Labour Relations in the Global Fast-Food Industry

Tony Royle, Brian Towers, Tony Royle, Brian Towers

• Publisher: Routledge
• Year: 2004
• ISBN:
  9781134597628
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The fast-food industry is one of the few industries that can be described as truly global, not least in terms of employment, which is estimated at around ten million people worldwide. This edited volume is the first of its kind, providing an analysis of labour relations in this significant industry focusing on multinational corporations and large national companies in ten countries: the USA, Canada, the UK, the Netherlands, Germany, Australia, New Zealand, Singapore, and Russia.
The extent to which multinational enterprises impose or adapt their employment practices in differing national industrial relations systems is analysed, Results reveal that the global fast-food industry is typified by trade union exclusion, high labour turnover, unskilled work, paternalistic management regimes and work organization that allows little scope for developing workers' participation in decision-making, let alone advocating widely accepted concepts of social justice and workers' rights.

1
Introduction

Tony Royle and Brian Towers

Mrs Thatcher once said ‘you can't buck the market’. Yet it seems that the fast-food industry has been able to do just that. McDonald's, the best known brand in the world and often cited as the driving force behind the success of the industry, appears, so far, to be able to operate free of the capitalist trade cycle. Regardless of downturns or weaknesses in national economies McDonald's continues to expand at a breathtaking rate. Every day on average four new McDonald's restaurants are being opened somewhere around the globe. It plans to have 50,000 restaurants by 2010 (double the number it had in 2000) and already employs over two million people in 118 countries. Although there is some evidence of diversification much of its future growth is likely to depend on overseas expansion. While there are 46 McDonald's restaurants for every million residents in the US, there are only three outlets per million people on average elsewhere. Per capita annual sales in the US are $54, whilst elsewhere in the world they average only $4. However this growth is not only restricted to McDonald's: other burger and chicken companies as well as pizza companies and sandwich shops are also expanding rapidly. For example, seven of the largest fast-food operators in the European Union already employ well over half a million workers and multinational corporations (MNCs) such as KFC, Burger King, and Pizza Hut each, in 1999, generated sales of around $550 million outside the US. In part this reflects broader changes in society. As the chapters on both Russia and Canada reveal, in the industrialized countries eating is no longer primarily concerned with survival or even social interaction, but with convenience. Of course the rapid expansion of fast-food is also reflected in the dramatic growth of the service sector over the last 30 years, which now accounts for around 70 per cent of employment in the UK, Canada and the US. MNCs are driving much of this growth including retailers such as Wal-Mart, the largest private employer in the US, and McDonald's, the largest in Brazil (Klein, 2001; Schlosser, 2001).

However, the growth and success of the service sector and particularly fast-food has arguably come at high cost in terms of workers' rights, pay levels and conditions of work.¹ The key to the success of fast-food revolves around limited menus and highly standardized product offerings, which permit the use of low skilled and easily replaceable labour. Fast-food companies are in the vanguard of companies demanding ever more ‘flexibility’ of working conditions and have frequently been involved in lobbying governments to introduce lower rates of pay for young workers (Royle, 2000; Vidal, 1997).² There also seems to be little doubt that the fast-food chains have played an important role in developing the growth of parttime, insecure, and low paid employment. At the same time employment in these companies almost invariably means there will be no easy access, even in most continental European countries, to independent representation through a trade union (Royle, 2000). Indeed, as the following chapters indicate, many fast-food companies are vigorous in denying employees their rights to independent representation. Furthermore, the competitive nature of the fast-food market means that fast-food brands exert considerable pressure on their suppliers, which in turn has a negative impact on workers' rights, pay and conditions in those companies. Schlosser (2001), for example, reports that in the American meat packing industry ‘union busting’ is commonplace.³ The consequences are that each year one in three of the US's 43,000 meat packing workers goes to a doctor with a work related injury or illness; they are paid a third less in real terms than they were 40 years ago; they have to be on the job six months before they get health insurance and for one year before they get holiday pay; and many workers leave before the first and most before the second year of employment.⁴ Although these supplier companies are not the focus of this book, they serve to highlight many of the basic assumptions about the nature of the employment relationship and which the fast-food industry generally operates: low pay, poor working conditions, if possible, no trade unions and the ability of fast-food companies to influence the employment practices of dependent suppliers. This influence does not necessarily mean direct control but there is an imperative for suppliers to drive down their costs, not least their labour costs, to compete for business in a highly competitive industry.

What is ‘fast-food’?

