Posted on 04/29/2016 11:10:55 AM PDT by Lorianne
While this should be no surprise to any rational non-establishment-teet-suckling economist, former McDonalds' CEO Ed Rensi exclaims, in a recent Forbes Op-Ed, that "a $15 minimum wage won’t spell the end of [fast-food brands]. However it will mean wiping out thousands of entry-level opportunities for people without many other options." The $15 minimum wage demand, which translates to $30,000 a year for a full-time employee, is built upon a fundamental misunderstanding of a restaurant business (and we add simple supply and demand fundamentals) - just "do the math" Rensi rants...
“They’re making millions while millions can’t pay their bills,” argue the union groups, suggesting there’s plenty of profit left over in corporate coffers to fund a massive pay increase at the bottom.
In truth, nearly 90% of McDonald’s locations are independently-owned by franchisees who aren’t making “millions” in profit. Rather, they keep roughly six cents of each sales dollar after paying for food, staff costs, rent and other expenses. I>Let’s do the math: A typical franchisee sells about $2.6 million worth of burgers, fries, shakes and Happy Meals each year, leaving them with $156,000 in profit. If that franchisee has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirement eats up three-quarters of their profitability. (In reality, the costs will be much higher, as the company will have to fund raises further up the pay scale.) For some locations, a $15 minimum wage wipes out their entire profit.
I> Recouping those costs isn’t as simple as raising prices. If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases.
(Excerpt) Read more at zerohedge.com ...
Obama Labor Dept. already taking steps to eliminate the franchise model and put McDonalds corporate on the hook for compensating employees.
LOL. I asked for evidence, and you supplied it. "It doesn't seem right" is always a good reason to ask questions, but is a poor basis for argument.
As I stated, I had no information on one side or the other, and I saw one voice which should be knowledgeable (but has significant reason to fudge numbers) and another that seemed reasonable, but who contradicted the first voice based on what well could have been mere opinion. Far from oblivious, I simply follow my own train of thought in making judgments, FRiend.
Have a great day.
When I walked in there were a handful of guys applying for jobs, and different ones when I walked out. America needs those kind of guys.
You will never convince the SEIU and other unions of that. They love the $15 per hour minimum wage — even though it is a proved job killer. The unions love it because they get automatic pay raises every time the minimum wage goes up and the Donkey Party gets more union money laundered through the union’s dues paid by members. Then there are the dupes that really think a $15 per hour wage is owed them for working in no or low skill jobs. They can’t be persuaded until they either lose the jobs they have, get their hours cutback, their perks dropped, and their employer goes out of business.
Scan up, its in another post.
The fact that folks here can’t just grasp the very simple math that a McD franchise requiring between 1 and 2 MM of investment to open, is not worth it to make 150k a year is disturbing... This isn’t rocket science, this is pure and simple risk/reward and basic mathematics.
You, or anyone else for that matter, can open themselves up basic restaruant, nothing fancy, sandwhich shop, burger store, etc... for no more than about 30k of investment... Assuming you keep your raw food costs to 1/4 to 1/3 of your menu price which is pretty typical of the industry and you run your business fairly competently, you should easily be able to show profits in the 100k or more a year range. Hell, your typical seasonal Ice Cream stand averages 30-50k a year profit.
It blows my mind how economically ignorant some folks appear to be.
Let me ask you a simple question, forget everything else.. if you had 1 to 2 MM dollars in cash, and someone said to you, I will take your cash for you to have a business that will make you 150k a year... so in about 7 to 14 years you will have earned back your initial investment? Would you give that man your Millions? Does that make any sense to you to do??? The flat out obvious answer is absolutely NOT! No one with access to that sort of capital is going to take the risk for that small of a return, it would be stupid, beyond stupid.
The fact that folks seriously want to argue this point just proves how economically ignorant some people are.
As I pointed out elsewhere, you can take 2 MM put it in a 20 year annuity and withdraw more than 150k per year for 20 years with little risk, and that’s at a paltry 6% return.
If all I want is 10 or 11% return, I can easy go buy notes for those sorts of returns... less hassle, no hiring or firing of teenagers, no calls about a backed up toilet, or need to put on a new roof or grill or whatever else it needs, or a health inspector shutting me down... etc etc.
A 10% return for a 1-2MM investment that will require the sort of risk owning a restaurant does, makes absolutely no economic sense. This equation should be inalienable, a person with just a tertiary understanding of economics should realize that this is a bad investment and would never work in the real world. You could not attract a single investor to buy a MCD franchise if the typical profit per year were only 150k.
