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Technology May Win In Minimum Wage Fight; Restaurant Space

The movement afoot to raise the minimum wage has frequently captured headlines as of late. Many understand the financial plight of people trying to live on minimum wage. On the flip side are observers who are raising concerns about the negative effects on the top and bottom lines of companies that will have to absorb the higher labor costs that come from raising the minimum wage.

Perhaps no other space is grappling with this like the fast food industry. Also referred to as quick serve, the space is estimated to have generated more than $200 billion in revenue in 2015, according to Franchisehelp.com. It notes that the industry is expected to enjoy annual growth of 2.5% for the next several years. This is below the long term average, notes the site, which added that the industry is rebounding from a slump that lasted several years.

So it should be no surprise that fast food companies would be willing to take the necessary steps to maintain and grow their companies. This is especially the case for publicly-traded companies that must answer to shareholders when there are rifts in revenue streams.

This was most recently highlighted during the first quarter earnings season for 2016, which is wrapping up now. Fast food restaurants reported dealing with a host of headwinds that are affecting their earnings, and a common theme among all of them deals with labor costs.

Take Popeyes Chicken (NYSE: PLKI) for example. Sales for its company-operated restaurants were $34.6 million during Q1 2016 quarter compared to $34.7 million during the first quarter of last year. Company-operated restaurant operating profit was $7 million, or 20.2% of sales, compared to $7.5 million, or 21.6% of sales in 2015.

Company officials noted that higher labor costs were a factor in its weaker earnings, along with lower sales and operating profit. During its conference call to discuss its Q1 2016 earnings, the company’s chief executive officer didn’t mince words when it came to higher wages. Cheryl Bachelder had this to say:
“Labor really is directly tied to the strength of the top-line. And so, that’s what we are managing, that’s what we are chasing is to get the top-line improved, so that we can properly service our guests and have labor in line with expectations.”

In the restaurant business, it’s all about margins, and raising the minimum wage can negatively impact those margins. Publicly-traded companies know that shareholders don’t like to see margins narrow, so they will take the necessary steps to control those costs.

Bachelder, like lead officials at other fast food operators, is trying to control the impact of rising labor costs through the use of technology. One way is through the use of technology. Popeyes is in the midst of finalizing a technology initiative called One Technology. The goal is to develop a unified technology platform that will transform how the company operates its restaurants, communicates with its employees and interacts with customers. Popeyes is also taking advantage of mobile apps so that customers can place orders and pay for them. The use of such technology can reduce the need for some employees who normally interact with customers.

At the end of the day, empathy will persist for those who work some of the lowest paying jobs in the fast food industry. However, publicly-traded companies will likely do whatever they can to maintain their labor costs, and it looks like leveraging technology is the best way to do that.

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