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Wendy's Explains What Happens When Fry Cooks Make $15/Hour

By now, it should be abundantly clear - even to the most vocal proponents of a higher minimum wage - that across-the-board raises have very real, and sometimes unpredictable consequences. 

At Wal-Mart for instance, a move to hike the pay floor for the retailer’s lowest paid workers hurt morale among higher paid employees, may have led to discussions to cut up to 1,000 jobs at the company’s home office in Bentonville, and quite possibly contributed to a decision to close five stores for "plumbing problems."

Meanwhile, at Seattle-based payments processor Gravity Payments, one CEO’s quest to create a better life for his 120 employees backfired when a move to raise the company-wide pay floor to $70,000 was accompanied by a myriad of far-reaching and unintended consequences. 

At the most basic level, the argument against hastily construed wage hikes is that forcing employers to pay everyone more will simply prompt companies to fire people or at the very least, curtail hiring. As one Burger King franchisee recently told CBS, "[fast food] businesses are not going to pay $15 dollars an hour [because] the economics don't work in this industry. There is a limit to what you're going to pay for a hamburger."

With that in mind, we present the following commentary from Wendy’s most recent conference call with no comment:

Todd A. Penegor - Chief Financial Officer & Senior Vice President

Yeah. So we continue to see pressure on wages two fronts, one is minimum wages at the state level continue to increase, and as there is a war on talent to make sure that we're competitive in certain markets. So we've made some adjustments to that starting wage in certain markets. The impact hasn't been material at the moment, but we continue to look at initiatives on how we do work to offset any impact to future wage inflation through technology initiatives, whether that's customer self-order kiosks, whether that's automating more in the back of the house in the restaurant, and you'll see a lot more coming on that front later this year from us.

 

John William Ivankoe - JPMorgan Securities LLC

Okay, understood. I mean there is obviously a lot of discussion of wage prices, wage costs and that there would be increased pricing at the franchise level to offset those increased wages, especially in markets like New York for example that are going to see some very severe increases in wage costs. So can you juxtapose the franchisees' desire and/or need to take pricing at the store level with what sounds like an increased focus overall for the brand on value, can those two things be achieved simultaneously?

 

Emil J. Brolick - President, Chief Executive Officer & Director

Yeah, John, this is Emil. And our franchisees, I find them to be very astute business people, and they have a great sense of their trade areas where their restaurants are and a great I think understanding of what the competitive environment is in terms of their capacity to price. I think the reality is that what you will see in like some of these markets, the New Yorks, where there is these very significant increases, is that they will be – our franchisee will slightly likely look at the opportunity to reduce overall staff, look at the opportunity to certainly reduce hours and any other cost reduction opportunities, not just price. There are some people out there who naively say that these wages can simply be passed along in terms of price increases. I don't think that the average franchisee believes that, and there will have to be other consequences, which is why we have pointed out that unfortunately we believe the some of these increases will clearly end up hurting the people that they are intended to help.