Striking Against the Wrong People

My immediate reaction when I read this article about fast food workers wanting to unionize and striking against the stores that employ them was “I wonder if they realize that they’re striking against the wrong people?” Most McDonalds stores are franchises, owned and operated by the franchisees. Here’s a typical income statement for an average McDonalds store, compiled by Janney Montgomery Scott restaurant analyst Mark Kalinowski:

As you can see it’s a high volume/low margins business. If the workers are striking for just a 10%, an $.80 an hour, raise, that’s a third of the present operating income. $1.60 would be two-thirds. Obviously, the only way for the franchises to raise wages is to raise prices, too, which in turn means that the volume will probably go down. Since fairness seems to be the watchword these days, what’s fair?

The people making money are the McDonalds Corporation and, probably, the landlords.

172 comments… add one
  • michael reynolds

    Of course there’s no way to account for the effect on sales of demoralized workers, but it’s quite real. Jake used to drag me to Burger King but the employees at our nearest outlet are so depressing, so undertrained, so sullen that I just started refusing. My sense is the place is going under. How much of that downward spiral was a consequence of poor quality (underpaid) help? And it has the effect of turning me off to the chain more broadly, to creating an aura of decrepitude and defeat.

    Meanwhile the nearest In-N-Out pays I believe $11 an hour to start and has lines more or less from opening to closing. Part of the reason is that the employees don’t look like they’re on suicide watch.

    Yeah, In-N-Out is more expensive, but it’s a difference of pennies. Had the BK raised its prices a few points, hired better help, I’d still be patronizing them. (Not willingly, you understand, but I have teenagers.)

  • Your daughter is a teen now? Cripes, time passes quickly these years.

  • The franchises don’t control a lot of their expenses–corporate does. In-N-Out isn’t a franchise operation. All of the stores are wholly owned by the company. It’s a different situation.

    That’s my point. The strikers should be striking against corporate not the franchises. The franchises probably don’t have the space to do anything.

    I might add that I think that the McDonalds and Burger Kings of the world operate within a very narrow niche: cheap, filling grub at low prices and quality control that told you what you were going to get. A Big Mac is a Big Mac is a Big Mac. They came up when the Baby Boomers started entering the labor market and for a lot of Baby Boomers fast food was their first work experience. For most of the Boomers it was a part time, temporary job. Now adults are trying to earn a full-time living working on fast food crews. I think that fast food depends on a constant stream of entry-level employees, that’s ending, and they won’t survive the transition.

  • michael reynolds

    Janis:
    My daughter hits 13 in December, an event that requires only slightly less planning and drama than the Queen’s jubilee.

  • PD Shaw

    The difference btw/ In-and-Out and BK is probably similar to the difference btw/ Walmart and Costco. McArdle had a nice post pointing that these two are really in different businesses, serving different customers and utilizing different types of labor.

    I’ve never been to an In-and-Out to know if the analogy entirely fits. One reason it may not is real estate. The affluent hamburger joint around here is Smashburger, and I don’t think it is imperative for them to have the types of locations Walmart/Costco/McDs/BK want. They want access to the interstate and major arteries, whereas Smashburger probably only needed any available commercial space on the right side of town.

  • PD Shaw

    Here is a link to the McArdle piece, Why Can’t Walmart be More Like Costco?

  • jan

    …..my son hits 26 in December. Hard to comprehend.

  • Drew

    As usual, Michael – without a hint of business training – misses the entire point.

    Burger King is a mass market fast food offering. In-N-Out is a niche. Its practically a cult. Think of markets as a triangle. The bottom of the triangle is broad. Thats where the volume is. The business model there is volume and cost control.

    Think of the niche as the top of the triangle. The volume is small, pricing more flexible, the service/product offering and hiring profile much different.

    Its – if you will – a Ford Taurus vs a Mercedes.

    Thank god the well intentioned but ignorant soul writes books instead of operates restaurants…………….alse he’d be unemployed and destitute again.

  • Correct me if I’m wrong but my understanding is that the franchisees have little to no control over prices. Those are set by McDonalds corporate. So, in essence, an individual franchisee has very few options to respond to increased costs.

  • Correct me if I’m wrong but my understanding is that the franchisees have little to no control over prices

    As I said, they’re striking against the wrong people.

  • BTW, Michael, if you’re a frequenter of In-N-Out, willing or not, and don’t already know about it, you might want to check out the In-N-Out “Secret Menu”.

  • PD Shaw

    According to this study, McDonald’s does not set maximum prices on its menu, but it seeks to utilize indirect means to influence prices. The study concludes that the introduction of $1 menu items has allowed the corporation to keep prices quite close to corporate standards, as the franchises cannot raise prices on things like a Big Mac without customer substitution off the $1 menu.

    http://www.stanford.edu/group/siepr/cgi-bin/siepr/?q=system/files/shared/pubs/papers/pdf/06-22.pdf

    Also, the study indicates that the McDonald’s corporation directly owns some restaurants (the source of the “corporate standards” for pricing) and that a 1991 study found wages higher at corporate owned fast-food outlets than non-corporate owned.

