12 ms·

A 10% margin also often doesn't tell the whole story of how they make their money. Nearly since its inception, a substantial portion of McDonald's long term pr

by blihp 5y ago

A 10% margin also often doesn't tell the whole story of how they make their money. Nearly since its inception, a substantial portion of McDonald's long term profit came from the appreciation of the real estate the stores were built on. Operating a business on it just made it cash flow positive during the holding period. So it was essentially a REIT that happened to operate a fast food chain. Even for many mom-and-pop restaurants (or other business) the real payoff often comes when it comes time to sell and cash in on the capital appreciation of the business assets. My point isn't to say there's anything wrong with that model: more power to anyone who comes up with a creative, legal way to make a living. Mainly I just want to point out that you often can't look at it simply as making X% margin on sales in a given period of time or any other single metric for many businesses as the real gain is longer term than that. Which is really a long-winded way of saying: if the ability of a business to make a long term profit is not my concern, their claimed inability to pay a living wage isn't either. If they honestly can't afford to pay a living wage, then as the article states, perhaps it shouldn't be in business. If there is a market for whatever product/service they were offering, someone will come up with a sustainable way to serve it that is better for all involved.

ianai 5y ago
Not to forget the times where states raise their minimum wage and see the number of people in the labor force increase. The balance of power is almost always squarely weighted on the side of the employer. This can push wages below market optimum.
- sokoloff 5y ago
  I’d expect minimum wage increases to be mostly off the table during recessions, so it’s not surprising to see them passed during economic expansions, which are tightly linked to rising employment figures, so this might be a "wet streets cause rain" correlation.
  - cyrrus 5y ago
    Except it’s those on minimum wage that spend most or all of their paycheck stimulating the economy. Middle class have record savings at the moment.
deburo 5y ago
>If they honestly can't afford to pay a living wage It's not logical to kill businesses by arbitrarily raising the minimum wage. Do you think the people they employ are better off not working at all? These people may not have a decent enough salary, but they get to work as opposed to staying at home and degenerate (mentally and physically). I always thought the better solution is to help them financially in other ways (greater tax credits, negative taxes?).
- itake 5y ago
  > Do you think the people they employ are better off not working at all? Maybe you didn't read the article. but in summary, because the businesses are not paying enough, the businesses have less employees. Its not that the employees wont have jobs, but they will just have a higher paying job somewhere else.
- davemp 5y ago
  The government giving more to minimum wage workers instead of raising minimum wage feels like a roundabout way to subsidize businesses that don’t way living wages.
  - ChuckNorris89 5y ago
    That's exactly how it works in many european countries, especially the ones without a legal minimum wage (Austria for example), so people working "slave" gig jobs (cleaners, delivery, construction and hospitality workers, etc.) where if they earn below a certain "livable' threshold, get various tax credits, subsidies and benefits from the government to reach that "livable" threshold, which, while it sounds good, it creates a perverse incentive where employees arrange with the employer to be paid as little on paper as possible to still qualify for the government subsidies and then get paid the rest under the table (tipping is expected here for this reason) which just moves the burden from the employers of paying a livable wage to the customers and to the taxpayers which are basically subsidizing their business.
    - varispeed 5y ago
closeparen 5y ago
McDonalds is a franchise, isn’t it? Corporate doesn’t own the stores.
- deleted 5y ago
  [deleted]
- caymanjim 5y ago
  Corporate owns 15% of ~36000 total stores, which it leases to franchisees.
- hrktb 5y ago
  There was a good Polymatter video about this very topic: https://youtu.be/kJVj3vp-lho https://youtu.be/kJVj3vp-lho McDonald’s model is pretty different from standard franchises.
- throwawayboise 5y ago
  Some stores are corporate owned and operated. Most are franchise owned and operated, but corporate owns the real-estate the store is sitting on.
nbardy 5y ago
This is why its hard to start a restaurant. You need to be rich enough to own the land.
- malandrew 5y ago
  Yup, if you don't then your landlord gets all the value. You get a 10 year lease, build a successful restaurant (if you make it past the dreaded first year) and then when your lease expires your successful restaurant has helped increase the land value in the area and the margin you worked up to evaporates when you sign a new 10-year lease that is more expensive because the value of the land has gone up (partly due to your success).
  - hinkley 5y ago
    My old neighborhood was full of people deciding on their third 10 year or early retirement. Had a few old guard businesses close before people noticed the pattern. Not that the residents could do much about the cause... I imagine them thinking, “I’m 56 and this contract basically says I’ll have to work harder than I have in decades just to keep out of bankruptcy.” And just checking their finances and then the want ads for management positions.
anovikov 5y ago
In this case, why bothering operating a restaurant at all (it's a terribly terribly complex business to manage)? Just buy real estate and sit on it? I always wondered how restaurants even work - how can owners be motivated to keep themselves in this endless, poorly paid grind. In my opinion, when this is not about large chains that are effectively self-reproducing machines that don't depend on any people's motivation, it's mostly either hobbies (someone runs it to keep himself busy and feel beneficial to the society during retirement, for example), or just failures (someone foolishly believes there's a massive amount amount of money to make, gets burned, and vacates the space to leave it to the next one). Yours truly have been that sort of person in my younger years (when it was a lot easier, as industry professionals say!). And yes, i can easily understand how can one become a dick being a restaurant owner. You deal with people who are paid poverty wages (there is no choice here), who can't be motivated with anything but threat of losing their jobs, have no work ethic (or they'd be doing something better), and in general can't be trusted in anything at all. You become paranoid and you quickly learn to disrespect people. I can feel that guy, don't judge him so heavily. This is a hellish business to do and anyone who envies them is a fool.
- VLM 5y ago
  In some social groups you'll get massive social status signaling about being an "entrepreneur". Admittedly it mostly comes from people who profit off the pipeline, mortgage refi officers, commercial landlords, accountants, bankruptcy attorneys, etc. As a cash business I often wonder how much laundering goes on. Not just hard core drug money, but any time cash is handled I suspect there's some rounding down going on.
- nikanj 5y ago
  That’s an excellent question, and touches many other avenues of life too. Why bother with producing anything, when asset appreciation provides bigger gains with no effort needed
  - jsdwarf 5y ago
    Because your activity contributes to the appreciation. A good restaurant attracts a lot of people, which in turn attracts other businesses (think of bookstores next to popular cafés). This increases the worth of the property.
hinkley 5y ago
Then you have the reverse problem where the stores or restaurants are renting their space. As the neighborhood density increases, their customer base goes up but so does rent. And since location matters, you can’t just move if you don’t like the rent prices, so they can squeeze you pretty hard. Goodbye profit margins. In my old neighborhood there were always a few empty places because they were pricing people out, and few wanted to pay the new prices.
- ryanmarsh 5y ago
  Insert Adam Smith quote about the rent of land.
  - late2part 5y ago
    “As soon as the land of any country has all become private property,” he writes, “the landlords… love to reap where they have never sowed, and demand a rent even for its natural produce. https://www.barrons.com/articles/the-trouble-with-adam-smith-1471670360 https://www.barrons.com/articles/the-trouble-with-adam-smith...

