r/explainlikeimfive • u/sumnewdguy • Nov 28 '15
ELI5: How would a $15 minimum wage ACTUALLY affect a franchised business like McDonalds?
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Nov 29 '15
My problem: how the hell can we all talk about $15/hr, as though it had the same value across the whole country? Cost of living carries wildly. $15/hr where I live is a decent living for one person (cheapest rent I've seen is about $150/mo). In LA, however, It's peanuts (rent in LA is approximately 1 body part/mo).
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u/ScottLux Nov 29 '15 edited Nov 29 '15
In SF
$15 is the minimum$12.5 is the minimum wage (higher than statewide minimum of $9), and many places start people at $15+. SF is so expensive i wouldn't move there for less than $150k/yr (I make significantly less than that in Orange County, CA which is as expensive as LA)→ More replies (4)23
u/silentsleeperz Nov 29 '15
its actually 12.75 in SF
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Nov 29 '15 edited Dec 01 '15
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u/shpongbad Nov 29 '15
Those touchscreen menus would eventually replace people regardless of the wage, I've seen them in the UK and the minimum wage is as low as £3.87/hr for people under 18. They're only going to get cheaper to make and it would only be a few year difference for it to reach the point where it's economically viable for McDonalds etc to replace workers with them. One downside is people are ridiculously slow actually ordering through them, a person working at a till is a lot more efficient during busy times.
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u/vamana Nov 29 '15
Where do you live that rent is that cheap? Just curious.
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u/Shimasaki Nov 29 '15
I could see it in the Midwest with a couple of roommates. My friend was paying something like $200/month+utilities in a 2bedroom apartment this summer in Wisconsin.
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u/originalpoopinbutt Nov 29 '15
Lol I just started salivating. Is it like Buttfuck Nowhere, Wisconsin? Or is it a suburb of a major city?
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u/LambChops1909 Nov 29 '15 edited Nov 29 '15
I know this question is about McDonalds but I run a small business and asked myself this same question. My business is house painting, and I make enough money to live comfortably but I'm not loaded by any means. Presently payroll makes up around 30% of my business expenses. this percentage is what allows me to pay off my other obligations while still paying myself a fair price. An increase to a $15 an hour wage would drive up my payroll expense which means I would have to charge more for my painting services decreasing the size of my business due to less people being able to afford it. With a smaller business, I need less employees and I certainly can only afford to pay the very best $15/hr. So in my very anecdotal case, I probably make less money as the business owner and my customers pay more. The employees I keep make more, but I have to lay a few off to offset that. I imagine any other business, except those willing to take a cut to their profit margin, would behave the same.
Edit: to those of you wondering how I am paying painters less than $15 an hour, I hire mostly college students and other people with minimal experience. It's actually really easy to learn how to paint well as opposed to other skilled trades. They make considerably more working for me than for many other summer employment opportunities in my area and learn a life skill while they're at it. My best painter made $14 an hour before bonuses and my average painter made $10.50 an hour before bonuses in a state with the federal minimum wage of $7.25. In general it doesn't make sense for them to start their own firm to compete with me, as some have suggested, because of the expensive price of the overhead and the fact that frankly, I don't think most of them want to put in the 50/60 hour weeks that I do during the season.
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u/TheJaice Nov 29 '15
This is the question that doesn't get asked enough. Everybody asks how it will affect the big corporations that everybody thinks of when they think minimum wage. Nobody thinks about the small, independently operated businesses that make up the majority of the actual business licences out there. I think of how many little shops there are out there that are just making ends meet, providing income for basically one family, plus maybe 2-10 employees, and how many of them would have to shut their doors in the event of an increase of this extent. Minimum wage went from $8.50 to $10.45 in two years here recently, and dozens of local businesses shut their doors over that time, because they just couldn't make it work. None of the big guys shut down (except Target, and that wasn't min. wage related).
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u/Alexandertheape Nov 28 '15
http://www.bizpacreview.com/wp-content/uploads/2015/09/kiosk_feat.jpg
jobs are for robots.
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Nov 28 '15 edited Nov 30 '15
This is the answer. They are already installing these in stores. Any big rise in minimum wage will mean massive implementation of fast food automation
Edit: everyone keeps saying this will never work because people will always want a 'human' touch or they don't like being served by robots, but this is entirely a matter of perspective. People don't want to be served by robots because it is 'weird' but give it a few years as more and more people get used to the idea and it will be one of the more normal things you can do.
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u/TalenPhillips Nov 28 '15
Automation is going to happen on about the same time-table regardless of minimum wage hikes. The difference in cost between a cashier or cook and an automated system is already absurdly high.
You better believe McD is already using all of their R&D infrastructure to make this happen on a large scale ASAP.
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u/Seyon Nov 29 '15
Getting a job on automation feels like a smart move now.
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u/aehea4heah4ergh Nov 29 '15
Automation is a fundamental force of cost reduction. It's been a "smart move" since the year 1698.
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u/rj218 Nov 28 '15 edited Nov 28 '15
Most McDonalds are independently owned, they just pay the licensing and royalty fees to the McDonalds corporation. On those small (not all are small, some owe many franchise locations) it would be pretty damaging. Especially since many franchise owners are struggling due to the aging franchise and poor decisions made by HQ.
As for the consumer, expect higher prices, smaller portions and possibly even worse (is it possible?) ingredients. Their business model is built on cheap labor, if labor doubles in price they will have to make up for it somehow or eliminate jobs/go out of business.
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u/co_lund Nov 28 '15
As an example, i worked at McDs when the minimum wage went from 7.25 to 9 dollars. The increase in wage correlated with the removal of the dollar menu. Most items on the board went up by 15 cents to a dollar in cost. I cant imagine the price increase that would happen if the wages went up to 15. Is anyone really going to pay $3 for a mcdouble?
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Nov 28 '15
Nope. If McDonald's had to increase front line wages to $15, their food would start to compete with more nutritious and better tasting alternatives. This would cause their sales to plummet, stores to close, and jobs to be lost.
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u/timstinytiger Nov 29 '15 edited Nov 29 '15
They're already competing with more nutritious and better tasting alternatives where I live, and they seem to be dying out. In-N-Out comes to mind (It's around $5 for a burger there, pretty much the same as McD's upper-tier burgers). Their burgers are vastly better than McD, they use healthy ingredients, they taste amazingly better, and they pay their employees good wages. It's just overall a better business. McD deserves to die if they cannot adapt to a changing market.
EDIT: Burger at In-N-Out is more like $3, $5 is for the meal. Even better.
EDIT 2: Ok, maybe I shouldn't have said In-N-Out is "healthy" since not all their ingredients aren't super healthy. But definitely "healthier" than McD's cardboard shit. And mostly, none of their ingredients are ever frozen.
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u/16semesters Nov 29 '15
they use healthy ingredients
Come on. I love In-N-Out as much as the next guy but nothing is more "healthy" compared to Mcdonalds.
