Clifford Hudson, CEO of Sonic, believes a minimum wage hike will likely lead to higher menu prices for customers.
States from California to New York have already raised wages or are currently working towards that goal. In some states, wages by 2020 will reach $15 per hour for minimum wage employees.
“I am not suggesting that there is not a challenge to move that kind of pricing, that kind of hourly wage pricing component, but these are proposed on a multi-year stage basis and there is no doubt that this is going to be inflationary as this relates to consumer product,” Hudson said in his company’s quarterly conference call on Tuesday.
Hudson says the price increases are not a political move, but rather a way to keep the company profitable.
“It is going to be incumbent to fund us or them as that development occurs,” he said. “To help them develop a pricing model et cetera that works for them in such a way that doesn’t disrupt their business, their individual store or on a broader enterprise basis.”
Hudson compares the rise in prices to that of the adjustments made after the Affordable Care Act was enacted.
Sonic’s CEO goes on to speak about a major fear regarding the minimum wage price hikes:
“We did the same thing with our operators as related to Affordable Care Act … and we spent a long period of time showing how to utilize it, what to think about it from a pricing standpoint, how to engage their employees and certainly not to start cutting back employees time because we are concerned that it would negatively impact service and then in return their sales and profitability. ”
If Hudson is correct, more companies will raise prices to offset the cost of the minimum wage increase. Those price increases will allow employees to remain in their roles, while keeping companies profitable.
Sonic’s CEO might only represent one company in a very large ecosystem but with more than 10,000 employees, it may be a good indicator of what is to come in the months and years ahead.