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Comment by Arainach | Hacker News Reader

This again.

>Ok so, here’s the plan: you pay $15 for a sandwich and I give my whole team a raise. Sweet. You’re the best! The money’s gotta come from somewhere. People seem to forget that part. But yes, I like this idea. In fact, Chipotle has recently increased both wages and pricing. McDonald’s as well. Now our turn, LFG!

And yet, if you go to the source the article links directly in that paragraph: "Chipotle Mexican Grill has hiked menu prices by roughly 4% to cover the cost of raising its workers’ wages...In May, Chipotle said that it would raise hourly wages for its restaurant workers to reach an average of $15 an hour by the end of June."

4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.

View on HN

Yea sure, but you ignore that Chipotle and McDs have magnitudes larger supply chain optimizations, cash reserves, and operate in high and low cost markets such that there is more margin to keep the business afloat when there is a squeeze.

> Yea sure, but you ignore that Chipotle and McDs have magnitudes larger supply chain optimizations, cash reserves, and operate in high and low cost markets such that there is more margin to keep the business afloat when there is a squeeze.

Aren't most McDonalds franchises? You definitely see individual owned stores going out of business.

Franchisees still benefit from the supply chain. Even if individual stores wouldn't be subsidized by the company, they benefit from brand recognition and already operating at the price floor for food you dont make yourself.

>Aren't most McDonalds franchises?

his point still stand.

https://boxaroundtheworld.com/mcdonalds-supply-chain-managem...

"McDonalds is a fine example of how vertical integration can keep costs down and profits up. They grow their own beef through contracted producers, process their own meat, create their own spices and mixes in factories that they contract, grow their own potatoes and other vegetable through contracted producers, transport their goods on their own. McDonalds owns the land that their restaurants are situated on, so they do not have to deal with leases and landlords. They have taken control of their supply chain nicely."

edit: a mom and pop operation can't compete with McDonalds. McDonalds can increase employees wages thus force others to do the same even if mom and pop doesn't have a vertical integration like McDonalds. by increase wages, it force smaller operators to cut staffs or shut down. McDonalds can keep their competition down.

> You definitely see individual owned stores going out of business.

Where? In my five+ decades on this planet I have never seen one close. Might see them shift to new nearby location, newer building…but never seen one close.

The only way I see an individual store going out of business is if community around them dies. I seriously doubt that a McDonalds in a populated area would close. You would have people lining up to buy the franchise.

"McDonald’s Is Closing Hundreds of Its Walmart Restaurants"

-WSJ article from this year

Is this because of Walmart or poor franchisees, though.

The McDonald's in a nearby hospital closed in the last 5 years. Perhaps the franchisees in those cases were a little optimistic.

> The McDonald's in a nearby hospital closed

That reads like a headline from The Onion.

It’s likely because the space was more valuable to Walmart for retail needs than as a McDs. It was an experiment and it turns out that people probably just went to the McDonald’s down the street.

By the way, the McDonald’s in our local hospital has been in operation 24/7/365 since the late ‘70s. It’s a symbiotic relationship I guess.

Sorry but equating a satellite restaurant experiment to actual restaurants is a false equivalency. Ask yourself how many of those Walmart McDonalds had a McDonald’s within a mile of the Walmart and whether or not they are still operating.

There was a Walmart with a McDonald’s in my town that closed, however the McDonalds in its parking lot is still going strong.

To paraphrase the meme:

Materials costs go up: Well, that's the cost of doing business, raise prices a bit

Rent goes up: Well, that's the cost of doing business, raise prices a bit

Labor costs go up: Business go crazy and threaten their employees

It's because you can't control materials or rent costs, but you can control (morally or immorally) your employees, simply because you have power over them.

This is hilariously wrong in the case of McDonald’s. They are a real estate arbitrage corporation that leases space to franchises and gives sweetheart self-dealt deals to its wholly owned stores.