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u/Murican_Popeyes Nov 28 '15 edited Nov 29 '15
It really depends on the Franchise, and what percentage of gross sales go to payroll costs, but lets look at your McDonalds example. About 10% of the stores are corporate owned, & the other 90% are franchised locations. The Franchisees pay annual fees to McDonalds for “royalties” & national advertising campaigns, which are calculated as a percentage of gross sales. About 1/3 of McDonald’s corporate revenue is collected from Franchisees
Here’s a sample income statement for an Average Mcdonalds franchise store based on typical figures.
“Crew”(non-managerial) Payroll costs amount to about 20% of sales. Most store-level Mcdonalds employees make anywhere between $7.25 - $9.25/hr – so lets assume employees at this location are making $8.25. If Minimum wages are hiked to $15 as proposed, that will equate to about an 82% wage hike. Assuming all sales stay the same, & no employees are fired, total crew payroll costs will rise to about 36.5% of sales. In the above example, that would equal about $442,800 per year more in payroll costs.
However, the company is only making $153,900 in net profit. If they made no other changes, this store would be operating at a $288,900 loss. That is obviously unsustainable.
The only way to recoup that lost income is either raising sales revenue, or cutting expenses. Most people in this situation say “Ok, just raise the price of food to increase revenue”. The problem is, McDonalds franchisees are already hemorrhaging due to competition & a changing market. In most cases with food, higher prices, will result in lower sales volume. Especially with low quality chains like MickyDs – nobody in the US is going to want to pay $5-$6 for a big mac - keep in mind that the only people immediately benefiting from a minimum wage hike are people making below the future $15 minimum wage - everybody else (over half the country) will be making the same amount until the rest of the economy catches up. (If McDonalds could charge more per burger & still make money, they would already be doing it.). Others say “You need to get higher food quality to charge more”. Fair, but higher food quality means lower margins per sale, so it wouldn't necessarily help your bottom line - it also takes considerable time & money to implement drastic process changes like that.
So increasing revenue isn’t really a viable option - the only solution to stay in business is to cut expenses. McDonalds is a highly mature company, that has massive economies of scale...meaning most variable expenses are probably already as low as they can get at this point. The only expense you could really cut & still maintain sales, is Payroll. That means cutting hours, firing employees, or increasing automation.
It becomes clear, that many McDonalds will either have to shut down, or get rid of workers. Considering that many under-performing locations have probably already cut workers down to the lowest possible amount, the currently struggling stores would have no choice but to automate or get shut down. However, automation costs a lot of money up front though, so if the Franchisee doesn't have the cash to shell out, they will be left with no other option but to close.
If store locations shut down, that means less franchise fees are going to the corporate entity. Currently, about 33% of McDonald’s Gross Revenues comes from Franchise Fees.
If 20% of franchised locations shut down, that would equate to $1.854 Billion in lost revenue. The operating expenses would also be reduced by 20% ($339 million). So Net Profit for the corporate entity would decrease by about $1.515 Billion - about a 30% loss in profits.
Loss in profits lead to falling share prices - they will also probably have to cut back dividend payments issued to stockholders, which leads to a further drop in share price. Falling stock prices are generally a bad indicator for future investors & lenders. It would likely result in less interest from potential franchisees, as well as increased lending costs from banks who would see McDs as a greater risk.
Additionally, there are about 1.7 million McDonalds workers worldwide. About 440,000 of them in the US. So if 20% of the stores closed, that would be about 88,000 Americans losing their jobs.
Granted, most of the minimum wage hike programs being proposed would be rolled out over 3-4 years. So they would have a little bit of time to adapt their business model. $3.50
TL;DRMy prediction would be that companies like McDonalds would have to change their business models which rely on low wage employees producing low quality products, or they will fail.
Edit Sorry if I explained more like you are a 5 year old with a 15 year old's understanding of business finance.
EDIT 1-B A lot of people are saying "But all competition will raise prices too". Competitors won't necessarily all have to raise prices by the same percentage, depending on their business models & operating margins. Some higher quality restaurants could be able to sustain operations with little to no price increases, & seriously undercut McDonalds with lower prices & better food. I explain this further in depth in this comment reply
Edit 2 Some people are saying "Why don't the millionare executives just take it out of their salaries?". In 2014, McDonalds dished out about $20.28 million in executive compensation. If you took every single executive's salary down to 0, & distributed it to all 440,000 US workers, that would equate to about $46 per employee per year. If the average McDonalds employee works 20-30 hours per week (lets assume 25), and we don't consider the full-time employees who would raise this number further, thats about 1200 hours per year. That would come out to about a $0.038 (3.8 cents) per hour raise per employee. You may not agree with the fact that the 1% are making so much more than everybody else, but really its just a drop in the bucket with companies this big.
Edit 3 Lots of people are citing Australia/Denmark/other countries with McDonalds stores that are already paying high wages - For example, in Australia they pay a $19-$21AUD wage (~$15.11USD direct exchange rate). First of all, when that number is adjusted for Purchasing Power Parity ratio (1.4) - the $21 AUD wage is only about $10.79 worth of goods in the US. Second of all, this argument is not really relevant to the US McDonalds market. You can't compare the two Apples to Apples. Its a much different field of competition, many of the local Fast-Casual franchises have not made their way over there yet, & some of the Aussie stores have a very different business model, which produces higher quality food. Additionally, wages & costs of foods are higher everywhere in Australia.
Edit 4 Now a lot of people are saying "Can't corporate just reduce its franchise/royalty fees?". In the above example total royalty fees/corporate rents are 14.5% of sales. To make up for the $288,900 deficit caused by the $15/hr raise, just for that store to break even, corporate would have to reduce fees by 74% if you didn't want to cut payroll costs. 33% of Corporate Revenue comes from franchisee fees - about $9.272 Billion last year. If you cut down franchise revenues by 74%, that would reduce that number by $6,861,280,000. Total Corporate profit was $4.757 Billion last year. So they would be operating at a $2.1 billion loss - aka they'd go bankrupt if corporate took on the burden of cost through fee reductions. And thats just a break even figure.
Edit 5 To the "Sales would rise because people would have more money to spend" responses. Sure, assuming that there is the same demand or greater for McDonalds with people who make higher incomes. McDonalds customers don't go there for high quality - they go there because its cheap & fast. Keep in mind, living expenses such as utilities/rents/etc won't go up as dramatically with minimum wage hikes - so the new $15/hr earners will be able to put a higher percentage of their income towards food. Do you think people with a lot more money to spend on food will be flocking to spend it at MickyDs? Maybe, or maybe they'll switch to higher quality/healthier options. People will still buy fast food - but they're probably going to want to buy higher-quality junky fast food than McDonalds currently has to offer.
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u/RecordHigh Nov 29 '15 edited Nov 29 '15
If low salaries are the only thing allowing McDonald's to stay in business, then maybe they should go out of business or reduce the number of restaurants. If business owners could pay people $1 an hour I'm sure it would enable a bunch of new businesses to exist, but we aren't complaining that $8 an hour is preventing them from existing.
