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Confronting the Myth That Low Wages Are Necessary for Profits in the Fast Food Business

Business  (tags: labor, politics, society, usa, business, economy )

- 1683 days ago -
Why In N Out Burger is far more attractive than McDonalds.

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Teresa W (782)
Tuesday September 10, 2013, 5:01 am
thank you

Fiona O (566)
Tuesday September 10, 2013, 5:38 am
Excellent story, Cal, thank you. It is so good to see attention directed towards the fast food industry.

Past Member (0)
Tuesday September 10, 2013, 7:05 am
Thank you

Stephen Brian (23)
Tuesday September 10, 2013, 9:16 am
There's a huge omission in the comparison of McDonald's and In-n-Out Burger here, and one that is very "convenient" for AlterNet's usual narrative on these matters. The bulk of McDonald's restaurants are franchised while In-n-Out restaurants are all corporate. The big corporation treats its workers a whole lot better than do the local shop-owners who pay McDonald's for the right to use its brand and take advantage of its marketing.

One of the reasons, I think, is fairly simple. Restaurants are notorious for going bankrupt in response to market-fluctuations. When the economy goes bad, one of the first things people cut is how often they go out to eat. If a restaurant cannot pull in a serious profit-margin in a good year, it will disappear in a bad one ... unless it has profits coming in from elsewhere and the financial cushion of a large corporation. McDonald's franchises apparently average about 10% profit in a normal year. Consider what it would take to get you to cut your dining-out budget by 10%. On top of that, the fluctuations are on the scale of gross revenues, not net-profits. That means that even if restaurants could pull in greater profits total by paying enough to attract better employees, they would still be putting themselves at risk.

Keeping that 10% margin is not a small thing. In Michigan, at least, labour costs 25.1% of gross revenues on average. ( ) A $2 / hour raise for minimum-wage earners is about 30%. If pay were raised 30% across McDonald's, sales would have to rise by 15% just to cover the cost. (Failure to raise sales would put franchises out of business as their profit would turn negative on an average year.) To maintain stability, that means about a 17% boost in revenues. Raising prices at McDonald's would some drive people to other places, like In-n-Out Burger, so McDonald's would have to either find some way to sell more burgers, or raise prices by substantially more than 17% to make up the difference. The only way I could see that working is by totally revamping its menu, and testing each new item to make sure it's profitable could take a long time.

S S (0)
Tuesday September 10, 2013, 11:45 am
Thank you.

Marija M (32)
Tuesday September 10, 2013, 12:45 pm
thank you

S J (130)
Tuesday September 10, 2013, 3:13 pm
Noted, thanks Cal. The workers have my support.

Bryna Pizzo (139)
Tuesday September 10, 2013, 3:58 pm
Thank you! (n, p, t)

Roger G (154)
Tuesday September 10, 2013, 4:06 pm
noted, thanks

Karen Chestney (112)
Tuesday September 10, 2013, 11:16 pm
Nonsense, fast food makes plenty of profit. But, hey I've pay a dime more for a burger. Everyone should be paid a living wage.

Katie & Bill D (107)
Tuesday September 10, 2013, 11:52 pm
These people need to be brought up enough they can live live without AID from the Taxpayers and The companies do the Same!! They have families. Some are not the high school kids,seniors' and average age is 28 yrs old. Manager;s are paid well to abuse the worker's! Maybe things need re-thought! You make the worker's happier the business will be better!
Thank You

Ben O (171)
Wednesday September 11, 2013, 5:15 am
Low wages necessary...? -BS!!!
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