I think it's more likely that most people are employees and so are familiar with how employers try to negotiate down labor costs and are not as familiar with how businesses try to negotiate down the cost of materials. I doubt business owners just shrug at rising materials costs, they probably try to negotiate those down too.

They do but it's harder to do so. Two businesses that trade are usually not in such an extreme dichotomy of power differential as an employer and employee; a business is usually at the same level of power as its trade partner, so were it to demand too low of a price of materials, the trade partner would take their business elsewhere.

Contrast this to a labor market, where a laborer needs work to survive and thus it already has a lower level of power than its employer, even before any negotiation takes place.

> a business is usually at the same level of power as its trade partner

That just isn’t true. Companies exploit power asymmetries with trading partners all the time, especially if they’re massive corporations like McDonalds.

I'm not talking about McDonald's or other mega corporations, I'm talking about small to midsize companies who are roughly equal in power between each other.

Small companies are a lot more vulnerable to labor negotiations too.

The first two you can't really negotiate (at least, with leverage).

If you consider the media as being a mouthpiece for very wealthy investors with highly diversified portfolios this behavior makes a lot of sense.

Materials go up? Eh, they own both sides - food distribution, farming, etc. will all be included a diversified portfolio.

Rent goes up? Your REITs go up.

Labor costs go up? That's not offset. That takes chunks out of all parts of your portfolio.

Restaurants themselves will be equally bothered by all three but they don't decide what part of what bothers them gets media prominence.

This.

> such that there is more margin to keep the business afloat when there is a squeeze.

Chipotle's margin increased after the change. They didn't tap into margin using prior excess to stay afloat.

And that is why those places already charge a lot more than McDonald’s.

There's actual research in this space, and it found that for every 10% increase in minimum wage, some restaurant prices rose by 0.36% and others decreased[1]. Price increases are negligible at best.

[1] https://www.upjohn.org/research-highlights/does-increasing-m...

This is a dubious statement for a number of reasons.

Let's just use raw analysis.

If a restaurant's current labor budget is 30% of revenue, and the restaurant's profit margin is 3% and the cost of labor increases by 10%, how much profit is the restaurant making now? If the restaurant owner wanted to maintain a 3% profit margin in such a scenario, how could they do it?

Your raw analysis ignores things like staff turnover and quality of work

FYI, Chipotle CEO makes ~14 million a year. A normal salary for CEO could go a long way to improving stores and pay for some.

That salary dividend among the workforce of Chipotle is $4 a week, pennies an hour, and the company wouldn't have a CEO.

And his salary is only $1.2M, the rest is performance incentives and so forth.

While I agree that CEO pay is obscene, that money wouldn't do much. What is the percentage of CEO pay to annual expenses and revenues?

I make it just shy of a 3% increase in total costs. But i suck at maths/

    num_staff = 15
    curr_staff_pay = 7
    curr_staff_costs = num_staff*curr_staff_pay
    curr_labour_budget_pc_revenue = .3
    curr_staff_costs = num_staff*curr_staff_pay
    print(f"Current Staff Costs: {curr_staff_costs}")
    curr_revenue = (curr_staff_costs/curr_labour_budget_pc_revenue)
    prof_pc = .03
    curr_profit = round(((curr_revenue/100)*prof_pc), 2)
    print(f"Current Revenue: {curr_revenue}")
    print(f"Current Profit ({prof_pc}%): {curr_profit}")
    other_costs = curr_revenue - (curr_staff_costs+curr_profit)
    print(f"Other Costs: {other_costs}")
    #%%

    increase = .1
    new_staff_pay = curr_staff_pay+(curr_staff_pay*increase)
    new_staff_costs = num_staff*new_staff_pay
    print(f"New Staff pay is: {new_staff_pay}")
    print(f"New Staff Costs are: {new_staff_costs}")
    new_total_costs = other_costs+new_staff_costs
    print(f"New_total_costs: {new_total_costs}")
    increase = new_total_costs-curr_revenue
    print(f"% increase = {(increase/curr_revenue)*100}")

This guy should be CEO

edit: upon discussion with the parent, it appears that the parent was supporting the author's argument, not critiquing Chipotle or saying living wages require charging $15 for a $7 sandwich.