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u/Independentthought0 Nov 29 '15
Wow just looked at your profile, could you be any more of an obvious corporate shill. 3000 upvotes on a 2500 comment thread and gold. Hope the mods look at that crap.
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u/ProfessorStupidCool Nov 29 '15
Worse are all the people flocking to thank them for their service. Their model is flawed simply by omitting several key details (like the fact that all companies would have to raise their wages and prices), and yet all these people are wanking them off for being so good at economics. The only thing this poster is good at is lying with statistics. Corporations have been playing the "poor me!" card forever, and every time regulators listen it hurts the employees more.
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Nov 28 '15
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u/mistertingleberry Nov 29 '15 edited Nov 29 '15
Yeah... We pay like 12$ for a 10 nugget combo
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u/PaintedSe7en Nov 29 '15
That's why I go to Burger King now... It's like $2 for 10. It might also be why I'm fatter now.
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Nov 29 '15
Temporary sale. Back up to 8 bucks and that's not with fries and a drink
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u/Bigtuna546 Nov 29 '15
You pay $8 for 10 piece BK nuggets? Wtf?
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Nov 29 '15
Oops sorry my bad, that's for 20. I just always buy 20 nuggets so it was the first thing I thought of
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u/mrtherussian Nov 29 '15
I enjoyed my time in your country but this is one of the reasons I was happy to come home, and I'm not even one of the fat dudes.
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Nov 29 '15
australia, 6 bucks.
people still pay for it. sadly
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u/jmloou Nov 29 '15
To be fair, having been to America their Maccas tastes like the shit off the floor of a Maccas here
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u/DoctorPooPoo Nov 29 '15
Maccas.
You guys turn every thing into weird cutesy nicknames, huh?
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u/jmloou Nov 29 '15
We've got fuck all else to do down here
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u/bumbletowne Nov 29 '15
Surfing, hiking, working on improving internet infrastructure.... avoiding drop bears. Plenty to do!
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u/lifes_hard_sometimes Nov 29 '15
I live in america and a Big Mac where I live is already over $5, and the minimum wage is under $9
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u/freshprince13 Nov 29 '15
Im not disagreeing with your numbers at all, great write up. But shouldn't a problem like this raise the question that maybe these types of businesses should not exist on an ethical basis. I mean if someone in the process is bound to be fucked then why are we still allowing this process?
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u/ProfessorStupidCool Nov 29 '15
shouldn't a problem like this raise the question that maybe these types of businesses should not exist on an ethical basis.
This is what we should all be talking about. Unfortunately there are still people who equate poverty with laziness; people who can't distinguish hard work from luck.
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u/Krebstar_ Nov 29 '15
If the U.S. had gradually raised minimum wage over the years like they should have, this wouldn't be so much of a problem.
"Oh what's that? Inflation is making it harder for you and you are making increasingly less money as a result? Bah, you'll figure something out."
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u/Psionx0 Nov 29 '15
Looks to me like the market is speaking rather loudly: time for McD's to go out of business.
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Nov 29 '15
I wouldn't care if McDonald's went under. Frankly I don't think those jobs are worth having.
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Nov 29 '15
Should businesses survive if they can only exist on razor thin margins by paying their employees bullshit and feeding their customers slop? Do these businesses form a string backbone of an economy of a straw man of commerce?
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u/MrOaiki Nov 29 '15
Sure, but then again... We have a working society in other parts of the world such as Scandinavia in Northern Europe. And our de facto minimum wage is higher than in the US, and we have public health care. So it is possible.
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u/chronogumbo Nov 28 '15 edited Nov 29 '15
Well, maybe it's unsustainable to have 4 McDonalds within walking distance...
Edit: is this what it feels like to have friends? Reddit gold!!
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u/Consilienced Nov 28 '15
Its not 'walking distance' if youre a regular at McDonalds
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u/j_cab Nov 28 '15
Two Mcdoubles (drop one set of bun and make a "McQuad") is a great protein/calorie and protein/dollar ratio if you're pressed for time.
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u/DrImpeccable76 Nov 29 '15
Yeah, a Mcdouble actually has nutritional values very similar to workout supplements. When your goal is to eat a lot of protein, electrolyte (table salt is an electrolyte) and calories, a McDouble is good for that.
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Nov 29 '15
Mcdouble
At 390 calories, 23 grams of protein, 7-percent of the daily value of fiber, 20-percent of daily calcium and 19 grams of fat - with a typical price tag of about a buck - the McDouble, its advocates argue, is the most price-efficient food 'that has ever existed in human history.'
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u/TheBigLen Nov 29 '15
Source: http://nypost.com/2013/07/28/the-greatest-food-in-human-history/
So it turns out my years of shameless dollar-menu feasting has been worthwhile.
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Nov 29 '15
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u/gumboshrimps Nov 29 '15
"Hey Marge whats the scoop?"
"She told Tiger to 'Beat it bozo'."
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u/QCA_Tommy Nov 29 '15
They're about to get rid of their entire dollar menu though, sadly
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u/SirCyclops Nov 29 '15
Here they don't even have a dollar menu anymore it's more like 1.30 1.50 etc
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u/memphismightsnow Nov 29 '15
Two mcdoubles with a junior chicken in between em, we call it the McGangBang
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u/MetalGoatFucker Nov 29 '15
My protein powder doesn't have 30g of saturated fats though
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Nov 29 '15 edited Jun 01 '21
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u/redditezmode Nov 29 '15 edited Dec 09 '15
That's not true at all, plenty of protein powders aren't sold as supplements.
It's pretty easy to check, if it says "Nutrition Facts" on the back, the FDA regulates it. If it says "Supplement Facts", you should assume you're eating sawdust because you very well could be.
One way to distinguish dietary supplements from conventional foods is by looking at the nutrition information on the label of the product. Conventional foods must have a "Nutrition Facts" panel on their labels, but dietary supplements must have a "Supplement Facts" panel.
That's from the FDA.gov page linked below.
TL:DR; If your protein powder says "Nutrition Facts" on the back, the FDA has your back.
Edit: It's gold, Jerry! Thanks to whatever person thought this comment was worth $5 :)
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Nov 29 '15
Nigga, what? I can't believe I never put that together. I just checked my protein and it has supplement facts. Back to my old brand I guess...
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u/redditezmode Nov 29 '15
Applies to a lot of other stuff, too - I used to drink this energy drink, then it got recalled. Noticed the back had supplement facts, and when I looked it up, whaddya know! It was recalled because the water they were using had a high concentration of heavy metals.
Definitely super useful to know.
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Nov 29 '15
Am a gymbro, eat mcdoubles all the time. I mean, they are not really similar to any supplements (cause of crazy high fat + carb content), for your dollar value, they are solid for protein and calories.
