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Short Paper: McDonald’s Minimum Wage Increase

Short Paper: McDonald’s Minimum Wage Increase

Business Profile

Industry

McDonald’s Corporation operates in the fast food industry. Globally, this industry generates at least $570 billion in revenue (Sena, 2020). In the United States, the industry generates at least $200 billion in revenue and is expected to grow at a rate of 2.5 percent each year for the foreseeable future (Sena, 2020). The US has approximately 200 000 fast food joints, which attract around 50 million clients daily. At least 4 million people are employed by this industry (Sena, 2020).

Market Share

Currently, “McDonald’s holds the largest market share of the fast food industry in the country” (Statista, 2020). In the US, it has a 43 percent market share while globally, it has a 10 percent market share (Statista, 2020). Its brand value is approximately $129.3 billion. This is the leading figure with the closest rivals being Starbucks and KFC with brand values of around $47.8 billion and $16.6 billion respectively (Statista, 2020).

Competitors

McDonald’s has several competitors. First, there is Burger King, which operates around 17 000 branches in 100 countries with a revenue of $1.6 billion (Downie, 2020). Second, there is Wendy’s, which operates around 6 700 branches with a revenue of $1.71 billion (Downie, 2020).

Third there is Yumi brands, which runs several brands including KFC, Pizza Hut, and Taco Bell. Collectively, Yumi brands operates around 50 000 branches in 287 countries with a revenue of $5.6 billion (Downie, 2020).

Opportunities

First, McDonald’s can explore other markets outside the American territory. For instance, Asia and Africa are places with great potential due to growing consumption of fast foods in these areas. Second, the company can come up with new innovations to spice up its menus and offer it a competitive advantage.

Threats

McDonald’s is increasingly facing stiff competition from other established rivals like KFC and Starbucks. Any miscalculation on its part can open it up to the threat of being overtaken or have its market share reduced. Also, the current economic crisis may reduce its ability to expand and lower the consumption of its products globally.

Governmental Action

Despite America having one of the largest economies in the world, millions of workers still struggle to meet their needs because they make only “$7.25 an hour, the federal minimum wage” (Rogers & Wells, 2020). To solve this problem, Seattle’s City Council passed a law in 2014 that aimed at progressively increasing the territory’s minimum wage “to $15 an hour by 2021” (Rogers & Wells, 2020).

This move was met by mixed reactions with its proponents applauding it as a positive approach while the opponents calling for its redaction. One of the opponents in this regard was McDonald’s, an American fast-food chain with branches spread out across the world. However, in 2014, the organization switched its view on the issue and stopped lobbying against the increment of the minimum wage in Seattle (Albert-Deitch, 2019). In this context, this paper briefly analyzes how a minimum wage increase (MWI) is likely to affect McDonald's operations in Seattle.

Scott (n.d.) notes that “an increase in the minimum wage is not only beneficial for workers but businesses and the economy as well.” Scott (n.d.) asserts that a higher minimum wage grows the economy by igniting consumer spending, lowering employee turnover, improving worker productivity, and enhancing the bottom lines of businesses.

Scott (n.d.) further notes that at least 80 percent of business executives and 60 percent of small business owners back an MWI with many institutions across the country voluntarily raising the wages they offer their workers.

However, among all these benefits, the one that has the most consensus is the increase in worker productivity. Levin-Waldman, (2000) notes that “an increase in the minimum wage is likely to result in considerable productivity improvements and longer-tenured employees.” Good remuneration for workers' services is likely to drive them to commit themselves to an organization’s vision and goals. These are vital success elements. This is why some business owners tend to support such a move.

On the contrary, there are numerous adverse effects of an MWI. For starters, an MWI will certainly affect the margins and cash flow of an organization (Meer & West, 2016). The business will have to set aside more resources for paying workers. Considering that the United States has a very competitive economy, the entities that will face the biggest problems are startups and small businesses. While a company like McDonald's might survive such a move, its smaller competitors might not be so lucky. This might be beneficial to McDonald's due to the reduction in competition. However, the general economy will suffer due to the loss of jobs in the smaller businesses with McDonald's unlikely to take up the slack.

Second, the employee benefits offered by an organization may have to be altered (Meer & West, 2016). An MWI might make a worker happier in the short term.

On the long term basis, this might not be true since an organization might cut off some benefits to free up funds for the increase in wages. When benefits such as insurance plans are cut off, employees will not be happy with the MWI. Finally, there is the issue of reduction in the number of work hours (Meer & West, 2016). To ensure that the MWI does not affect the amount of funds used to pay workers, an organization might decide to lower the maximum number of hours that an employee can work. Consequently, the rise in the minimum wage might not have any benefits to employees since they would still be making the same amount of money as before.

In conclusion, an MWI has both positive and negative implications for McDonald’s operations. For the move to be successful, the government must offer the company certain incentives such as tax cuts to ensure no jobs are lost in the process and no businesses are closed.

The selected case involving McDonald’s and Seattle is appropriate for the final project because it offers a deep insight into the economic movements that might occur based on how both businesses and the government choose to go about the issue of raising the minimum wage.

 

References Albert-Deitch, C. (2019). McDonald's just made a huge decision: No more lobbying against minimum wage hikes. Retrieved from https://www.inc.com/cameron-albert-deitch/mcdonalds-just-made-a-huge-decision-no-more-lobbying-against-minimum-wage-hikes.html Downie, R. (2020). Who are McDonald’s main competitors? Retrieved from https://www.investopedia.com/articles/markets/102815/who-are-mcdonalds-main-competitors.asp Levin-Waldman, O. M. (2000). The effects of the minimum wage: A business response. Journal of Economic Issues, 34(3), 723-730. Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), 500-522. Rogers, K., & Wells, N. (2020). Seattle passed a $15 minimum wage law in 2014. Here’s how it’s turned out so far. Retrieved from https://www.cnbc.com/2020/01/02/seattle-passed-a-15-minimum-wage-law-in-2014-heres-how-its-turned-out-so-far.html Scott, R. (n.d.). Raising the minimum wage: Good for workers, businesses, and the economy. Retrieved from https://edlabor.house.gov/imo/media/doc/FactSheet-RaisingTheMinimumWageIsGoodForWorkers,Businesses,andTheEconomy-FINAL.pdf Sena, M. (2020). Fast food industry analysis 2020 - Cost & trends. Retrieved from https://www.franchisehelp.com/industry-reports/fast-food-industry-analysis-2020-cost-trends/ Statista. (2020). Brand value of the 10 most valuable quick service restaurant brands worldwide in 2020. Retrieved from https://www.statista.com/statistics/273057/value-of-the-most-valuable-fast-food-brands-worldwide/Last Name, F. M. (Year). Article Title. Journal Title , Pages From - To. Last Name, F. M. (Year). Book Title. City Name: Publisher Name. .