No...

> 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.

This isn't in the article [0]. You're conflating revenues and wages.

Chipotle raising prices by 4% for EACH sandwich allows you to increase salaries by way more than 4% for employees.

Taking a $7 sandwich, a 4% increase yields...

  [$7 sandwich] * [4% price increase] * [20 sandwiches/hr/employee] * [1hr/employee] = $5.60/hr/employee in incremental wages

[0] https://www.cnbc.com/2021/06/08/chipotle-hikes-prices-to-cov...

Are we assuming that food prices did not go up at all with this calculation?

Why does that matter how much of the 4% increase is going to employees v. passing through variable costs?

Here's Chipotle's audited financials, if you want to dig. [0]

[0] https://ir.chipotle.com/sec-filings

I think you and OP are saying the same thing. Everyone can pay 4% more for their sandwiches so employees can earn a living wage, and saying it would be everyone paying $15 vs $7 is disingenuous.

I don't see how that disagrees with what I said. To increase wages significantly doesn't mean increasing prices significantly - that was my entire point.

> Pay your employees. It's that simple.

That's what you want. Fair?

However, you also said the following,

> 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7.

which implies that you think EACH sandwhich needs to be increased dollar for dollar to achieve the "living wage" gap.

edit: the "Pay your employees" , in context, came off as saying Chipotle wasn't paying their employees, despite the promise and plan.

The part you missed is if they raise the worker pay by 50% then the C-level pay also needs to increase by 50% to maintain the proper ratio and that raises the prices much more than 4%.

I mostly agree with the sentiment, but other prices which factor in to their operating costs will eke up over time as their suppliers also add on their 4% hikes to get to 'living wage'. Over time prices will go up, but... so what? They've already gone up plenty for a variety of reasons over the years.

The author of this article says most of the staff we're talking about here makes minimum wage, so we don't so much have to scare-quote "living wage".

Wasn't trying to scare-quote so much as emphasize the idea in the GP comment.

> 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.

At a large chain like Chipotle, sure. But most "fine dining" restaurants have razor thin margins on food. Alcohol is how they make money. With the pandemic, people have switched to ordering food for takeout and therefore restaurants can no longer make a profit on drinks.

There's also two other aspects the author won't touch on: if you open a legitimate fine dining restautant you'll have to compete with places employing illegal aliens. And lastly, some restaurants are really just fronts for money laundering. They can operate a really long time without making any real profit; it's a business where it's easy to claim some large transactions were made in cash.

> restaurants can no longer make a profit on drinks.

but they also just need to keep the kitchen open.

Thing is, people will pay $20 for a good sandwich.

We have a place down the street, Deli Board, that makes truly amazing sandwiches. The only sandwich I've ever had that made me say "You know, this might be too much filling and not enough bread". They're expensive, literally $18 to $22, but you never ever feel like it wasn't worth it.

But many places aren't interested in making food that feels worth paying for.

"people will pay $20 for a good sandwich."

Some people will pay for a Bentley. Doesn't mean a lot of people will.

Best example might be In-N-out burger, that is relativity good quality for the price that is accessible to most people, and compensates their employees relativity well, though they work super hard. . But I don't know what their margins are

In n out burgers are half the radius they were in 1995-2000. So it makes sense they can charge the same prices. They also paid >$9/hr during that period, too. In n out is making money on thin margins and volume. Also I assume the drinks and shakes are high margin.

I haven't really enjoyed in n out in a decade, maybe I just grew out of it.

> Thing is, people will pay $20 for a good sandwich.

Really? Where is that?

I live around Paris -- a city where the cost of living isn't considered low by world standards. Here the normal price for an excellent sandwich made of fresh bread (1/2 baguette), chicken or beef, lettuce, tomato and sauce is around €4.5; if it's just ham and cheese, and the same wonderful bread, the cost is €4.

