On the Margin
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New York’s minimum wage hits Domino’s

This post is part of the On the Margin blog.

As I wrote yesterday, Domino’s Pizza Inc. stock plunged after the company’s earnings didn’t meet investors’ expectations.

The company also acknowledged that its labor rate was higher at company units. And the only place where it was having that problem was New York City, where the minimum wage for quick-service restaurants is $10.50.

“We own all the stores in the Bronx, Brooklyn and Queens,” Domino's CEO Patrick Doyle said during the company’s earnings call Thursday. “The minimum wage has gone up in New York. So that’s really the wage rate pressure we’re talking about. It’s primarily about New York.”

Of course, New York will continue to have wage pressure for the foreseeable future. New York State is raising its minimum wage to $15 an hour, and New York City will lead that charge.

“We kind of absorbed that a bit in the first quarter,” Doyle said. “And you may see that again as wage rates continue to move in New York at the beginning of each year. But you adjust around that.”

How? Efficiency. “Our view, and it has always been our view, is that as wage rates move you may see a little dislocation in the near term. But over the medium and longer term you see that show up in better efficiency. As wage rates go up, stores tend to get better and more efficient about managing labor hours.”

Doyle spoke extensively during the earnings call about labor, and about how restaurant companies deal with the minimum wage.

Doyle noted that the US restaurant industry faces an interesting dilemma in the coming years because of the wide range in minimum wage rates. Consider that New York and California just agreed to raise their minimum wages to $15, but the federal rate remains $7.25 and seems unlikely to budge past that anytime soon political gridlock.

That’s a $16,000 a year difference for full-time workers.

“We operate in lots of markets around the world with different wage rates,” Doyle said. “I can’t think of any markets where you have wage rates that vary dramatically within a market. It’s heading that direction in the US. It’s an interesting challenge for the business.”

As it is, national brands have stores where costs vary from one market to the next. But the rising wage differential could make that more of a challenge in the coming years.

Still, he noted that, “Our competition has to deal with all the same things” and that efficiency will ultimately be the name of the game.

“We operate in over 80 countries around the world,” Doyle said. “There are places we’re operating today where wage rates are over $20 an hour. There are markets where wage rates are lower than they are in the U.S. We’re pretty darn good at it.

“We feel good about where we are.”

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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