How will striking workers affect the fast food franchise industry? It is a question that has been asked frequently lately, especially as more than two hundred workers walked out of more than twenty New York City fast food restaurants just yesterday. All over the country fast food workers are teaming up with labor groups, including the Services Employees International Union, demanding a better wage. The workers advocate a minimum wage of at least $15 per hour, arguing that a wage close to $7.25 per hour is simply not a living wage, especially with the high cost of living in many major urban areas.
It is important to note that this news is especially relevant for franchises and franchise management: 36% of US restaurants identify themselves as franchises and among fast-food restaurants this percentage is much higher. This strike does present a unique series of problems for fast food franchisees, many of which are already feeling the crunch on profit margins due to extensive overhead costs and franchisor fees. First and foremost, the workers are asking for over a 100% wage increase. The bottom line is that to raise wages to an extent would require price increases. McDonald’s infamous dollar menu would probably be more like the $3 menu; not exactly ideal.
Fast food workers continually lament so-called “poverty wages,” wages that fail to provide a decent standard of living. According to a new study from the National Employment Center, they have a valid point. Roughly 52 percent of all fast-food workers are on some form of public aid including food stamps. This costs roughly $3.8 billion annually, with McDonald’s workers alone using $1.2 billion in annual aid benefits. And believe it or not, many professionals insist that wage hike wouldn’t necessarily hurt business. They argue that a wage hike could help to boost the economy, encouraging increased spending among the lowest earners.
But the boost to the economy would not necessarily be a boost in profits for fast food franchises. Why is that? A recent study by Gallup indicates that those earning the least actually are the least likely to eat fast food. So fast food workers would not be spending their extra wages on fast food.
And, of course, increasing the minimum wage would not reduce poverty, said Michael Saltsman of the Employment Policies Institute, because a significant number of companies would likely trim payrolls in order to maintain profits.
But the real question remains… “Is a fast food job actually worthy of a $15 per hour wage?”
I worked at McDonald’s one summer when I was a teenager living in Houston, TX. I was hired as a cook at minimum wage. My grill position required only a few responsibilities such as cooking Big Macs, Filet-o-Fishes, and other such combinations. The same went for my 30 year-old grill-mate.
The McDonald’s grills were equipped with tiny computers that would beep at you when it was time to flip the patties, toast the buns, remove the patties, etc. Cooking burgers and microwaving fish sandwiches were very simple tasks, and this concept of simplicity seemed to apply for many of the other positions I saw during my employment at McDonald’s.
From my experience, many fast food positions are designed to be very specialized and compartmentalized so almost anybody can perform these tasks with minimal training and skills. That said, many fast food jobs may simply not be worth paying someone $15 per hour as a wage. And although $7.25 per hour may not be a living wage, an increase to $15 per hour would be an enormous pay raise and a significant burden to many single and multi-unit franchisees.
One very common misconception is that it’s the franchisor that will pay the tab on payroll increases. Such sentiments are often relected when protesters cite the large CEO salaries and corporate profits of franchise organizations. But the truth is, it’s the single unit or multi-unit franchisee that will be responsible for covering the payroll increases. And there is a huge difference between the franchisor and the franchisee. Simply put, a majority of franchisees will not be able to absorb a 100% payroll increase for minimum wage employees.
As well, wage adjustments can be a slippery slope because once they start it’s hard to contain where they stop. With a minimum wage change, many fast food companies would be forced to increase not only minimum wage employees but possibly the wages of employees that are already making $15 per hour or more.
It’s a very interesting debate and regardless of how you feel about it, the bottom line is that new legislation boosting the national minimum wage seems unlikely, at least at this point in time. Only time will tell how, exactly, this struggle plays out. However, when it comes to franchising and franchise management, especially in the fast food industry, it is certainly something to keep an eye on.
Article by Jason Duncan, CEO/Founder of ManagerComplete.com. ManagerComplete is an online software application that helps multi-unit franchises manage operations effectively. Follow him on Twitter for latest updates.