I consider that expensive because I can make a meal at home for less than €2 (the cost can even go down to 0 if I just eat the leftovers from yesterday's dinner).

I don't think I'd ever pay $20 for a sandwich of any quality.

I live west of Paris as well and this is what I was thinking too.

A decent sandwich in a bakery wild have great bread (which is really important) and wild not be that enormous either (we do not have the kind of sandwiches where there are 20 folds of ham).

I wild occasionally have one but if I bring the bread back home what I will make myself won't be different (they have the same ham, cheese and vegs I do, there is not much more to add)

My first time in Paris, I ordered what amounts to a grilled cheese sandwich and they charged me 20 euro. 10 years ago. Felt outrageous but I gotta admit it was a pretty good sando and it was my bad for eating at a tourist trap.

The place from my original comment[1] is in San Francisco.

People come from far and wide to have these sandwiches. I’ve seen people in the wild wearing swag from this sandwich place. Calling them sandwiches is almost criminal. Even making it at home you would certainly spend $10 on ingredients. There is no skimping on the meat.

I mean just look at the photos on their homepage. The sandwich is unlike anything I’ve seen in a European bakery. They’re typically 2 meals for me.

[1] https://www.deliboardsf.com/

The photos are nice, thanks (however the sandwiches don't look very appetizing to me).

That said, if they are so big that they count for 2 meals, then obviously the cost per meal is $10, not $20.

Deli board is good but it still feels quite overpriced (as with most things in SF). I’ve had it a bunch (I live close) but it’s never quite worth the $20

Get a Reuben from Katz's Delicatessen in New York City and tell me it ain't worth $22.

Sometimes I fly from Dallas to New York just to get one. Whenever the price for tickets goes down below $100 for a weekend round-trip flight, I snag a ticket and fly up there just to eat at Katz's.

If you're the kind of dude who would not only fly across half the country and contribute to burning all that fuel just for the sake of a fucking sandwich, but also brag about it, then you're way outside the normal of people paying for sandwiches. So yeah, a $22 dollar sandwich is expensive and for most folks, not worth the price.

Other people are on that plane with me, but your attitude kinda makes me want to start a highly scalable business so I can one day take a private jet to NYC and really contribute to CO2 emissions.

But you've touched on a real problem with NYC... There's just nothing to do there besides eat at Katz's!

I go up there for my sandwich and then I'm stuck in the hotel for the rest of the weekend because there's never anything going on in NYC!

A restaurant at 16th and I Streets NW in Washington, DC, (a block from Lafayette Square, that is, and two from the White House), made the newspaper a few years ago for offering a ham sandwich for $25. I have never bought one, have never even entered the restaurant. But I assume that some people ordered it, else why have it on the menu?

Before the pandemic, good sandwiches ran $8 to $11 from food trucks in DC. This I assume was set by the need of the food truck to make a profit. The result was the sandwiches were sized to make $11 sense for the workers thereabouts--I thought them a bit large for lunch.

I'm not surprised that the swamp, of all places, has $25 price tags on $5 sandwiches. It's the same place that'll pay $2000 for a $100 toilet.

I've seen little indication that DC has a sane cost of living.

I just visited New York for Christmas and my wife wanted to stay in the East Village out of nostalgia because she lived there a while back. We were around the block from a place called Katz's Delicatessen. You can see the menu here: https://localmenu.katzsdelicatessen.com/

Looks like the cheapest sandwich is about $25. I never tried to go in to see what the hype is about, but I've never seen a place quite like this before. Every time we walked back to our hotel, the line was backed up at least an entire city block, like a six hour wait to get a sandwich.

Yeah, well. I don't understand this personally, and the pictures look really unappetizing to my French eyes -- but I have a lot of respect for a shop that's able to pull this off.

Another guy in the thread says he flies from Dallas to NYC to get those sandwiches, which means that they probably should charge even more...

An excellent Banh Mi sandwich in Vietnam is about 10-20k VND (depending on fillings)... or $0.43-$0.86 USD.

