McDonald’s and Noodles & Co.: Do Higher Prices, Higher Wages Win?

McDonald's

Noodles & Co. and McDonald’s (NYSE:MCD) are two popular restaurant chains that have similar consumer bases but do things a little differently. Noodles charges higher prices and pays its staff more, while McDonald’s prides itself on the lowest prices in the game, meanwhile managing many angry employees.

Both companies have been in the news this week, one on account of its CEO’s comments and another because of the six lawsuits it is facing. These cases arguably point a spotlight on the question of if it’s better for a business to charge higher prices and maintain happy employees or please its customers with Dollar Menu items but then saddle its workers with the low costs.

Noodles CEO and Chairman Kevin Reddy explained in an interview with CNBC this week why his company has a no-tipping policy. Noodles has about 380 locations in twenty-nine states and Washington, D.C., and at all of its stores, it recommends that customers don’t tip its employees. If customers insist on tipping despite the policy, workers are allowed to accept them, but Reddy still encourages consumers that they don’t. Why? “Respect doesn’t cost you anything,” he said. “Being nice doesn’t cost you anything, and we don’t really feel that folks should have to pay something additional for us to appreciate that they’re choosing us over another restaurant.”

Reddy’s explanation is reasonable, and it didn’t garner any criticism the way McDonald’s CEO Don Thompson’s recent interviews have. That might be because, according to CNBC, Reddy stressed that the recommended policy isn’t about denying team members tips — it’s more about ensuring its customers don’t feel like Noodles is “trying to upsell them.”

Source: http://www.flickr.com/photos/15427785@N04/

The company is already confident that it pays its employees enough money to make sure their earnings aren’t an issue: That’s where Noodles and McDonald’s business strategies diverge. Noodles isn’t worried about its employees complaining about their wages, hence why Reddy is so open about his no-tipping policy, while McDonald’s can’t say the same about its workers. It doesn’t take strikes and lawsuits to communicate to Mickey D’s that its employees aren’t pleased.

But just in case McDonald’s wasn’t sure, the chain was slapped with a number of lawsuits last week that made its employees’ frustrations ever so clear. Seven employees of McDonald’s restaurants in Detroit, Highland Park, and Southfield filed two federal lawsuits on Thursday claiming that the chain’s staffing and uniform policies put their actual compensation below minimum wage, while four other lawsuits were filed in New York and California in a coordinated campaign. They allege that employees were directed to come into work but only to clock in once enough customers were present who required their service.

McDonald’s is now in the midst of investigating those allegations. Meanwhile, many of its employees are supporting the workers who filed the lawsuits and are backing the campaign that is still  calling for $15-per-hour minimum, the same benchmark McDonald’s employees went on strike for in December, as well as several times in 2012.

M Live reported Wednesday that activists in Detroit showed their support this week, as dozens of protests briefly blocked a McDonald’s drive-thru in a demonstration on Tuesday.

There is significant evidence that McDonald’s employees are a little more upset than Noodles’ are right about now, even though the latter’s CEO just encouraged its customers not to tip the company’s servers. However, it just goes to show how high wages can keep employees silent and satisfied.

The average meal at Noodles costs about $8, much more than the average dinner at McDonald’s. Nonetheless, at least customers at Noodles don’t need to worry about their restaurant being blocked by protestors upon their arrival, whereas McDonald’s patrons do.

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