing complexity) that are holding the chain back relative to its peers.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our newsletter services free for 30 days.

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39 Comments

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EvaMarie

So McDonald's is struggling with $7.35 per hour customer service attitudes....imagine that. You get what you pay for..........

June 23 2014 at 6:48 PM Report abuse rate up rate down Reply
billharn

McDonald's menu is way to complex. IN-N-OUT has THREE options, and your order is correct every time. The order takers at McD's are poor employess and poorly trained. Can't even figure out their own menu.

June 20 2014 at 1:56 AM Report abuse rate up rate down Reply
Stephen

Well, actually the problem is... that McDonalds has been around for such a long time…that people are just tired of eating Mc Things.
Much of it is tasteless… with a super high calorie count…and nothing nutritious in it..except for the nuggets…. now, there is a list of ingredients you will never forget.
AND….not to mention, the rude and indifferent behavior customers often receive at both the counter and drive up.
Time for McDonalds to go the way of the dinosaurs.

June 19 2014 at 9:38 PM Report abuse rate up rate down Reply
teapartyisdying.uall

America Is Globally Shamed For Its Pathetic Minimum Wage

America is treating its low-wage workers so badly that it's starting to get shamed by the rest of the world.

The International Monetary Fund on Monday cut its forecast for U.S. economic growth this year, warned of sluggish growth for years to come, and made a bunch of suggestions for getting America's economic house in order -- including raising the abysmally low federal minimum wage of $7.25 an hour.

"[G]iven its current low level (compared both to U.S. history and international standards), the minimum wage should be increased," the global financial-stability group wrote in its annual assessment of state of the U.S. economy. "This would help raise incomes for millions of working poor and (help) ensure a meaningful increase in after-tax earnings for the nation’s poorest households."

The IMF didn't say how much it thought the minimum wage should be, exactly. President Barack Obama has proposed an increase to $10.10 an hour. If the minimum wage had been adjusted for inflation regularly, it would be at least $10.68, according to the National Employment Law Project. Many fast-food workers would prefer $15 an hour. If wage floors had been raised to keep up with productivity, then they would be closer to $22 an hour.

However you figure it, the wage is too low, and one of the lowest among the world's developed economies.

The point is moot at the moment, because Republicans in Congress want nothing to do with a higher minimum wage. States and cities are starting to take matters into their own hands, led by Seattle, which recently raised its minimum wage to a highest-in-the-nation $15.

In fact, Republicans in Congress oppose many of the suggestions the IMF made for getting U.S. economic growth moving again, including infrastructure investment and immigration reform. Without such things, the IMF said, it expects U.S. gross domestic product growth to average 2 percent a year for "the next several years," below its historic average of more than 3 percent. The IMF also cut its forecast for growth this year to 2 percent from an earlier estimate of 2.8 percent.

June 19 2014 at 6:13 AM Report abuse +1 rate up rate down Reply
2 replies to teapartyisdying.uall's comment
billharn

The IMF giving advice to ANY country about its ecenomy is a joke. IMF = Collectivism = Poverty.

June 20 2014 at 1:59 AM Report abuse -1 rate up rate down Reply
billharn

If these fast food joint pay $15/hr, goodbye customers!

June 20 2014 at 2:00 AM Report abuse -1 rate up rate down Reply
weirdo

Don't like the salary at McDonald's?....Here's an idea. Don't get a job there. Oh? but nobody else is hiring (meaning nobody else will hire you). So, basically McDs is the bad guy for hiring employees that otherwise wouldn't have a job. How dare they ! Another thing on this. If and when McDs et al raise their wages to 15 bucks an hour, what do their current employees think will happen to them as more qualified applicants (recent college grads, applicants with more education, etc) will be in competition for these McJobs.

June 19 2014 at 5:45 AM Report abuse rate up rate down Reply
nos2001

R WE READY FOR THE $10.00 MCBURGER?

June 19 2014 at 4:48 AM Report abuse +1 rate up rate down Reply
robertpdaniels

Higher Wages for restaurant workers, particularly fast food workers, will result in higher prices, staff cutbacks, and less fresh and more prepared food being served. If you like assembly line fast food, with $5 McDoubles, $4 small fries and combo meals rivaling sit down restaurant prices, go ahead a raise the minimum wage to $15 bucks. Small businesses will disappear, while corporation Mega Chains like McDonald's and Burger King, will flourish charging whatever they want with no competition. Big Business can absorb higher wages and costs and pass them along to consumers. Small Business operates on smaller margins and lower overhead, and can't absorb higher costs and wages, and so go out of business. Drive small business out and corporations run amok, doing what they want and charging more.

June 19 2014 at 3:46 AM Report abuse +1 rate up rate down Reply
joper201

American's need to ask themselves WHY there are so many adults that need no experience, entry level jobs as a career??

Could it be our K-12 system is not educating a good portion of our children to enter the job market and be successful???

WHY do we tolerate it??

June 18 2014 at 10:48 PM Report abuse +3 rate up rate down Reply
dvstckwll

I get a breakfast burrito about once a month and hate myself for it. :)

June 18 2014 at 10:15 PM Report abuse -1 rate up rate down Reply
masteromodels

Times have changed and trying to find good paying jobs are a thing of the past for a high school graduate and even if you go to college now you wind up with so much education debt it takes years to work oft off. In the meantime all these company's are going automated which means they are making more profit so why cannot they pay their workers a living wage. Why? Greed for the top. I go to ant store and they have automated tellers I will not go through them, I go to a human cashier and do not mind waiting a few minutes more for someone to hold their job.

June 18 2014 at 9:32 PM Report abuse +2 rate up rate down Reply