re: Report: Fast food prices would go up 38% if wages raised to $15

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Cut the franchise fees by 20%, and you lose 20% of that $2.9 Billion asset along with it. $580,000,000 in shareholder value... *poof* gone.

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I'm glad we finally got to this point. Great job.

There is no real "slack" in profits. If a person purchase a business, the value of that business was in large part determined by that "slack." If the slack goes away, so does the owner's ability to service debt and get a return on his investment.

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If so... you'd be embarrassingly wrong. A franchise owner will carry a very significant part of it's value in it's branding under goodwill on their balance sheet. For McDonald in 2013 it's almost... $2.9 Billion dollars in value.

Basic accounting says... if you cannot derive income it, it's not really an asset. Franchise fees... which are essentially letting others use the value of that brand play a VERY significant role in assessing that value.

Cut the franchise fees by 20%, and you lose 20% of that $2.9 Billion asset along with it. $580,000,000 in shareholder value... *poof* gone.

These are the type of ripple effects that the simpleton: "give'em some of your money from you stash" proponents fail to consider. It's pathetic one-dimensional analysis... as usual, reality doesn't operate on such simplistic terms...

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What's simpleton is to assert that 100% of their goodwill is franchise fees, and that a 20% cut in franchise fees would be accounted as a 20% cut in goodwill on their balance sheet. I can google the 10-K too. It says right there that the second primary component of goodwill is ownership increases in, e.g., the unconsolidated affiliates in countries like Japan where they have a stake but don't control the operations.

Not only that, but the up-front fees are only a small part of the franchise cash flow. If a franchisee wants to remodel their building or upgrade their systems, they can't just bid that shite out. They have to use MCD. LINK You're not being cynical enough if you don't think that sort of vertical integration isn't larded with sinecures, especially given the comparison with other businesses in there.

And if you want to talk ripple effects, look up a bit at the consolidated statement of income. Compare the margins from the company-operated sales and company-operated expenses with the franchise revenues and franchise expenses. That is a huge difference in margin. One might also consider that lowering the franchise fees, while reducing that margin (it would have to be a lot more than 20% to make franchising less profitable than direct operation), would also lower the up-front cost for prospective owners to buy a MCD location and thus allow MCD to convert more of their less-profitable directly-owned locations to more-profitable franchised locations.

Finally, switching from two-digit million and billion numbers to "$580,000,000" to make it sound horrorshow is a simpleton trick too. When you look at the goodwill in context on their balance sheet and divide, it's not exactly a crippling blow. Even if your accounting of the goodwill is correct and it yielded no positive ripple effects, a 20% reduction in goodwill would represent a 1.5% reduction in their assets, shrinking them from 36.626b to 36.046b. In other words, less than half of the amount they increased from 2012 to 2013. Like I said, puckered assholes.

Again, I offer none of this in support of the premise that "McDonalds should be forced to raise wages for its workers." I don't support any minimum wage, let alone at $15. I merely offer it in opposition to the premise "If McDonalds raised wages for its workers it would be disaster!"

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Report: Fast food prices would go up 38% if wages raised to $15

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That would basically mean labor cost is currently 38% - since its essentially doubling the wage to add another 38%.

I don't buy it. That seems a little high.

It already costs my family about the same amount to go to a sit down restaurant as a fast food place. If this happens we will never go to another fast food place. I don't really mind that, personally, but if everyone does the same then a lot of fast food places would close. I'm concerned about how that would affect an economy that had become largely service based.

I agree that fast food places are for the most part already maxed out as far as what it costs to eat there.

Let's take an average family of four: A mom and dad with a 14 year old and an 8 year old.

Dad: Big Mac value meal- $5.70
Mom: Bacon Ranch Salad-$4.60
14 year old: double QP meal-$6.50
8 year old: nugget mighty kids meal-$4.00
Kid gets a Flurry and dad a cup of coffe-$3.50

Add tax and that is $26.50

They can go to Applebee's for lunch at around $30.00.

My family of 3 just went to a Mexican restaurant for lunch and spent $24...with tip. Kids meal, 2 teas, cheese dip app, 2 adult lunches. Drink water and cut out the cheese dip and we're looking at around $18.

McDonald's would have cost us probably 15. Totally worth the difference.

The fact that it costs around $4 for just a breakfast sandwich already shows that fast food is not as cheap as it once was.

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That would basically mean labor cost is currently 38% - since its essentially doubling the wage to add another 38%. I don't buy it. That seems a little high.

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Hey. Look who didn't read the article.

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Plus you're expected to tip at Applebees

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Not if you get it to go. The fact that Applebees and Outback and the like will bring the food to your car basically means those chains might as well be the new fast food places. I mean how many people that eat at McDonalds actually dine in?