What are the ethical issues in this case. What are the solutions that you are recommend for this case?
McDonald's McDonald's franchise owners: what they really think about the fight for $15 Jana Kasperkevic in New York @kasperka Tue 14 Apr 2015 07.15 EDT As thousands of fast-food workers prepare to strike over wages on Wednesday, much of their ire will be directed at the franchise owners who control the vast majority of the restaurants where they work. But franchisees have their problems, too. A McDonald's milkshake machine costs $20,000. Its grills are $15,000. Making ends meet isn't so easy for either side, says Kathryn Slater-Carter. Until last month, Slater-Carter had been McDonald's franchisee for close to 35 years. She and her husband, Ed, got into the McDonald's business in the early 1980s in Daly City, California. Leaving behind jobs in education and banking, respectively, to join her father in the family business. Franchisees account for about 90% of McDonald's stores in America. Initially, we had three stores. My dad retired and sold one, so Ed and I ended up with two," she said. Then, a few years ago, McDonald's refused to renew a franchisee license for one of their stores. The store, in the local mall, brought about $2m a year, and provided jobs for about 30 people. Yet, just like that, it was shut down, Slater-Carter told the Guardian. McDonald's, which collected rent worth of about 12.75% of each month's sales, did not renew the lease with the mall. The space, which Slater-Carter and her husband had spent $500,000 renovating a few years back after asbestos removal, had to be restored to its original state, which cost them another $10,000 in contractor fees. Shocked by the way they were treated, they decided to sell the second location, where they employed about 55 workers and brought in about $3.6m in sales each year. The license on that store was valid until June 2016, but they weren't going to take any chances. "McDonald's decisions about whether to enter into new franchise agreements with existing owner/operators are determined on a case-by-case basis. We discuss those decisions with our owner/operators, but do not discuss them publicly," Lisa McComb, a spokeswoman for McDonald's told the Guardian. Slater-Carter has attempted to introduce legislation that would give franchisees more rights and allow them to recoup some of their investment if a parent company such as McDonald's wrongly terminates their agreement. The legislation was vetoed by California governor Jerry Brown in September. This year, Slater-Carter is trying again: a new version of the bill was introduced on 6 April. As a recent franchise owner, Slater-Carter is well positioned to talk about the challenges and the costs that franchisees often face. Wages: corporate v franchisee My rough calculations - we don't have precise average wage information from McDonald's - are that the impact of a $1 increase to the US average wage is approximately $50,000 to $54,000 per company-owned restaurant, John Gordon of Pacific Management Consulting Group told the Guardian. If franchisees were to implement similar wage hike, their cost per restaurant is likely to be higher. Franchisees traditionally pay a little bit less. If they were trying to make it so that they are a dollar over the minimum wage - state, local or federal - then the impact might be a little bit more, said Gordon. Average franchisee wages are not reported, so any estimates are purely a guess, he added. As it stands, McDonald's franchisees are dealing with additional costs: franchisees pay a royalty fee to McDonald's of about 5%, according to Gordon. Slater- Carter said their royalty fee was 3%; they also pay an roughly 5% for advertising to McDonald's; many of the franchisees pay rent to McDonald's. For Slater-Cater, that was about 12.5%. On average, Gordon said that number is about 15%; remodelling costs can be huge and are required by the company for renewals. With all these extra costs, franchisees are more likely to have a smaller profit margin than the corporate store and, thus, less funds to use for a pay hike. McDonald's does not set wages for the independent owner/operators, McComb told the Guardian when asked if the company would offer any assistance to franchisees looking to raise wages for their employees. Independent owner/operators make decisions that they feel are right for their employees and their businesses. Slater-Cater claims she has received advice on wages before. Last year she told the Washington Post that McDonald's representatives had told her to pay your employees less when she complained about low prices hurting her business. Blame the technology Life has got harder for franchisees in recent years, said Slater-Carter. Running a McDonald's store back in the 1970s or 1980s allowed for a much greater level of independence, she said, recalling the years when her dad first opened his. "One of the bad things that has happened