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View Diary: Detroit Fast Food Emporium to pay $15/hr, Make Profit, and Expand. (103 comments)

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    •  I think this is great (33+ / 0-)

      We need to see fast food restaurants successful at $15/hr to show the rest of the market that you can pay those wage rates and still be profitable. I wish them the best of luck because this is a big deal if they can pull it off.

      "let's talk about that"

      by VClib on Tue Sep 10, 2013 at 11:38:47 AM PDT

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      •  It's not just being profitable (35+ / 0-)

        These restaurants and retail chains could well afford to pay a living wage and be profitable (look to Costco for an example) - THEIR ideal is to make as much profit as possible, even if it means screwing over the workers who provide the goods and services.  It's become the American corporate standard for almost all businesses.  Cisco reported record-breaking profits last year, so they reward their workers by announcing layoffs of over 4,000 employees so they can make even MORE money next year.  Greed upon greed, which is shooting themselves in the foot, since low wages mean no expendable income to spend on products and services, which means that they have to jack up prices to make the same profits, which means even fewer workers can afford to buy, which ... it's a cycle that will have to break soon.   I really don't want to see the explosion when it does.

        •  Real life examples can have a big impact (11+ / 0-)

          The profits of McDonalds Corporation are very different than the profits of the local franchise owner who operates the McDonalds in your neighborhood. It's the franchisee, not McDonalds Corporation who decides how much to pay the person cooking the burgers. McDonalds has no say on how much the workers at your local franchise are paid, other than the franchisee much comply with all local, state and federal employment laws and regulations. I don't know enough (in fact I know nothing) about the economics of an individual franchise and what the franchise owner can afford to pay. But in any event what that franchise owner pays its workers has no impact whatsoever with the profits of McDonalds Corporation because those are not McDonalds employees.

          My point is that real life examples of fast food restaurants who are successful at higher wage rates can influence franchise owners, the actual employers who pay fast food workers. This is about microeconomics at the individual fast food restaurant, not corporate profits.  

          "let's talk about that"

          by VClib on Tue Sep 10, 2013 at 12:16:24 PM PDT

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          •  Would Be Interested To Hear From A Current Or (7+ / 0-)

            former franchise owner about what really goes on in  a franchise and how wages have to be really low to make it.

            All I've ever heard from a "small business" is that wages must be poverty level, taxes have to be non existent, and you have to reject customers who don't meet your cherry picked version of the Christian Bible.

            "I think that gay marriage is something that should be between a man and a woman.” - Arnold Schwarzenegger 2003

            by kerplunk on Tue Sep 10, 2013 at 12:51:34 PM PDT

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            •  kerpluck - me too (3+ / 0-)
              Recommended by:
              kerplunk, jpmassar, kyril

              I am sure it varies by franchise and location, but I would really like to understand the basic economics of a local Taco Bell, or Wendy's. My understanding is that the profit margins are slim, but that is all third hand and anecdotal. It would be good to know how much additional labor costs they could absorb and remain an economically viable and valuable business.

              "let's talk about that"

              by VClib on Tue Sep 10, 2013 at 01:03:48 PM PDT

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              •  If McDonalds corporate has to lower the skim (4+ / 0-)
                Recommended by:
                jpmassar, 207wickedgood, Creosote, JerryNA

                they take off of franchisees to make it continue to be a good investment, they will.

                The alternative is that locations close down, their profits nosedive, and their market share is eaten by both small business and wiser corporate chains.

                My understanding is that franchisees have a median take-home of a quarter million a store. Buying one that's up and running and ready to go costs 1 to 2 million all told.

                The only person I ever actually knew who had one of their franchises purchased it in the early 1970's.  He owned his own location and didn't have to pay the corporation rent.  I knew him in the very late '80's, and this was apparently no longer even an option for franchisees - they all had to rent their store from corporate in addition to paying 4% of gross receipts.

                Something like 15% of McDonalds locations are directly corporate owned.  The corporations absolutely does set the pay rate there.

                "But the traitors will pretend / that it's gettin' near the end / when it's beginning" P. Ochs

                by JesseCW on Tue Sep 10, 2013 at 02:29:52 PM PDT

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                •  No doubt the corporation controls the pay at (1+ / 0-)
                  Recommended by:
                  jpmassar

                  company owned stores. However, at restaurants owned by franchisees McDonalds isn't going to change the amount sent to corporate because an individual owner decides to double his labor costs, on his own. There are some cities in the country where the minimum wage is dramatically higher than the national average and it would be interesting to know if any of the major fast food franchisors cut the local owners any slack on their corporate fees so the franchisee's profit margins are about the same as the national average?

