Former McDonald’s CEO: Minimum Wage Hike Means More “Automation”

Former McDonald’s CEO Ed Rensi

Said franchise restaurant owners would not be able to afford a federal minimum wage hike to between $12 and $15 per hour without setting up more “keypads” or kiosks for ordering and raising prices for consumers.

Democratic presidential candidate Hillary Clinton has proposed a $12 per hour national minimum wage. Clinton has also said she would sign legislation for a $15 per hour minimum wage. Republican presidential candidate Donald Trump has signaled he would support a $10 per hour minimum wage but said states should “call the shots.”

Rensi said some newer McDonald’s restaurants in Missouri, for example, already have kiosks setup at the front in place of cashiers. He predicted that “automation” would eliminate more jobs in the future. Kiosk ordering systems are also being used at some Panera Bread and Wendy’s locations. Some companies, like Chipotle and Starbucks, offer mobile ordering for customers.

“Do you have any idea how many people that’s going to eliminate out of these restaurants? I’ll give you a story. I was the vice president of McDonald’s in Philadelphia in 1970 and we were doing about $300,000 in sales. We had 65-70 people working in our restaurants,” Rensi said at an American Action Forum event titled, Does it Help? The Economic, Employment, and Poverty Effects of Raising the Minimum Wage.

“Today, they are doing $3 million with 2 million customers per day going through the restaurants here in the United States and they are doing it with 35 to 40 employees. They’ve gone from 6 store managers with all day breakfast down to 4 and now they are on their way down to 2,” he added.

Rensi, who also worked as the CEO of Famous Dave’s, mentioned a debate he had with an unnamed Apple executive about the minimum wage.

“I had a debate with a leader of Apple – not face to face because he would never take the time to see me and I wasn’t sure I wanted to see him either – but the debate was about minimum wage. He said we ought to raise the minimum wage to $15 or $20 per hour and my retort, everywhere I could, was ‘you’ve got less than 2 percent labor content in your product and you are selling your product at $600 a pop. I’ve got 30 percent labor content in my product and I’m selling it for $1,” Rensi said.

“When you get to 30 percent labor content you start talking to me about minimum wage otherwise shut up, I’m not interested. He didn’t have anybody working for minimum wage so it’s easy for him to tell the rest of us how to do it and that’s the problem with the minimum wage – we confuse our heart with our mind. We are confusing fairness with good judgment,” he added.

Rensi explained that he believes there should be a minimum wage but he thinks states and localities rather than the federal government should decide the amount per hour. He also suggested that the minimum wage be indexed to “household inflation.”

“The market for unskilled entry level workers does not demand $13 per hour. A lot of them are high school kids,” he said.

Some cities are already acting on their own to raise the minimum wage. Seattle raised it to $11 per hour with a transition to $15 per hour in 2017 for larger companies and 2021 for all companies. According to a study released in July, the minimum wage hike in Seattle has resulted in lower employment rates and fewer hours for low-wage workers and the full $15 wage has not taken effect yet. Given Seattle’s experience at this stage, it makes sense to allow cities and states to work with the local business community to decide on a manageable minimum wage increase rather than a one-size-fits-all increase at the federal level.

A franchise owner, who Rensi declined to mention by name, told him he had purchased individual restaurants from a company that had raised wages $3 above the legal minimum wage. His operating costs became too difficult to manage, but he did not want to raise product prices.

“The labor cost is 3 percent higher in those restaurants and his productivity is 20 percent lower than the others and he is in a situation now where he needs to raise prices,” Rensi said

“The fact of the matter is in restaurants when you raise prices 1 percent you lose about 1 percent of your transactions in this day and age each transaction is about $8 so you start doing the math on that and it becomes very self-defeating so you can end up with an increase in labor, increase in prices and a reduction in actual transactions. So you are getting more from few people – that’s not a prescription for success because ultimately you run out of customers whether you like or not,” he added.

A group of workers apparently told the owner that they wanted their hours reduced so they would not lose their government benefits through The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

“So you create a disincentive in that situation,” he said.

Rensi recalled a separate conversation he recently had with a McDonald’s franchise owner in Chicago who is paying more than $160,000 in real estate taxes each year compared to about $40,000 about 10 years ago.

“He said, ‘I can’t keep doing this.’ He said, ‘I keep raising prices to cover it. I’m chasing customers away. I can’t afford the minimum wage.’ He said, ‘I sure as hell can’t afford overtime for my managers’ so these things are all linked together in a horrible way today and it’s impacting Hispanics and blacks disproportionately. If you are under-skilled – the money is going to be people who are more productive and more skilled,” Rensi told the audience.

“If you take a kid that goes into the first grade in Chicago and ultimately graduates from high school, the rate of graduation is like 9.5 percent. I mean that is just ludicrous to think that many kids are dropping out of school and failing and now are going to pay them overtime in minimum wage jobs? I mean that is the most asinine thing I’ve ever heard of in my life,” he added.

Photo Credit: Sorbis / Shutterstock.com

Comments
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TheThinkingSapiens
TheThinkingSapiens

True we cannot take minimum wage at face value. It’s more complex than what it seems and not a one-size-fits all approach.

AstridK
AstridK

It's not fair to say teenagers don't need the same minimum wage as adults. In poor families, the money a teenager makes doesn't go to buying fabulous stuff for themselves, hanging out with friends or partying. It goes into the family income to pay for rent, utilities and food.

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