Choosing the Right Franchise, Restaurant Franchises

Fast Food Franchises & Hourly Compensation

fast food franchiseFast food workers are determined to make their jobs, which are often perceived as a source of high school kids’ pocket money, into jobs that can support a family. In many cases, the arguments around this issue focus on how “giant corporations” can afford to pay more for workers.

Many local fast food restaurants are owned and/or run not by a giant corporation, but by a franchisee. Does the controversy over fast food workers’ wages mean that it’s a bad time to invest in a fast food franchise?

Fast food workers earn an average of $9.00 an hour across the country — more than minimum wage, but much less than the $15.00 striking workers demanded in demonstrations earlier this summer. The average franchise owner earns quite a bit more than that. However, fast food restaurants often operate on low margins — around 2% for some fast food franchisees. Franchisees may have put in a few years personally working for less than $15.00 an hour while they built up their businesses, and are also taking a financial risk which the employees are not. With franchise fees and the high cost of turnover for employees, franchisees might experience hardship if they try to increase wages significantly.

On the other hand, there are fast food restaurants that pay more, and they report lower turnover among their employees. It’s not impossible to pay workers more and succeed. It may even be necessary, if not now then in the near future. The average age of a fast food worker is now 28 years — these are not kids taking a temporary job. Some commentators claim that higher wages could increase productivity and efficiency enough to make up some of the added cost.

Bloomberg suggests that prices of fast food would rise — but an individual franchisee can’t usually choose to raise prices to cover rising staff costs. Franchisee profitability is essential for the franchises, so they may take action at some point (say, when investors get nervous) to make it easier for franchisees to offer higher wages. However, higher food prices might just send people elsewhere for their fast food fixes.

Well known fast food franchises can be among the priciest options when you’re looking for a franchise investment opportunity. They’ve also been among the safest. While an independent restaurant has a limited chance of success, opening a Subway or Little Caesar’s is almost guaranteed to mean plenty of customers right out of the gate. Your franchise piggy backs on the success of the franchise overall — which is why the cost to buy in is likely to be higher than most.

Little Caesar’s continues to show strong growth after more than half a century in business. Fast food overall is a growth industry, too, as Americans rely more and more on prepared foods. Rising prices at the gas pump didn’t reduce demand for gas, and rising prices for fast food might not reduce demand either — in the long run.

Investing in a fast food restaurant might now might be slightly more risky than it would have been a year ago, but the risk is probably not out of line with potential profits.

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