                  "let's talk about that"

                  by VClib on Tue Sep 10, 2013 at 03:10:15 PM PDT

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                  •  If owners have to raise wages to compete (0+ / 0-)

                    for workers, it's going to come out somewhere.

                    If Corporate tries to ram it all down the throat of franchisees, then franchises lose value which is of no benefit to Corporate.

                    Corporate sets "rents" where they like.  This is not rent in any traditional sense - it's an additional percentage of gross.

                    I'm sure that is heavily related to the profitability of a location.

                    "But the traitors will pretend / that it's gettin' near the end / when it's beginning" P. Ochs

                    by JesseCW on Tue Sep 10, 2013 at 03:46:06 PM PDT

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                    •  It would be very interesting to know how the (1+ / 0-)
                      Recommended by:
                      jpmassar

                      franchisee/parent economics works and what the franchise agreements actually say on some of these issues. Is any of this available online, or do the franchisors keep this very confidential until they have vetted any potential new franchisees?

                      "let's talk about that"

                      by VClib on Tue Sep 10, 2013 at 05:19:54 PM PDT

                      [ Parent ]

              •  The profit margins are slimmer (3+ / 0-)
                Recommended by:
                JerryNA, VClib, jpmassar

                at a franchise than they might be at a well-established local chain because you have to buy your product through the megacorporation or their approved sources, and they skim some profit on those sales. You also have to pay regular fees to remain a licensed franchise. So being a franchise puts a rigid floor on the cost of doing business.

                And you're under pressure to meet their recommended prices/promotions (or else you don't benefit from the advertising that your franchise fees are paying for.) So there's a ceiling on your revenue per transaction, even if you live in an area where people might be willing to pay more for similar food from an independent chain that pays its workers well.

                Being a franchisee also limits your ability to adapt to suit the local market. Franchise menus and advertising/branding strategies are fairly standardized, one-size-fits-all things that don't perform particularly badly anywhere but can never push profit margins as high as a local chain optimized for the local market.

                The advantage to a franchise is that the barrier to entry is much, much lower than it is for a true start-up. The initial investment is much smaller; the advertising is already done for you, you don't need to do market research, you don't need to find suppliers - it's all part of the franchise package. But a few years in, if the start-up succeeds, it can run a much higher profit margin.

                "Let’s just move on, treat everybody with firmness, fairness, dignity, compassion and respect. Let’s be Marines." - Sgt. Maj Michael Barrett on DADT repeal

                by kyril on Wed Sep 11, 2013 at 03:09:14 AM PDT

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                •  kyril - that sounds reasonable (2+ / 0-)
                  Recommended by:
                  jpmassar, kyril

                  The national push to raise wages for fast food workers to $15/hr is admirable, and I would love to see them earn a living wage. However, I really do wonder if the local fast food franchisee could afford it, even if s/he wanted to without some fundamental change in the economic relationship with the franchisor?

                  "let's talk about that"

                  by VClib on Wed Sep 11, 2013 at 07:26:24 AM PDT

                  [ Parent ]

            •  Here's my understanding of how it works (3+ / 0-)
              Recommended by:
              JerryNA, VClib, jpmassar

              McDonald's:
              - Does the advertising
              - Obtains and dictates the ingredients
              - Owns the land
              - Manages the payroll

              The Franchisee:
              - Rents the location from McDonald's
              - Must use the dictated ingredients

              Operating one of these is steering through a fairly narrow window.

              Having to use the dictated ingredients makes it impossible for them to sell higher margin product. The only way they can increase profits is to skim on expenses.

              Something important to remember: a lot franchisees actually operate several locations. This gives them a lot of leverage (e.g. they can fire someone and move in a replacement from 3 miles down the road).

              "What could BPossibly go wrong??" -RLMiller "God is just pretend." - eru

              by nosleep4u on Tue Sep 10, 2013 at 04:24:21 PM PDT

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              •  Rents the location from McDonald's (1+ / 0-)
                Recommended by:
                jpmassar

                That's where McDonald's realizes a plurality of their profits. They charge above market rents to their franchisees.

