For some reason I can’t seem to find time to sit down and type up a blog post, but I tell myself I have time to compose a “5 minute” reply to some random comment on some blog…. Well… once again, I am going to dump those thoughts here. Because 5 minutes was really 2 hours and darn it, it wasn’t all in vain, was it?!? Minimum-Wage

So here’s what Dave had to say about an article concerning raising minimum wage:

Dave 
My franchise KFC/Taco Bell makes minimum $5,000 a day profit. I dont agree raising minimum wage, but I think we should find some way to encourage the company to give their hard working employees more than a 15 or 25 cent raise every sixth months IF they deserve it. It’s very difficult to work as hard as I do and help family without going to school every morning.

 

After more than 3 years, starting at $7.50/hour I am only making $8.20/hour. The first year I worked the company actual froze raises. SOMETHING NEEDS TO CHANGE!

 

I dont have the privilege of being helped by family or friends. It’s been a rough life, and yes I know I made bad decisions as a kid. I dropped out in 10th grade because of personal reasons. I’m sick of people talking out of their own ignorance like people have no one to blame but themselves. Good for you if you’ve had it as rough as some of the people I know and rose above it.

And my response:

Dave, I don’t want to slam you, because you don’t seem to be asking for something for nothing. But the cold hard fact of the matter is this: as long as you are just the guy behind the register, you will never deserve to make more than $8.20/hr. KFC doesn’t even really want you to stay for 3 years behind the register; they would rather you quit so they can bring in a new 18 year old and start him at $7.50/hr. If you want the raises, you need to increase the value you add to KFC. In other words, work up the ladder — become a floor manager, then a shift manager, etc. As GM you could be making $70,000/yr. Switch to Cracker Barrel and you can make $100k. At some point, yes, you will have to take some night classes, get your GED and some manager specific training. But it can be done.

The rest of this reply is to address the flawed logic that is being taught by liberals to you and your peers. It’s long, but this is a complicated topic. So if you are sincere about wanting to have a discussion and understanding both sides, you will keep reading. Some of this you may know, but for clarity, I am going to start with the very basics.

I am sure you realize that the $5,000 your KFC puts in the bank each night, does not all directly go into some fat cat’s pocket. That $5,000 is gross profit (profit before expenses). Someone has to pay all KFC’s bills to get the net profit (the money you do get to put in your pocket). I managed an Arby’s for a time and most nights I walked over to the bank carrying more like $3,000. $5,000 was a good day.

But let’s go with $5,000. That’s solid sales for a fast food joint. To keep it successful, you have to keep your numbers pretty tight. So bear with me while I break down those numbers to see what “the man” is actually putting in his pocket. So if your staring at $5,000 cash, that means you owe something like 63% of that, or $3,150, to the guys that delivered your chicken, flour, fryer oil, frozen potatoes, boxes of Pepsi-flavored HFCS, etc. You also got to pay your rent, utilities, insurance, trash, etc. so set aside another $550 to pay those. (Those are called occupancy costs and average around 11%). And KFC is a franchise, so 5% comes off the top to go to corporate so there goes another $250. Now let’s pay those teenagers… payroll usually runs around 18%. Guess what we have left… 3%.

If we make $5,000 every single day for 365 days than that 3% equals $54,750.00 per year of pure profit. Wow… I can see why everyone is so mad at “the man”. He is LIVING LARGE! Oh wait… I forgot… he had to have about $500,000 cash up front to invest in the business before KFC would even look at his application. So scratch that. He has got to run that place for 9 years before he even breaks even.

That’s not even counting the money “the man” has to shell out for the times his teenage employees knock the shake machine off the counter (yeah… we did that). Or to make up for the nights the place doesn’t get any customers because of freezing weather or torrential rain (but he still has to pay the employees to sit around eating the fries that are just going to get thrown away at the end of the night). He’s risking a lot to open this KFC and if the risk doesn’t come with any reward, why should he bother?

