December 2013

How Will Striking Workers Affect Fast Food Franchise Management?

Striking Fries

 

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.

Sources:

http://www.gallup.com/poll/163868/fast-food-major-part-diet.aspx

http://www.forbes.com/sites/caroltice/2013/10/15/fast-foods-dirty-secret-workers-are-starving/

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.

Running a Franchise with a Zero Turnover Rate

It’s no secret that a high employee turnover rate is one of the biggest problems in the restaurant franchise industry. In fact, most quick service restaurants have an annual employee turnover rate of 60 percent or higher. This problem is more than just a nuisance. It can seriously cut into your business’ bottom line. Searching for, hiring, and training new employees takes time and money. It is far better economically to maintain current employees than it is to hire new ones.

Furthermore, happy, fulfilled employees translate into better customer service. “We have something I call the customer-retention formula,” said John Boyens, co-founder and president of the Nashville, Tennessee-based sales and management consulting and training firm Boyens Group. “Employee satisfaction drives customer satisfaction. Customer satisfaction drives customer retention. Happy employees equals happy customers. Never in the history of business has a disgruntled employee delivered delightful service.”

When it comes to franchising, one problem that James Kolzow doesn’t have is employee turnover. Kolzow opened a Pancheros franchisee back in 2009, and insists he has maintained a virtually 0 percent employee turnover rate over the course of the last five years. And by maintaining a low turnover rate, Kolzow has seen his profits soar. He first hit the $1 million mark two years ago, a mere three years after setting up shop. So, what’s the secret to his success? Let’s have a look at the tips and tricks to running a franchise with an incredibly low turnover rate.

Develop a clear brand identity. “I truly believe in the ‘fox and hedgehog’ concept of doing one thing really well versus many things above average,” Kolzow explained. “Pancheros has a very simple concept of focus on what they do really well: burritos. Quality ingredients prepared fresh daily is something that I believe in, and the quality shows in the end product. In the décor, kitchen, and menu, simplicity done right is the overall goal.” Kolzow maintains that this clear focus and structure helps to keep employee retention rates high.

Build a culture of respect. The second generation of Lion’s Choice, Jim Tobias, is committed to treating employees with kindness and respect, as well as always compensating them appropriately. While that sometimes means spending more in benefits or training (he offers health insurance and life insurance to full-time employees at all company-owned stores), his efforts have paid off.  The average tenure of a manager at one of the franchise’s 23 restaurants is an impressive six years. “I think a lot of larger restaurant chains are concerned with showing good numbers every quarter, and they try to squeeze as much as they can out of every employee. That’s great for them in the short term, but terrible in the long run,” he explained. “I’ve had so many employees that have played that game before coming to Lion’s Choice. They love the fact that they know what they’re in for here. We want them to feel that what they’re doing today is something they can handle years into the future.”

Invest in hiring and recruiting practices. An excellent way to mitigate employee turnover is to make excellent hiring choices. This means developing truly excellent hiring procedures and recruitment practices. Identifying qualified employees isn’t necessarily easy. “The biggest problem is that companies go looking for employees in the wrong place,” said Mel Kleiman, founder of Sugar Land, Texas, consulting firm Humetrics, which specializes in recruiting and retention. “They look in the easy pools without any big fish. They’re looking for people who are looking for jobs.” Don’t wait for applicants come to you; instead, search for applicants. This means engaging the help of professional headhunters and recruiters. We promise it will pay off dividends in the long run.

 

Quote Sources:

http://www.entrepreneur.com/article/239250

 

http://www.entrepreneur.com/article/225486

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.