                I'm living in America, and in America you're on your own. America's not a country. It's just a business.

                by CFAmick on Tue Sep 10, 2013 at 09:02:38 PM PDT

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          •  It McDonalds Corporation that decides how much (3+ / 0-)
            Recommended by:
            jpmassar, dagnome, blue in NC

            they're going to skim off of each franchisee.

            "But the traitors will pretend / that it's gettin' near the end / when it's beginning" P. Ochs

            by JesseCW on Tue Sep 10, 2013 at 02:06:17 PM PDT

            [ Parent ]

          •  Franchisees may set wages, but not prices (2+ / 0-)
            Recommended by:
            VClib, jpmassar

            No matter what they pay their workers, they won't be able to charge more than a $1 for the $1 value menu burger, because that's set by the corporation and its nationwide advertising.  No, McDonalds won't lose money, the franchisee will. Which is the way McD designed it.

            Ash-sha'b yurid isqat an-nizam!

            by fourthcornerman on Tue Sep 10, 2013 at 09:31:03 PM PDT

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        •  Exactly. What the corporation aims for is a decent (5+ / 0-)

          quarterly report for Wall Street. If the quarter has been good, their stock is worth more money for the CEO and his board.

          It isn't just a matter of screwing workers for an impersonal corporate profit anymore, it is screwing workers to enhance the value of the top corporate officers' compensation packages.

          •  this is the new American Corporatocracy (9+ / 0-)
            screwing workers to enhance the value of the top corporate officers' compensation packages.
            I call it the Gordon Gekko factor - yuk...

            America's LAST HOPE: vote the GOP OUT in 2014 elections. MAKE them LOSE the House Majority and reduce their numbers in the Senate. Democrats move America forward - Republicans take us backward and are KILLING OUR NATION!

            by dagnome on Tue Sep 10, 2013 at 06:04:21 PM PDT

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          •  Susan, at McDonalds all the officers and directors (1+ / 0-)
            Recommended by:
            jpmassar

            as a group own less than 1% of the outstanding shares as you can see here:

            http://finance.yahoo.com/...

            There is no doubt that McD is run to please Wall St as the stock is owned by mutual funds and other institutional investors, and the officers and directors do benefit from higher share prices. But the company isn't run in a manner to please Wall St. because of equity incentives for the management and the board. As a public company McD's is subject to the "Revlon Rule" which requires that they manage the company in a manner that maximizes the long term value for shareholders.

            "let's talk about that"

            by VClib on Wed Sep 11, 2013 at 07:38:02 AM PDT

            [ Parent ]

        •  we are getting a COSTCO here (5+ / 0-)

          there've been stores in El Paso and Dallas/Ft. Worth and Houston and San Antonio for EONS. Lubbock? Five super mal-warts.
          But Costco's building, on Highway 114 between Lubbock and Levelland. Yay!!!!!!1111!!!!

          LBJ, Van Cliburn, Ike, Wendy Davis, Lady Bird, Ann Richards, Barbara Jordan, Molly Ivins, Sully Sullenburger, Drew Brees: Texas is NO Bush League!

          by BlackSheep1 on Tue Sep 10, 2013 at 03:03:16 PM PDT

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      •  A very big deal (2+ / 0-)
        Recommended by:
        VClib, jpmassar

        This is great and I'm praying they set an example. I think what needs to happen is for one of the big guys to follow suit. I believe it will happen, and when it does it's just a matter of time before the rest follow.

    •  they can't even use their SNAP cards (2+ / 0-)
      Recommended by:
      kyril, jpmassar
      paid their workers starvation wages and force many of them to be subsidized by government programs like SNAP.
      to buy Moo Cluck Moo - which is ridiculous.
      Anyone getting food stamps should be able to purchase fast food and hot foot in grocery stores (can only buy prepared cold food, subs, etc.)

      "Tax cuts for the 1% create jobs." -- Republicans, HAHAHA - in China

      by MartyM on Tue Sep 10, 2013 at 04:03:31 PM PDT

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    •  Think of it! (5+ / 0-)

      A decently paid, healthy employee with subsidized insurance and decent job security. Surely teh socialism is teh eeeeevil!

      Breathe. If you can, you ain't dead yet.

      by Socratic Method on Tue Sep 10, 2013 at 05:16:18 PM PDT

      [ Parent ]

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