It boggles my mind that liberals are teaching you to think “the man” can just change one of these very tight numbers and it will have NO effect on the business! If labor costs almost double (because if you give the drive-thru guys a higher wage you have to also give the managers a raise to keep the scale) then your labor cost is no longer 18%… it is now 33%. But for fun, let’s say the General Manager agrees to skip his own pay raise and “the man” doesn’t raise the middle managers in equal proportion and somehow keeps labor down to 25%…. He is still going out of business (63% for food cost + 11% Occupancy + 5% franchise fee + 25% labor = 104%!! The store now loses $73,000 a year! And there’s no money to fix the shake machine, repair the roof, or hire plumbers when customers try to flush their underwear down your toilet (and you know they do dumb-ass stuff like that!)

So now you say, well raise prices. But here is something else that liberals just don’t seem to understand…. It’s mostly not rich people buying fast food. If I have $20 to take my family out to dinner, I am only going to spend $20. If prices increase, I am going to buy one less drink, or skip the extra biscuits, or pass on the “large sizing”. Increasing the prices does NOT equal a penny for penny increase in sales. You can’t say, well if I made $5,000 today and increase prices 10%, I will make $5,500 tomorrow. It just doesn’t work that way in the real world.

From Entrepreneur.com:
According to a report on food franchising by Franchise Business Review, 51.5 percent of food franchises earn profits of less than $50,000 a year; roughly 7 percent top $250,000, with the average profit for all restaurants coming in at $82,033. That doesn’t sound too bad, until you factor in the initial investment. Though some basic restaurant concepts cost less than $100,000 to open, many established brands require as much as $500,000 to start. And a full-service restaurant may require an initial investment of $1 million or more.
http://www.entrepreneur.com/article/228698

So these franchise owners are coming up with $100,000 – $500,000 to start their restaurant. It takes 5-10 years for them to make enough to even pay themselves back just to make back $50,000 a year. So that means it takes them 10 years just to make back their investment. Who is going to open a business if it they numbers get even tighter and it takes 20-30 years to make their money back? They would be better off just investing in the market… and is that what we really want? More people taking their money out of the economy and just letting Wall Street have it?

And we can’t even know how many jobs aren’t being created because of fear. I tried to get my FIL to open a Sonic with part of his retirement savings ($500k initial investment). I told him we would do all the work and take meager pay until he was paid back and then he could be a silent partner and make residual income the rest of his life. (Sonics are wildly popular out here.) But even the talk of raising minimum wage by that much has got him too scared. He can’t risk it. The gov’t is supposed to provide a climate that encourages entrepreneurship and job creation. You can’t open a business if you can’t project costs. It is the most basic of principals, but over half the population can’t do that math. It is mind-blowing to me.

Now if it’s the 5% franchise fee to corporate you want to haggle over, remember they have a list of their own expenses. They are the ones who pay for advertising, standards control, R&D (someone has to come up with the KFC dinner bowls and test to see if anyone is going to eat them), and home office salaries.

And yes, the CEO of YUM brands (which includes KFC) makes a ridiculous 100 million per year. But dividing it up amongst the 1.5 million YUM employees equals less than $100 per person per year. So go ahead and lobby all you want to cap CEO salaries. I won’t argue with you. But it won’t cover a minimum wage hike.

And lastly, sure it would be “nice” if single moms could support families on any job available in the whole country. But there is actually a need in society for low-paying, low-skilled, entry level jobs. You know who you are hurting the most by taking them away? Black youth (http://townhall.com/columnists/thomassowell/2012/02/07/a_defining_moment/page/full) They have the highest rate of unemployment out of any demographic in the country. So yes, you can cite your sources that say net employment doesn’t change much when minimum wage increases and you might not be wrong. But the demographics change. Retirees and people like me (I currently stay home with my kids, but for $15 an hour, I would go in a couple nights a week and stand at a register) will go take the cushy Sears’ jobs. The lady who was trying for that Sears’ job I took ends up taking a waitress job. The college girl she edged out goes and gets the fast food job. The black teen doesn’t have a chance competing against the college kid so he ends up on hanging out on the street (FYI black youth unemployment is at 40%; they don’t need to make $15/hr, they need a chance to get on the ladder!)
(http://www.bls.gov/news.release/empsit.t02.htm)