by blihp 5y ago

ianai 5y ago

Not to forget the times where states raise their minimum wage and see the number of people in the labor force increase. The balance of power is almost always squarely weighted on the side of the employer. This can push wages below market optimum.

sokoloff 5y ago
I’d expect minimum wage increases to be mostly off the table during recessions, so it’s not surprising to see them passed during economic expansions, which are tightly linked to rising employment figures, so this might be a "wet streets cause rain" correlation.
- cyrrus 5y ago
  Except it’s those on minimum wage that spend most or all of their paycheck stimulating the economy. Middle class have record savings at the moment.

deburo 5y ago

>If they honestly can't afford to pay a living wage It's not logical to kill businesses by arbitrarily raising the minimum wage. Do you think the people they employ are better off not working at all? These people may not have a decent enough salary, but they get to work as opposed to staying at home and degenerate (mentally and physically). I always thought the better solution is to help them financially in other ways (greater tax credits, negative taxes?).

itake 5y ago
> Do you think the people they employ are better off not working at all? Maybe you didn't read the article. but in summary, because the businesses are not paying enough, the businesses have less employees. Its not that the employees wont have jobs, but they will just have a higher paying job somewhere else.
davemp 5y ago
The government giving more to minimum wage workers instead of raising minimum wage feels like a roundabout way to subsidize businesses that don’t way living wages.
- ChuckNorris89 5y ago
  That's exactly how it works in many european countries, especially the ones without a legal minimum wage (Austria for example), so people working "slave" gig jobs (cleaners, delivery, construction and hospitality workers, etc.) where if they earn below a certain "livable' threshold, get various tax credits, subsidies and benefits from the government to reach that "livable" threshold, which, while it sounds good, it creates a perverse incentive where employees arrange with the employer to be paid as little on paper as possible to still qualify for the government subsidies and then get paid the rest under the table (tipping is expected here for this reason) which just moves the burden from the employers of paying a livable wage to the customers and to the taxpayers which are basically subsidizing their business.
  - varispeed 5y ago

closeparen 5y ago

McDonalds is a franchise, isn’t it? Corporate doesn’t own the stores.