    But the bottom-line is that McDonald’s will act to prevent franchises from raising prices beyond the quality of the product, so as to damage the continuing value of the brand. According to Wikipedia, In-and-Out does not want to franchise or expand beyond its ability to control the local stores. Its a similar dynamic.

  • But the bottom-line is that McDonald’s will act to prevent franchises from raising prices beyond the quality of the product, so as to damage the continuing value of the brand.

    My understanding is that corporate doesn’t want stores owned by different franchisees to compete with each other, either. One of the ways that’s done is by limiting the franchises.

  • BTW this

    Also, the study indicates that the McDonald’s corporation directly owns some restaurants (the source of the “corporate standards” for pricing) and that a 1991 study found wages higher at corporate owned fast-food outlets than non-corporate owned.

    fully supports the point I’ve made above. The wage rates are in part set by the structure. Company stores have greater leeway in wages than franchises do.

    The workers should be picketing the company and organizing boycotts rather than striking against the franchisees.

  • I think I like that 26 better than 13, Jan. Ooooh, them teenagers!

  • michael reynolds

    Drew:
    In-N-Out has higher per unit sales than BK (1.9m vs. 1.2) though lower than McD’s at 2.4. (INO’s tend to have fewer drive thrus and keep more limited hours than McD.) Within the context of California In-N-Out is hardly a niche player. I can’t find the numbers but my sense is that there are as many INO’s as BK’s in California, or close to it.

    Since menu prices, real estate and labor costs vary by location I don’t know why we should treat BK as different in kind from INO except as Dave points out that INO is all company-owned while BK is only 10% corporate-owned.

    Both companies sell burgers in California. One treats its employees decently, has a stellar reputation and seems to be doing quite well for itself since it opened far more stores both as a percentage of total stores and in absolute numbers than BK did. Burger King pays lousy wages, gets lousy employees, has a miserable reputation and staggers drunkenly from one corporate overlord to the next.

    If there’s a moral to the story it seems to be that a family-run business that treats its employees decently – in keeping with its own moral values – can outperform a wreck of a company that has suffered the attentions of any number of clever corporate number crunchers who all think they can do better by screwing their employees.

    I believe BK now has yet another new owner, yet another investment firm that everyone expects will have to dump cash into BK to keep it barely alive. Or, maybe, just maybe, four owners ago they could have decided to pay a decent wage and not caused their customers to associate their food with incoherent, untrained, nose-picking imbeciles.

    See, that’s a business choice, Drew: are you the restaurant whose employees smile and hop to it? Or are you the company whose employees drop cigarette ash in the fries? Which do you think works better with food service?

  • michael reynolds

    Dave:

    The employees of a MacD’s in Mill Vally, CA cannot strike against corporate in Chicago. They apply pressure where they can apply it — against their own store. If enough California stores get hurt they push the pressure up to Chicago where — should they feel sufficiently bothered — corporate can, for example, cut the margins on the food they sell to their franchises or demand lower advertising contributions and pass that along to the employees in Mill Valley.

  • michael reynolds

    Drew:

    Update! Word is that Business Genius and Number Cruncher Extraordinaire Mitt Romney – he who walks among us as a job-creating god – ordered the chicken salad in his first and last visit to the White House.

  • BK has been out of things around here the few times my stepson tried. These are small towns, and service is really good and courteous nearly everywhere you go.

    There’s nothing more demoralizing as a restaurant employee than poor management. Michael and I should know. We’ve been there.

  • And I know about teenagers, too, Michael. I mothered two for nearly 20 years. They call it “arrested development.” The boys were 11 and 18 respectively when their parents divorced.

  • Yeah, yeah, Dave, I need to work on my prepositions. I should know.

  • Drew

    Michael

    Did you read a word I wrote?

    Do you know business models?

  • And all your wives need a Tangee lipstick from Vermont County Store this Christmas. It moisturizes very well, goes on clear, and adjusts to her chemistry. It turns rose pink on me. It’s a prewar product.

    I just bought one and am taking one to my sister.

  • $14.95.

  • I bet your mother wore Tangee, Dave.

  • And forget it, Vermont Country Store is the only store that handles it.

    They are good at niche marketing.

  • I am, at heart, a promoter. But I need something I can believe in.

  • michael reynolds

    Yes, Drew. Now explain to me which food service business model profits by nauseating its customers by hiring mental patients to assemble burgers at starvation wages.

