Legal Battle Unveiled: McDonald’s Confronts Antitrust Claims Involving Employee ‘Poaching’

Jason Robinson on December 4, 2023

The News

In a recent development, a U.S. appeals court has reignited a legal dispute involving McDonald’s Corp (MCD.N), a global fast-food giant.

The company is facing allegations of violating federal antitrust law by imposing restrictions on franchisees, preventing them from recruiting employees from each other’s establishments.

The case revolves around the controversial “no-poaching” agreements, which have sparked a nationwide discussion on their legality and implications.

Revival of Claims by Appeals Court

The 7th U.S. Circuit Court of Appeals in Chicago has breathed new life into the antitrust claims against McDonald’s. The court’s decision came as a response to the dismissal of a proposed nationwide class action last year.

The initial judge’s ruling failed to comprehensively assess the validity of the “no-poaching” agreements, leading to a revival of the legal battle.

Scrutinizing the “No-Poaching” Agreements

While the agreements were initially deemed valid by the judge due to their role in safeguarding franchisees’ investments in employee training, the 7th Circuit raised pivotal questions. The court emphasized the need for a closer examination of whether these agreements should apply universally across the country and whether their duration, extending six months beyond an employee’s departure, is justifiable.

Deeper Analysis Required

Circuit Judge Frank Easterbrook stressed that the questions surrounding the “no-poaching” agreements extend beyond a simplistic assessment. He noted that a broader consideration is essential and that the impact of these agreements can’t be measured solely by the expansion of food output as presented in individual franchise contracts.

Silent Responses and Legal Standpoint

Curiously, neither McDonald’s nor the plaintiffs’ legal representatives provided immediate comments following the latest court decision. The silence adds to the intrigue surrounding the case, leaving room for speculation about potential strategic moves from both sides.

Revisiting the 2022 Ruling

The case centers on two former McDonald’s workers who are challenging a 2022 ruling by U.S. District Judge Jorge Alonso in Chicago. This initial ruling dismissed claims that the “no-poaching” agreements hindered competition and suppressed wages.

The agreements, which barred franchisees from recruiting individuals who had previously worked at other McDonald’s establishments within the United States for six months after their departure, are at the heart of the dispute.

Evolution of McDonald’s Practices

McDonald’s has taken steps to alter its stance on “no-poaching” agreements, as reflected in court filings. The company announced in 2017 that it would no longer require franchisees to enter into such agreements.

This shift aligns with a broader trend among major fast-food companies, which have also distanced themselves from these agreements due to increasing scrutiny and state-level investigations.

Strong Allies and Allegations of Wage Suppression

Support for the plaintiffs’ appeal has come from notable sources. The Biden administration and Democratic attorneys general from 20 states and Washington, D.C. have submitted court briefs, contending that the “no-poaching” agreements orchestrated by McDonald’s unlawfully contribute to the suppression of workers’ wages. This support bolsters the plaintiffs’ position in their legal battle.

Class Certification Reconsideration

The 7th Circuit not only reinstated the claims but also urged the district court judge to reevaluate his decision to not certify a nationwide class in the lawsuit. McDonald’s has suggested that the class could encompass millions of workers, underscoring the potentially extensive impact of the legal proceedings.

The Text Message Exchange: Insights into Kempczinski’s Perspective

The revelations from court filings unveiled a candid exchange between Kempczinski and Mayor Lightfoot. Kempczinski referenced the unfortunate shooting incidents of a 7-year-old girl at a Chicago McDonald’s and another child within the city.

He conveyed his opinion that the parents of the children had failed them, an assertion he recognized as a sensitive and complex matter. The messages, while raw and unfiltered, ultimately highlighted his evolving perspective.

A Public Apology: Acknowledging and Rectifying a Narrow Worldview

Following the disclosure of the text messages, Kempczinski took to the public platform to express remorse and acknowledge the limitations of his viewpoint. He openly admitted that the text messages revealed a narrow worldview he was committed to rectifying.

This instance showcased the CEO’s willingness to engage in self-reflection and work towards personal growth, underlining the importance of humility and continuous improvement in leadership roles.

