I'd appreciate some thoughts on this article concerning McDonald's wages, please.

[Systematic Chaos]

http://www.huffingtonpost.com/2013/07/29/mcdonalds-salaries_n_3672006.html?utm_hp_ref=business&ncid=edlinkusaolp00000009

It's titled "Errors in McDonald's Wage Analysis", and claims that there's no way McDonald's could pay double the minimum wage, while only increasing the cost of a Big Mac by 68 cents.

Any economics gurus want to give this a go either way?

[delrem]

1. This has nothing to do with the fact that McD's workers are paid for shit.

Or with the fact that McD's burgers are totally overpriced, or any other real fact.

[Systematic Chaos]

2. Workers at lots of places are "paid for shit", but apparently the food has some appeal...

...or they wouldn't have one on every other major intersection.

For the last time, I'm not looking for emotional appeals based on opinion. I'm looking for a proper debunking of the article I linked based on facts.

But thanks anyway.

[whttevrr]

13. Good luck quashing the emotional invective.

Last edited Fri Aug 9, 2013, 10:51 AM - Edit history (1)

On Edit: I was wrong.

It seems like for the most part posters are trying to crunch the numbers. The problem as noted below is the calculus of finding the points between cost, price, profits in a very complicated formula. I always wondered how the equations are created to find optimum pricing for maximum sales.

[geckosfeet]

3. Frankly I do not see how you double wages and don't increase cost. Unless the raw materials

costs go down and you gain efficiencies that pay for the increase in labor expenses.

See this post as well.

http://www.democraticunderground.com/11173295

The Magical World Where McDonald's Pays $15 an Hour? It's Australia

I would argue for holding the line on costs while doubling the minimum wage, but realize that the wage increases will have to be paid for somewhere. I would pay more for any fast food if I knew the workers were getting better pay.

[TreasonousBastard]

4. Around 20 years ago I worked for a company that did fast food payroll...

We added the time and payroll system to a POS system we already sold to KFC, Burger King, IHOP, McDonald's franchisees and some independants.

I wish I remembered the numbers better.

But, let's try this, if my memory is working at least halfway---

Typical fast food gross- $1,500,000 (back then-- and, of course, it varies)
Typical payroll- $375,000 (around 25% of gross)
Typical profit- $500,000 (at a third of gross)

(Gas, electricity, taxes, mortgage payments, raw materials, franchise fees... the rest of the money is the other costs of doing business.)

So, in this case, doubling the payroll would leave $125,000 profit per unit.

Now, plenty of people around here will scream that even that is too much, but the simple truth is that few people are going to invest the millions needed to open a franchise to make a hundred grand a year. Even fewer people if there are partners involved, as there often are. And, I might be a bit optimistic at the profit being a third of gross. I suspect it's closer to 25%, which makes it worse.

I have no idea how many meals are served, but if we take $1,500,000 / $8, that would be 187,500 meals a year. $375,000 /187,500= an increase of $2 per meal to maintain the same profit. Some locations might be able to do that, others may not.

I suspect most units do better than 1 1/2 million these days, and $8 is the number I see thrown around for the average FF meal, so playing with more accurate numbers would be useful.

[JVS]

9. So, dividing 187,500 by 365 days and 24 hours in the day we get 21.40 meals per hour.

Reasonable?

[TreasonousBastard]

10. Seems a little low, actually, which..

is why I'd be interested in updated numbers. Of course, not that many places are open 24 hours except White Castle, and the ones open till midnight or 1AM are window service only after 10PM or so.

Numbers are always funny and you also have to remember that KFC doesn't serve breakfast while IHOP is waitress service. Our biggest unit, though, was the IHOP on Route 17 in NJ which was the second largest IHOP in the world by volume at that time. McDonald's usually did a few hundred thousand more than Burger King, and there are always those sales and deals that spike the numbers for a while.

[noamnety]

5. I'm not an economics guru

but it seems to me if an employee gets an extra $7 an hour, if they sell 10 big macs in an hour per employee and increase the cost of just that one menu item by 70 cents, it would cover the increased direct salary.