Banh mi in southern California is cheap, too. $2-$3 for a full baguette with a decent amount of stuff inside. That's at Lee's, possible other places are overpriced.

I haven't found that style of sandwich anywhere else so I don't know the prices.

I just looked up Lee's... I hope the pictures don't do it justice cause that looks nothing like a good proper VN banh mi. Looks more like a bastardized chain version of it.

I paid around $9 in San Diego a few months ago and while it was delicious and completely oversized (american style), my Vietnamese friends would kill me if they knew how much I paid.

There is a place called Sandwich Sandwich in the UK that does similarly huge sandwiches (two meals, way too much filling). The cost is 4 GBP. San Francisco prices are out of control.

To be fair the minimum wage in Bristol, where google says Sandwich Sandwich is located, is $7.25 while it’s $16.32 in SF.

You’d expect the 4GBP sandwich to cost $12 in SF just based on labor cost. I imagine rent and ingredients also cost more.

The UK minimum wage is £8.36, or about $11.31.

The minimum wage in the UK is a little complicated, as it has differing rates based on age. The higher rates are known as the "National Living Wage", while the lower rates are known as the "National Minimum Wage".

These are the current rates:

Under 18: £4.62 ($6.26), 18 - 20: £6.56 ($8.89), 21 - 22: £8.36 ($11.33, 23+: £8.91 ($12.07),

These are all going to rise in April 2022:

Under 18: £4.81 ($6.51), 18 - 20: £6.83 ($9.25), 21 - 22: £9.18 ($12.44), 23+: £9.50 ($12.87)

https://www.gov.uk/national-minimum-wage-rates

How much do sandwiches cost in Australia, where minimum wage is approximately 15 USD? I don't think they cost 15 AUD, let alone 15 USD.

An oddly specific analogous reference, https://www.economist.com/big-mac-index

My understanding is the cost of goods a parabola with respect to wages, where until an inflection point, the wages are not high enough to allow workers to have discretionary spending. But once wages are high, demand increases enough to cover the increased wages and cost of goods can come back down as marginal cost decreases.

I just looked up a random Subway in Australia and it was 10 AUD for a 6 inch, 15 AUD for a foot-long (varies some by sandwich). 7-11 USD.

>> 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7

That only works if the price elasticity is 0 - meaning that a 4% price increase doesn't lead to a decrease in sales. The price elasticity isn't 0. It's close to 1. A 4% price increase leads to close to a 4% drop in sales. Fixed costs stay the same.

Do the math under those assumptions.

That's the biggest flaw I see in these discussions. People think that they can tweak one variable and hold everything else flat. It doesn't work; everything is related. Raise your price 4% and...

Competitors may do the same, or less, or more, driving business to you or away from you. Suppliers may increase product cost. Employees may be taxed more. Employees may lose benefits. Demand will fall by an unpredictable amount. Demographics of employees and customers will shift. Inflation may hit, temporarily/geographically localized or not. labor cost increases may need to ripple up through the entire labor pool, not just bottom-tier. Employee's cost of buying food just went up, diluting their gains. And so on.

Many of those effects are miniscule. Some are good, some bad. But there's an endless amount of them. It's a chaotic system, it's not just some simple equations.

As you increase the wages of people making little, you gain more customers from those same people. Of course this may not apply to restaurants service 30 dollar meals, but more people will buy a $5 sandwich when their wages go up.

Oh, Henry Ford, you socialist!

>As you increase the wages of people making little, you gain more customers from those same people.

presumably that's already factored into the price elasticity calculations. also that logic only slightly offsets it. At the end of the day you're paying your workers more, and only a small fraction of that increase goes into your pockets. All in all it's still a net negative.

The net negative is the point, to help close some of the gap on page 12:

https://crsreports.congress.gov/product/pdf/R/R44705/6

Why not increase min wage to $100/hr so they can afford those 30 dollar meals?

They're not actually making a prediction. This is what actually happened. The prices increased by 4% and, including elasticity, this allowed for a 15$ minimum wage. It's empirical.

