- Restaurant franchisees say they are the real losers from California’s $20 minimum wage for fast food restaurants.
- The salary applies to franchisees, even if they only own one or two restaurants.
- Franchisees say they are small business owners and will struggle to absorb the increased costs.
Franchisees say they must bear the brunt of California’s new $20 minimum wage for fast food workers.
“One of our biggest complaints is not so much that we are discussing what workers should be doing, but rather that the reality is that the bill for this legislation is on the backs of franchise owners,” he said. said Keith Miller, owner of three Subway stores in the North Country. California, told Business Insider.
The legislation, AB 1228, applies to limited-service restaurant chains with at least 60 locations nationwide.
Fast food chains often emphasize that their franchisees are small business owners. But the $20 wage applies to both company-owned and franchised restaurants, even if the franchisee only owns one or two restaurants.
“We’re a small company,” Brian Hom, owner of two branches of Vitality Bowls, a smoothie and acai bowl chain with about 70 stores nationwide, told Business Insider.
Hom, whose stores are in San Jose, Calif., said he runs the stores with his wife, two sons and daughter-in-law. “We’re not people building a business.”
Franchisees have been raising menu prices and exploring ways to cut costs to offset the impact of the $20-an-hour minimum wage, such as introducing more technology and eliminating staff benefits. Some franchisees say it’s easier for company-owned stores to absorb the impacts of the legislation.
“I know for sure that corporate stores have deeper pockets,” Hom said. “We don’t have a big profit margin…We’re not a corporate store that maybe has ways to cut costs.”
Hom said he raised prices, stopped hiring and reduced the number of workers on each shift to increase revenue and reduce costs from the new $20 wage. Miller, the Subway franchisee, said he also raised his prices.
“I think what people continue to forget is the fact that they continue to see McDonald’s Corporation or these public companies making record profits, that doesn’t mean the franchise operators are making record profits,” Miller said.
Mike Mangoine bought his first McDonald’s restaurant with his father in 1967, the Los Angeles Times reported. He now owns 19 around Los Angeles and the Inland Empire region of California.
“It’s not just this giant corporation that runs things,” Jessica D’Ambre, his daughter who runs the restaurants with him, told the Times. “I think that’s where the misconception lies, especially among politicians.” She added that the new $20 wage seemed like “an unfair target on our backs.”
“We run it like any other family business,” D’Ambre said.
Matthew Haller, president and CEO of the International Franchise Association, told BI in a statement that the legislation would cause “many small businesses to struggle to keep their doors open.”
“Franchise operators are increasingly in a hurry”
Franchisee costs vary greatly depending on the chain, location, and size of the restaurant. To become a Subway franchisee in the United States, people typically need to have a net worth of $150,000 per restaurant, with $100,000 in liquid assets. For Wendy’s and Burger King, prospective franchisees need a total net worth of at least $1 million, including at least $500,000 in liquid assets.
In addition to real estate and initial development costs, franchisees must pay a portion of their sales to their franchisor in the form of royalties and advertising fees.
Revenue can also vary widely: Chick-fil-A’s average unit volumes – total sales per restaurant – were $7.5 million last year, compared to $3.7 million for McDonald’s and $1.9 million. million dollars for Taco Bell. according to to data from the Technomic restaurant group.
This is before deducting all costs including labor, food and expenses.
Franchisees represent an important part of the fast food sector: they reduce risks for chains and allow them to explore new markets. At McDonald’s, 95% of its American restaurants are franchised.
Some franchise companies own hundreds of restaurants. Miller said policies such as the new $20 minimum wage would push small franchise owners out of the industry.
“Franchise operators are getting squeezed more and more,” Miller said, referring to the introduction of new fees by restaurant chains.
“There won’t be people who own one to three stores anymore,” he said. “We will have to have mega-owners as we call them, i.e. 20 stores, a hundred stores, 500 points of sale. And they are not really operators, they are investors at that point because they don’t go in and manage the store.
Are you a fast food worker excited about the new minimum wage? Or a franchisee or restaurant manager worried about how this will impact your business? Email this reporter at gdean@insider.com.
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