Fast-food giant hit by minimum wage rise

By Simon Collins

McDonald's, the fast food company, says it may be forced to increase prices and review plans for expansion owing to the Government's decision to raise the minimum wage.

McDonald's New Zealand managing director Mark Hawthorne said the wage rise, combined with other cost increases, was forcing the company to review plans to open a further 30 outlets over the next three years.

Another fast food company, Domino's Pizzas, said consumers would not stand for a price rise but the wage increase would cut operators' profit margins, possibly squeezing some out of business.

The fast food sector accounts for a sizeable share of the 70,000 to 100,000 workers on the current minimum wage of $12 an hour, and of the 120,000 earning less than $12.50. Mr Hawthorne said McDonald's stores employed 8000 people, with a majority of them on the legal minimum and the rest affected through relativities.

He said labour made up 25 per cent of the cost of sales, so the 4.2 per cent wage increase would push up total costs by about 1 per cent, or $4 million a year.

The increase comes on top of much bigger wage rises last March, when McDonald's lifted all its youth workers on to adult rates, and follows an 8 per cent increase in food and paper costs last year when commodity prices were booming.

Although commodity prices have fallen recently, the New Zealand dollar has been unstable too. Even though 90 per cent of the food in McDonald's NZ is bought in New Zealand, Mr Hawthorne said local suppliers quoted their prices in US dollars so the prices had gone up as the New Zealand currency fell.

He met McDonald's franchisees yesterday to discuss the impact of these cost increases on menu pricing. "I think most franchisees are saying they won't be able to absorb the full costs and we will have to put some measures in place.

"There will have to be some impact on the menu board."

He said the company had planned to spend $100 million on adding an extra 30 restaurants to its 143-site chain in the next three years. McDonald's itself usually buys the land and buildings and franchisees have to find only the cost of equipment.

"With all these cost increases, we are going to have to re-evaluate the speed of that growth," he said.

Domino's Pizzas New Zealand manager Ryan Bohm said the majority of the 1100 workers at the country's 75 Domino's stores were on the minimum wage, but labour costs made up only "in the low twenties" of percentage points of total costs.

"It's certainly manageable, but we are a business that relies on high volume, low margins, so we will have to increase the volume across our stores.

"For some franchisees that are close to the wall now, it could be the thing that tips them over."

However, other low-wage sectors said they would be largely unaffected.

Paul Walsh of The Warehouse said the minimum wage rise would affect only a handful of his company's 8000 workers.

Martin Taylor of Healthcare Providers of New Zealand said the average pay rate in private hospitals and aged care in December 2007 was $13.15 an hour, with only a quarter of staff earning under $12.55.

Catherine Flynn of Progressive Enterprises, which owns Foodtown, Countdown and Woolworths supermarkets, said all her employees who had worked at least 200 hours earned more than $12.50 an hour.

- NZ Herald

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