Although the fast-food industry is an important, still expanding and frequently controversial sector, fast-food as a product is not easy to define and is becoming increasingly difficult to do so. In some respects the broader but less common term ‘quick-service’ might be more appropriate than ‘fast-food’ to cover the types of operations under consideration in this book. For example, fast-food can include service with or without plates and be consumed inside or outside the business and pizza companies are sometimes considered to be quick service but not ‘fast-food’ per se. For the purposes of this study we consider ‘fast-food’ in fairly broad terms meaning food consumed rapidly either in or outside units. But this broad definition, despite its convenience for this study is not without its difficulties. These must be kept in mind throughout the text.

First, fast-food ‘restaurants’, ‘stores’ or ‘outlets’ come in a wide variety of forms and varying product offerings ranging from hamburgers, pizzas, fish, baked potatoes and French bakery products to ethnic foods such as Indian curries and Chinese meals, Turkish or Greek kebabs, coffee shops and soup outlets. However, though sandwich shops, burgers, pizzas and other products are dominated by large companies, ethnic foods tend to be the domain of the small independent owner. The focus here is on the larger national and multinational fast-food chain operations and not the very large number of independent owner-operators.

Second, the distinction between what is and is not fast-food is becoming increasingly blurred. Driven by the growth in chain operations more and more restaurants now offer standardized menus and limited product offerings for quick consumption and in an increasing number and variety of locations. Large companies originally focused on brewing and leisure have entered the market in recent years and increased the competition in the industry. This has also led to aggressive pricing policies amongst the large brands and an increase in menu diversification and new product developments in order to increase sales and market share. As the high street has become increasingly saturated, the leading fast-food chains have stepped up their store expansion programmes into new kinds of locations and ‘markets’. These include hospitals, military bases, prisons, and schools and a wider variety of locations other than on the high street, such as kiosks, carts, ‘drive thrus’, sites in motorway service stations, retail and leisure parks, shopping centres, petrol forecourts and trains and other travel terminals. McDonald's has even opened its own motorway service station in the UK!

Third, although large national players still play a significant role in this sector, multinational fast-food chains have now become household names, and in terms of sales and units tend to dominate national markets. Indeed, the industry is becoming more internationalized with brands like Burger King being bought by the British multinational Diageo; and McDonald's has recently bought a stake in Prêt à Manger. However, some of the largest brands in this sector are still American-owned, such as McDonald's, KFC, Pizza Hut, and Wimpy.

Finally, in international terms (as we shall see in the following chapters) the industry is required to operate within differing employment relations and statutory contexts in different countries. These contexts are also changing over time. New Zealand is a good example. This country has experienced considerable changes in labour legislation covering both left and right of the political spectrum. The UK has also seen much change in its labour laws between 1979 and 1999, with possibly more changes yet to come from the recently re-elected Blair administration, and partly influenced by membership of the European Union.⁵ It has therefore been necessary for the authors in each case to attempt to track relevant changes in the broader context of the employment relationship and the impact upon the fast-food sector.

The role of the franchise in fast-food

One final and important organizational feature of fast-food is the franchise. Indeed it has become one of the most important means of achieving volume growth in a largely saturated marketplace and it is increasingly associated with multinational expansion (Felstead, 1993). The franchise systems operated by most of the large companies in the fast-food sector are based on the ‘format’ franchise. This is a type of franchise which is now more common than any other franchise system (Felstead, 1993). Under this arrangement the franchisor (for example McDonald's or Burger King) not only supplies the product, but also lays down precisely the rules and procedures that have to be followed by the franchisee within a set of detailed pre-determined procedures or ‘format’. The franchisee is in effect purchasing a carefully prepared ‘blueprint’, which minimizes the risks involved in setting up a conventional small business. According to Felstead (1993) the format franchise has enjoyed unprecedented growth since the mid-1980s, not only in the UK and the US but also in Europe. One reason for this may be that little experience is required. Second, this kind of franchise is well suited to those who have an interest in running their own business, but do not know what sort of business it should be; the franchisor makes the decision for them.

Chan and Justis (1990) suggest that maintaining uniformity, whilst franchising across different societal cultures, is particularly complex and difficult. A question which arises therefore is: if franchisees are independent operators, how can multinationals maintain the internal consistency and uniformity of their operations across differing societal frameworks? The answer, we suggest, is that although franchises are usually considered to be separate legal entities, and so far treated as such in national and some limited supranational law (for example the European Works Council Directive), they are, for all practical purposes, de facto ‘subsidiaries’ of the brand owners. At McDonald's, for example, this is achieved by a variety of methods and processes. First, there are elaborate selection processes with various interviews and a process of socialization in which the prospective franchisee must work many unpaid hours in the restaurants before a franchise is granted; second, the franchisee is required to make a considerable financial commitment including a non-refundable deposit of well over £10,000; third, there are very tight and finely detailed sets of rules and procedures; fourth, there is an ongoing and thorough monitoring of performance and standards; and, finally, franchisees face very tough sanctions for non-compliance with set standards, losing the opportunity to run additional restaurants and culminating in the loss of the franchise altogether.

