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What higher wages means for Domino’s and McDonald’s | Arizona’s Family

NEW YORK (CNNMoney) — Americans are finally getting paid more – and that’s creating challenges for nearly all of your favorite restaurants.

Labor expenses make up an average of 25% to 30% of restaurants’ sales. Rising wages are forcing fast food and quick-service chains, including Olive Garden, LongHorn Steakhouse, Domino’s, Wendy’s, Jack in the Box, McDonald’s, Shake Shack, and Chipotle, to make a crucial decision: Raise menu prices too much and risk losing customers, or absorb the hit and turn off Wall Street.

“Everybody has to be very careful about pricing. You have to maintain that value perception,” said Howard Penney, a restaurant analyst at Hedgeye Risk Management.

All of the big chains are raising prices as inflation climbs, but Olive Garden, Longhorn, and Domino’s are moving more slowly than McDonald’s, Shake Shack, and Chipotle.

Their choice boils down to simple questions, Penney said. “How much do you want to protect your margins versus how much do you want to drive traffic? How can you hide the price increase to not impact consumer behavior?”

At the same time, the companies want to keep restaurant crews consistent and limit worker turnover. It’s expensive to hire and train new staff, particularly in a tight job market.

Several factors have pushed up labor costs: Restaurants are opening new stores, lifting hourly wages and adding perks to their benefit packages.

Dozens of cities and states also adopted minimum wage increases, and seven states ended a rule allowing employers to pay tipped workers below minimum wage.

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What higher wages means for Domino’s and McDonald’s – Arizona’s Family.