from computers is that that (independence] is no longer there, she said. The main reason for that is that the store operators use McDonald's software for inventories, points of sale, training, payroll and scheduling. Slater-Carter says that McDonald's requires its franchisees to use their computer system and to pay for it as well. McDonald's disputes that. "It is not accurate to say that independent owner/operators have to use company-issued software for inventory, ordering, scheduling and payroll. McDonald's has offered owner/operators the company uses at its company-owned restaurants, but these tools are optional, said the company spokeswoman. The company does require its franchisees to use certain company-approved equipment, however. McDonald's has cooking and food safety standards that owner/operators must meet, and they must use equipment that will produce those results," said McComb. The cost of all those milkshake machines and grills soon add up. Considering the costs, franchisees struggle to make profits and pay their employees more. Slater-Carter and her husband used to start their employees at minimum wage, and then raise their pay as they went through training and worked for the business for some time. All of their staff were paid hourly and were not on salary, so that everyone who worked overtime got paid the overtime at one and half of their regular pay rate. We tried to move them along wage-wise as well as we could, said Slater-Carter. "Obviously when McDonald's controls most of your pricing, we were left with less than 20 items on our menu - out of 100 - that we were able to set prices on. Everything else was mandated either through nationwide dollar menu or through local advertising co-op mandates. Your hands are pretty well tied. McDonald's told the Guardian that independent owner/operators can and do deviate from prices charged at company-owned restaurants and that they set the prices that are best for their local businesses. Participation in deals and pricing is voluntary only in theory, according to Slater-Carter. In practice, if you don't do it, they will brand you not a team player and you will be in a great deal of trouble, she said. Being in trouble, she explained, can mean increase number of visits by regional and corporate representatives. "One time our coffee price was a nickel over what the advertised sale price was and the head of the McDonald's region came in and he said: 'You are over. You can't do this? That was the first time he told us to sell our business." McDonald's McDonald's franchise owners: what they really think about the fight for $15 Jana Kasperkevic in New York @kasperka Tue 14 Apr 2015 07.15 EDT As thousands of fast-food workers prepare to strike over wages on Wednesday, much of their ire will be directed at the franchise owners who control the vast majority of the restaurants where they work. But franchisees have their problems, too. A McDonald's milkshake machine costs $20,000. Its grills are $15,000. Making ends meet isn't so easy for either side, says Kathryn Slater-Carter. Until last month, Slater-Carter had been McDonald's franchisee for close to 35 years. She and her husband, Ed, got into the McDonald's business in the early 1980s in Daly City, California. Leaving behind jobs in education and banking, respectively, to join her father in the family business. Franchisees account for about 90% of McDonald's stores in America. Initially, we had three stores. My dad retired and sold one, so Ed and I ended up with two," she said. Then, a few years ago, McDonald's refused to renew a franchisee license for one of their stores. The store, in the local mall, brought about $2m a year, and provided jobs for about 30 people. Yet, just like that, it was shut down, Slater-Carter told the Guardian. McDonald's, which collected rent worth of about 12.75% of each month's sales, did not renew the lease with the mall. The space, which Slater-Carter and her husband had spent $500,000 renovating a few years back after asbestos removal, had to be restored to its original state, which cost them another $10,000 in contractor fees. Shocked by the way they were treated, they decided to sell the second location, where they employed about 55 workers and brought in about $3.6m in sales each year. The license on that store was valid until June 2016, but they weren't going to take any chances. "McDonald's decisions about whether to enter into new franchise agreements with existing owner/operators are determined on a case-by-case basis. We discuss those decisions with our owner/operators, but do not discuss them publicly," Lisa McComb, a spokeswoman for McDonald's told the Guardian. Slater-Carter has attempted to introduce legislation that would give franchisees more rights and allow them to recoup some of their investment if a parent company such as McDonald's wrongly terminates their agreement. The legislation was vetoed by California governor Jerry Brown