Inadequate Response: Peaster’s Evaluation of Kempczinski’s Actions

A significant ripple effect emerged within McDonald’s corporate headquarters, as Peaster, the company’s vice president of global safety, security, and intelligence, evaluated Kempczinski’s response to the incident. Peaster opined that the CEO’s reaction was inadequate, highlighting the need for empathy and compassion for families residing in challenging communities. This perspective illuminated the broader implications of corporate leadership on societal issues.

Internal Dynamics and Allegations: Retaliation and Termination

Subsequent to the evaluation meeting, an internal power struggle seemed to unfold. Allegations emerged that Kempczinski and other executives retaliated against Peaster.

They reportedly refused to meet with him and created barriers that hindered his job performance. Ultimately, Peaster was terminated in November of the same year, ostensibly due to alleged performance concerns.

The lawsuit he filed shed light on the intricacies of workplace dynamics, accountability, and consequences.

Seeking Justice: Peaster’s Legal Pursuit

Peaster’s lawsuit sought not only to address his termination but also to claim damages for emotional distress. The legal action aimed to hold the organization accountable for its alleged actions, sparking conversations about workplace ethics, leadership responsibility, and the legal recourse available to employees facing adverse conditions.

Conclusion

The revived legal battle between McDonald’s and former workers sheds light on the contentious issue of “no-poaching” agreements within the fast-food industry. As the case unfolds, it highlights the need for a comprehensive assessment of such agreements’ implications on competition, wages, and the broader employment landscape.

Fast-food survive Q4 as a leader in revenue

Leah Cooper on February 12, 2023

Fast-food – Businesses from a broad range of industries have already started to submit their quarterly results following the fourth quarter.

Overall, it’s a mixed bag, with fast-food restaurants performing well.

The good news is that casual dining and fast-casual restaurants have had problems attracting new patrons.

The news

Very few publicly listed restaurant companies have released their most recent quarterly results, despite the fact that the fourth quarter has concluded.

A new trend was emphasized by the few who reported it.

During the Christmas season, consumers who were dealing with inflation cut back on eating out and shopping.

Instead, fast-food outlets offer restricted menus and discounts to entice customers from a range of socioeconomic levels.

Economy resilience

The market has been affected by economic upheavals and downturns throughout the years, but the fast-food sector has consistently been among the most resilient.

For instance, McDonald’s, one of the biggest fast food chains in the industry, recorded same-store sales growth of 10.3%.

Low-income customers, who came more frequently than they had in the previous two quarters, were primarily responsible for the increase.

Executives claim that the Adult Happy Meal marketing was a resounding success.

When incorporated into McRib’s yearly return, they greatly enhanced sales.

Contrary to expectations from the industry, the fast-food giant’s US traffic increased for a second consecutive quarter.

Other chains

A different fast-food business, Yum Brands, said there was significant US demand.

Taco Bell’s domestic same-store sales increased by 11% throughout this time.

The increase in morning orders, the return of Taco Bell value meals, and the enduring appeal of Mexican pizza are the causes of the remarkable sales.

Pizza Hut’s same-store sales increased by 4% in the US.

KFC had a paltry 1% gain and difficult year-over-year comparisons.

In the next few weeks, more fast-food restaurants aspire to elevate their position.

Burger King’s parent company, Restaurant Brands International, is anticipated to release its fourth-quarter financial results on Tuesday.

Pizza Hut will report its financial results on February 23.

A disappointing quarter

Despite the fact that many fast food businesses claimed growth, Chipotle Mexican Grill’s sales were a touch underwhelming.

For the first time in more than ten years, the company’s quarterly profits and sales on Tuesday fell short of Wall Street expectations.

Customers were told by Chipotle’s CEO, Brian Niccol, that there had not been a “meaningful resistance” to the fast-food restaurant’s price increases.

Instead, management at Chipotle provided a list of explanations for its disappointing performance, including:

Bad economic weather
The underperforming debut of the Garlic Guajillo Steak
Challenging comparisons to 2021’s brisket launch
Seasonality

Chipotle’s chief financial officer, Jack Hartung, blamed the dip in December on the month’s subpar retail sales.

“As we got around the holidays, we didn’t see that pop, that momentum, that we normally see,” said Hartung.

