Consultant: $15 wage might restructure franchise deals

by: Graham Johnson Updated:

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SEATAC, Wash. —

If you want to run a McDonald's, you might call franchise consultant Joel Libava, who calls himself "The Franchise King." (http://www.thefranchiseking.com/)

 He says there's a lot of money to be made.

"If someone owns a successful McDonald's, they're making a couple hundred thousand dollars a year for themselves, safely," Libava told KIRO 7.

 You might think franchise owners, who often have several restaurants, could easily afford to pay workers more.

But Libava says the total initial investment to open a McDonald’s franchise exceeds a million dollars, plus ongoing costs for workers, food and rent.

He says McDonald's franchise owners pay a one-time franchise fee to the corporate office, followed by ongoing royalties of up to five percent of sales.  

So if labor costs suddenly skyrocket because of a $15 per hour minimum wage, Libava suggests the big companies will need a new, sliding scale for royalties, to help franchise owners pay workers more.

 "They're going to have to do something with the fee structure," Libava said.

A McDonald's spokesman told KIRO 7 "we're not in a position to speculate on something like that."

Not everyone agrees franchise fees will make it harder for restaurants to pay higher wages.

 "I think the dynamics of the restaurant are not driven by franchise fees," said Michael Saltsman of the Employment Policies Institute, which is fighting a minimum wage increase.

"The dynamics are driven by profit margins and the demand for low prices," Saltsman said.

He predicts fast food companies will cut jobs or move to automated ordering systems before raising prices, because consumers won't accept price increases.

"If the dollar menu became the three-dollar menu people might not want to go out to eat anymore," Saltsman said.

Saltsman's group on Thursday released a report claiming that a $15 per hour minimum wage will lead to roughly 460,000 lost jobs nationwide in the fast food industry, including more than 4,000 in Washington State.

Analysts used what they calls a conservative estimate that employment would fall at least three percent for every 10 percent the minimum wage goes up.