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View Diary: Detroit Fast Food Emporium to pay $15/hr, Make Profit, and Expand. (103 comments)

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  •  kerpluck - me too (3+ / 0-)
    Recommended by:
    kerplunk, jpmassar, kyril

    I am sure it varies by franchise and location, but I would really like to understand the basic economics of a local Taco Bell, or Wendy's. My understanding is that the profit margins are slim, but that is all third hand and anecdotal. It would be good to know how much additional labor costs they could absorb and remain an economically viable and valuable business.

    "let's talk about that"

    by VClib on Tue Sep 10, 2013 at 01:03:48 PM PDT

    [ Parent ]

    •  If McDonalds corporate has to lower the skim (4+ / 0-)
      Recommended by:
      jpmassar, 207wickedgood, Creosote, JerryNA

      they take off of franchisees to make it continue to be a good investment, they will.

      The alternative is that locations close down, their profits nosedive, and their market share is eaten by both small business and wiser corporate chains.

      My understanding is that franchisees have a median take-home of a quarter million a store. Buying one that's up and running and ready to go costs 1 to 2 million all told.

      The only person I ever actually knew who had one of their franchises purchased it in the early 1970's.  He owned his own location and didn't have to pay the corporation rent.  I knew him in the very late '80's, and this was apparently no longer even an option for franchisees - they all had to rent their store from corporate in addition to paying 4% of gross receipts.

      Something like 15% of McDonalds locations are directly corporate owned.  The corporations absolutely does set the pay rate there.

      "But the traitors will pretend / that it's gettin' near the end / when it's beginning" P. Ochs

      by JesseCW on Tue Sep 10, 2013 at 02:29:52 PM PDT

      [ Parent ]

      •  No doubt the corporation controls the pay at (1+ / 0-)
        Recommended by:
        jpmassar

        company owned stores. However, at restaurants owned by franchisees McDonalds isn't going to change the amount sent to corporate because an individual owner decides to double his labor costs, on his own. There are some cities in the country where the minimum wage is dramatically higher than the national average and it would be interesting to know if any of the major fast food franchisors cut the local owners any slack on their corporate fees so the franchisee's profit margins are about the same as the national average?

        "let's talk about that"

        by VClib on Tue Sep 10, 2013 at 03:10:15 PM PDT

        [ Parent ]

        •  If owners have to raise wages to compete (0+ / 0-)

          for workers, it's going to come out somewhere.

          If Corporate tries to ram it all down the throat of franchisees, then franchises lose value which is of no benefit to Corporate.

          Corporate sets "rents" where they like.  This is not rent in any traditional sense - it's an additional percentage of gross.

          I'm sure that is heavily related to the profitability of a location.

          "But the traitors will pretend / that it's gettin' near the end / when it's beginning" P. Ochs

          by JesseCW on Tue Sep 10, 2013 at 03:46:06 PM PDT

          [ Parent ]

          •  It would be very interesting to know how the (1+ / 0-)
            Recommended by:
            jpmassar

            franchisee/parent economics works and what the franchise agreements actually say on some of these issues. Is any of this available online, or do the franchisors keep this very confidential until they have vetted any potential new franchisees?

            "let's talk about that"

            by VClib on Tue Sep 10, 2013 at 05:19:54 PM PDT

            [ Parent ]

    •  The profit margins are slimmer (3+ / 0-)
      Recommended by:
      JerryNA, VClib, jpmassar

      at a franchise than they might be at a well-established local chain because you have to buy your product through the megacorporation or their approved sources, and they skim some profit on those sales. You also have to pay regular fees to remain a licensed franchise. So being a franchise puts a rigid floor on the cost of doing business.

      And you're under pressure to meet their recommended prices/promotions (or else you don't benefit from the advertising that your franchise fees are paying for.) So there's a ceiling on your revenue per transaction, even if you live in an area where people might be willing to pay more for similar food from an independent chain that pays its workers well.

      Being a franchisee also limits your ability to adapt to suit the local market. Franchise menus and advertising/branding strategies are fairly standardized, one-size-fits-all things that don't perform particularly badly anywhere but can never push profit margins as high as a local chain optimized for the local market.

      The advantage to a franchise is that the barrier to entry is much, much lower than it is for a true start-up. The initial investment is much smaller; the advertising is already done for you, you don't need to do market research, you don't need to find suppliers - it's all part of the franchise package. But a few years in, if the start-up succeeds, it can run a much higher profit margin.

      "Let’s just move on, treat everybody with firmness, fairness, dignity, compassion and respect. Let’s be Marines." - Sgt. Maj Michael Barrett on DADT repeal

      by kyril on Wed Sep 11, 2013 at 03:09:14 AM PDT

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      •  kyril - that sounds reasonable (2+ / 0-)
        Recommended by:
        jpmassar, kyril

        The national push to raise wages for fast food workers to $15/hr is admirable, and I would love to see them earn a living wage. However, I really do wonder if the local fast food franchisee could afford it, even if s/he wanted to without some fundamental change in the economic relationship with the franchisor?

        "let's talk about that"

        by VClib on Wed Sep 11, 2013 at 07:26:24 AM PDT

        [ Parent ]

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