“Frankly, we started the quarter soft, and we ended the quarter soft.”

According to Chipotle, traffic started to go up in January.

The Omicron outbreaks from a year ago, which forced Chipotle and other businesses to either close their doors early or for a small period of time, are easy to compare to, though.

The moderate January weather raised demand across the board for the sector, claims a research note issued by Bank of America analyst Sara Senatore and published on Wednesday.

The fourth quarter financial records for the fast-casual food industry are still unavailable to the general public.

The date of February 16 has already been decided by Shake Shack.

However, the massive fast food restaurant business acknowledged at the beginning of January that its same-store sales growth fell short of Wall Street forecasts.

Portillo’s will report its profits on March 2, while Sweetgreen will do so on February 23.

The casual dining scene

Although the fast-food industry has mostly prospered, fast-casual restaurants have had more difficulties than casual dining establishments.

Casual dining establishments struggle to bring in new clients since Chipotle, Sweetgreen, and Shake Shack have established themselves as preferable alternatives.

Red Lobster and Applebee’s used a variety of strategies, including significant discounts and increased promotional expenditure.

The problem already existed for many restaurant firms, including Brinker International, and the rise in inflation did little more than make it worse.

Chili’s Grill and Bar is now being turned around by the firm.

Brinker said at the beginning of the month that for the three months that concluded on December 28, Chili’s traffic fell 7.6%.

Investors were told on the conference call by Brinker’s CEO and former US President Kevin Hochman that a decline was anticipated as the company attempted to lessen its reliance on unfavorable agreements.

Chili’s increased their prices to discourage customers from using coupons.

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Robots prove clinical to restaurant industry this year

Leah Cooper on January 2, 2023

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Robots: The hospitality industry, and restaurants in particular, have adjusted their strategies to incorporate more technology in recent years.

Recently, more AI has been incorporated into restaurants.

For instance, Chipotle Mexican Grill is testing whether robots can make tortilla chips at some of its branches.

Meanwhile, two Sweetgreen locations intend to automate the creation of their salads.

Starbucks wants to upgrade its coffee-brewing equipment to lighten the workload for its baristas.

The progress so far

In 2022, the restaurant industry announced a number of automation initiatives.

Operators scrambled to find solutions for the diminishing staff and growing wages, which led to the decision.

However, efforts have varied during the course of the year.

It will be years before utilizing robots pays off for businesses or replaces employees, according to experts.

David Henkes, the principal of the restaurant industry analysis firm Technomic, said:

“I think there’s a lot of experimentation that is going to lead us somewhere at some point.”

“But we’re still a very labor intensive, labor-driven industry.”

Early struggles

Prior to the pandemic, hiring and retaining workers was a challenge for restaurants.

Those who were laid off looked for other jobs as the pandemic just made the issue more evident.

The National Restaurant Association reports that a shortage of competent workers prevents three-quarters of restaurants from operating at full capacity.

Although restaurant operators increased pay to entice personnel, the rising cost of food also put pressure on profits.

Automation-focused startups presented themselves as the solution, saying that robots are more dependable than burnt-out humans at completing tasks.

They noted that artificial intelligence allows for more precise drive-thru order entry into computers.

Automation

Most of the announcements in 2022 came from Miso Robotics, which secured $108 million in November.

They were valued at $523 million, according to Pitchbook.

The company’s most significant invention is a robot named Flippy.

Flippy may be configured to prepare chicken wings and burgers for a monthly rental fee of $3,000.

White Castle promised to install 100 additional Flippy models while renovating four locations.

A new tortilla chip-making robot named Chippy is now being tested by Chipotle Mexican Grill at a site in California.

Miso’s CEO, Mike Bell, stated:

“The highest value benefit that we bring to a restaurant is not to reduce their expenses, but to allow them to sell more and generate a profit.”

Flippy hasn’t been able to go past the testing phase at Buffalo Wild Wings after operating there for more than a year.

Other progress

One of the privately held startups that Inspire Brands claimed it collaborated with to automate the frying of chicken wings is called Miso.

Startup Picnic Works produces equipment for adding cheese, sauce, and other condiments on top of pizza.