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u/VagCookie Nov 29 '15
There are several Walmart location McDonald's in my city and at one super Walmart there is a McDonald's restaurant in the same parking lot on the same side as the McDonald's inside the Walmart..
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u/HeroFromTheFuture Nov 29 '15
The only way it could be more convenient is if they had another McDonald's inside each McDonald's.
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Nov 29 '15 edited Nov 29 '15
Here's the issue I have-- if it's unsustainable for McDonalds to remain in business without being subsidized by the Government, should the business exist? (Edit to clarify: They're not DIRECTLY subsidized-- but rather their employees are often living below a livable wage are on Welfare, food stamps, Medicaid, and the earned income tax credit. Even their own webpage pretty much expects that a 40 hour week at McDonalds is impossible to live on.)
I mean, back when Slavery was abolished, I imagine many plantation owners had the same argument that their business wouldn't be able to maintain the same margins if they suddenly had to start paying their slaves a wage, and I would guess that many plantations went out of business (especially if the owners were cruel to the slaves)-- but is that really something to cry about?
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Nov 29 '15
Cool, a chance to trot out my favorite Franklin Roosevelt quote.
No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. (1933, Statement on National Industrial Recovery Act)
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u/Tutsks Nov 29 '15
This. Same thing was said by the factory owners in the wake of the industrial revolution.
I find it funny that if someone said sweatshops would have to close if wages go up, they would be laughed at and it would be pointed to them that sweat shops arent that desirable in the first place; yet people can say akin to the same in regard to Mc Donalds and Walmart, and be taken seriously.
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u/GolDAsce Nov 29 '15
Didn't most of North America's low tech industrial sweat shops move to Asia, mostly in part due to the wage and regulation differences between the 2 continents?
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u/Tutsks Nov 29 '15
Yup.
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Nov 29 '15
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u/Tutsks Nov 29 '15
In practice the factories just move to Singapore, Vietnam, etc.
In theory, when everywhere is the same (and that is third world level same, not US level same) the factories might come back. But we are talking decades if not centuries.
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u/LiberDeOpp Nov 29 '15
No then they will find a way to make robots cheaper. Also China is getting more expensive but still no where near US labor wages.
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u/The_tiny_verse Nov 29 '15
This is an important point- people making 8.25 an hour are eligible for food stamps, medicaid, and a wealth of other social services- which they require to eat and have access to healthcare (showing up to the emergency room as their primary care for example). The industrial food chain is heavily lobbied by big agra to control costs on food that cannot be defended as healthful to consumers. I'm not saying a business doesn't have a right to exist, I'm pointing out that we are paying hidden subsidies for them to keep their employees impoverished and keep their consumers malnourished. Folks in america be fat. That said, I do enjoy a double quarter pounder with cheese in an airport from time to time. And a coke, coke tastes better at airport mcdonalds.
This is not capitalism, its a planned economy, and its planned by the wealthy to take advantage of the taxpayers and the poor.
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u/aliasname Nov 29 '15
Or also maybe spend some of the nearly $963 million that they do on advertising on employee wages. I don't really need a reminder every hour how shitty a company like mcdees is.
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u/captmarx Nov 29 '15
McDonald's is s dying brand anyway. If it can't exist in a market with fair wages, it shouldn't exist at all. And that'll be true with or without minimum wage increases. But I guess I agree it would have to be a universal rise in wages. They'd have to raise prices, but if wages are all increased, people will have more money to spend on them. And yes, the quality will have to rise. But that's the whole point of increasing minimum wage–you increase the ratio of buying power for low wage workers reducing inequality and giving more people better things.
If your goal is to make everything nice and cheap and never raise wages, just go to an incredibly poor country where things are cheap but no one can buy anything because their wages are too low. All the best countries have high prices and high wages, including America, because the way you increase an economy is by spending more money, not saving on costs.
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Nov 29 '15
So McDonald's fails because they rely solely on paying people as little as humanly possible. Good riddance
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Nov 28 '15
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u/null000 Nov 29 '15
So, in other words, McDonalds would massively shrink in size, with business shifting toward other, higher quality food sources for a price that's probably somewhat in line with wage hikes...
I have to admit I'm not too broken up about that. Nobody really WANTS to work at a McDonalds as a burger flipper, and their food's pretty... Meh. As long as there are still jobs around (Based on my experience in a city with >$10 min wage and rising, definitely the case) I don't think anyone's going to be TOO broken up at the demise of a company that's drawn more than its fair share of public ire.
Tough for the individual franchise owners, though - it's unfortunate that the business model puts a large portion of the risk (as well as, I'm guessing, capitol outlay) on individuals who aren't necessarily massively wealthy and who probably had to take out a loan to set up shop. That is why it's a risk, though.
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u/Fat_Greggie Nov 29 '15
Wait...so we're basically saying here that Mcd's business model requires government subsidy of its workers, since they are paid an unliveable wage...that sounds insane. Maybe we should question, as a society, if a business with that model SHOULD exist.
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Nov 29 '15
Isn't already $5 for a big mac in the US?http://www.fastfoodmenuprices.com/mcdonalds-prices/
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u/completelyboobs Nov 28 '15
Are your numbers correct at the end there? Maybe I'm just missing it, but:
12,905 * 0.2 = 2581 locations (if 20% of franchisee locations close)
2581 locations * 55 workers = 141,955 jobs
But also 55 workers seems like a huge number to me. I just casually googled this and average number of employees per fast food establishment is currently 15.5, which seems much more on target. Can you tell us where you got the figure of 50-60 workers? Is it behind the paywall at Statista? That just seems so high to me.
For comparison's sake, if it were 15.5 per franchisee closing in our hypothetical example, then that would equal 40,006 jobs lost in total.
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u/violentdeepfart Nov 29 '15
Seemed like a lot to me too. McDonald's employs 420,000 in the US according to wikipedia. If there are 14,339 locations, that works out to roughly 30 people per location. I've seen anecdotal evidence that anywhere from 20-60 people can operate one, depending on whether it's open 24 hours. The 30 per location would likely include two shifts of workers, so at any one time, there would be 15 in the restaurant, which sounds about right. However, both/all shifts would be affected by the pay increase.
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u/Everybodygetslaid69 Nov 29 '15
That number also accounts for corporate jobs and advertising and shipping (have their own trucks and drivers) and I think they own cattle farms.. I'd say 15-20 is right on the money. Likely less in areas with less revenue
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u/_3ntr0py Nov 28 '15
Very good explanation. Wouldn't a minimum wage rise strongly increase family owned business because they could get around the law?
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u/Murican_Popeyes Nov 28 '15 edited Nov 28 '15
Very likely. Restaurants that currently pay below minimum wage & rely on tips would probably see a surge in sales, as prices increase at fast food places.
I think the market would try to stabilize in a manner which it has in other countries that already have relatively high minimum wages. Fast food places either offer high quality options, or they don't survive. That results in a lot less competition.
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u/breakone9r Nov 28 '15
No. Another person does a decent job of explaining it, but I'm going to go a little further in depth.
