i stole this from a reply on Reddit talking about the subject. I thought some actual numbers would be interesting when evolving your opinion on a minimum wage hike. (Assuming you're interested in actual facts and not guided by whatever side your held ideology lands you on.)
From Reddit...
Mortimer452 922 points 9 hours ago
I don'd deal with McDonald's specifically. I have, however, spent a large portion of my professional career designing sales, statistical and financial reporting solutions for pretty much every other QSR chain out there.
At my fingertips, I have access to daily sales, labor costs and every other dollar figure that exists for well over 10,000 restaurants across varying brands. Right now, I am looking at an actual weekly sales and labor report for a popular quick-service restaurant chain, for week ending of 11/24/2015.
Cost of Labor (COL) is a figure usually represented as a percentage of net sales in operational reporting. For this particular restaurant chain, their COL is typically around 28% of net sales. This means, for every dollar of food they sell, it costs about 28 cents in labor. When you buy a $15 meal, it costs them $4.20 in hourly wages to produce it.
Cost of Sales (COS) is another figure represented as a percentage of net sales - this is basically the cost of ingredients. For this chain, it also averages about 28%. Your $15 meal costs $4.20 in hourly wages, and another $4.20 worth of ingredients to make. That's 56% of the cost of your meal - the labor and ingredients to make it.
Franchise fees typically cost about 10% of net sales. This is the fee that the corporate HQ charges each franchisee for running a store with their brand. These three items (COS, COL and franchise fees) make up the majority of operating costs.
$27,321 Net Sales
-$7,702 COL (28.19% of net sales)
-$7,908 COS (28.48% of net sales)
-$2,732 Franchise fee (10% of net sales)
$8,979 remaining
COS + COL = 56.67%
This restaurant averages around $9.25 an hour for crew labor. Meaning, the average hourly wage for the crew staff (people making and serving the food) is $9.25 per hour.
Bump that $9.25 an hour average to $15 per hour, that is a 62% increase in labor costs. Let's pretend this restaurant had a $15 average wage for this week:
$27,321 Net Sales
-$12,477 COL (45.6% of net sales, increase of $4,775)
-$7,908 COS (28.48% of net sales)
-$2,732 franchise fee (10% of net sales)
$4,204 remaining
COS + COL = 74.08%
In the quick-service restaurant biz, you want your COS + COL to be under 60%. But you NEED to keep your COS + COL under 65% to remain profitable. It just can't happen otherwise. You CANNOT cover costs if you don't.
With a $15 hourly wage, $4,204 per week is all they have left. It may sound like a lot, but that has to cover the manager and assistant manager's salaries, rent/mortgage payments, garbage, utilities, maintenance, advertising, administrative overhead and anything else that comes up. It won't.
Fast-food restaurants run EXTREMELY tight budges, and work on EXTREMELY thin margins. It's one of the most competitive industries that exists. You cannot increase their labor cost by over 1.5X and expect everything else to still work the same. Restaurant manager will do whatever it takes to get their COL percentage back down to the 28% it was before.
From Reddit...
Mortimer452 922 points 9 hours ago
I don'd deal with McDonald's specifically. I have, however, spent a large portion of my professional career designing sales, statistical and financial reporting solutions for pretty much every other QSR chain out there.
At my fingertips, I have access to daily sales, labor costs and every other dollar figure that exists for well over 10,000 restaurants across varying brands. Right now, I am looking at an actual weekly sales and labor report for a popular quick-service restaurant chain, for week ending of 11/24/2015.
Cost of Labor (COL) is a figure usually represented as a percentage of net sales in operational reporting. For this particular restaurant chain, their COL is typically around 28% of net sales. This means, for every dollar of food they sell, it costs about 28 cents in labor. When you buy a $15 meal, it costs them $4.20 in hourly wages to produce it.
Cost of Sales (COS) is another figure represented as a percentage of net sales - this is basically the cost of ingredients. For this chain, it also averages about 28%. Your $15 meal costs $4.20 in hourly wages, and another $4.20 worth of ingredients to make. That's 56% of the cost of your meal - the labor and ingredients to make it.
Franchise fees typically cost about 10% of net sales. This is the fee that the corporate HQ charges each franchisee for running a store with their brand. These three items (COS, COL and franchise fees) make up the majority of operating costs.
$27,321 Net Sales
-$7,702 COL (28.19% of net sales)
-$7,908 COS (28.48% of net sales)
-$2,732 Franchise fee (10% of net sales)
$8,979 remaining
COS + COL = 56.67%
This restaurant averages around $9.25 an hour for crew labor. Meaning, the average hourly wage for the crew staff (people making and serving the food) is $9.25 per hour.
Bump that $9.25 an hour average to $15 per hour, that is a 62% increase in labor costs. Let's pretend this restaurant had a $15 average wage for this week:
$27,321 Net Sales
-$12,477 COL (45.6% of net sales, increase of $4,775)
-$7,908 COS (28.48% of net sales)
-$2,732 franchise fee (10% of net sales)
$4,204 remaining
COS + COL = 74.08%
In the quick-service restaurant biz, you want your COS + COL to be under 60%. But you NEED to keep your COS + COL under 65% to remain profitable. It just can't happen otherwise. You CANNOT cover costs if you don't.
With a $15 hourly wage, $4,204 per week is all they have left. It may sound like a lot, but that has to cover the manager and assistant manager's salaries, rent/mortgage payments, garbage, utilities, maintenance, advertising, administrative overhead and anything else that comes up. It won't.
Fast-food restaurants run EXTREMELY tight budges, and work on EXTREMELY thin margins. It's one of the most competitive industries that exists. You cannot increase their labor cost by over 1.5X and expect everything else to still work the same. Restaurant manager will do whatever it takes to get their COL percentage back down to the 28% it was before.