Bhupinder “Bob” Baber bought two Quiznos franchises in Long Beach, California, in 1998 and 1999. His investment totaled $500,000, and Baber’s wife, Ratty, quit her job to work at the restaurants for no pay. The Babers did this because, as Bob would later recall, he “trusted in Quiznos.” But, as he soon found out, being a franchisee can be a very swift and painful way to lose a lot of money.
Over the past year, thousands of fast-food workers have staged protests and rallies for a higher hourly wage. As they see it, big corporations like McDonald’s and Domino’s can well afford to pay workers more. But the vast majority of these workers don’t work for these giants. They work for people like Bob Baber. Franchisees don’t enjoy the market powers and economies of scale of their parent companies. Rather, they run small businesses with narrow profit margins, high failure rates, and plenty of anti-corporate grievances of their own. Anyone who wants to help immiserated fast-food workers, in other words, also needs to spare a few thoughts for their immiserated bosses. That means reforming the deeply troublesome franchise system. (...)
In the 20th century, businesses began to see the value of franchising in the service sector. Howard Johnson used franchising in the 1930s, and Ray Kroc built an empire on McDonald’s franchises in the 1950s, ’60s, and ’70s. Today, fast food is sold almost entirely through franchises. Worldwide, franchises represent about 80 percent of McDonald’s restaurants, 95 percent of Burger King restaurants, and 100 percent of Subway restaurants. (The rest are usually company-owned flagship restaurants in high-profile locations or restaurants relinquished by one franchisee and not yet assigned to another.)
The positioning of franchisees between fast-food workers and large fast-food companies is part of a larger trend within the economy that might be termed (with apologies to Karl Marx and Friedrich Engels) “the devolution of the proletariat.” As the Boston College law professor Kent Greenfield observes, corporations and even the federal government have learned to use “suppliers, subsidiaries, franchisees, contractors, to avoid responsibility” for the welfare of those at the bottom of what business schools call the “value chain.” The low- wage jobs are offloaded onto smaller entities. Making things worse for workers is a lack of opportunities to move up the corporate ladder, since a burger-flipper doesn’t actually work for the company whose logo decorates his uniform.
Over the past year, thousands of fast-food workers have staged protests and rallies for a higher hourly wage. As they see it, big corporations like McDonald’s and Domino’s can well afford to pay workers more. But the vast majority of these workers don’t work for these giants. They work for people like Bob Baber. Franchisees don’t enjoy the market powers and economies of scale of their parent companies. Rather, they run small businesses with narrow profit margins, high failure rates, and plenty of anti-corporate grievances of their own. Anyone who wants to help immiserated fast-food workers, in other words, also needs to spare a few thoughts for their immiserated bosses. That means reforming the deeply troublesome franchise system. (...)In the 20th century, businesses began to see the value of franchising in the service sector. Howard Johnson used franchising in the 1930s, and Ray Kroc built an empire on McDonald’s franchises in the 1950s, ’60s, and ’70s. Today, fast food is sold almost entirely through franchises. Worldwide, franchises represent about 80 percent of McDonald’s restaurants, 95 percent of Burger King restaurants, and 100 percent of Subway restaurants. (The rest are usually company-owned flagship restaurants in high-profile locations or restaurants relinquished by one franchisee and not yet assigned to another.)
The positioning of franchisees between fast-food workers and large fast-food companies is part of a larger trend within the economy that might be termed (with apologies to Karl Marx and Friedrich Engels) “the devolution of the proletariat.” As the Boston College law professor Kent Greenfield observes, corporations and even the federal government have learned to use “suppliers, subsidiaries, franchisees, contractors, to avoid responsibility” for the welfare of those at the bottom of what business schools call the “value chain.” The low- wage jobs are offloaded onto smaller entities. Making things worse for workers is a lack of opportunities to move up the corporate ladder, since a burger-flipper doesn’t actually work for the company whose logo decorates his uniform.
by Timothy Noah, Pacific Standard | Read more:
Image: Public Domain
