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Get a clue, McDonald's: Why its business model has utterly failed

Amid bad PR, lawsuits, and unhappy franchisees, it's time for the embattled company to shift to a living wage model


Jack Temple
May 22, 2014 8:12PM (UTC)

McDonald’s investors have some reckoning to do at the company’s annual shareholder meeting today. Over the past year, the Golden Arches has come under fire from all sides: Weak consumer demand has led sales to slump. Satisfaction among franchise owners has now sunk to historic lows, with many expressing interest in selling. Class-action lawsuits against the company were filed in three states last March, alleging widespread and systemic wage theft. A company web site became a national punchline last fall for suggesting that low-paid employees adjust to the strain of financial hardship by singing away their stress and taking smaller bites of food.

And, just last week, hundreds of McDonald’s workers held the latest in a series of one-day strikes that have now hit over 150 cities in the U.S. with workers protesting in solidarity in 33 countries overseas. Yesterday, over 100 of these workers were arrested outside McDonald’s headquarters in Oakbrook, Illinois, as they brought their demand for $15 an hour and a union directly to the company’s doorstep.

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McDonald’s has an opportunity today to assure shareholders that it’s committed to charting a new course, but doing so will require more than a new advertising blitz or clever PR strategy.

Instead, the company should use this shareholder meeting to acknowledge publicly what its mounting troubles over the past year have already made clear – that its business model has failed, and that it’s time to transition to a new model that pays a living wage.

Indeed, McDonald’s problems have multiplied at such a rate over the past year in no small part due to the fact that it continues to defend itself with appeals to outdated – or even flatly false – portrayals of the company, refusing to acknowledge the basic reality that makes a living wage business model such an imperative today.

For example, McDonald’s paints a picture of opportunities for advancement among its employees, citing stories of fry cooks and cashiers eventually becoming franchise owners. But it’s not the whole picture. Franchise owners make up only 0.3 percent of the company’s workforce, and the company requires potential franchisees to have $750,000 in non-borrowed assets – a tough bar to reach in an industry that pays a median hourly wage of $8.94 per hour.

Nor can the company even continue to defend itself as providing much of a “value” to consumers in light of a report last year finding that low wages, limited hours, and nonexistent benefits at McDonald’s cost an estimated average of $1.2 billion per year as hundreds of thousands of its workers find themselves forced to rely on public assistance to make ends meet.

By announcing a shift to a living wage business model, McDonald’s would be following in the footsteps of a growing number companies that have started to see the light. Earlier this year, The Gap announced that the company would be raising pay for all of its U.S. employees to at least $10 per hour by next year, calling the move a “strategic investment to do more for our employees” in order to “attract and retain a skilled, enthusiastic and engaged workforce.”

Similarly, Costco has for years embraced a business model focused on investing in its workforce, with entry-level employees starting at $11.50 per hour. This investment, moreover, has paid off, with market analysis showing that Costco generates nearly double the sales revenue per employee as its nearest competitor, the Walmart-owned Sam’s Club.

If there was a time when workers in the fast-food industry were mainly teenagers looking to earn side-money, that day has now passed. Census data make clear that 70 percent of fast-food workers are adults over the age of twenty. Over 30 percent have at least some college education, and over 25 percent are supporting children of their own.

McDonald’s has an opportunity to lead the fast-food industry by transitioning to a living wage business model. But until then, the events of the past year make one thing certain: unless McDonald’s faces head-on the urgent need for higher wages and a new relationship of respect for its workers, the pressures facing the company will only continue to grow.


Jack Temple

Jack Temple is a policy analyst at the National Employment Law Project.

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