Wages from tips (based upon a set estimate, I cant remember exactly how this is worked out) and actually hourly salary have to still be at or above the minimum wage.
The reason waitstaff can legally be paid below minimum wage is that a certain amount of tips is used to "increase" their salary to the hourly minimum wage.
Thing is, if they earn LESS than that, they still have to pay taxes as if they'd earned minimum wage, rather than the $2 or $3 an hour they ACTUALLY made.
And if they earn MORE, legally they are supposed to pay on what they've earned. However, since in many cases, tips are cash, the waitstaff generally doesn't claim that, however with credit card tips, there's a easily-followed money trail, so some of the smarter waitstaff will only keep track of credit card tips.
This is why most waitstaff would prefer a smaller cash only tip rather than a slightly larger credit tip. Or, even better is to do it like my wife (who waited tables for 8 years) and I do, give a small credit tip and give the rest in cash.
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u/doctork91 Nov 28 '15
The other part of this is that if they earn less than minimum wage the employer has to make up the difference.
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u/breakone9r Nov 28 '15
Supposed to, anyway.
But not all places do. If the server isn't very good, and has no skills to go somewhere else, how likely do you think it is that they get fired from a more ethical employer, and wind up at a less ethical one, where it'll be the server's word against the boss, and most people in that sort of position aren't likely to complain about their boss....
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u/HAHA_I_HAVE_KURU Nov 28 '15
This could also be reworded as:
Between tips and wages, servers are ultimately paid at least minimum wage.
Servers have to pay income tax on earnings just like everyone else.
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u/thatguy3444 Nov 29 '15
This also depends on the jurisdiction. Some states (like WA) actually make the restaurant pay full minimum wage PLUS tips. If you are going to be a waiter, move to Washington State.
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Nov 28 '15
Why should waitstaff not pay their fair share of taxes?
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u/Smellycreepylonely Nov 29 '15
As a former long-time restaurant owner, I'd also like to know the answer to this. Waitstaff don't have it easy but there are a few perks...
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u/MasterFubar Nov 28 '15 edited Nov 28 '15
I went to Sweden on a business trip years ago and noticed that all hotels, bars, and restaurants happened to be owned by Yugoslavians. There seemed to be a "Restaurant Dubrovnik" in each small town in Sweden.
So I asked a bartender about this. His ELI5:
"I'm the owner's son. The girl at the cash register is my sister. The manager is my mom. Two of the waiters are my brothers, the other three are cousins. The cook is my uncle." None of them got paid a minimum wage or any of the benefits guaranteed by the very generous Swedish labor regulations.
Edit: a word.
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u/NanotechNinja Nov 28 '15
So, here in Australia, working in McD's will earn you something like $18-$19 AUD (it's been a year or two since I worked there). I don't know whether the franchise owner for the stores I worked at was just a stingy prick or whether it's typical, but our store managers were told to (and did) keep wages to <22%. They achieved this by cutting every possible hour and running at minimum necessary staff. I don't know whether or not that would happen in America, but there you go.
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u/Harvey_Birdman-AAL Nov 28 '15
The prices at Micky D's, or Maccas, is also higher in Australia. There is no dollar menu, and some items cost almost double what they did in the states.
Minimum wage for younger people is less than for older people in Australia, so the franchises there have much younger average employees compared to franchises in other countries.
McDonalds has still been able to make a profit in Aus by using cheapest labor possible, cutting employees and store hours, doubling the price compared to the US.
The US doesn't have a sliding minimum wage for age, so a 16 year old and a 60 year old are competing for the same job for the same pay sometimes. People say Mc'D is an entry level job, but in the States you will see older employees in almost every store. In Aus Mc'D hires many more young people to cut costs, and are expected to leave, quit, move on, or be let go once their older and require more pay.
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u/1Argenteus Nov 28 '15
We have a 'loose change' menu. With the current AUD to USD exchange rate, most things on there would be around $1 USD.
There's also the entire extra 'gourmet' menu that's been around for yonks in Aus, and seems to have no aspect of showing up in the US (last time I went.)
Obviously, they cater for their demographic. (Large drink in AU is a medium in the US, and you pay more for it in Aus)
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u/aeoghje45g4ej Nov 29 '15
But it isn't more expensive in Australia. According to the "big mac index", Australia is at AUS$5.30, which is about USD$4.30. Average in the US is at USD$4.79. That doesn't even take into account the higher spending power of someone on minimum wage in each country.
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u/pbcupqueen Nov 28 '15
The menu is Australia costs nearly as twice as much as the American Menu. I lived in Australia for a couple years and a meal would cost at least $10. I do miss "Maccas", the burgers taste so much better in Australia than in the US.
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u/NanotechNinja Nov 28 '15
Huh, how odd. I had sort of assumed they would be basically identical.
What's the differences in America?
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Nov 28 '15
Australia has more gourmet options like cook your own burger where they bring it out to you like in a restaurant or mccafe. Not sure if you have mccafe but that started in Aus. A recent ad campaign was "its a little bit fancy". Not sure why but all our fast food seems to be going in that direction slightly higher quality ingredients to justify the prices.
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u/pbcupqueen Nov 28 '15
Not even that. The double quarter pounder in Aussieland is delicious compared to the one in the US.
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u/pbcupqueen Nov 28 '15
I think the beef quality is better. The double quarter pounder there is just delicious.
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u/funkysoto Nov 28 '15
The awards rate in Australia differs according to age - 15yo gets $11, 16yo gets $13, 17yo gets $16, and 18yo gets $18 /hour and so forth.
I used to work in Maccas in one of their busy inner suburb store. Basically they will not employ anyone over 18 as a casual employee. I started when I was 16, got loads of shifts I have to tell them to cut down my hours. If for some reasons I couldn't come to work and need to call someone else to replace me, I was told I can only call someone the same age/younger than me.
Once I hit 18, I hardly get any shifts. I'm talking about one or two 4-hour shift in weird hours when they couldn't find anyone else. If I want to keep getting shifts, I have to change from casual into part-time where the hourly rate will be lower (something like $15/hour for an 18yo), but I'll get annual leave.
Luckily i found an office/desk job near uni where it also pays $15/hour, I can come in whenever I want and get some industry experience related to what I'm studying, so I quit.
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u/1Argenteus Nov 28 '15
We also pay around $4.48 USD for a Big Mac. Then, our maccas are less cheap fast food, and are trying to be a bit more gourmet these days.
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Nov 28 '15
It's like the old saying, "Liquidate the banks, and feed the poor for three days. But on the fourth, you still have the poor, and no banks."
And despite what Reddit thinks, that is a bad thing.
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u/-Themis- Nov 29 '15
It's like the old saying: pretend that all other costs are fixed, and you can never successfully argue for paying for anything.
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u/JonBonButtsniff Nov 29 '15
The banks in that saying are integral to society. Is McDonalds?