A Domino’s franchise is now testing the technology in Berlin.

As a starting point, Picnic Works charges $3,250 per month to hire out its equipment.

CEO Clayton Wood claims that the subscription makes the technology more affordable for smaller businesses.

According to Pitchbook, Picnic Works raised $13.8 million at a $58.8 million valuation.

Panera Bread has been testing automated ordering using AI technologies.

It also has a temperature and volume tracking Miso system to improve the quality of the coffee.

“Automation is one word, and a lot of people go right to robotics and a robot flipping burgers or making fries,” said Panera Bread chief digital officer George Hanson.

“That is not our focus.”

Even with the advancements, success is not guaranteed.

Beginning in 2020, Zume ceased employing robots to prepare, cook, and deliver food.

Instead, the company focused on food packaging.

Labor

Workers and labor advocates frequently criticize employers for eliminating jobs through the use of robots and automation in the workplace.

Meanwhile, restaurant operators have touted their efforts as a way to improve working conditions and eliminate more challenging tasks.

The process of creating salads will be automated at two new Sweetgreen locations that will be built next year using technology created by the startup Spyce.

The new restaurant model, according to Nic Jammet, co-founder and CCO of Sweetgreen, requires fewer workers for shifts.

Jammet noted that lower turnover rates and more employee satisfaction were secondary advantages.

According to Dalhousie University economist Casey Warman, the industry’s penchant for automation will lead to a permanent drop in the number of workers.

“Once the machines are in place, they’re not going to go backwards, especially if there’s large cost savings,” said Warman.

He continued by saying that the pandemic significantly decreased resistance to automation.

In the early stages of the pandemic, customers were accustomed to grocery store self-checkout lanes and relied on mobile apps to make their food orders.

Ball State University assistant professor Dina Zemke studies consumer perceptions of restaurant automation.

Customers were sick of restaurants’ limited hours and slow service, Zemke noted, because of a labor shortage.

In a third-quarter Technomic study, 22% of the owners of more than 500 restaurants said they were investing in equipment that would eliminate the need for kitchen staff.

19% of households also started using labor-saving technologies for ordering.

Skepticism

Although there are benefits to automation, it is still uncertain whether there will be any cost savings.

McDonald’s tested order-taking technology for drive-thrus years ago after acquiring the AI startup Apprente.

Months after announcing the test, the fast food giant sold the unit to IBM as part of a collaboration to improve the technology.

In over twenty Illinois test branches, the voice-ordering program’s accuracy was only 80%, falling short of the targeted 95% accuracy.

During an earnings call this summer, McDonald’s CEO Chris Kempczinski discussed automation.

“The idea of robots and all of those things, while it maybe is great for garnering headlines, it’s not practical in the vast majority of restaurants,” said Kempczinski.

“The economics don’t pencil out. You’re not going to see that as a broad-based solution anytime soon.”

However, the potential for automation in trivial tasks is higher.

White Castle vice president Jamie Richardson asserted that innovations like Coca-Cola Freestyle machines had a bigger impact on sales.

“Sometimes the bigger automation investments we make aren’t as earth shattering,” said Richardson.

Reference:

Why restaurant chains are investing in robots and what it means for workers

The Hamburglar returns for McDonald’s adult-catered Happy Meals

Edward Anderson on October 3, 2022

McDonald’s brings back the Hamburglar, an old favorite of older customers that has been missing for years – and it will only be for adults.

The Happy Meal

The Hamburglar celebrates its triumphant return to McDonald’s as part of a figure that was occupied in a new happy meal for adults.

The Happy Meal for adults will continue to involve toys.

McDonald’s begins the Happy Meal for adults on October 3, and customers can order the Cactus Plant Flea Market.

The Cactus Plant Flea Market box and the toy

The box contains a Big Mac or 10 pieces of chicken with fries and a drink. The Cactus Plant Flea Market Box is a collaboration between McDonald’s and the streetwear brand.

It is a concerted effort to immerse older customers in nostalgia.

The nostalgic special is served in a specially designed box that reminds shoppers of the good old days and the Happy Meals they grew up with.

The Happy Meal toys feature a remastered version of the fast food chain’s famous mascots.

