Fast food has had more than its fair share of knocks in the past few years. With America's obesity problem reaching epidemic proportions, the fast-food industry became an easy scapegoat. Movies such as Super-Size Me and books such as Fast Food Nation took highly critical views of the industry and garnered popular acclaim. While the attacks from pundits were a major test for fast-food outfits, a more daunting challenge may be on the horizon.
Even with intense criticism, sales in the segment have hardly crumpled. McDonald's (NYSE:MCD) has engineered a solid performance through healthy items such as salads, and not-so-healthy selections such as the McGriddle. Meanwhile, Hardee's, part of CKERestaurants (NYSE:CKR), turned in admirable results by completely flouting the healthy trend with its Monster Thickburger.
Perhaps it's this very renaissance in fast food and the accompanying surge in sales that has captured the attention of Detroit's mayor, Kwame Kilpatrick. Faced with a major budget crunch, the mayor has proposed a tax on sales at fast-food restaurants, including on healthy items such as salads. The tax, at 2%, would not be onerous, nor would it bring in a ton of money for the city, since revenue from the measure is projected at $17 million, according to The Associated Press.
The fact that the proposal is modest may be what makes it so dangerous for fast-food companies. A small tax is more easily passed, but such taxes have a way of growing in hard times. In addition, once a precedent for taxation is set, other government authorities are likely to follow the leader. The tax could be particularly problematic for companies like CKE that are testing the waters with premium-priced entrees, since even a small tax might affect consumers' decisions.
At the moment, the industry can probably rest easy, since the mayor has to jump through several hoops to put the tax in place. Still, special taxes are an issue fast-food firms can't afford to ignore.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
