Fast food restaurants will also feel the pinch of rising wages. McDonald’s (MCD) is an interesting case of a company that will feel the pain, but will also see some benefits. The good news for McDonald’s is that it does not actually operate most of its U.S. locations. The vast majority of McDonald’s locations are franchised, so the company is partially shielded, but if franchisees feel the pressure to lift prices, sales could start to drop, which would lead to a negative perception of McDonald’s on Wall Street… where growth is everything. At the same time, higher wages will lead to more discretionary income in the pockets of lower-income households, which is the company’s primary customer base. MCD has done a pretty good job returning to sales growth, but if wage hikes lead to fewer employees, or higher prices, and foot traffic starts to stall or even worse decrease, the bears will come out quickly and drive the stock lower.
Chart courtesy of www.stockcharts.com