Labor secretary: Why can't McDonald's pay what In-N-Out does?

[ProSense]

Labor secretary: Why can't McDonald's pay what In-N-Out does?

by Laura Clawson

Labor Secretary Thomas Perez makes a basic, but still important, point about all the whining from low-wage employers:

"I find it a remarkable notion that McDonald's can't afford to pay an increase in the minimum wage but In-N-Out Burger can," said Perez, alluding to the West Coast burger chain known to pay above-average wages for the industry. "That doesn't make sense. They (In-N-Out Burger) do it for same reason -- it's about reducing attrition and having a more effective workforce."

Somehow, you can find many examples like that, from Costco to convenience store chain QuikTrip to the Washington, D.C., Ace hardware stores Perez recently visited that start their pay at $10 an hour. Yet other businesses in the very same industries insist that it can't be done, that they'd go out of business if they had to pay anything close to a living wage—even if it was the minimum wage that all employers had to pay.

http://www.dailykos.com/story/2014/02/11/1276769/-Labor-secretary-Why-can-t-McDonald-s-pay-what-In-N-Out-does

Sens. Warren & Durbin Join Local Workers & Business Owners...to Call for Minimum Wage Increase
http://www.democraticunderground.com/10024481046

[sharp_stick]

1. There was this guy on the news a few months back

he owned a few franchises, Subway and something else I think. He was complaining about the horrible time he was going to have if he had to pay he employees a couple of bucks more if CT raised the minimum wage. He was going on about how the small businessman was getting screwed and he had to look out for his family and so on.

Basically the reporter allowed him to whine himself tired and then when he left she wrapped up as the camera showed him leaving the parking lot in his late model Escalade, probably to berate employees at another of his fine establishments.

[ProSense]

2. Yup, all excuses. Then there is this

Deli Chain Owner Pays His Employees Above Minimium Wage, Offers Health and Dental Bennies, Paid Time
http://www.democraticunderground.com/10024456944

[warrant46]

11. Most of these guys own more than 5 stores

They drive Corvettes and their children go to Private Colleges

[Abq_Sarah]

3. There is one difference I can think of

In-N-Out isn't franchised. All stores are owned by the company. In a franchise operation, individual stores pay all the bills and have to pay fees to the parent companies monthly which cut into the margins... which, depending on where they are located, can severely reduce profit. Since it costs about 3/4 of a million dollars in personal assets to even be considered for a franchise, owners have to be able to recoup their investments as fast as possible.

Now I'm not saying that most franchises couldn't afford to pay their employees more but there's a huge difference between In-N-Out and McD's... and Perez should know that.

[ProSense]

5. Well,

"There is one difference I can think of In-N-Out isn't franchised...Now I'm not saying that most franchises couldn't afford to pay their employees more but there's a huge difference between In-N-Out and McD's... and Perez should know that."

..."franchised" isn't an excuse. McDonald's is a multibillion-dollar corporation. They can figure out a way to ensure that people employed in their franchises receive better benefits and wages.

[Hekate]

10. Same for WalMart, with all those billion$ floating around

[Abq_Sarah]

16. The idea of a franchise

Is that the owners use the name and maintain continuity with the other stores. Franchisees get zero money from corporate McD's. That's not the way it works and it's not going to change, otherwise.. why sell franchises?

[ProSense]

17. I understand

"Is that the owners use the name and maintain continuity with the other stores. Franchisees get zero money from corporate McD's. That's not the way it works and it's not going to change, otherwise.. why sell franchises?"

...how franchises work. Like I said, McDonald's is a multi-billion dollar corporation and can structure its business model to ensure that its franchisees can afford to pay a decent wage. They survived the last minimum wage increase, and will survive the next.

Acquiring a Franchise

Most Owner/Operators enter the System by purchasing an existing restaurant, either from McDonald’s or from a McDonald's Owner/Operator. A small number of new operators enter the System by purchasing a new restaurant.

<...>

Ongoing Fees

During the term of the franchise, you pay McDonald’s the following fees:

• Service fee: a monthly fee based upon the restaurant’s sales performance (currently a service fee of 4.0% of monthly sales).
  
