I'd like to see the $15/hr minimum wage in Seattle. Then, watch all the fast food restaurants close because the price of their food pushes them out of the market.
Then, perhaps, a light would go on (doubt it, though)... and the OdumboCrats would go, "Oh, THAT'S how it works".
What Will a Minimum Wage Increase Cost You at McDonald's?
By Travis Hoium | More Articles
June 8, 2014 | Comments (185)
"Whenever the debate about the minimum wage comes up it's inevitable that a comment about the impact on McDonald's (NYSE: MCD ) dollar menu comes up. In New York, McDonald's workers began protesting in 2012, demanding a $15 per hour wage, to which one commenter quipped, would lead to a $10 hamburger.
"It's true that increasing wages on companies like McDonald's would likely lead to higher prices, but labor is less than a quarter of the cost of what you pay for at the fast food giant. To explain just what a higher minimum wage would mean for your beloved dollar menu let's dive into the numbers.
"What makes up a hamburger?
"Based on McDonald's company owned store data, we can approximate the costs that go into producing food at stores around the world. From there, we can approximate just what a $10 or even $15 minimum wage might mean for the cost you could pay for a Big Mac in the future.
"McDonald's company -owned stores brought in $18.9 billion in revenue last year and spent $4.8 billion on employee payroll and benefits. We can ballpark the total increase in cost of a burger if we assume that all labor related costs will rise uniformly with the minimum wage, which probably overestimates the impact but without more detailed data it's a good approximation.
"Based on those assumptions, I've built a
table that shows how costs may increase if the minimum wage goes up. To do this I've used company-owned store data and assumed that McDonald's company-owned store profit remains flat.
"You can see that prices would go up but a $10 minimum wage would cost consumers about a dime more per dollar spent and a $15 minimum wage, or more than doubling pay, would cost about $0.27 more per dollar. What's interesting is that labor is only the second largest cost component and food costs should be watched more closely than the minimum wage debate.
"Labor isn't the problem
"While labor gets the headlines at McDonald's, if you want a cheaper hamburger you should be putting a focus on the global food market, not the 16-year old behind the counter. Since the minimum wage was last increased, the consumer price index for beef is up 38% and vegetable and soft drink costs are up as well.
<img src="http://media.ycharts.com/charts/4f2dfa715a1cea8e9d863b97fa3ae27d.png">
"Food costs account for 33.7% of everything you buy at McDonald's versus 25.6% for labor. So, you should be mad about the cost of beef that caused the $1 double cheesburger to become a $1 McDouble (which has one less slice of cheese) in recent years.
"Food is a bigger component of McDonald's costs than labor but a higher minimum wage would cost you.
"Prices are already going up
"Whether the minimum wage is going up or not, McDonald's is getting more expensive. $2.99 value meals that were once commonplace are now almost nonexistent and the "dollar menu" has become the "dollar menu & more" with items like the $2 Bacon McDouble.
"Small changes like taking a piece of cheese off an item or adding bacon and increasing the price are subtle ways to increase prices and McDonald's does it well. If labor costs go up to $10 or even $15 per hour you would see more subtle changes similar to this along with small price increases on regular items.
"The bottom line is that a $10 minimum wage won't lead to a $5 cheeseburger at McDonald's. The increase in price would be 10% at most and more than likely any price increase would be hidden to most consumers like they have been since the minimum wage was last increased in 2009.
"A little food for thought the next time McDonald's comes up in the minimum wage debate.
(Travis Hoium manages an account that owns shares of McDonald's. The Motley Fool recommends McDonald's.)
