scorecardFranchisees say it's them, not big corporations, who are the real losers of California's $20 fast-food wage
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Franchisees say it's them, not big corporations, who are the real losers of California's $20 fast-food wage

Grace Dean   

Franchisees say it's them, not big corporations, who are the real losers of California's $20 fast-food wage
Retail3 min read
  • Restaurant franchisees say they're the real losers of California's $20 fast-food minimum wage.
  • The wage applies to franchisees, even if they just own one or two restaurants.

Franchisees say they have to bear the brunt of California's new $20 minimum wage for fast-food workers.

"One of our biggest complaints is it's not so much that we're arguing what workers should make, it's that the reality is the bill for this legislation is on the backs of franchise owners," Keith Miller, who owns three Subway stores in northern California, told Business Insider.

The legislation, AB 1228, applies to limited-service restaurant chains with at least 60 locations nationwide.

Fast-food chains often stress the nature of their franchisees as small-business owners. But the $20 wage applies to both corporate-owned and franchise restaurants, even if the franchisee just owns one or two restaurants.

"We're a small business," Brian Hom, who owns two branches of Vitality Bowls — a smoothie and Acai bowl chain with around 70 stores nationwide — told Business Insider.

Hom, whose stores are in San Jose, California, said that he ran the stores with his wife, two sons, and daughter-in-law. "We're not people who are a corporation."

Franchisees have been raising their 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 dropping staff benefits. Some franchisees say it's easier for company-owned stores to absorb the impacts of the legislation.

"I definitely know that corporate stores have a deeper pocket," Hom said. "We don't have a large profit margin … We're not a corporate store that has maybe some ways they can cut costs."

Hom said that he had put up prices, stopped hiring, and reduced the number of workers on each shift to increase his revenues and reduce his costs over the new $20 wage. Miller, the Subway franchisee, said he'd raised his prices, too.

"I think what people keep forgetting is the fact that they keep seeing McDonald's Corporation or these public corporations 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. Now he owns 19 around Los Angeles and California's Inland Empire area.

"It's not just this giant corporation that runs things," Jessica D'Ambre, his daughter who manages the restaurants with him, told The Times. "I think that's where the misconception lies, especially with politicians." She added that the new $20 wage felt like an "unfair target on our backs."

"We run it like any other family business," D'Ambre said.

Matthew Haller, the president and CEO of the International Franchise Association, told BI in a statement that the legislation would lead to "many small businesses struggling to keep their doors open."

'Franchise operators keep getting squeezed more and more'

The costs of being a franchisee vary drastically by chain, location, and the size of the restaurant. To become a Subway franchisee in the US, people generally need to have a $150,000 net worth per restaurant, with $100,000 in liquid assets. For both Wendy's and Burger King, wannabe franchisees need a total net worth of at least $1 million, including at least $500,000 in liquid assets.

As well as real-estate and initial development costs, franchisees have to pay a proportion of their sales to their franchisor as royalty and advertising fees.

Earnings can vary greatly, too: Chick-fil-A's average unit volumes — the total sales per restaurant — were $7.5 million last year, compared to $3.7 million for McDonald's and $1.9 million for Taco Bell, according to data from foodservice-industry group Technomic.

This is before deducting any costs including labor, food, and fees.

Franchisees are a major part of the fast-food business — they reduce risk for chains and enable them to explore new markets. At McDonald's, 95% of its US 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 keep getting squeezed more and more," Miller said, referring to the introduction of new fees by restaurant chains.

"You're not going to have people who own one to three stores anymore," he said. "You're going to have to have the mega owners as they're called, or 20 stores, a hundred stores, 500 outlets. And they're not really operators, they're investors at that point because they're not going in and running the store."

Are you a fast-food worker excited about the new minimum wage? Or a franchisee or restaurant manager worried about how it will affect your business? Email this reporter at gdean@insider.com.




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