Can Fast-Food Restaurants Pay Their Workers More?

William Finnegan at The New Yorker tells the story of Arisleyda Tapia as part of an in-depth report on the fast-food workers movement. She’s one of thousands who’ve banded together to demand a minimum wage increase to $15 an hour.

Arisleyda makes $8.35 an hour in the costliest city in the country. She and her daughter sleep together on a bed in a partitioned-off apartment room. She has two children back in the Dominican Republican.

The Heritage Foundation predicts dire results if these union-backed walkouts and other protests succeed.

Owners would have to raise prices by 15% to cover the additional wage costs, Heritage says. Customers would react by ordering cheaper items, eating at home more often or upscaling to restaurants with more menu choices, table service and the like.

So owners would have to raise their prices even more because they’d be making less, but still have to cover fixed non-labor costs, e.g., supplies, rent, insurance. Next thing you know, they’d be left with profits averaging only $6,100 per restaurant per year — a 77% loss.

Or they’d automate tasks now performed by workers. Some already are, but Heritage says the shift to technology would accelerate. So there go those entry-level jobs that supposedly give young, low-skilled workers a foothold on the ladder to higher-paid positions.

In short, we ultimately get the old harms-those-intended-to-help argument, plus alleged harms to all the many consumers who now favor fast food.

I dignify this brief with a post mainly because Campaign for America’s Future includes in its rebuttal a point that’s often ignored — and one that’s often occurred to me, based on what I learned during my years at McDonald’s Corporation.

Specifically, fast-food restaurant owners who are franchisees, as a great many are, have low profit margins in part because of what the parent corporation exacts in fees, charges for advertising and royalties — usually a percent of gross sales.

McDonald’s franchisees also fork over payments for rent, training, software and other items. Burger King charges for at least some of these and has some of its own.

Franchisee payments account for about a third of McDonald’s revenues, according to Vanessa Wong at Bloomberg BusinessWeek. The percent for BK is even higher, she reports.

Last year, McDonald’s U.S. franchisees contributed more than $4.3 billion to the company’s coffers. No comparable figure for BK because it reports the U.S. and Canada together.

If we can trust Heritage (a question mark), fast-food restaurant owners — including, but apparently not limited to franchisees — clear, on average, 3% in profits before taxes. But McDonald’s own profit margin, as of June, was somewhat over 19%.

What this means, CAF concludes, is that “McDonald’s and other large fast-food companies have successfully shrugged off responsibility for the welfare of its [sic] workers by making the franchisees responsible.”

This, to me, isn’t quite what the numbers say. And I’m not comfortable with the implicit attack on franchising in and of itself. But the numbers do suggest that the fast-food companies bear part of the responsibility for the low wages their franchisees pay.

They’re not solely responsible, however. We consumers can’t reasonably dump all the blame on them, since so many of us routinely patronize fast-food restaurants, knowing how little they pay. And big fast-food companies like McDonald’s are shareholder-owned.

All this — especially what fast-food companies do and could do — warrants more explanation than even my somewhat flexible length limit allows. So I’ll leave off here and return to the topic in a separate post.

UPDATE: Shortly after posting this, I discovered that the National Restaurant Association has cited 3% as the typical fast-food restaurant’s earnings, before interest, taxes and amortization. This well may be the Heritage Foundation’s source. Whether trustworthy is a different issue. In 2010, the Association and Deloitte & Touche jointly reported 6% as the average profit before taxes for “limited-service” restaurants.

 

 

One Response to Can Fast-Food Restaurants Pay Their Workers More?

  1. […] see. Where was I? In the midst of dissecting responsibility for the low wages so many fast-food workers are […]

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