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California's Fast Act will 'create negative generating' businesses: Franchise Group LLC founder

The Franchise Group LLC Founder and CFO Leena Mann sits down with Yahoo Finance Live to talk about the impact California's Fast Act push for raising workers' wages will have on fast food chains, franchise owners, and employees alike.

Video Transcript

- The President of McDonald's US is criticizing a California bill that will give a government panel the power to set fast food workers' wages. Now, the fast food leader says the legislation unfairly targets big chains, writing, quote, "for unexplainable reasons, brands with fewer than 100 locations are excluded. Even more mystifying, the legislation excludes certain restaurants that bake bread. I can only conclude this is the outcome of backroom politicking." Well, joining us now is the Franchise Group LLC founder and CFO Leena Mann. Leena, good to have you on the show. So I want to first get your initial reaction to this bill.

LEENA MANN: Well, I've been heavily active in requesting our senators here in California to vote no on the bill. I watched the senators pass this bill. And I'm in shock that politics is failing us, as the data and the facts that this bill was brought upon do not support the bill, as the governor's Department of Finance is saying that this is going to cost taxpayers tens of millions of dollars down the road.

So at this point, I've only been in the business for about six years. I was very ambitious to continue to grow. I started from one location and currently have three locations. And my ambitions in the beginning of this year were to expand and buy more locations to create really good teams within our franchise group that we create managers that build with us as we build more locations.

But at this time, if the governor does sign this bill, that dream is at jeopardy. And it's going to deteriorate the fast food industry and creates a playing advantage in the restaurant industry. Just like the McDonald's CEO said, because I own 2 locations of 20,000 Subway locations, I would have to follow what this council sets in place.

- So just to clarify, you said your plans were to expand. Does this change those plans? Are you saying you could not expand if you have to pay $22 an hour instead of the current $15.50, which kicks in January 1. And how does this impact the cost of doing business for you, a small business owner?

LEENA MANN: So currently in our business, our average working rate is about $17. If the council was to pass a minimum wage hike of $22, this will increase the amount of payroll that we have. And we're already struggling when it comes to the cost of goods because the price of paper goods and raw materials cost more too.

And now we're going to be up against a wage increase. And we've already felt the pressures of wage hikes, as it's hard to find employees. And we're hiring or continuously to hire. It's hard to retain employees in this job market. And that's only going to become more expensive if a $22 wage was passed by this council. This is going to create basically a negative generating business. And if that happens, then we'll be looking into closures.

- So Leena then, I guess from a worker's perspective, if you were earning more, certainly wouldn't that incentivize you then to take some of these fast food jobs? And wouldn't that in turn help your business?

LEENA MANN: Well, we're kind of singled out in the entire restaurant industry. So if I own two locations, because they're a Subway brand, I have to pay $22. And if you're saying like-- OK, your question, let me get back to your question is, would it incentivize people to work more, right? Can you repeat that?

- Yeah. Would it incentivize more employees because, obviously, the pandemic, it hit a lot of fast food workers hard. Would this perhaps incentivize them to start picking up those jobs so there wouldn't be so much of a labor shortage?

LEENA MANN: I mean, I think we're already tried that. We're already trying to pay more wages. Before COVID hit, our average wages were around $15 or $16. And we've already increased our wages another dollar. There's only so many price increases our business can handle before we lose consumers. So currently right now, I'm looking at our check averages are increasing, but the traffic is decreasing. So if I raise my payroll cost, I can only increase the cost of the items that I sell by a certain amount before I lose so much foot traffic in our locations.

- Leena Mann, appreciate you being here and your insights on this story. Keep us posted.