5 ms·

It makes zero sense for McDonalds (or Starbucks or anyone else) to operate a money loosing restaurant. Furthermore, 82% of McDonald restaurants are franchises

by kjksf 5y ago

It makes zero sense for McDonalds (or Starbucks or anyone else) to operate a money loosing restaurant. Furthermore, 82% of McDonald restaurants are franchises i.e. not owned by McDonald. https://www.fool.com/investing/general/2016/04/03/what-percentage-of-mcdonalds-restaurants-are-owned.aspx#:~:text=All%20told%2C%20a%20full%2082,for%20the%20company%20to%20run https://www.fool.com/investing/general/2016/04/03/what-perce...

dogman144 5y ago
The franchise part is interesting, although McD’s owning them or not doesn’t matter as the cash flow is what’s relevant. In this case I wonder what the terms are for franchise owners in EU vs USA and if they account for higher wage laws. There are a number of reasons corporate entities operate certain or many stores at a loss. Very well known example is flagship locations that are locally at a loss, but earn for the brand on other ways. Example being Times Square NYC locations. This still makes sense at a franchise model, but less likely I bet. EU isn’t a flag ship obviously, but I also didn’t say loss. Loss leading is similar, but not a perfect analogy (sure). My earlier example still holds, even with franchisees per the term, but you should expand your bad event set to loss or low profits. On the net, being in Europe is worth it despite higher operating costs, but maybe USA operating costs need to be lower as a result. I mean this all to say, there are so many factors involved such that it’s a false premise argument without controlling for intra-market differences.
- shkkmo 5y ago
  Are you seriously arguing that yhe entire EU McDonald's market is operating at a loss? That makes zero sense. Clearly it is possible to operate McDonald's in the EU and not burn money. Thus clearly there is a fast food business model that involves paying higher wages. Does this mean that every fast food store will remain profitable with the same hours? Probably not, but it does clearly mean that some fast food stores would be able to stay open and profitable.
  - dogman144 5y ago
    No I said loss leading probably wasn’t a good analogy. Did you not read that? However, McD EU could be less profitable, McD picks up the slack. This is fairly straightforward financial accounting. Which is all to say: without discussing this from knowledge of a form 10k or similar details is a very weak argument approach.
    - shkkmo 5y ago
      Then your whole point is pointless, the OP granted the possibility of McD EU being less profitable in their original post.
      - dogman144 5y ago
        Yes, and then OP said this which is why I responded: “ That implies that the model is (in principle) just alright” It implies any number of things, but not that if the model works in EU it can also coexist with the same model in the US. The scenario I said is an easy and fairly common example of why they could not coexist. Without breaking out a form 10k and a fair bit of financial statement analysis, it’s somewhat like saying that “well I get 1GB internet in NYC, it implies the model for fast internet works so we could do it in Montana tomorrow.” To the extent that it’s important to know and discuss the actual factors involved such that the MBAs doing these decisions at McD will take you seriously, that implication is seriously flawed. Hence, why this hasn’t changed since Milton Friedman and the 80s. Ever wonder why that is? It’s because arguments made without any Corp fin awareness don’t work with the audiences with the power to change it.
        shkkmo 5y ago
        I am not arguing that McD should take a particular policy. I am arguing that there are clearly functional business models for fast food under a higher minimum wage so that is not a valid excuse to avoid raising the minimum wage. What are you trying to argue?
        5y ago

by kjksf 5y ago

dogman144 5y ago

The franchise part is interesting, although McD’s owning them or not doesn’t matter as the cash flow is what’s relevant. In this case I wonder what the terms are for franchise owners in EU vs USA and if they account for higher wage laws. There are a number of reasons corporate entities operate certain or many stores at a loss. Very well known example is flagship locations that are locally at a loss, but earn for the brand on other ways. Example being Times Square NYC locations. This still makes sense at a franchise model, but less likely I bet. EU isn’t a flag ship obviously, but I also didn’t say loss. Loss leading is similar, but not a perfect analogy (sure). My earlier example still holds, even with franchisees per the term, but you should expand your bad event set to loss or low profits. On the net, being in Europe is worth it despite higher operating costs, but maybe USA operating costs need to be lower as a result. I mean this all to say, there are so many factors involved such that it’s a false premise argument without controlling for intra-market differences.

shkkmo 5y ago
Are you seriously arguing that yhe entire EU McDonald's market is operating at a loss? That makes zero sense. Clearly it is possible to operate McDonald's in the EU and not burn money. Thus clearly there is a fast food business model that involves paying higher wages. Does this mean that every fast food store will remain profitable with the same hours? Probably not, but it does clearly mean that some fast food stores would be able to stay open and profitable.
- dogman144 5y ago
  No I said loss leading probably wasn’t a good analogy. Did you not read that? However, McD EU could be less profitable, McD picks up the slack. This is fairly straightforward financial accounting. Which is all to say: without discussing this from knowledge of a form 10k or similar details is a very weak argument approach.
  - shkkmo 5y ago
    Then your whole point is pointless, the OP granted the possibility of McD EU being less profitable in their original post.
    - dogman144 5y ago
      Yes, and then OP said this which is why I responded: “ That implies that the model is (in principle) just alright” It implies any number of things, but not that if the model works in EU it can also coexist with the same model in the US. The scenario I said is an easy and fairly common example of why they could not coexist. Without breaking out a form 10k and a fair bit of financial statement analysis, it’s somewhat like saying that “well I get 1GB internet in NYC, it implies the model for fast internet works so we could do it in Montana tomorrow.” To the extent that it’s important to know and discuss the actual factors involved such that the MBAs doing these decisions at McD will take you seriously, that implication is seriously flawed. Hence, why this hasn’t changed since Milton Friedman and the 80s. Ever wonder why that is? It’s because arguments made without any Corp fin awareness don’t work with the audiences with the power to change it.
      - shkkmo 5y ago
        I am not arguing that McD should take a particular policy. I am arguing that there are clearly functional business models for fast food under a higher minimum wage so that is not a valid excuse to avoid raising the minimum wage. What are you trying to argue?
        5y ago