Only July 24, the federal minimum wage will increase 11 percent to $7.25. And even though more than half the states in the country have a minimum wage that's higher than that, fast food restaurants are worried it will mean the end of profits.
As a restaurant economist tells CNN Money, even in normal times "profit margins for an average fast-food company stand around 4 percent before tax."
And these aren't normal times. Although fast food restaurants have stayed busy during the recession, the move towards value menus has cut those 4 percent margins even thinner. The fact is there's virtually no money to be made off of selling two hamburger patties, a bun and cheese for 99 cents. According to the CNN article, "while food prices have abated in recent months, analysts expect commodity
inflation to return, putting additional pressure on margins."
So far McDonald's and Burger King have remained mum about how they plan to counteract higher costs. Raising prices seems out of the question, lest consumers go to the cheaper competitor. Instead, McDonald's is experimenting with "higher-efficiency soda fountains."
Neither should follow Sonic Drive-In's route. When profit-margins fell at the Oklahoma City-based chain (for which a Kansas City advertising firm handles the commercials), it didn't raise prices but instead screwed over employees -- the same ones higher minimum wages were supposed to help. From the Wall Street Journal yesterday: "To cut costs, Sonic last fall started paying newly hired carhops at a
tip-wage rate, rather than the minimum wage, at its majority-owned
locations." Federal tip-rate is $2.13 per hour and does not go up with the regular minimum wage hike.
Things aren't much better at the state level for the next six months. Kansas workers who do not qualify for federal minimum wage (either because of age, number of hours worked or disability) can continue to be paid a paltry $2.65 per hour. Even though legislators passed a law bringing the state's minimum wage up to federal level, it doesn't go into effect until January 1, 2010. Missouri's minimum wage is currently $7.05 per hour.
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I was going to post a comment yesterday about identical to Chad's re: Sonic.
I now feel like a d-bag for not tipping the car hops.. sort of. Almost none of the Sonic's in my area have drive thru's, and when I go to Sonic it is almost always just for a soda. There is no way I am tipping someone for a soda when they are the ones not letting me just drive through and get it!
The etiquette, yes, is to tip at Sonic- most people I know just let them keep the coin change. I guess since the carhop brings you your food, much like a waitress, that tipping is appropriate. I however, don't. It's not my fault that they decided as a chain on a retro concept.
Even if you're paid a "tip wage" you still have to be compensated at the minimum wage rate. The idea is that your tips will make up the difference between the "tip wage" and the minimum. If you don't get enough tips to make up the difference, your employer has to pay it.
And yeah, Chad - you gotta love the food industry bosses, who've not only managed to convince Joe Public that Joe should be paying the bosses' employees, but have even convinced their employees that Joe is a cheap bastard if he doesn't cough up a nice fat tip. Right - it's JOE'S fault you're making $2.65 an hour, not the son-of-a-bitch who signs your paycheck.
Wait a minute -- I'm supposed to be tipping the carhops at Sonic? That's like tipping the guy who makes your sandwich at Subway (and yes I've seen tip cups in some Subways).
Sonic...wow. I admit my logic may be twisted, but outside of a bar setting I tend to follow the rule: refills = tips. If my relationship with the person delivering my food is over after the money changes hands, then I keep the tip to myself. I never really considered tipping the carhops at Sonic. Does that make me a horrible person? Or does it merely highlight the industry assumption that schmucks like myself will pay the wages of their employees?
Dude, I used to work for a minimum wage of $5.15 per hour when I worked in a fast food place in CA when I was 17. People need to quit their bitchin' about making more than $7!!!
But really, I get it...inflation and all. Still. I'd have been happy to have made anything above $6 when I was in high school.
I don't thoroughly understand the reference to "higher efficiency soda fountains" but I already gave up drive-thru sodas when they started charging ridiculously high amounts for what was basically the equivalent of about $.30 of cost to the store I was buying from, so I guess it doesn't really matter overall. (I am willing to pay $1.50 for a large - or 32 oz - drink. Anything more than that is highway robbery, IMO, and I won't do it!)
This wage thing goes beyond fast-food. Many retail stores only pay minimum wage. This little 70 cent an hour raise will mean an extra $112 a month (before taxes) for a lot of people who've barely made ends meet. It's a damn shame that the raise will just translate into higher costs for everything effectively neutralizing the raise and keeping the little guy down.
From Fast Food Nation:
"The annual turnover rate in the fast food industry is now about 300 to 400 percent. The typical fast food worker quits or is fired every three to four months."
This means huge inefficiencies, since there are so many hours devoted to training new employees. Solution? Pay your workers more--maybe they'd stay if the jobs you offer weren't utterly disposable. How could you possibly afford it?
"Increasing the federal minimum wage by a dollar would add about two cents to the cost of a fast food hamburger." (emphasis mine)
In-n-Out, looney or not, start workers at $10 per hour. They seem to be doing just fine, in part because they can pick and choose the best and brightest of the "unskilled" labor market.
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