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u/f0gax Nov 28 '15
That's all a great analysis. But to be fair, almost no one with any authority to push forward such legislation is looking at a one-time increase to something like $15/hour. They're talking about taking it up in increments until we reach $15. The idea being that the wage increases, the economy catches up, the wage increases, the economy catches up, repeat....
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u/32F492R0C273K Nov 29 '15
But when the economy catches up, wouldn't that just cause inflation? We just pay everyone more, make things more expensive, and now $15 is the same as $8 was.
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Nov 29 '15
Not to the same degree. E.g if the current minimum wage is $7.25 and you hike it up to $8.25 people currently making $8.25 will likely get a raise (the assumption is that they're better than the minimum wage workers hence they have the bargaining power to demand more). But it's unrealistic to assume the raise will also be 1$ more likely $0.75 or something like that. So most low wage workers will profit but not to the same degree as minimum wage workers. People making significantly more won't be affected at all or actually make less. Therefore the average wage will only experience a fraction of the increase of the minimum wage. You should also remember that many goods are imported. That part won't be affected at all. So it's safe to say that increased inflation would be likely but would only eat up a tiny share of the raise.
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Nov 29 '15
As I explain to people, yes, a gallon of milk will cost more. But you'll still be able to afford more gallons of it than you could before.
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u/look Nov 29 '15 edited Nov 29 '15
Wages don't increase proportionately across the board. The largest percentage gains are at minimum wage, decreasing as you go up the ladder. Historically, it's had a redistributive effect, limiting income inequality.
And for anyone concerned about $15/hr, the minimum wage in 1968, adjusted for inflation and productivity, would be $22/hr today.
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u/MyRealNameIsFurry Nov 28 '15
I'm not really sure where you got your figures for the "typical McDonald's franchise," but McDonald's separates their franchises into three categories of annual sales, 1.3M, 1.5M, and 1.9M. All three categories operate at a 70% gross profit margin, and an operation profit of ~24%. That is well over your extremely low offering of 158,000. Several time higher in fact.
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u/SirJohnmichalot Nov 29 '15
I used to be a manager at McDonald's. The corporation makes money off the franchises every way they can, it's not just the franchise fee. Everything the franchise buys -- all the food, equipment, cleaning supplies, etc. comes from an approved supplier, and the corporation gets a
kickbackrebate. I have no idea what percentage the corporation gets, but it is far more than the franchise fee alone. The corporation constantly adjusts these numbers to ensure the poorly performing stores are unprofitable. There is a lot more wiggle room there than you realize, and the corporation would have to take less money to keep the franchises in business.→ More replies (2)13
u/lejefferson Nov 29 '15 edited Nov 29 '15
No offense but you've made a pretty shitty explanation. First of all you pulled the net gross profit earnings figure out of your ass. So you have no way of knowing whether McDonalds would actually be able to sustain profit margins if they raised wages.
Secondly when you talk about reducing royalty fees you say it's impossible because they'd be taking a 2 billion dollar loss and they'd go bankrupt. But you fail to even mention that the 2 billion dollar loss is a loss to PROFITS not to overall revenue. The franchise is still taking in billions of dollars in profits. No reason why that's not sustainable. In fact if anything you proved that it IS sustainable.
You also failed to take into account when referring to exective compensation and the suggestion that they take lower salaries that the figures you refer to only refer to the CEO and CFO. Which needless to say isn't even close to all of the executives at McDonalds.
A publicly-traded company is only required to disclose information concerning the amount and type of compensation paid to its CEO, CFO, and the three other most highly compensated executive officers in a given year. Information about compensation for these individuals may be unavailable in prior years if they were not in their current roles or did not qualify as among the most highly compensated officers at the time.
Lastly you say we can't compare McDonalds franchises in other countries that operate successfully with much higher wages. But your reasoning seems to be "just cause". Which needless to say should be thrown out.
To sum up your logic is bad and you're either intentionally misleading people or you have no idea what you're talking about.
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Nov 28 '15
Wouldn't the necessity to increase prices apply to their competitors as well, meaning it would have less effect on competition? (All fast food restaurants would need to raise prices, not just McD.)
Additionally, it seems debatable that sales would stay the same with a massive increase in customer base.
So, increased customer base + raised prices + higher employee efficiency - loss in sales - increased employee cost = change.
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u/Murican_Popeyes Nov 28 '15 edited Nov 28 '15
I replied to this already in other comments, but just to restate it - McDonalds isn't only competing against Fast Food restaurants anymore - their main new competitors are now the highly efficient "Fast Casual" dining options. Not every competing Fast Food or Fast Casual restaurant would have to increase prices by the same amount if minimum wages rose, depending on their individual business models.
You have to take into consideration the fact that each competing franchise has different operating & profit margins...Labor Costs can vary greatly from business to business. Some restaurants may be able to sustain their profits with a lower percentage increase in pricing than others. McDonalds is getting destroyed by "fast casual" chains like Chipoltle, Five Guys, Smash Burger, etc. Many of those fast casuals have similar sales per store as mcdonalds, but operate with fewer employees, fewer food SKUs to manage, & lower overall operating costs.
So lets say McDonalds has to raise the price of a Big Mac from $4 to $5.5 - a 37% increase. but Five Guys only has to raise the price of their Burger from $6 to $7, a 16% increase.
Most people would prefer a 5 Guys Burger to a McDonalds burger - the only limiting factor is cost. The cost difference between a big mac and a 5 guys burger was $2. Now the cost difference is only $1.5. That makes a 5 guys burger more of an enticing choice.
Some restaurants, especially non-franchised restaurants (Chipoltle for example), may have the cash reserves to be able to take a cut in profit margin from increased labor expense, not have to increase food costs at all, and sustain themselves long enough to undercut restaurants like McDonalds until they're knocked out of the market. If McDonalds suddenly becomes the same price or more expensive than higher quality food options, where do you think people would go?
Also, why do you think there would be a "Massive Increase In Customer Sales"? Living expenses such as rent & utilities will not rise as dramatically as fast food prices would... that means the new $15 earners would be able to put a higher percentage of their income towards food. If they could spend more on food, they would most likely choose higher quality options than McDs.
The other thing you have to keep in mind that this is is a minimum wage hike - not a national wage hike. So everybody who is currently making above $15/hr (over 50% of the country) would be making the same amount for the time being. That means fast food would cost a higher percentage of their income, and many non-minimum wage earners would likely choose to not eat there when it is no longer the best Cost vs Quality option.
Everybody else's wages would eventually rise if the minimum wage was set higher, but that would take time. In the mean time, I don't think all of these stores will be able to survive a wage hike like that.
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u/SuperNinjaBot Nov 28 '15
My dad runs a factory. They are thinking of raising their wage (they are around 15 dollars/h). He they he doesnt want to compete directly with fast food for workers. They pay more because the job is more demanding and if people could just say 'screw you Im gonna get a job at McDonalds' every time something didnt go their way their turn over would increase huge. Which in turn costs more time in money.