Yes, no doubt that higher wages cut into jobs, that much of the article is correct, but the presentation that the typical McD franchise only makes 156k a year profit is asinine, and shows the author is either intentionally being dishonest presenting that information as realistic, or they are just economically ignorant.
Read the article
“The average franchised restaurant location makes a profit of less than $50,000 per year as of 2013”
Absent from the discussion is the fact that the government doesn’t have the right to set hourly pay rates in private businesses.
Sorry, I have no issues offering evidence to support my position, but I find it a bit disturbing that some folks are unable to see what seems to be blatantly obvious.
If you are a smart person with money, don’t have to be a millionaire, but just a smart person with it you always ask yourself whenever you invest a large amount of money (and large is always a relative term, for some folks a 5k investment might represent their life savings, for others its a party weekend in vegas), you have to assess the risk.
When you have access to 1MM or 2MM of cash, and someone says give me that cash for a return on 150k a year, your first reaction should be what is the risk, and is that an acceptable return? 1MM to 2MM is a sizeable sum of money, and even just put in a safe low risk investment of 5% is going to return you 50k to 100k a year without even trying to maximize your return..... With that much capital 10% safely isn’t a hard thing to find either. So to say, I can get you 7-15% return on your money as being an active owner in a restaurant franchise that’s not going to motivate someone with competence to make that deal, particularly when they know that can make almost as much or possibly more doing passive things that are far less risky.
The reward has to be worth the risk, and 1MM - 2MM to be an active investor in a restaurant for 150k return just isn’t going to do it. The risk is far too high for the potential reward.
Sigh...
“An average McDonald’s franchise makes between $500,000 and $1 million in profits per year as of 2013, according to McDonald’s Franchise Disclosure Document.”
This is from McDonald’s themselves.
You are citing the INDUSTRY average profit for all franchised restaurants in the United States, not just McDonald’s.
That’s a good point!
have the lieberals called him a racist yet ?
But there won't BE any full-time employees, because that would trigger employer paid Obamacare.
My first real jobs, 1971-72, were Fast Food. After high school, I realized I didn’t know any real skill to make myself self-sufficient, so I joined the Marine Corps, at age 18. I went into electronics, learned well, and after four years I got a good paying job at a Fortune 500 company and the rest is history.................
I take it you are not a businessman then. There is the cost of your initial investment, and then there are annual returns on that investment. The value of the initial investment does not go away, and may in fact increase over time (ie, when you go to sell the franchise). Therefore, investing 1-2MM, gaining a $150K/year cash flow, and downstream recouping your 1-2MM when you sell is actually better than most business owners do.
10% return is pretty good nowadays. Better than the stock market.
Like what?
Are you telling me you can invest $2million and make a $1million profit per year? A 50% return? Riiiiiight....
Sorry, I am and if you find someone who is willing to part with 1-2MM in cash for a 150k of cashflow as an active owner and assuming all the risk of opening a business, then go for it. As I have pointed out, many times if all you want is 7-15% return on your investment you can earn this in far easier ways and passively with far less risk than being an active owner in a restaurant.
Yes, you can sell your restaurant down the line, assuming it doesn’t go out of business and may make a profit on the sale, but again that’s speculation not guaranteed, if that’s your play there are again far safer and better returns.
Seriously, what about this is so difficult to understand? If you have 1-2 Million to invest, and someone is offering you 7 to 14% return on that money to become an active owner in a restaurant, the risk isn’t worth the reward. Getting 10% on your money isn’t hard to do with far less risk.
I’ve shown from McDonald’s themselves that their typical franchisee profits between 500k and 1MM per year, yet folks still want to argue that a typical McD’s only profits 156k a year like this article tries to claim.. that’s absolutely ridiculous that anyone would think someone with 1MM to 2MM in cash would trade it for 150k per year cashflow for all the risk that owning a restaurant would entail.
Subway costs about 100-125k to get up and running and makes the average owner about 50k in profit.... So Why in the world would anyone tie up 1 -2MM to own a McD’s to make 150k in profit with them, when I could open 8 to 10 Subways for the same price or less and make 400-500k per year?
Honestly, the fact folks wish to argue this blows my mind. No competent businessman is going to part with 1MM to 2MM in cash for a 150k return per year for all the risk that comes with being the owner of a restaurant, its far far too low of a return for the risk.
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