deleted 5y ago
[deleted]
caymanjim 5y ago
Corporate owns 15% of ~36000 total stores, which it leases to franchisees.
hrktb 5y ago
There was a good Polymatter video about this very topic: https://youtu.be/kJVj3vp-lho https://youtu.be/kJVj3vp-lho McDonald’s model is pretty different from standard franchises.
throwawayboise 5y ago
Some stores are corporate owned and operated. Most are franchise owned and operated, but corporate owns the real-estate the store is sitting on.

nbardy 5y ago

This is why its hard to start a restaurant. You need to be rich enough to own the land.

malandrew 5y ago
Yup, if you don't then your landlord gets all the value. You get a 10 year lease, build a successful restaurant (if you make it past the dreaded first year) and then when your lease expires your successful restaurant has helped increase the land value in the area and the margin you worked up to evaporates when you sign a new 10-year lease that is more expensive because the value of the land has gone up (partly due to your success).
- hinkley 5y ago
  My old neighborhood was full of people deciding on their third 10 year or early retirement. Had a few old guard businesses close before people noticed the pattern. Not that the residents could do much about the cause... I imagine them thinking, “I’m 56 and this contract basically says I’ll have to work harder than I have in decades just to keep out of bankruptcy.” And just checking their finances and then the want ads for management positions.

anovikov 5y ago

In this case, why bothering operating a restaurant at all (it's a terribly terribly complex business to manage)? Just buy real estate and sit on it? I always wondered how restaurants even work - how can owners be motivated to keep themselves in this endless, poorly paid grind. In my opinion, when this is not about large chains that are effectively self-reproducing machines that don't depend on any people's motivation, it's mostly either hobbies (someone runs it to keep himself busy and feel beneficial to the society during retirement, for example), or just failures (someone foolishly believes there's a massive amount amount of money to make, gets burned, and vacates the space to leave it to the next one). Yours truly have been that sort of person in my younger years (when it was a lot easier, as industry professionals say!). And yes, i can easily understand how can one become a dick being a restaurant owner. You deal with people who are paid poverty wages (there is no choice here), who can't be motivated with anything but threat of losing their jobs, have no work ethic (or they'd be doing something better), and in general can't be trusted in anything at all. You become paranoid and you quickly learn to disrespect people. I can feel that guy, don't judge him so heavily. This is a hellish business to do and anyone who envies them is a fool.

VLM 5y ago
In some social groups you'll get massive social status signaling about being an "entrepreneur". Admittedly it mostly comes from people who profit off the pipeline, mortgage refi officers, commercial landlords, accountants, bankruptcy attorneys, etc. As a cash business I often wonder how much laundering goes on. Not just hard core drug money, but any time cash is handled I suspect there's some rounding down going on.
nikanj 5y ago
That’s an excellent question, and touches many other avenues of life too. Why bother with producing anything, when asset appreciation provides bigger gains with no effort needed
- jsdwarf 5y ago
  Because your activity contributes to the appreciation. A good restaurant attracts a lot of people, which in turn attracts other businesses (think of bookstores next to popular cafés). This increases the worth of the property.

hinkley 5y ago

Then you have the reverse problem where the stores or restaurants are renting their space. As the neighborhood density increases, their customer base goes up but so does rent. And since location matters, you can’t just move if you don’t like the rent prices, so they can squeeze you pretty hard. Goodbye profit margins. In my old neighborhood there were always a few empty places because they were pricing people out, and few wanted to pay the new prices.

ryanmarsh 5y ago
Insert Adam Smith quote about the rent of land.
- late2part 5y ago
  “As soon as the land of any country has all become private property,” he writes, “the landlords… love to reap where they have never sowed, and demand a rent even for its natural produce. https://www.barrons.com/articles/the-trouble-with-adam-smith-1471670360 https://www.barrons.com/articles/the-trouble-with-adam-smith...