Franchisees Join Workers to Hound McDonald’s

24/7 Wall St.

Last week, workers at McDonald’s Corp. (MCD) stores walked out, demanding that the company raise workers’ wages to $15 an hour. We suggested that the demand has little chance of being persuasive. This week, though, McDonald’s is getting some grief from a group that it may have to pay more attention to -- its franchisees.

Of the company’s 34,480 stores open at the end of 2012, some 81% were franchised or licensed. Franchise revenues for McDonald’s grew just 3% last year, but that was nearly double the revenue growth at company-owned stores.

McDonald’s franchisees complain that the company is shifting costs to them in an effort to keep the corporation’s costs down and its profits up. Asked about the charge, a McDonald’s spokesperson told Bloomberg:

We are continuing to work together with McDonald’s owner/operators and our supplier partners to ensure that our restaurants are providing a great experience to our customers, which involves investments in training and technology.

Training and technology costs are among the complaints coming from franchisees, so without actually saying so, the company does not seem to be denying the store owners’ complaints. Remodeling costs that average $600,000 and average rent of $300,000 a year are additional sore spots. The average store posts about $2.5 million in annual sales.

In order to become a McDonald’s franchisee, a person must possess at least $750,000 in non-borrowed assets and each franchise owner employs an average of 293 workers, according to a report from the National Employment Law Project. The numbers suggest that the average franchisee owns more than one store, so we’re looking at a relatively small pool with a lot of financial clout.

Compare that with the 766,000 or so low-wage workers employed by McDonald’s and its franchisees who have virtually no clout, financial or otherwise, with the company. Because the franchisees would have to pay the sought-after $15 an hour wage, one might reasonably conclude that there’s no chance that workers will prevail with the store owners either.

Assuming that 81% of the low-wage workers are working in franchised stores, the total cost to store owners of workers’ salaries at $15 an hour would total about $7.5 billion of the overall cost to McDonald’s of around $8.3 billion. For each of the 27,882 franchised stores that comes to about $270,000 a year in added wage costs.

Franchisees are a profit center for McDonald’s; workers are a cost center for both the company and its store owners. It’s not hard to figure who will come out in second place.

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