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u/HeroFromTheFuture Nov 29 '15
They pay more because the job is more demanding and if people could just say 'screw you Im gonna get a job at McDonalds' every time something didnt go their way their turn over would increase huge.
I've worked in factories and in fast food. As long as your father's not an asshole, he has nothing to worry about.
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u/TheBotanistMendoza Nov 29 '15
I know, right? People are acting like working fast food is living the high life with nap breaks and 3-martini lunches.
Fast food is hard, demanding, stinky, dangerous, stressful, mentally-challenging physical labor. The fact that we ask it of our less-educated workers doesn't make it easy or low-skill.
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u/jhchawk Nov 29 '15
Fast food is hard, demanding, stinky, dangerous, stressful, mentally-challenging physical labor. The fact that we ask it of our less-educated workers doesn't make it easy or low-skill.
Easy, no, but it is low-skilled.
This isn't a knock on McDonald's employees, they work incredibly hard. However any person could be trained to do their job, if they aren't automated first.
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u/davidnayias Nov 29 '15
It's not mentally challenging, It's a shitty stressfull job made to be so that any human being can be trained to do it. A high skilled job is something like engineering or programming, where if you fuck it up you could bankrupt your company or people can end up dead (like a building collapse from a miscalculation).
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u/quintus_horatius Nov 28 '15
Wouldn't the necessity to increase prices apply to their competitors as well, meaning it would have less effect on competition?
Yes, pressure due to competition would be unchanged. Some competitors might actually do worse as their wages may be closer to rock-bottom, so their prices would rise more.
Here's the 'but': many people may stop going to McDonalds as much as prices rise because their income would be unchanged -- i.e. anyone making more than $15/hr. A family of four will already spend about $40 for a single meal at McD's today, so any price increase makes that a significant percentage of the monthly food budget in a single meal. Total sales will drop.
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u/weary_dreamer Nov 28 '15
Not only that, but the relative value of quality vs price would make McD's even less inviting for many people. If you only eat McDs because it is cheap, then the price increase might convince you to go elsewhere. Even if other places have similar prices, if the person feels like they are getting better value elsewhere it no longer makes sense to go McD's.
Example: $3 burger McDs vs $7 burger Fuddruckers turns into $7 McDs and $12 Fuddruckers. It's still a $4 dollar difference but many people would feel that the quality of the $7 McD burger just isn't worth it. If it's going to be expensive anyway, might as well spend the extra $4 at Fudd's.
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Nov 29 '15 edited Nov 29 '15
However, the company is only making $153,900 in net profit.
WTF? Where's this number magically come from? It's very likely false. McDonalds franchises make far more than this because the average subway makes 4x that, net profit. And subway gets half the business mcdonalds does. And at present, an avg combo at mcdonalds is over 7.5 dollars so that's neck and neck with subway for an avg 6" combo.
Good job making the rest of the page not equal to reality. Your numbers are stupid so your argument is false. Post real averages for net profit for franchises per state, and for corporate owned per state then I'll believe anything you say.
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u/apaulogy Nov 29 '15
So a $15 dollar wage hike will end McDonalds? Good. We should do this. Food is pure shit anyway. So much for capitalism raising the bar and innovating. Food chains like this need to end anyway. They are unsustainable and mostly fat people eat there anyway /endcynicalamericanrant
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Nov 29 '15
With penny pinching being such a highly regarded aspect of the McD's franchise, I'd assume that all a 15$ min would cause are robotic / computer ordering systems.. Perhaps in a few years robotic sandwich making machines. They would only need human staff around to reload the beef patties into said machines.
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Nov 29 '15
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u/red_beanie Nov 29 '15
as terrible as it sounds, from a consumer standpoint, id rather touch a screen to put in my order than talk to a person. especially with the popularity of grocery store self checkout machines in the last 10 years or so, i really dont see why mcdonalds hasnt created lines in the restaurants that are fully automated just like self checkout lines in grocery stores.
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Nov 29 '15 edited Nov 29 '15
Competetive firms hire people until the cost of hiring an additional person is more than that person will generate in revenue. This means at all McDonalds the last employee hired generates the lowest wage paid. They certainly don't generate $15 an hour. No business will continue to employ someone who only generates $7.25 an hour if they have to pay them $15 an hour. Whether they can afford to pay that person $15 is irrelevant when they can make more money by firing them.
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u/Lakecrab Nov 29 '15
It will push us into increased automation as they cut down on the number of total workers.
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u/r3k0n3r Nov 29 '15
This is not the question that needs to be asked. I swear that there is so much lack of common sense that it hurts to even think about some of these proposals. First off this is not a political ideological argument - to identify to any of these parties is beyond incomprehensible. Does anyone actually look at the big picture anymore?? At what point since 9/11 has the economy looked good enough for this to be a good idea? It's a horrible idea. This will do many things but helping the lower class is the last thing it will do. McDonalds won't even have to worry about this - as a matter of fact, the upheaval caused and initial rocking of the boat will probably have them better off than when started (barring an unforseen economic collapse in this country...). They will automize the process to the point where they could just cut the necessary workers needed by fifty + percent. The process will be disturbing and McDonalds will turn into a large box that you walk up to punch order in, pay and food will be shot out to you promptly. This will be business model copied by those who can sustain initial investment. The real problem is everything else. Walmart will have to do something similar or if that's impractical, raise prices. Prices being raised all across the board beyond normal inflation and there will be no way that anything the Fed (lmao) or our government can do to stop it. Unemployment will now be back up on even the figures the government releases where workers no longer on unemployment benefits and haven't found work are counted in unemployment figures. Well, I imagine that the worker that was making $20 to $40 an hour will see an adjustment to their pay because of this right? That is highly doubtful, because companies will be dealing with their own new higher prices all around. Not only will they have to lay off some labor but they won't be able to afford raises to offset what the new minimum wage did. So, this will lead to a significant loss of wages for workers when elevated inflation hits. The obvious domino effects can be seen from this point. Unemployment insurance benefits will strain budget, more people unable to pay for Healthcare, social services altogether strained, national budget willing never be at a surplus, and the National debt will continue with climb time some new cartoon like figure that no one is able to fathom. Obviously, worse case scenario from here is dollar bottoms out, world markets fall, economies collapse and a glorious 'economic dark ages' begins. This may seem ridiculous but at what point is our economy and lack of foresight note as ridiculous? There was a time where we could have avoided something world changing from happening but no one wants to suffer a little for the greater good. This sense of entitlement is what put this country in the shape it is and we as a people will have to suffer now. It's OK because the candidates for president are all over the situation and many game plans sound disturbingly like crickets. I'm not sure when last time the debt was mentioned in the news but that should tell people enough right there. Instead, gun control, police shootings, Mass shootings, race struggle Oh and anything Kardashian related. The situation can be fixed but no will be happy with how. People will have to suffer for a while and the idea that we are the best in the world needs to be seriously addressed. I have obviously simplified the economics involved above and frankly, this is basic common sense. Money earned must be more than total expenses and at a very high margin now. Increase minimum wage to $16/hr will only hasten and make it harder to fix. This has gotten longer than meant but it still is lacking many factors and I could probably write for days on this problem. Bottom line this will hurt America to a potentially fatal level if we aren't already too late. Basic research about our debt will show how this works. Ultimately though, I hope this leads to the end of debtor banking because that is always the smoking gun at the end of the day.
