I’ve recently seen people trying to dispel the connection between fast-food restaurant automation rollouts and labor disputes. Forbes released an article where a former president and CEO of McDonald’s USA, Ed Rensi, linked the labor cost disputes of #fightFor15 and automation release nationwide in McDonald’s chain restaurants.
When I saw the first “this is ‘fake news'” accusation, I was spurred to do a little more research – so, really – was this ‘fake news’?? I didn’t think so.
I still don’t think so… and here is why… according to a good source – a manager at a McDonald’s restaurant, the average profit on a $1.29 McDouble burger, is $0.08. The labor cost is about $0.15.
Source: Quora: How much does a $1 hamburger/sandwich cost a fast food restaurant to make?
Okay, so let me put a little perspective on this from a McDonald’s standpoint. I will use a McDouble as an example. At my store, a McDouble is currently $1.29 for reference.
Reg meat: ~$0.10 (2 patties at ~$0.05)
Bun: ~$0.07
Cheese: ~$0.10
Onions: ~$0.02
Pickles: ~$0.03 (2 pickles at ~$0.015
Ketchup: ~$0.03
Mustard: ~$0.01
So all in all, we only pay ~$0.36 for a McDouble, right? Nope. That’s the direct cost. Now we need to take into account the indirect cost. These indirect costs are more of estimates than exact figures.
Electricty (sic): ~$0.15 (Yes, it doesn’t take $0.15 of electricity to MAKE the sandwich, but this cost will go towards the bill for 24 hour electricity at our store)
Labor: ~$0.15
Insurance: $0.17
Misc: $0.25 (Rent, outside services, etc…)
So now the total is ~$1.08 give or take a few. So all in all, we make about $0.11 in profit on that sandwich. However, that profit goes not to the store (at least in a corporate store), but to corporate. That profit is then given to the store as needed (oh, and corporate generally decides what’s needed apart from your necessary purchases, like stock).
Where we make money is soda and fries. Those are the big bucks for a fast food restaurant.
For a hamburger ($1), we make roughly $0.08 profit after all similar expenses are taken out. Fast food is not big bucks when you look at individual item profit. It builds up when a lot is sold.
So – if the source is in Maryland (his profile indicates he’s in MD) – and MD minimum wage is $8.00. If their min. wage was to climb to $15.00/hr, with taxes it is approximately doubling the labor cost. Immediately that $0.15 labor charge has increased to $0.30 – and at the same price of $1.29, with nothing else changing, the ‘profit’ on the burger was changed into a loss or about -$0.07. Obviously that’s completely unsustainable. A business won’t handle that well, so the price of the item would need to increase by $0.23 to just get back to the $0.08 profit.
$0.23 as a percentage of $1.29 is an increase of 17.83%… wow… it would require almost 18% increase in the sale price of the cheap cheeseburger, to recoup the increase in ways. To put that into perspective – that’s like the cost of a loaf of bread jumping from $4 to almost $5 in a single price increase. Or – a $3.50 gallon of milk increasing to $4.13 immediately.
Well I hear some people saying, that’s ok, because the restaurant workers just got an increase… only they’re not the only ones in the equation. Sure they are the part of the equation, but what about those of us who earn more than minimum wage, and more than $15 – our costs just jumped up by about 18% – and our wages did not.. ?!?!