Those numbers don't contain enough information to calculate a price elasticity. Even sales numbers don't contain enough information to calculate a price elasticity, because you don't just need to know the change in sales after a price change, you need to know what percentage of that change was due to the price change instead of other changing factors - slowing of the pandemic, changing menu, advertising, growth in customer base that was happening anyway, etc.

Those numbers are hard to get. But people who have done studies have estimated that in the restaurant industry, the number is close to 1.

I mean think about what you are saying if you are claiming that the price elasticity is 0. You are saying that even before the wage increases, they could have raised prices by 4% and returned that money to their investors as pure profit, in an industry where profit margins are single digit and not usually high single digit. Not a chance.

That's completely besides the point.

No, that is not all what I meant, and at this point I don't really understand how I can make it clearer.

The 4% increase in prices leading to a 15% minimum wage is a FACTUAL DATAPOINT. It is EMPIRICAL REALITY. No theorem, model, or anything, can change that, because that's what ACTUALLY HAPPENED.

It's not theoretical. After all was said and done, prices were increased by 4%, and wages were increased to 15$/hour.

It's completely useless to talk about elasticity, and try to estimate it, in this context. You are trying to apply a model, to reality, and arguing that the model is correct, but reality is not correct.

Here's the conversation I responded to:

Article: The money’s gotta come from somewhere. People seem to forget that part.

Response: 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.

The clear implication of the response, clear to me at least, is that where the money comes from to raise the employees' wages is revenue due to the price increase. Let me know if you understand it differently.

That only works if the price elasticity is 0. They sell the same amount of food at higher prices and use the money to pay higher wages.

If price elasticity is 1, they raise prices by 4%, they sell 4% less food, and the money for wages needs to come from somewhere else. Could be less profit for the restaurant, could be hiring fewer workers or giving them fewer hours, could be smaller portions or cheaper ingredients, could be the money comes from the bondholders who don't get repaid when the company goes bankrupt.

If price elasticity is infinite, they raise prices and demand goes to 0 and they eventually go bankrupt.

No restaurant would intentionally be operating with prices set in a range where the price elasticity is 0. They would raise prices until it wasn't in that range. The money for wages can't (only) come from increased revenue from a price increase. That was my point.

What actually hapens in practice is that the sandwich place will advertise $7 sandwiches on their menu, but in small print say they'll automatically add an "optional" $1 fee to all items at check-out.

It's far beyond what's needed to cover increased wages, and they don't even have the guts to list prices honestly.

Source for the “optional” thing? I tried searching for this but didn’t find anything.

Not sure about OP but in my experience, SF has so many hidden fees for restaurants it's not even funny.

Restaurants were tacking on COVID surcharge fee on top of the SF mandate fee that they were imposing on diners. Tack on tax and tip and you literally have four additional fees on top of what you see on a menu.

Yeah, I'm referring to the Bay Area (Berkeley in particular). Here's a sandwich shop in Berkeley adding a 50-cent fee in 2016: https://www.yelp.com/biz_photos/ikes-love-and-sandwiches-ber...

They claim it's for transparency, but they were still advertising fee-less prices on the menu the last time I was there. You'd only see this sign at the check-out counter. Here's a Yelp review complaing about just that (raised to 75 cents as of 2018): https://www.yelp.com/biz/ikes-love-and-sandwiches-berkeley-6...

Wow, what a hellscape. (No offense, SF residents.)

I've never seen anything like that anywhere else.

a few shops in town added 'extra fee' notices a few months in to the covid outbreak (may 2020?).

"We are having to add a 50c surcharge per beef entree" "Each burger has a 50c surcharge" etc.

Later this went to 50c charges for all meats (chicken or beef or whatever).

In the short term, it was to avoid having to reprint all signage/menus/etc when they were unsure how long things would go on. I think in the restaurants in our town, they've just raised prices and don't advertise the 'surcharge' any longer.

SF landlords demand more rent than anywhere else.

Sounds like tipping, but optional to the business what makes it to the employees.

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