    I actually do – as Janis points out – know something about restaurants, having worked in many and managed a few. (Also wrote restaurant reviews for a couple of years.) Whatever your distant capitalist overlords tell you their “business model” is, it’s not good business to creep out your customers. In fact I’ve had that exact conversation – both in print and face to face – with bright business majors who think the Most Important Thing is keeping labor costs at some fixed number.

    I would say silly, naive things to them like, “But if I hold labor to 25% the cooks serve raw chicken and the waiters drop things on people.” I’d also offer advice like, “If the staff hates you, they’ll rob you blind.” And they would say, “Business Model!” And then they would be bankrupt because it’s hard to prosper when your customers smell death on your restaurant and your cooks are selling boxes of chicken out the back door.

  • I was lucky enough to work in well-managed places. I actually helped cater a private auction at the Texas State Fair when a prize Angus sold for $40,000.

    Interesting times. That was Vick’s in downtown Dallas. I don’t know if they’re still in business.

    Met a WWII German prisoner of war who worked at the cotton exchange. He liked his calf’s liver grilled without onions.

  • People will tell you anything if you don’t carry a badge.

  • That’s just part of what killed my husband. He worked defense as a country lawyer.

  • He did family law, too, and that really sucks.

  • The employees of a MacD’s in Mill Vally, CA cannot strike against corporate in Chicago.

    If you’re saying that it’s difficult to organize a labor action against a franchiser, I agree completely. That’s one of the reasons they’ve been successful.

    There are district offices everywhere. The LA district office is in Long Beach. If they really wanted to get to corporate, they could get the Teamsters on their side.

    Given the very narrow margins the franchises operate within, the most they’re likely to accomplish by striking against them is putting them out of business. Another will spring up in its place. You’d need to close a lot of stores to get corporate to notice. Striking against a franchise is just not an effective form of labor action.

  • No wonder your handsome, lovely dad, died so young, Dave.

  • You need to take your bitch to where it counts. Like hollering at the top of your lungs to anybody who’ll listen at Exxon.

    And you need to wear cowboy boots while you’re doing it.

  • I still can’t figure out what’s going on at Sunoco. Are they out of money?

  • I think I’ll apply for a job with Kathy Young in the nursery department at Stine’s. We share interests and I like her style.

    I don’t need a ton of money.

  • I saw Heather, the grocery clerk today. Her dad did get a job. He’s not making much, but every little bit helps.

  • She complained that he was bitching about being bored.

  • Learn to be a Range Rider.

  • Or a Lonesome Dove. Or, best, both.

  • I love women. No, sillies, not that way.

  • For your eyes only Dave:

    This is automatic writing. My pretty tool.

  • michael reynolds

    Dave:

    There are district offices everywhere. The LA district office is in Long Beach. If they really wanted to get to corporate, they could get the Teamsters on their side.

    You know, you could have a whole new career. . .

    I once unionized a 24 hour coffee shop I managed. The rest of the chain was union and this one was trying to avoid it. The chain eventually went bankrupt. The official story was that labor costs were too high.

    I have an alternate theory. The District Manager used to come around to teach us with a wink and a nod how to use un-rung sales to pay labor off the books and make our numbers look better. Of course we had to pass this along to the waitstaff who rang most tickets. Teaching store employees how to steal to make the numbers. An entire chain teaching staff to embezzle for the benefit of the business model. Can anyone guess how that went wrong?

    The reason they set unrealistic numbers in the first place? To squeeze out “underperforming” franchisees just before they became vested – steal the buy-in and 5 years of blood, sweat and tears, then re-sell the location to the next sucker.

  • Yes, sir, we have morals.

  • Drew does, too. He couches them in Chicago Business School jargon. I’m from the realm where I know where they come from. When I applied to Reed it was one of the most selective six schools in the US.

    Experience does count for something, on every level.

  • Andy

    Michael,

    While I agree that Burger King sucks, there are a lot of places that pay minimum wage where the staff is not composed of mental patients. Chic fil A (yes, I know you hate them), probably has the friendliest staff and cleanest facilities of any of the major chains that I’ve visited.

    Most of your discount clothing stores (TJ Maxx is one I worked at for three years as a teenager) pay minimum wage. Yes, the service is marginal to bad, but people don’t shop there for service. So I think the problem with Burger King isn’t employee compensation.

    And the wage pressures are very real. When I was at TJ Maxx in my third year, I was one of the highest paid hourly employees making, IIRC, about 20% more than minimum wage. The managers could not schedule me on Sundays (time-and-a-half) because I was too expensive. One employee working part time could break their weekly personnel budget – that’s how tight the margins were.