McDonald's can be said to have pioneered and refined many of these processes and procedures and it appears that most aspects of the McDonald's franchise system have been emulated by its main competitors. Furthermore, we argue that a franchise provides multinationals with distinct advantages over other forms of expansion. First, it provides them with much needed capital and involves franchisees in a share of the costs and risks associated with international expansion. Second, it allows multinationals to gain the valuable local knowledge of on-site entrepreneurs. Finally, franchise operations are likely to be more efficient in driving down labour costs, because franchisees take much more care of every aspect of profit margins, being motivated by profits unlike wage earning managers. This is particularly important in an industry where labour costs account for 30 per cent or more of the total costs of the business. Similarly when franchisees break the law, or from time to time risk damaging the corporate brand in the name of enhanced profitability, the brand owner can distance itself from the actions of franchisees but, at the same time, continue to take a cut of their improved profitability; a classic ‘win-win’ outcome. As the analysis in Chapter 5 also suggests franchises can also be used to interfere with collective bargaining and statutory mechanisms of employee representation at both national and European levels. This is an increasing issue of direct concern for trade unions and their members as well as other employees and, more widely, those involved with implementing and protecting employee rights in the modern economy and democratic rights in the wider society.

Research methods and issues

Many comparative studies tend to focus on the pragmatic issues of ‘managing’ across borders or about the implementation of different production systems; few focus on the implications for employee representation and employment conditions, and the few that have been carried out tend to focus on manufacturing industry rather than services. In particular, there has been a paucity of serious industrial relations research in the hospitality and fast-food industries. This is particularly surprising when one considers the scale of some of the main operators in terms of turnover, and the industry's size and growing importance in terms of employment and employment growth.

The research methods used in the various chapters in this book vary to some extent from one chapter to another. However, most chapters are based on a combination of qualitative interview material, survey and documentary evidence and with authors encouraged to keep to a basic framework suggested by the editors. Some chapters are written by authors who have already undertaken substantial earlier research on the fast-food industry. For example, those who have already published extensively on the sector have contributed the chapters written on the US, Canada, the UK, and Germany. Other chapters have been written by individuals or teams of authors who have more recently become interested in the industry and have been specifically brought together to contribute to this book.

Managements are often unwilling to take part in a study of this kind, which focuses on labour relations and employees' rights and terms and conditions of work. This is especially the case with fast-food. As we shall see in the following chapters, many employers in this industry prefer to operate without trade unions, a stance compounded by strong pressure to keep labour costs to a minimum. We offer no apology, therefore, that some chapters have, to a lesser or greater degree, not systematically accessed management representatives in the companies concerned. However, we have encouraged authors to use whatever sources were available, and practicable, in order to gain insights into the reality of management views and employer practices in the different countries.

The book in outline

In writing their chapters we asked authors to consider a number of issues. First, each chapter should provide a political and economic context, which would include some analysis of the system of industrial relations and the broader economic and political trends in the country concerned. Second, there should be an industry analysis giving some attention to market competition, the main market leaders and some details of the development of the industry. We also asked authors to include one or more companies as case studies. This may often include the McDonald's Corporation because it is usually the market leader in most countries. But we have also encouraged authors to examine the activities of other MNCs and significant national competitors where this is possible and appropriate.

The book is largely silent about the nature of fast-food products and we do not address work procedures and methods in any great detail because we feel that these have already been covered adequately elsewhere (see for example Love, 1995; Ritzer, 1996; Watson, 1997). The book sets out to examine the following themes. Where MNCs are involved in the sector, to what extent are they able to impose common employment practices on diverse national systems of labour regulation? What implications do such MNC operations have for the future development of labour market regulation and trade union organization? What impact have MNC operations had on the activities of national competitors? What problems does the industry pose for trade unions and how have trade unions responded? What are the realities of employment practices in the country concerned? How are employees' interests supposed to be represented in theory and how, and to what extent are they represented in practice? Whilst not providing extensive detail of production processes and work organization, what relevance do such matters have for unionization, employee r...