Fast-Food Chains Aren’t as Rich as Protesters Think
Read this on YahooFinance.com
By Rick Newman | The Exchange – Thu, Aug 29, 2013 3:25 PM EDT
Of the many social issues facing Americans today, one large controversy is finding the perfect number for minimum wage. For some time, and probably until the end of time low wage workers at fast-food restaurants particularly McDonalds in this instance, are demonstrating in a large but highly non-violent groups demanding that they deserve a pay hike of as much as 100% - to $15 an hour, just to be able to stick their toes across into the middle class threshold.
The minimum wage earning people demand more money, and argue that there's plenty of money to pay out to current and new hires, as well as without firing anyone. McDonald’s, the nation’s biggest restaurant chain, is, in fact, very profitable. Those $5.5 billion in profits last year came from revenues of $27.6 billion, giving the Golden Arches a profit margin of nearly 20%. The average profit margin of big companies in the S&P 500 index is only 8.7%, according to S&P Capital IQ. McDonald’s has been a perennial over performer, which makes it an easy target for protesters seeking a bigger slice of the pie.
But keep this in mind: Pay at most restaurants is determined by the franchise owner and not the corporate parent, which often owns a very small percentage of the restaurants under their brand. McDonald's, for example, owns just 11% of their restaurants in the U.S., so it may make more sense for the protesters to be picketing local owners rather than focusing their venom on the corporate entity.
Either way, the restaurant industry overall is a low-margin business that doesn’t have much spare cash in the till. The average profit margin for the whole industry is just 2.4%, according to Capital IQ, and that’s down from 3.2% in 2009, which is when the recession ended.
While I myself agree that there are those who really do work hard, and really deserve a pay raise, or X amount of dollars to stay financially stable or at least afloat, there are always the minority or majority doing well, not so much. Laziness but with the same attitude of wanting to be paid more. Its a sticky issue, with arguments and good points able to step out from all sides. I also keep in mind that instead of going to corporate to complain, go local to complain because there are a lot of franchise owners out there-not to say that corporate can't or won't help. We need people like this on the occasions where there really does need to be change for good, when deemed necessary.
McDonald’s has perhaps 140,000 U.S. employees, which is a small fraction of the 4 million Americans who work at fast-food restaurants. So while McDonald’s might be able to afford a bit more for workers, many industry employees work at chains that could use a little more income themselves. Maybe they should all angle for a job at McDonald’s.
Well put. I think that you are right, that there are many people who deserve a raise. But I fear the solution to this problem is one that is rooted inside of the owners, not the finances. If we look at the income of the franchise owners, or the corporate owners, I think you will find that none of them are worrying about their money. Not remotely. And that is the problem. Business owners on average make astronomically more than their employees. I think the only permanent solution to this problem is selflessness. If business owners could take a little out of their income (they could still live very comfortably, I am sure, and give) and gave back to their employees, they would be able to pay better. Which would motivate employees to work harder. Which would raise revenue. Which would raise pay. Which would . . . and the cycle ideally would go on. I believe that is the only real permanent solution, however impractical it may seem.
ReplyDeleteI agree with Tanner. If selflessness were incorporated into the business scheme I think we would find that a lot of economic issues would be taken care of. Inflation would be met with much more preparedness, harder work would be incentivized, and ultimately things like revenue and the strength of the dollar would increase.
ReplyDeleteUnfortunately, this is and idealistic scenario. Realistically, the very thing that has moved CEOs up the food chain is the very opposite sentiment we are describing. The only real incentive for all the hard work it takes to lead a successful business is the money. Why would they give up what they view is the fruit of their own labor? Henry Ford was a good example of a well paying CEO, but cyclically, that increased his own personal income as well, so that was evidently not birthed out of the goodness of his heart.
Raising the minimum way is a painful way to compensate for underpayment. Economically, its really ugly. It only aggravates inflation and reduces revenue, but if corporations continue to remain uncooperative it may be the only solution to reconcile workers with the rising cost of living.
Tanner, I admire and agree with your opinion that some workers, but not all deserve a pay raise...but it cannot simply be said and done, especially when asking the "business owners" to pay up. By business owners do you mean the franchise owner, or top executive owners of large fast food chains? If its the franchise owner specifically who owns for example, the McDonalds Restaurant on Main St. in American Fork, sure, he can slim down his paycheck to give more to employees under him, but just because you are the franchise owner of a certain restaurant built on a certain lot on a certain street does not mean you have money going all around for everyone.
ReplyDeleteNot all franchise/business owners of fast food restaurants are in the Middle class, many are struggling to make ends meet just like the worker who sweeps the floors there. As stated earlier in my article, "the restaurant industry overall is a low-margin business that doesn’t have much spare cash in the till. The average profit margin for the whole industry is just 2.4%, according to Capital IQ, and that’s down from 3.2% in 2009, which is when the recession ended." Being a franchise or business owner for a McDonalds doesn't mean that your making bank just because there's tons of McDonalds out there. With 2% margins on profit, much revenue is needed for bills, and operations fees, as well as corporate headquarters.
If you look on Forbes.com through the 10 most Popular Franchises and the Cost to Own One, McDonalds tops the list as the most popular franchise to own, as well as the most expensive one. If you decide to be a franchise owner for Ronald McDonald it'll cost you around $2,000,000 in costs and set up until the actual building is turning a profit for the owner. Clearly the owners there aren't making as much as the protesters and strikers think.
If all popular fast food chains gave in, and say, did pay their workers $15 an hour, they would hire less, layoff tons, and acquire only highly trained, and a very few experienced workers to run the restaurant. Now, because we now pay $15 an hour to our workers, there's now a bunch of people who instead of complaining about how little they get paid, they march around demanding a job that they now lost because they have little to no experience required. Now what? More unemployment, far fewer jobs, and who wants to pay a lot more for their burger and fries so that people can earn $15 an hour? No one, so customers go away, the fast food restaurant may close and it's a real mess.
This is a multiple solution problem that needs the support from all sides; the workers, which already have the support...customers, and government. Good luck trying to get the Gov. to convince people to pay more for pink slime and fewer jobs. It's like trying to educate people on the Affordable Health Care Act, which isn't going over so well.
I hadn't really thought about the fact that many of the McDonald's restaurants as well as other fast food chains are owned/managed by local guys. This fact makes it a lot harder to blame all of the McDonald's owners and try to get them to give large chunks of their salaries to their employees. If they are trying to make ends meet, then they can't pay their employees 15 dollars instead of 7.25.
ReplyDeleteI may not know economics very well, but from working at a fast food restaurant myself and being an assistant manager, I know that my boss would never make enough for all the work he does if they raised the minimum wage. He would have to raise prices which would turn away customers and hurt business. This is a lose-lose situation because the cost of living would increase for everyone.
ReplyDelete