The minimum wage has been a factor of considerable debate in the recent past. It seems that now its Domino's Pizza, Inc.’s DPZ turn to increase wages in a restricted labor market. Domino’s Chief Executive Officer (CEO) Patrick Doyle has reportedly agreed to the fact that it is tough to hire qualified workers without increasing pay. Per media reports, Doyle also stated that to remain competitive enough amid the current challenging environment, it needs to work on these lines. However, as of now, no specific data on wage hikes has been disclosed.
Wage Hike – the Need of the Hour?
Strikes by fast food workers demanding higher wages seems to have increased. Since 2012, employees of big fast food chains have been protesting across the country for higher hourly pay from time to time.
In face of the mounting pressure, in Apr 2015, burger giant, McDonald's Corp. MCD announced improved benefits for employees at its company-owned restaurants, including a wage increase and paid time-off for full and part-time employees. These benefits will be effective from Jul 1 for 90,000 employees at about 10% of McDonald's restaurants in the U.S. Further, by the end of 2016, McDonald's expects the average hourly wage rate for employees at company-owned locations to be more than $10. (Read: McDonald's to Offer Wage Hike, Paid Leaves & College Aid)
Also, other Retail/Wholesale companies like Wal-Mart Stores Inc. WMT and Target Corp. TGT have been working on these lines. We believe that it is high time that Domino’s starts working on raising wages.
Which Employees are Set to Benefit?
Since approximately 93% of its domestic operations are franchised, owners of the franchised outlets have the right to set pay and benefits for their workers. Therefore, only those employed at company-owned locations would benefit if Dominos raises wages, as was the case with McDonald’s. McDonald’s wage hike is applicable only for its company-owned locations (10% of its total stores) and not the franchised ones (90% of its outlets). We need to wait and see whether Domino’s is able to convince its franchisees to raise wages as well.
Domino’s Take
In a media report earlier this year, Domino’s stated that pressure to raise workers’ pay is indicative of an improving economy and should be good for the pizza delivery company.
We believe that raising wages would be crucial for the second-largest pizza chain in the world. Though an increase in labor costs could hurt profits, it would motivate its employees to work harder. Hence, it would help this Zacks Rank #2 (Buy) company to improve its services and maintain the impressive comps trend over the near- as well as the long-term.
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