McDonald’s Says its Wage Hikes Are Improving Service
Last year, McDonald’s (MCD) joined a chorus of struggling U.S. companies offering workers pay hikes to help spur a turnaround. And it looks like the move is paying off for the fast-food giant.
The hamburger chain in April announced it would raise the average hourly rate for workers at the U.S. restaurants it owns to $9.90 from $9.01 starting July 2015, with average wages climbing above $10 per hour by the end of 2016. The company also said it would allow those employees to earn up to five days of paid vacation every year following one year of employment. (The higher wages remain very far from the $15 rate many labor advocates are pressing McDonald’s to adopt.)
The raises, which affected only about 10% of workers (the vast majority of McDonald’s U.S. restaurants are franchised), were announced while McDonald’s was developing a plan to shake off a multi-year comparable sales slump and bring people back to its stores.
McDonald’s CEO Steve Easterbrook, who took the helm in 2015, has since moved swiftly, closing hundreds of weak stores, bringing back all-day breakfast, and simplifying the chain’s menu, reducing bottlenecks in serving customers quickly. But improving the customer experience hinges on workers being on board with all these changes, hence the raises.
“It has done what we expected it to—90 day turnover rates are down, our survey scores are up—we have more staff in restaurants,” McDonald’s U.S. president Mike Andres told analysts at a UBS conference on Wednesday. “So far we’re pleased with it—it was a significant investment obviously but it’s working well.”
The move reportedly created friction with franchisees, who hire and pay their own workers, as they felt pressure to match the wage hikes. Still, there are early signs it is paying off: In October, McDonald’s reported its first quarter of comparable sales gains in two years. The company built on that growth with a huge 5.7% increase in the following quarter.
The improvements echo those at Walmart (WMT), which also offered U.S. workers wage increases that were followed by improved customer service scores.