CEOs Discuss $15/Hr Minimum Wage

This past week or so we have seen a lot in the news about Restaurant CEO’s speaking out on the $15 minimum wage push. The one that got the most press was Nigel Travis of Dunkin’ Brands, calling it “outrageous”.

CNN Money posted an article today on the subject with thoughts from Sally Smith of Buffalo Wild Wings. Here are some of the highlights from the article. We’ll post the full article below as well.

  • Smith feels that $15/hr will hurt teens the most as she feels that is too much to pay an inexperienced worker and that more seasoned candidates will start applying for fast food jobs at that rate.
  • She also echoed the sentiment that the whole industry has been touting in that the restaurant industry has always been an avenue for teens to enter the workforce and gain valuable, entry level work skills.
  • Teen unemployment is currently at 18.1%, down from 20.7% a year ago, but it’s started to tick higher again in recent months.
  • BWW reported a more than 20% rise in labor costs in their 2nd quarter earnings report, but didn’t have a negative affect on the stock price which rose 10% today on strong sales outlook. Sales don’t guarantee profits however.
  • Smith doesn’t feel like companies will cut back on hiring as they will just raise prices, but again thinks most will hire more seasoned talent over teens at $15/hr.
  • Panera also saw a 10% spike in share price despite a 13% increase in labor cost last quarter.

From the article it seems that almost all chains have a strong sales outlook, except for McDonald’s who are still struggling. It’s going to take some time for them to turn it around.

Are Smith’s thoughts around hiring more experienced workers at $15/hr vs. teens in line with your operations? We’d love to hear how you are preparing for the future.

I have copied the full article below:

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Fast food workers are clamoring for a higher minimum wage. But the CEO of one big restaurant chain worries that boosting the minimum wage to $15 an hour could hurt teens looking for their first job.

Sally Smith, the CEO of Buffalo Wild Wings (BWLD), told CNNMoney Wednesday that her company and other restaurants may not want to hire teens for $15 an hour because that’s too much to pay for an inexperienced worker.

“It’s important to remind people that the restaurant industry trains a lot of people. Restaurants are often where a person gets their first job. They get it in high school or college,” Smith said. “So a $15 minimum wage could have an impact on youth employment.”

Buffalo Wild Wings isn’t actually on the list of 116 companies that would be affected by New York State’s proposal to raise the minimum wage for fast food workers to $15 an hour.

But laws to make $15 the minimum wage for all workers have passed in Seattle, San Francisco and Los Angeles. So higher wages are a reality for all restaurant companies.

Buffalo Wild Wings said in its second quarter earnings report Tuesday that labor costs rose more than 20%.

Smith said that some Buffalo Wild Wings franchises already refuse to hire anyone under the age of 21. One reason is because the chain serves beer. But Smith said the bigger factor is that franchisees can save money by hiring older workers who don’t need as much training.

“It may be hard to justify hiring a 16-year old for $15 an hour when you get can get experienced people,” Smith said.

That could be bad news for teens, who already have an unemployment rate of 18.1% according to the government. The teen unemployment rate is down from 20.7% a year ago, but it’s started to tick higher again in recent months.

Many restaurant CEOs are speaking out about higher minimum wages.

Dunkin’ Brands (DNKN) CEO Nigel Travis told CNN”s Poppy Harlow last week that $15 an hour was “outrageous.” McDonald’s (MCD) CEO Steve Easterbrook told investors that many franchisees are nervous.

Still, Smith did not think that a $15 minimum wage would necessarily cause companies to cut back on hiring.

In fact, she thinks that even more older workers may apply for fast food jobs if rates go as high as $15. That would make it even tougher for teens looking for fast food work.

Smith added that big restaurant owners should be able to offset some of the higher labor costs by raising menu prices. There are also ways to make the restaurants more efficient.

Buffalo Wild Wings, for example, lets many customers order with tablets. Smith said the company is looking to have all of its servers use handheld devices that would let customers quickly pay at their table.
Wall Street doesn’t seem too concerned about higher wages hurting profits for the top chains either. Buffalo Wild Wings shares surged 10% Wednesday thanks to a strong sales outlook.

Shares of another fast casual chain, Panera (PNRA), soared nearly 10% thanks to bullish sales forecasts for the third quarter, even though the chain has also had to deal with rising wage costs. Labor expenses rose 13% in the second quarter.

So it looks like successful companies — places where consumers actually want to go eat — will adjust to the fact that their workers may soon make more money.

To that end, Starbucks (SBUX), Dunkin’ Brands and Chipotle (CMG) all reported strong earnings and sales last week — despite increasing labor costs.

But McDonald’s (MCD) continues to struggle as it grapples with issues much bigger than worker pay.

CNNMoney (New York) July 29, 2015: 11:42 AM ET


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