Let’s consider one of the major global economic indices. Not the FT-SE 100, the Dow Jones or the Chinese Purchasing Managers’ Index: let’s consider sales of McDonald’s burgers.
2014 was a disastrous year for McDonald’s: it was dogged by scandals and sales fell around the world. “The best thing about 2014 for McDonald’s is that it’s over,” said entrepreneur.com. But worse was to follow with the Wall Street Journal reporting that same-store sales were down 4% in February.
Meanwhile, consider Shake Shack. You may not have heard of Shake Shack. You will. It’s just had a ridiculously successful debut on Wall Street, valuing the chain of 63 outlets at over $1bn and raising more than $100m for future expansion. Two things struck me as I was reading about Shake Shack: first of all customers spend significantly more than the industry average and secondly, they’re committed to paying wages which are also well above the industry average. Could the two be related? Of course they could.
If you look at chains such as McDonald’s and Wendy’s in the US the emphasis is on speed and price. The average meal may cost as little as $5, with virtually all the food prepared off-site: workers then ‘assemble the ingredients.’ Recently this sector has been losing out – as McDonald’s sales testify – to the ‘fast casual’ chains, where the emphasis is on fresher food that is prepared on site: quality and sustainability are far more important than price.
This changed emphasis is crucial to the ‘millennials’ – the 80m strong consumer base that every marketer is desperate to reach. The change in emphasis also means that higher quality staff are required – and hence the higher wages paid by Shake Shack and another operation you’re going to hear about, the splendidly named Moo Cluck Moo.
Paying higher wages “is the right thing to do,” according to Bryan Parker, co-founder of Moo Cluck Moo. “It empowers our people, we don’t have to babysit our staff and we have low turnover as a result.”
Is there a lesson for us in this? Emphatically, yes.
You’re building your business. You can’t do it all alone – so you need to build a great team. And we’ve all been there. It is hugely tempting to look at the cost of wages at the end of every month and think you could save some money. Increasingly, I think that mindset will be positively damaging to your business.
If there’s one absolute fact I see as I deal with the members of TAB York and other clients it’s this: talented people are becoming increasingly hard to find. If you’ve got one – or better yet, if you have a team of them – then you need to do all you can to keep them, develop them and motivate them. And skimping on wages doesn’t achieve any of those three.
Bear something else in mind: talented people are not only hard to find, they’re expensive to replace. What’s it cost to recruit, train and ‘bed in’ a new person? My rough rule of thumb in industry used to be a year’s salary. And if you’re the owner of an SME the cost of your time may push it even higher than that.
Nope. Good, talented, hard-working and loyal staff are priceless. If you’re going to reach your goals, they’re the people that will be with you on the journey. Being afraid – or unwilling – to pay them what they’re worth is the falsest of false economies.
52% of fast food workers in the US earn wages that are below the poverty line. Shake Shack pays its staff in New York a starting salary of $10 an hour: a 25% increase on the State minimum wage. “We believe this enables us to attract a higher calibre employee and this translates directly to a better guest service,” the firm said when it floated. It translates to a better bottom line as well. It’s a lesson you can’t ignore.
…And I won’t be ignoring Shake Shack next time I’m in the States. A Smoke Shack burger, fries, Shackmeister beer – and obviously, frozen custard to finish it off!