US restaurants to swallow wage hike

NEW YORK: Moves in the US to lift minimum wages will hit restaurant company profits because of the difficulty in passing the costs on to consumers, a Moody’s report said on Thursday.

The report estimated US restaurants could see their profit margins cut by one to four per cent, depending on their exposure to higher wages and the implementation of the change.

The hit would be ‘considerably higher if mounting public pressure for a $15 minimum wage becomes a reality’, Moody’s said.

‘Casual dining’ chains such as Darden Restaurant’s Olive Garden and Bloomin’ Brands’ Outback Steakhouse will be especially hard hit by a ‘mounting tide’ of wage hikes because their restaurants are usually company-owned, the report-said.

Fast-food chains like McDonald’s and Wendy’s will also face profit pressure, but higher wages will be felt more by franchisees.

On Wednesday, Los Angeles, second biggest US city, passed an increase in its minimum wage from $9 to $15 an hour by 2020. That followed a similar move by Seattle one year ago.

Other states and communities have also passed, or are weighing increases to statutory minimum pay, after years in which inflation eroded the spending power of US workers.

But only a few have moved toward the $15 target that worker groups are calling for. The official federal minimum wage is $7.25 but the White House has instituted a minimum of $10.10 an hour for people working on any new government contract.

Proponents argue that the increases will elevate workers from poverty and boost economic growth through increased consumption.

Major retailers, including Wal-Mart Stores and Gap, have also announced plans to lift wages.

McDonald’s said in April it would hike pay for 90,000 employees in company-owned restaurants, though that does not affect the majority of its restaurants, which are owned by franchisees.

“Most restaurant operators will struggle to pass on higher costs without hurting traffic,” Moody’s said.

Workers in the food preparation and serving-related occupations comprise 22 per cent of US employees who make at or below the minimum wage.