Capitol Weekly - Big fast-food squeezes workers and franchisees alike

Chief economist Brian Callaci argues that large fast-food corporations exert strict control over franchisees, imposing fees and operational constraints that, coupled with wage increases, financially strain both franchise owners and workers.

April 1 marks the first anniversary of a historic victory for California’s fast-food workers, the establishment of a $20/hr minimum wage for the industry. The higher wage has sparked debate across the state — and deepened fault lines between global fast-food corporations and their franchisees that could define the industry’s future.

In the aftermath of the increase, fast-food franchisees have said they are being unfairly squeezed, as they are already struggling to make rent on their buildings and pay royalties to the franchisor. At their core, the issues they are raising aren’t new. In fact, they’re a key feature of the fast-food industry: corporate-branded restaurants are usually owned and managed by ostensibly independent operators, who run each location under strict corporate control.

Increasingly, California fast-food franchisees are speaking up about the need for their corporate franchisors to do more to support them. At a recent meeting of the state’s Fast Food Council, a Bay Area Burger King franchise owner remarked, “When you hear names like McDonald’s, Taco Bell, Burger King, these are corporations that charge small business owners a fee every single month. If we make money, if we don’t make money, they collect that fee. So I would ask the council to consider — beyond just minimum wage — how to get the franchisors involved in this conversation and help out our cause.”

As the Fast Food Council considers a cost-of-living increase to the fast-food minimum wage — an increase capped at 3.5 percent — more California operators should think seriously about the Burger King franchisee’s comments and demand that corporate franchisors take more responsibility. Similarly, fast-food corporations should hear the pleas of their operators and do more to support franchisees in California.

The data on the $20/hr fast-food minimum wage are clear:  According to one recent rigorous UC Berkeley economic study, the $20 minimum wage increased fast-food average hourly pay by 8 to 9 percent, with no reductions in employment. Meanwhile food price increases were very modest, rising by only about 1.5 percent – about 6 cents on a $4 hamburger. And a UCSF/Harvard study, surveying thousands of fast-food workers, found no evidence of cuts to fast-food workers’ hours or benefits due to the minimum wage increase.