Within the last month, California and New York made history with legislation for a state mandated minimum wage raise to $15. Many have come out against the raise, inciting fear wherever they can to halt this democratic change. Of those naysayers, former President and CEO of McDonald’s USA, Ed Rensi wrote a scathing letter published in Forbes last week.
Rensi leads his argument with the statement that proponents of raising the minimum wage have a fundamental misunderstanding of the service industry. Rather, it turns out that Rensi has a fundamental misunderstanding of economic reality.
The open letter of attack is structured with two main hits: a “Do the Math” section and a section highlighting the “Hurting Young Workers.” Let’s break this down in the same way to debate on the same level:
“Do the Math”
Painting a dystopian picture of robots taking orders does little but distract Americans from the real facts. Actually, the way that Rensi gets from the business model of McDonald’s today to a McDonald’s destroyed by a $15/hour minimum wage involves very little math.
The typical franchised McDonald’s sells about $2.6 million each year, but after operating costs, is left with about $156,000 in profits. Raising the minimum wage, Rensi argues, eats up that meager profit, and in some cases where larger staff are in place, will eat up the profit entirely.
But wait. Where is the $2.4 million in operational costs going? Why would franchise owners be forced to install kiosks instead of granting their employees with a livable wage? Turns out that a large chunk of that money is going back to McDonald’s headquarters. Individual franchises pay both a royalties fee and a rent fee. On average, 12% of revenue is charged as royalties, and 8.5-12% of monthly sales is charged as rent. There is also an ongoing monthly service fee of about 4% gross sales.
That is a lot of fine print that adds up to 35% of McDonald’s Corporation total profit. Details Rensi leaves between the lines for one reason: to foot the entire labor cost on the franchise owners rather than distribute throughout the brand. McDonald’s USA could surely share some of the reported $9 billion in profits it received last year from these fees when distributing the increased labor cost across the nation.
In fact, sharing the cost between consumer and corporation could easily take the entire burden off the franchise. A Purdue School of Hospitality study found that McDonald’s could raise the minimum wage to $15 for all employees by raising the price of just the Big Mac by $0.17. There’s a lot of hypothetical math that Rensi leaves out, but one concrete fact: the franchise owners are not solely responsible for bearing the burden when resources are readily available in other parts of the hamburger mecca’s business model.
“Hurting Young Workers”
This part of Rensi’s letter was disappointing. As former President and CEO of one of the most successful fast food industries in the world, Rensi should be a little more up to date on the workforce that is populating McDonald’s across the nation.
In a post-recession world the average minimum wage worker is no longer the classic high school kid. That image is wildly out of touch. The studies are numerous, and easy to lay out. The average low wage worker today is 35 years old. One-third of these workers have some college experience. And over half of them rely on public assistance to make ends meet because McDonald’s will not pay them a full wage.
Rensi’s misleading image of a disenfranchised highschooler disregards the larger proportion of low wage workers stripped of their dignity when met with the inability to pay for basic food and shelter. In reality, Rensi is just as out of touch with the average low wage worker as he is with his franchise owners.
Here’s the real ugly truth: Ed Rensi is trying any and everything to stop the tides of change. This includes exploiting a few long standing misconceptions to keep Americans divided by fear rather than united by progress. Rensi pits an already restricted group of franchise owners against labor activists, crossing his fingers they will take the lead in a battle against those in favor of a $15 minimum wage when threatened with shrinking profits. Not one to miss an opportunity to again deflect criticism, Rensi throws in the backup image of harming American youth, blatantly tugging at the emotional strings of the average American. Afterall, how could a robot replace Billy or Jane?
But Billy and Jane have grown up, they have a family of their own, and the real travesty is that McDonald's CEO Ed Rensi is more interested in dividing the working poor against one another to keep his corporate earnings sky high than he is in affording them a living wage.