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McDonald’s recently announced that it would no longer fight proposals to raise the minimum wage. This decision comes as a complete turnaround from the Chicago based fast food giant and a massive blow to those opposed to the “Fight for $15 Movement.”
The stunning announcement is a breakthrough for the nationwide campaign to increase minimum wages, and this shift comes as Democrats in the House continue to forward their proposal to raise the federal minimum of $7.25 an hour. The federal minimum wage has remained, unchanged since 2009.
Multi-Unit Franchisees Focus on the Rising Cost
At this year’s Multi-Unit Franchise Conference held in Las Vegas a significant topic of discussion was rising wages. Over 400 franchise operators representing 15,000+ units across the nation attended educational seminars and other networking sessions to learn and discuss issues facing the industry. Many of these sessions centered around the topics of labor cost, employee development, and retention. As restaurant operators struggle to find and keep good workers, the wage increase seems inevitable. Operators in the quick service and fast casual restaurant segment have made strides to lower labor cost by moving to kiosk ordering systems and the elimination of some jobs. However, it’s not enough and, in my opinion, job loss is never a good outcome.
The National Restaurant Association reported that in a letter McDonald’s stated that, going forward “will not use our resources, including lobbyists or staff, to oppose minimum wage increases at the federal, state or local levels, nor will we participate in association advocacy efforts designed expressly to defeat wage increases.”
McDonald’s vice president of government relations, Genna Gent, wrote Tuesday in the letter. “The conversation about wages is an important one; it’s one we wish to advance, not impede,” “We believe increases should be phased in and that all industries should be treated the same way.”
Over the years McDonald’s had made claims that it would hike wage by at least one dollar over the minimum wage in company-owned units. The average starting hourly wage at company-owned McDonald’s restaurant is $10 an hour. Also, while McDonald’s, corporate cannot force its franchisees to pay the same wage, Gent went on to say: “we believe the average starting wage offered by these independent business owners is likely similar,”
McDonald’s former position on wages has relied on the idea that its business, for the most part, is staffed by part-time, high school age students. However according to the U.S Department of Labor, in 2018 the average age for all workers in the food service field is 29.8 years old.
Ripple Effect May Lead to Higher Prices
As a former franchise restaurant operator myself, it’s my opinion that the challenge is more profound than merely paying entry-level workers $15 as the minimum wage. In many cases, it is the catalyst for other more skilled workers to demand their hourly wage be hiked because they typically are paid more than the entry-level employees. So a line cook or prep person that may currently be earning $15 an hour may demand $19 or $20 an hour. This ripple effect, while music to the ears of certain union advocates pushing this agenda is an alarm bell to restaurant operators, franchised or otherwise signaling that profits will diminish. As a result, consumers may see prices increased. It is thus creating a vicious cycle of higher wages leading to higher prices for the end user.
Mollie O’Dell, vice president of communications for the National Restaurant association’s, released a statement saying: “The National Restaurant Association is the largest foodservice trade association in the world, representing every aspect of the industry. Our members are as diverse as the communities they serve, and the economies of every region are different.” The National Restaurant Association has strongly opposed the proposal to raise the federal minimum wage, saying it would hurt job creation. Asked to respond to the letter from McDonald’s,
In my opinion, this move by McDonald’s to aqueous on the minimum wage issue sets the tone for the entire quick-service restaurant industry. Franchise operators will need to develop ways to deal with the inevitable and move on to building their business. My takeaway from the Multi-Unit Franchisee Conference is that franchised restaurant operators see labor cost as their the biggest challenge in the coming years and the McDonald’s decision shifts the momentum towards advocates of the $15 an hour minimum wage.
April 5, 2019 at 09:28AM
Forbes – Entrepreneurs