The Evolution of Pricing
With all the conversation looming about a substantial increase in the minimum wage, there needs to be another discussion about how that increase will affect the average consumer.
CKE Restaurants is the parent company of Carl’s Jr. and Hardee’s fast food restaurants. In California, their franchise owners are opting out of renewing when their agreements end. California’s minimum wage is due to raise to $9 per hour in July and moving to $10 by January of 2016. At this writing they would be the highest in the nation.
Fast food franchise owners also have another consideration. One restaurant will have less than 50 employees excluding them from being forced to offer insurance for all employees under Obamacare.
Adding another restaurant would add to payroll costs by going over the 50 employee threshold thus having to cover all workers employed for 30 hours a week or more.
Coupled with a minimum wage hike their burgers would probably be priced at more than the average consumer is willing to pay.
Can Businesses Raise Prices?
How much are you willing to pay for a fast food burger? McDonald’s started their restaurants back in the 1950s with .15¢ hamburgers ($1.48 in 2014 dollars). As the cost of things increase most businesses are forced to pass costs on to consumers. But, there is a limit to what you as a consumer are willing to pay and what the business must absorb and still stay in business.
While not the healthiest option, McDonald’s dollar menu and Happy Meals are currently a very inexpensive place for those on low incomes to dine. Raise those prices and that demographic is no longer darkening your door.
In the early days of cell phones you paid by the minute. The more minutes you got the better the deal. Now the phone companies have converted your thinking to a new way of doing things. Now they tout their network. Fewer dropped calls and reception in more places commands a higher price.
Internet access with camera and video capability along with free long distance can make an even higher price seem like a bargain to some consumers.
In order to receive the 10-15 channels you really want you also happily pay for 400 you may never watch. Package deals are again the way to go when purchasing TV in America.
I watch business channels most of the day and that would probably be like watching paint dry to most viewers. Some stay on the Golf Channel all day. Still others are glued to the game show channel or the military channel. Their selling point is that they have something for everyone.
Even through we are not entirely happy with what we are paying for, we are happy enough that doing without would create a perceived hardship in our lives.
The Automobile Business
Are you kidding me? Sixty thousand dollars for a car? That’s about three times what I paid for my first home. And I’m stuck with a payment of $500 a month for 7 years? Yet, to a vast majority of Americans this is a killer deal. Why?
Zero down payments. Below invoice pricing. No interest for the first year. Come in and get the highest trade-in value for your old clunker. The gimmicks to attract buyers are endless.
As the cost of raw materials increases the business owners has some decisions to make. First, can I absorb the increased cost without laying off workers or raising prices? Second, will I lay off workers or raise prices? Third, if raising prices will reduce profits or price me out of the competitive market, then I have no choice but to reduce expenses somehow. That usually means adding more automation and/or reducing payroll.
Some Final Thoughts
When the natural evolution of the free market is manipulated by outside forces, like congress, and creates and unevenness in the playing field, that creates a problem in consumer choices. To impose increased costs on business owners just to look good to voters is hardly a benefit to those same voters. What price are you willing to pay for your next burger?