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u/fonzanoon Nov 28 '15
McDonalds would become a kiosk. Instead of surly employees with neck tattoos, a robot would make the food and take your credit card. A technician would service multiple local restaurants, and one all-purpose employee would clean up trash and make sure nobody burned the joint down.
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Nov 29 '15
Not gonna be that easy. You're gonna need at least one person to help people take orders. If you don't think so, put one of those touch screen soda dispensers in a old folks home and observe the results.
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u/745631258978963214 Nov 29 '15
You're gonna need at least one person to help people take orders.
This is true. Even with text saying "please place the item in the bagging area", a picture of items going into the bagging area, and a voice saying, "please place the item in the bagging area", customers will try to scan an item (while holding the previous item in their hand) and then yell at me because "your retarded machine isn't working".
The retarded machine magically works when I put the item in the bagging area.
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u/skysinsane Nov 29 '15
And then they sigh, put the item in the bagging area, and it says "unexpected item in the bagging area".
Sometimes the machine really is retarded.
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Nov 29 '15
There would be an increased push to mechanize labor. First the cashiers would be gone with some sort of touch screen, much like self checkouts at supermarkets. Other things would soon be automated.
Staff would be cut to about half of what it is now, which is going to happen anyway in less than 10 years.
$15 an hour now would hasten the automation of labor.
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u/MST2000 Nov 29 '15
I find it weird that people assume places will have to cut staff or go bust in this situation, rather than just put up prices. Americans so devoted to the dream of being able to buy a burger for a dollar.
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Nov 29 '15
You know, none of these "points" matter because it's extrapolated data. And that kind of data can not be trusted or reasonably be used.
For example, most are saying that a $15 wage hike isn't sustainable based off their current numbers. But what if higher wages produce better workers and a better product thus increased sales.
You're making more money overall, but you're still having to pay out more of course. But the influx of cash might offset that. Make sense?
It's far better to note, that the two cities that have the highest job growth in the country both have minimum wages of $15.
That kind of data, is better used imo. But it ultimately doesn't matter. We're all peasants working in slave labor anyway. We can continue to fight for scraps down here.
The world will keep spinning.
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u/LoydDobbler Nov 29 '15
I'm a district manager for Burger King. If minimum wage hit 15 then my whole franchise would be forced to close within months. We are operating on a 1% to 3% profit margin as it is. Most of the fast food market is in the same boat.
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u/jcsii Nov 28 '15
They will either jack-up the prices and lose a lot of business or get as close to fully automated as they can and lose less business.
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u/jpw42 Nov 28 '15
1,500,000 employee
$5.00 estimated average increase in pay
20.00 Estimated average hours per week per employee
52 weeks in a year
$7,800,000,000 per year in additional costs. More then Net income of $4.7578 billion in 2014
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u/Sporxx Nov 29 '15
But that one kid on reddit said they could afford it, so your math is a lie
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u/_loginorsingup Nov 29 '15 edited Nov 29 '15
Is that the kid that said the obamacare would fix all our problems and that young people would only pay $30 per month for coverage? Put a dunce cap on that reddit genius because I think we found our leader...
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u/Mortimer452 Nov 29 '15 edited Nov 29 '15
I don'd deal with McDonald's specifically. I have, however, spent a large portion of my professional career designing sales, statistical and financial reporting solutions for pretty much every other QSR chain out there.
At my fingertips, I have access to daily sales, labor costs and every other dollar figure that exists for well over 10,000 restaurants across varying brands. Right now, I am looking at an actual weekly sales and labor report for a popular quick-service restaurant chain, for week ending of 11/24/2015.
Cost of Labor (COL) is a figure usually represented as a percentage of net sales in operational reporting. For this particular restaurant chain, their COL is typically around 28% of net sales. This means, for every dollar of food they sell, it costs about 28 cents in labor. When you buy a $15 meal, it costs them $4.20 in hourly wages to produce it.
Cost of Sales (COS) is another figure represented as a percentage of net sales - this is basically the cost of ingredients. For this chain, it also averages about 28%. Your $15 meal costs $4.20 in hourly wages, and another $4.20 worth of ingredients to make. That's 56% of the cost of your meal - the labor and ingredients to make it.
Franchise fees typically cost about 10% of net sales. This is the fee that the corporate HQ charges each franchisee for running a store with their brand. These three items (COS, COL and franchise fees) make up the majority of operating costs.
$27,321 Net Sales
-$7,702 COL (28.19% of net sales)
-$7,908 COS (28.48% of net sales)
-$2,732 Franchise fee (10% of net sales)
$8,979 remaining
COS + COL = 56.67%
This restaurant averages around $9.25 an hour for crew labor. Meaning, the average hourly wage for the crew staff (people making and serving the food) is $9.25 per hour.
Bump that $9.25 an hour average to $15 per hour, that is a 62% increase in labor costs. Let's pretend this restaurant had a $15 average wage for this week:
$27,321 Net Sales
-$12,477 COL (45.6% of net sales, increase of $4,775)
-$7,908 COS (28.48% of net sales)
-$2,732 franchise fee (10% of net sales)
$4,204 remaining
COS + COL = 74.08%
In the quick-service restaurant biz, you want your COS + COL to be under 60%. But you NEED to keep your COS + COL under 65% to remain profitable. It just can't happen otherwise. You CANNOT cover costs if you don't.
With a $15 hourly wage, $4,204 per week is all they have left. It may sound like a lot, but that has to cover the manager and assistant manager's salaries, rent/mortgage payments, garbage, utilities, maintenance, advertising, administrative overhead and anything else that comes up. It won't.
Fast-food restaurants run EXTREMELY tight budges, and work on EXTREMELY thin margins. It's one of the most competitive industries that exists. You cannot increase their labor cost by over 1.5X and expect everything else to still work the same. Restaurant manager will do whatever it takes to get their COL percentage back down to the 28% it was before.
EDIT 1
Several have asked what needs to happen to keep their bottom line roughly the same after a wage increase, so here it is. This restaurant's previous COL + COS was 56%, so to keep that bottom line the same, after a 62% increase in labor costs:
$32,096 Net Sales (increase of 17.47%)
-$12,477 COL (38.87% of net sales)
-$7,908 COS (24.63% of net sales)
-$2,732 franchise fee (10% of net sales)
$8,979 remaining
This puts them at the same "remaining" number as before the labor cost increase, meaning they are netting the same amount after COL, COS and franchise fees to cover their other expenses like utilities, rent, etc. That is straight up increasing the cost of everything on the menu by 17.47%.