  
• Rent: a monthly base rent or percentage rent that is a percentage of monthly sales.

http://www.aboutmcdonalds.com/mcd/franchising/us_franchising/aquiring_a_franchise.html

McDonald's to spend up to $3 billion on new restaurants, remodeling

(Reuters) - McDonald's Corp (MCD.N) on Thursday said it plans to spend $2.9 billion to $3 billion next year to open 1,500 to 1,600 new restaurants and remodel about 1,000 others - roughly in line with this year's reduced spending forecast.

The world's biggest hamburger chain, which recently has struggled to meaningfully expand sales at established restaurants after years of outpacing its rivals, last month trimmed its 2013 capital spending outlook by $100 million to $3 billion and delayed some new restaurant openings until next year due to softness in China and some other emerging markets.

The company known for Big Mac hamburgers and skinny, crispy french fries also offered 2014 forecasts for commodity costs and other expenses.

It expects overall commodity costs for 2014 to increase 1 percent to 2 percent in the United States and 1.5 percent to 2.5 percent in Europe.

- more -

http://www.reuters.com/article/2013/11/14/us-mcdonalds-outlook-idUSBRE9AD11Z20131114

[Auggie]

4. Stop going to McDonalds folks! It's crap!

[Scuba]

9. Hey, I stop there often to avail myself of their porcelain appliances.

What did you think those golden arches were representing?

[Auggie]

13. Mmmm … now that you mention it, so do I

but I don't buy anything

[MineralMan]

6. One reason is that In-N-Out's food is actually edible.

It's priced higher than McDonalds, too, and people are perfectly willing to pay for its quality. Also, the higher-paid workers in the stores are friendly, appear to work hard, and cook where you can see them. You can watch your burger go on the flattop grill and follow its progress to the bag it's handed to you in.

People working at In-N-Out Burger actually smile a lot of the time.

So, in sum: higher priced burgers that people actually like mean profits for In-N-Out Burger. Pretty simple, really.

[haele]

8. Not priced that much higher than McDonalds.

The Single Cheeseburger basket (medium drink and fries) is around $4.50 here in San Diego. The equivilent Big Mac meal of the same size is $5.00.

In-N-Out has a limited menu which cuts down costs immensely. Hamburger or Cheeseburger, limited topping choice, but you can have any varient of beef patties, toppings, and bun you want within the burger elements available. Fries, Drinks, Shakes. That's it. You can control your product and sales more efficiently, which reduces costs.

Haele

[n2doc]

7. In-N-Out is more expensive than MD's

And worth every cent. But it isn't an exact comparison. The better one was posted a few weeks back between 2 MDs franchises in towns near each other, one had a much higher min wage, yet both had the same prices.

on edit:
http://www.kplu.org/post/why-wont-mcdonalds-move-20-feet-lower-wage-idaho#.UYqUOMk9BvU.twitter

[Yo_Mama]

12. Franchises have a much lower profit margin than owned

so it is probable that many McD franchisees can't, plus stay in business.

However they probably can pay MORE than they do.

If all employers are subject to a higher minimum wage, then there is also more money in circulation so it is easier to raise prices.

The original HuffPo analysis did not include franchises, and when the data was corrected for that, it turned out that the cost of a Big Mac would go up to over $5.25 to fund doubled wages. It's very clear that would cut into sales, and would put some locations out of business.

Even at a minimum wage of $10, most lower-paid workers can't afford to pay that for a burger! If you look at what many fast/convenience restaurants are doing, they are all trying to get and hold some lower price points on menus (so strapped customers can buy something), plus add higher-value products.

[ProSense]

14. It's McDonald's

Last edited Tue Feb 11, 2014, 09:29 PM - Edit history (1)

"so it is probable that many McD franchisees can't, plus stay in business."

Not a single McDonald's owner is going to go out of business for paying the minimum wage. Again, this is a global corporation. It should be able to figure out how to ensure that its model supports a decent wage.

[ProSense]

15. Anyone know

how many business went under after the minimum wage was raised in the past?

I'm wondering what the impact will be on new companies, especially given all the tax breaks and incentives to business.

In New York, there is a campaign to attract businesses in certain areas with an incentive of no taxes for the first 10 years.