In just a few short months I will be celebrating my 30th anniversary – of not setting foot inside or eating the food prepared at McDonald’s. The actual date is December 18th. While it used to be an off again on again place for me to get something to eat, I really can’t say that I have missed it – in the least.
When I was a college student it was sort of the norm to grab a bite there from time to time. I never felt that the food was exceptional – or even really good – but it was fast and it was cheap. I imagine it’s still fast but from the reports I’ve gotten, eating at Mickey D’s. or most of its competitors is now getting rather pricey.
Well, the point of this post is not to critique the value or quality of food at our fast food chain outlets. Rather, it is to discuss the economics of being in the fast food business.
Ray Kroc was a genius. He realized that by taking simple products like burgers, fries and shakes and standardizing their preparation, he could teach virtually anyone how to prepare an order for a customer. The genius that Mr. Kroc had was that he developed a system – and that system could be duplicated, over and over and over again.
There was a part of the system which was essential for the delivery of a fast and inexpensive meal. That was inexpensive help. Fortunately, there was no lack of supply of poorly skilled workers available who relished the idea of a job – at any hourly wage – and who flocked through the doors of McDonald’s’ franchisees to apply.
A lot of these early employees were high school students who were looking to save some money for college or for other purchases they had in mind. But a lot of these fast food employees were people who had so few skills that their work options were limited. They found a home in various fast food company outlets, flipping burgers, salting fries and pouring drinks.
Perhaps you read that there has been a strike at various McDonald’s in NYC and other locations throughout the country. The minimum wage workers are demanding an increase in their salaries – in some cases to double what they are presently being paid.
Now I’m not going to bore you with the old economists’ arguments about whether raising the minimum wage actually helps or hurts the employee. (There is an immediate escalation in income combined with a consequent reduction in the number of workers as companies find ways to automate jobs formerly held by humans). But let’s look for a moment at the fast food industry and how, should the strikers’ demands be met, management might counter.
The best statistic that I can garner is that there are presently about 160,000 fast food outlets in the country. These include familiar brands like Wendy’s; Burger King; Starbucks; Taco Bell, ad infinitum. That’s a lot of real estate and a lot of food. In fact, according to the industry trade association, one out of six of us visits one of these outlets each and every day. It’s an industry projected to have revenues approaching 200 Billion dollars this year.
Now you would imagine that a business that cumulatively employs people at 160,000 locations would employ a lot of people – and you would be correct. But the number of outlets/number of employees is a bit misleading. You see, quite a few of them are open 24/7 (at least for drive through purchases) and virtually all of them have two shifts of workers per day.
So for sake of discussion, let’s assume that there are 300,000 people who, on a daily basis are engaged in one single activity – taking orders. (If you’ve been inside a fast food restaurant you know that there are usually several people doing this – plus one dedicated to the drive through window – so this number is ridiculously low).
What, other than saying, “Hello and welcome to X” does this person do that a machine cannot do (with the assistance of a little customer input)? Absolutely nothing.
We have long been acclimated to using ATM’s for our financial transactions. It took us a little while to get used to them but we did it. Now, punching in our PIN and waiting to deposit our check or receive our withdrawal is a normal part of life. Those machines replaced tens of thousands of tellers across the country.
There is absolutely no reason that the fast food industry could not implement the same sort of ATM-like equipment to accept orders and voìla – 300,000 jobs (again this is an incredibly low estimate) have just disappeared.
Think about the savings. No payment of FICA, FUTA, health insurance or all the other things that are peripheral costs to the employee’s actual salary. That machine is never going to file a Worker’s Comp or Unemployment claim. It’s never going to ask for a day off or expect pay for an earned vacation.
I suspect that the cost of converting this function and purchasing the equipment could be recovered in one year’s time or less. And any businessman knows that is a good investment.
So when Jesse Jackson and Al Sharpton and all those minimum wage workers hold their banners high, demanding a hike in their wages, they might want to give some consideration not to the rhetoric but to the possibilities which may lay ahead.
There is something else I would call to their attention. The “Emancipation Proclamation” freed the country from the bonds of slavery. There are no indentured servants or slaves working at our fast food restaurants. People work there because of their own choice – not because someone is threatening their life or the lives of their families. If they can find a position at twice their present wages, I would be the first to encourage them to accept that better job.
But to those who are sympathetic to the workers’ plight I would like to offer a suggestion that would help out the person who takes your order and will, at the same time, assuage your conscience.
Leave them a tip as an expression of your concern and gratitude.