in September. This year, Slater-Carter is trying again: a new version of the bill was introduced on 6 April. As a recent franchise owner, Slater-Carter is well positioned to talk about the challenges and the costs that franchisees often face. Wages: corporate v franchisee My rough calculations - we don't have precise average wage information from McDonald's - are that the impact of a $1 increase to the US average wage is approximately $50,000 to $54,000 per company-owned restaurant, John Gordon of Pacific Management Consulting Group told the Guardian. If franchisees were to implement similar wage hike, their cost per restaurant is likely to be higher. Franchisees traditionally pay a little bit less. If they were trying to make it so that they are a dollar over the minimum wage - state, local or federal - then the impact might be a little bit more, said Gordon. Average franchisee wages are not reported, so any estimates are purely a guess, he added. As it stands, McDonald's franchisees are dealing with additional costs: franchisees pay a royalty fee to McDonald's of about 5%, according to Gordon. Slater- Carter said their royalty fee was 3%; they also pay an roughly 5% for advertising to McDonald's; many of the franchisees pay rent to McDonald's. For Slater-Cater, that was about 12.5%. On average, Gordon said that number is about 15%; remodelling costs can be huge and are required by the company for renewals. With all these extra costs, franchisees are more likely to have a smaller profit margin than the corporate store and, thus, less funds to use for a pay hike. McDonald's does not set wages for the independent owner/operators, McComb told the Guardian when asked if the company would offer any assistance to franchisees looking to raise wages for their employees. Independent owner/operators make decisions that they feel are right for their employees and their businesses. Slater-Cater claims she has received advice on wages before. Last year she told the Washington Post that McDonald's representatives had told her to pay your employees less when she complained about low prices hurting her business. Blame the technology Life has got harder for franchisees in recent years, said Slater-Carter. Running a McDonald's store back in the 1970s or 1980s allowed for a much greater level of independence, she said, recalling the years when her dad first opened his. "One of the bad things that has happened from computers is that that (independence] is no longer there, she said. The main reason for that is that the store operators use McDonald's software for inventories, points of sale, training, payroll and scheduling. Slater-Carter says that McDonald's requires its franchisees to use their computer system and to pay for it as well. McDonald's disputes that. "It is not accurate to say that independent owner/operators have to use company-issued software for inventory, ordering, scheduling and payroll. McDonald's has offered owner/operators the company uses at its company-owned restaurants, but these tools are optional, said the company spokeswoman. The company does require its franchisees to use certain company-approved equipment, however. McDonald's has cooking and food safety standards that owner/operators must meet, and they must use equipment that will produce those results," said McComb. The cost of all those milkshake machines and grills soon add up. Considering the costs, franchisees struggle to make profits and pay their employees more. Slater-Carter and her husband used to start their employees at minimum wage, and then raise their pay as they went through training and worked for the business for some time. All of their staff were paid hourly and were not on salary, so that everyone who worked overtime got paid the overtime at one and half of their regular pay rate. We tried to move them along wage-wise as well as we could, said Slater-Carter. "Obviously when McDonald's controls most of your pricing, we were left with less than 20 items on our menu - out of 100 - that we were able to set prices on. Everything else was mandated either through nationwide dollar menu or through local advertising co-op mandates. Your hands are pretty well tied. McDonald's told the Guardian that independent owner/operators can and do deviate from prices charged at company-owned restaurants and that they set the prices that are best for their local businesses. Participation in deals and pricing is voluntary only in theory, according to Slater-Carter. In practice, if you don't do it, they will brand you not a team player and you will be in a great deal of trouble, she said. Being in trouble, she explained, can mean increase number of visits by regional and corporate representatives. "One time our coffee price was a nickel over what the advertised sale price was and the head of the McDonald's region came in and he said: 'You are over. You can't do this? That was the first time he told us to sell our business