Birdie, Grimace, and Hamburglar are joined by a new mascot called Cactus Buddy.

Tariq Hassan, director of marketing and customer office for McDonald’s in the United States, released a statement following the announcement.

“We’re taking one of the most nostalgic McDonald’s experiences and literally repackaging it in a new way that’s hyper-relevant for our adult fans,” he said.

Cactus Plant Flea Market

McDonald’s (MCD) has often had success working with celebrities, often crediting them with helping their sales go above and beyond.

In the past, the fast food chain has worked with names like J Balvin, BTS, and Travis Scott.

The collaboration with Travis Scott proved so popular that McDonald’s branches often ran out of meals.

For this collaboration, McDonald’s has found a reliable partner with Cactus Plant Flea Market.

Cactus Plant Flea Market is a streetwear brand populated in recent years by artists like Kanye West and Pharrell.

The media ensemble described the brand’s aesthetic as a “fluid and quirky combination” mixed with “playful graphics.”

The elusive origins of the brand have been a huge draw for fans of the brand.

The Cactus Plant Flea Market Hoodie is on sale for up to $ 1,000 on StockX’s online marketplace.

Reference:

McDonald’s is selling Happy Meals to adults — with a twist

Low sales prompts Burger King to make huge investments for the long run

Nicholas Alexander on September 12, 2022

On Friday, Burger King announced plans to spend $400 million over the next two years to promote and renovate its restaurants.

The decision is part of a broader strategy to revive US sales.

Investment

At its annual franchisee conference, Burger King shared its plans for Las Vegas.

The investment is expected to increase by 10 to 12 cents a year based on adjusted earnings per share this year and next.

The company expects that the investment will pay off in 2025.

Meanwhile, Wall Street analysts polled by Refinitiv expected earnings per share of $3.24 next year.

Sales

Burger King’s US same-store sales growth was flat in the second quarter. The burger chain has lagged rivals like McDonald’s and Wendy’s with weak sales in the US last year.

The sales numbers worry Restaurant Brands CEO Jose Cila. During his tenure as CEO, Cil worked to revive demand for Burger King’s sister chain, Tim Hortons, in Canada.

Last year, he also hired former Domino’s Pizza CEO Tom Curtis as the new president of Burger King in the US and Canada.

Some of Burger King’s changes include a more streamlined menu to reduce wait times and fewer paper coupons to encourage customers to switch to its mobile app.

Changes

Burger King will make bolder changes. The company plans to spend $200 million to finance renovations at more than 800 locations.

More than $50 million will be used to upgrade more than 3,000 restaurants, including improvements to technology, kitchen equipment, and buildings.

Burger King hopes that a more selective and strategic approach to other projects will lead to better revenue growth, although it may take some time to see results.

“We might see remodels start to hit the market mid-2023 and going forward,” said Cil.

“It should really be a gradual ramp of the business over the course of the couple of years.”

The company also increased its advertising budget by 30%, investing $120 million over the next two years.

Investments will start in the fourth quarter.

“We expect that to start having an impact on sales over the next quarter,” Cil said.

$30 million will be spent on improving mobile apps by 2024.

Burger King also plans to revamp its menu in a multi-year project that includes developing new Whopper flavors, committing to Royal Chicken Crisp sandwiches and investing more in employee training.

Franchise support

Burger King’s strategy is supported by subsidiaries that operate 93 percent of its restaurants in the United States.

Operators and companies will spend money on renovations and advertising.

Over the past three to six months, Tom Curtis and his team have been building a pool of franchisees to develop a strategy.

In addition to Burger King’s funding, franchisees upgrading restaurants must make similar investments to finance these projects.

Burger King is also changing its incentive structure, encouraging the operator to undertake a major overhaul.

The operator of the former renovated Burger King restaurant has been granted a discount on advertising and licensing fees for more than seven years.

The new program also provides them with funding after projects are completed and allows them to choose a discount on royalties paid to the company.

However, Burger King franchisees will have to pay higher ad fund fees if profitability targets are met.

References:

Burger King unveils $400 million plan to revive US sales with investments in renovations and advertising

Burger King investing $400m in US revamp to boost sales