McDonald’s franchisee ‘can’t raise prices enough’ to cover minimum wage hike

As the owner of 21 McDonald’s franchises in California, Kerri Harper-Howie is naturally frustrated by the state’s new minimum wage law – just not for the reasons you might expect.

Starting April 1, hundreds of thousands of fast food workers will be guaranteed a wage of at least $20 an hour, $4 above the current rate.

While touted as a much-needed raise for a large sector of lower-income workers, Assembly Bill 1228 will certainly impact the bottom line for franchisees like Harper-Howie. But that alone, she says, is not why she and many of her counterparts feel unfairly targeted.

“We, as business owners, are not opposed to minimum wage increases,” Harper-Howie recently told KTLA 5 News. “One of our primary objections is that this wage increase only applies to us. Why isn’t everyone getting an increase if, fundamentally, [the current] wage is not adequate for people to live? Who then are the customers that are going to be able to afford to pay for the food?”

The bill, authored by Assemblymember Chris Holden (D-Pasadena), evolved during a battle over workers’ rights and the legal liabilities of fast-food franchisees. The negotiations led to an agreement between the Service Employees International Union and the California Restaurant Association that landed on the $20 rate.

Inflation and the rising cost of living have prompted countless labor actions in California since the end of the COVID-19 pandemic. By most accounts, $16 per hour, the state’s current minimum wage, is difficult to live on, not to mention raise a family in California’s urban areas.

“We did not just raise the minimum wage to $20 an hour for fast food workers,” Holden said after Gov. Gavin Newsom signed AB 1228 in September 2023. “We helped a father or mother feed their children, we helped a student put gas in their car, and helped a grandparent get their grandchild a birthday gift.”

Franchise owners like Harper-Howie didn’t have a seat at the negotiating table, she says.

“At the end of the day, this law came to pass as a result of negotiations. We were not a part of those negotiations. We did not feel as though we had someone in the room, and we certainly would have advocated differently on our behalf.”

Holden’s office did not respond to KTLA’s request for comment.

The Franchisee

There is an inherent Robin Hood narrative to many labor battles, including this one. Advocates will point to record corporate profits and soaring executive salaries to argue that too much wealth is being accumulated at the top and not enough is “trickling down” to workers.

Wealth inequality is a very real social, economic and political issue, and the gap is particularly wide for Black families in the United States.

Kerri Harper-Howie and her sister, Nicole, were raised at that intersection.

In the 1980s, their mother, a social services worker, and her father, a Los Angeles police officer, took a giant leap of faith by cashing in their retirement savings to buy a McDonald’s franchise in Inglewood, where they lived.

The gamble paid off.

Their first McDonald’s restaurant was a success, and Patricia Williams soon acquired a second location. After the couple divorced, Patricia sold the two McDonald’s locations to purchase five more.

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“To trade in that type of stability for an opportunity to become business owners was a big risk for them. I consider my mother and my father as being incredibly brave, and I’m just so grateful that they were willing to take the chance,” Kerri recalls.

While taking over the family business from her aging mother was never Kerri’s original intention – she instead became an employment lawyer in Los Angeles – her career outlook changed after she gave birth to her first son.

“I think it was a combination of having a child and being so close geographically to my family business that I started to get a new vision of what it meant to have the opportunity to carry on a legacy.”

Kerri and her sister now employ over 1,000 workers at their 21 franchises, many of which are located in lower-income neighborhoods such as Inglewood and Compton. She is among good company at McDonald’s where a large percentage -perhaps as many as 50%- of franchises are owned by people of color in California.

Raising Menu Prices

While fast food franchise owners and executives, including those at McDonald’s, have announced they will raise menu prices to offset the April 1 wage hike, Kerri says she is determined to keep her prices affordable for her core customers while exploring other efficiencies.

“It’s not the only thing that we’re doing because the truth of the matter is, you can’t raise prices enough. It would be unaffordable,” she says. “There are cost savings that we can do behind the scenes, and other ways to be more efficient … but this means less profitability for us, and we will absorb that. We will take less.”

If, or when, restaurants raise menu prices starting April 1, it will have a broader impact on millions of people; about 70% of Californians eat fast food every week.

KTLA 5 News consumer reporter David Lazarus believes the industry has reached a crossroads.

“Once upon a time, the fast-food industry was a key point of entry into the workforce for young people. The industry could argue that it was providing valuable work experience to younger folk and that this in part justified low wages,” Lazarus says. “In more recent years, however, older workers have also turned to fast-food gigs due to economic necessity. Those people have a reasonable expectation of a living wage – or at least a fair minimum wage.”

Instead of raising prices, Lazarus believes fast food franchises should return to their roots.

“The secret sauce of the fast-food industry is volume. Price inflation is held in check by the sheer quantity of burgers and whatnot being sold. The onus on franchisees is to price products accordingly, or to find ways to sell more of those products.”

Panera Bread Controversy

In late February, Newsom found himself fending off controversy when Bloomberg reported that negotiations over the minimum wage bill led to an exemption for Panera Bread and billionaire franchise owner Greg Flynn, a longtime Newsom donor.

AB-1228 excludes quick-service restaurant chains that bake and sell their own bread.

Newsom fiercely denied Flynn was granted an exemption, and the billionaire later announced he, too, would raise employee wages to $20 on April 1.

Still, an explanation for the bakery carve-out has not emerged.

According to The Associated Press, a signed confidentiality agreement prevents groups involved in the negotiations from talking about them.

The Panera Bread controversy, Harper-Howie insists, highlights flaws in the legislative process that led to a flawed law.

“What it hopefully does going forward is introduce a level of transparency that perhaps did not exist in the negotiation of this deal and will prevent situations like this from happening again.”

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