    Another anecdote. I worked in receiving and maintenance at this store and so was one of the guys who buffed the floors and changed the lightbulbs. About three years after the store first opened, a lot of lightbulbs started burning out. Corporate actually sent a regional manager down to figure out why were ordering so many lightbulbs and costing the company money. I explained that the bulbs were all installed at the same time, so it stands to reason that their failure rate would not be steady over time. He seemed satisfied and approved the extra lightbulbs for our store. This was the mid 1980’s and I doubt much has changed – these businesses seem to really count the pennies.

    The one place a lot of these retailers spend the money is in loss prevention – those people can make a decent salary but they have to perform, which means busting employees and catching thieving customers.

    The thing is, I don’t think this any of this was really a problem until recently. I sure didn’t feel exploited, but then I was just a kid who didn’t have many expenses. These jobs aren’t really meant for people supporting families unless they are trying to work their way up the corporate ladder at the company. My perception is that the worker demographic in these places changed over the past few years – I seem to see fewer kids and retirees and more people in their 20’s-50’s, and I doubt that is by choice. The solution to that, IMO, is more jobs for those in their prime earning years.

  • Kathy and I will have fun.

  • C’mon y’all, life should be funny.

  • If she goes to work for Kathy, I’ll have an RN and a CNA in my hands. I didn’t tell you about the great black woman who’ll look after the birds when Janis is gone from home to Texas? She’s worked for the neighbor for years.

  • Baby let me drive your car. Baby I love you.

  • Beatles fan.

  • Speaking for me, whatev.

    I loved the man.

  • Or I need to go on some serious anti-psychotics.

  • michael reynolds

    Andy:

    Minimum wage ain’t what it used to be. On 1.60 an hour from Toys R Us I took myself and a cashier to Europe for three months. But that was 42 years ago when I was 16.

    Chick-Fil-A is like In-N-Out although less so — they both pay above market rates and IIRC offer some health benefits, also reasonable hours, hence the relatively nice employees — whatever I think of their politics.

  • It’s all up in the air.

  • Rental rates in Dallas have gone out the roof. I took a studio in Oak Lawn at 19 for $150. That was doable on $2 an hour and waitress tips.

    I’m pretty sure that Christine burned that building down. Oak Lawn was redlined by insurance companies for a while.

    Now you can’t get anything in the area under $500. I barely made that.

  • Not that people build studios anymore. And it was a nice one, with hardwood floors.

  • Had to supply my own air conditioner.

  • I’m beyond being staggered. Get to work. You want heaven on Earth, you make it.

  • Andy

    Michael,

    Minimum wage is about the same today as it was in the 1980’s. The biggest drop in the value of the minimum wage came right when Gen-Xers were getting their first jobs.

  • Hell, I tested out on “what kind of princess are you” as a “practical Princess.”

    God is love. Or sex, or birds, or bees or flowers or trees, or something.

  • My sister has a grandson that she can’t wait to show me.

  • Over to you , Johnny.

  • Tellin’ you young’uns, life’s an interestin’ place, and ur doing it right.

  • Get it on.

  • Are you listening to me? Get on with it!

  • Jeez.

    Jan, are you having problems with your 26-year-old?

  • My kids have given me hell.

  • Forget the didacticism.

    That’s an honest question.

  • Get over it , dammit! It’s the way it is . AM I GOING TO HAVE TO BRING MY SPIDERMAN BANDANA INTO PLay?

  • $2 at Dollar General.

  • Get over it! You were told. Cleave unto your husband. Cleave unto your wife.

    Is that so hard?

  • We be talkin’ faith.

  • Where y’all come from, Mamou?

  • Where do you all come from? That’s the question.

  • Do you even give damn?

  • OOps, forgot the first letter of the alphabet is “a”.

  • Yeah, Dave you can , too. If it’s what you want enough.

  • It’s a path.

  • Let me type up my notes for you, then I’ll send them. That will come after Texas.

  • I doubt you’d ever be able to read my handwriting. My husband never could.

  • I track it to Egypt, but as my mentor, you might know something else.

  • Pretty heavy, isn’t it? Don’t even ask me in three months.

  • Connect the dots?

  • I’m a damn good hunter.

  • Bullseye.

  • Kina’ strange ain’t it?

  • Kinda’ strange ain’t it?

  • Kinda’ strange ain’t it?

    I told we all Tennessee Williams down here.

  • OOps, U.

  • C’mon, Sugar.

    Proust was a what? I still can’t read that man.

  • Proust was maybe a blogger.

  • Damn, son. Do you know what paragraph is?

  • God loves you, too.

  • God loves you, too.

    Your god is a joker.

  • “Red , White and Bluegrass” – Dolly Parton

  • It wears you out, changing sheets anymore. All the edges are gathered. Then you need to estimate where the seems go. Then you need to flip them over because the seem is on the wrong side.

  • “Shoot, shoot , shoot, Sugarhill Memories”

  • Dolly’s one of the best.

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