Or let's say they raise every menu item by 20 cents. A typical person coming through would pay 60 cents more for a burger, fries and a drink. Each location would have to average serving 12 individuals (not families, just individuals) per employee on shift per hour to make up the direct cost, and anything beyond that (and you know there's a lot above that) would cover extra benefit costs tied to the higher salaries.

[JVS]

7. I think you're overestimating the numbers of sales a franchise does in an hour.

A McDonald's crew looks to be 8-10 people. Maybe as few as 6 during slow times.
Your scenario of 10 big macs per employee in an hour has a rate of sale of 60-100 per hour. Most customer transactions take around 3 minutes, and a lot of them are less lucrative than selling a big mac. Even with 4 registers going (3 at the counter and 1 at the drive through) we're still talking about 80 sales per hour at best and that would depend on it being a busy time like lunch when there are customers lined up.

[noamnety]

11. So you'd have to add a similar amount (or less?) to each menu item

which still seems reasonable to me. Well, not just reasonable, but a required business move.

I just take it for granted I guess that if your business model depends on your employees not being able to make a living wage while stockholders and CEOs get rich, that's not an acceptable business model.

[stevenleser]

6. When I was in Geneva Switzerland, I noted that McDonalds products cost a lot more they do here in NY

The current Exchange rate is 1 Swiss Franc = 1.09 US Dollars, so 10 Fr = $10.90 to give you an idea re: the below pic. You can give a higher wage if you charge more. In the below menu, a Big Mac costs the equivalent $12.54. For comparison, in the US, the average cost is around $4.20

[JVS]

8. My thought on the article: Show your work isn't just for math class.

Both the article and the article it refers to are terribly lacking in data for the reader to be able to discern anything.

[alc]

12. I'd guess the cost of a big mac would not have to go up (or profits up)

When prices go up, sales go down. So you can't do the simple math (divide current sales by employee wages). You also can't just go by since employer matching taxes will also double and 7+% is not insignificant.

But, if wages double they'll make some other changes

* You'll order and pay through an iphone app or kiosk

* The automatic drink dispenser in some McDonald's that leaves filled cups near the drive through window will deliver the cup all the way to the car.

* They'll they'll automate the burger chutes to do the same thing.

* They'll automate anything else they can

* Cleaning will be done by an outside service which is very efficient at meeting health codes and emptying trash and cheap.

We just got rid of 1/2 the staff so we can double the wages for the other 1/2 with no change in labor (actually a net plus since there are fewer people to pay benefits). There's a good chance the we've improved efficiency so we can get more people through during the busy hours. We'll look people who don't want to bag the meal themselves, but we can deal with that in a few different ways.

[whttevrr]

14. From the linked article...

The institute estimates that small-business owners who run McDonald's franchises spend about a third of their income on wages, which would mean the price of a Big Mac would go up by $1.28 to $5.27.

So if a third goes to wages and they split the cost between price and profit would that mean that a 1/6 decrease in profit would allow for half as much of a price increase? So instead of $1.28 it would be a $0.64 price increase with a 17% hit to profit?

That might be too much for shareholders to accept, but what about an 8% profit decline with a $0.96 increase in price?

This is off the top of the head math... it's been a while since I've had to do math problems

[PD Turk]

15. Whatever the numbers

Whatever the numbers turn out to be, I'm assuming that they will be based on nothing changing except wages. I'm sure they'd never consider any other cost saving measures, like the CEO and other fat cats at the top making do with, oh, a 150 foot yacht instead of trading it in on a 200 footer. A Gulfstream 5 instead of a new G6. Or perhaps they could put off buying that 5th vacation home? Take $50 million a year instead of $100 million? Good gawd what would it take for them to make ANY kind of sacrifice so the people that toil in misery to provide them with their fortunes might be just a little less miserable?

I guess the first thing they would have to realize is that the people sweating their asses off in those kitchens are the reason they have everything they have. How to bring them to such a realization..... shit, I don't know, they sure live in a different world.