Discontent brews at McDonald's

Cape staffers complain of conditions of employment

Llewellyn Jones - Business Reporter

The Argus (Cape Town, South Africa), 15th Sept '96

Discontent is simmering in some of fast-food chain McDonald's South African outlets.

The first cracks in the famous golden arches appeared last week when staff at McDonald's Blackheath store in Randburg walked out on an hour-long wildcat strike.

News of the strike spread quickly to Cape Town's three McDonald's outlets, where staff are complaining about conditions of employment.

And discontent, it seems may not be limited to employees: some franchisees are said to be having trouble remaining profitable.

But Carter Drew, managing director of McDonald's South Africa, is confident any problems can be resolved.

"We have spent R50 million so far in South Africa, and by the end of the year we'll have spent: R100 million.

"There are some teething problems but we will sort them out.

"We are 100 committed to success. We do not intend to lose our investment."

One staff member who did not want to be identified, said the main grievance was over his colleagues' position as casual staff and not permanent employees.

Around the world McDonald's employs a large pool of casual staff from the surrounding areas, within a radious of about 8km radius. This give McDonald's the flexibility to call in staff at 15 minutes notice to meet business demands.

But in South Africa, because of affirmative action targets set by the US head office, employees often live much further from the outlets, and many do not have access to reliable transport - or even telephones.

The main reason given by workers for Randburg strike was that casual staff wanted to be taken on to the permanent staff and beneit from medical aid and pension benefits, as well as more regular employment.

Mr Drew said McDonald's did not have casual staff but only full-time staff and part-time staff - though he conceded benefits were not the same in each category.

Market sources in the fast food industry say some franchisees are fed up with McDonald's franchise fee which they see as excessive.

Mr Drew would not confirm or deny a rumour that management had met franchisees earlier this month in an attempt to iron out problems.

McDonald's franchisees, he said, were "in business for themselves, not by themselves" and met management reularly to ensure each franchise was a success.

Franchise owners also refused to comment.

But market sources said McDonald's charges a franchise fee of 28 percent of turnover - 18 percent rental, five percent royalty, and five percent for advertising.

"The 18 percent on turnover rental charged by McDonald's has to be the highest of any turnover-related rent in South Africa," one source said.

McDonald's is the biggest owner and controller of retail property in the world, owning or controlling all McDonald's franchise sites and renting them to franchisees.

Worries about tight margins in McDonald's outlets have surfaced in other countries as well, with some US franchise holders beefing earlier this year that the chain was opening so many outlets, so fast, that they could not maintain profitability.

"In general, South African rentals based on turnover have an absolute maximum of 12 percent. Even the Victoria and Alfred Waterfront, possibly the most prestigious rental space in South Africa, charges less than that," the source said.

McDonald's has two franchisee-owned outlets in the Western Cape, in Tyger Valley and Goodwood, and another ownded by McDonald's South Africa in Brackenfell.

Mr Drew said the US chain had done everything it had set out to do in South Africa.

"We said we would bring investment, and we've done that. We said we would create jobs; and we've done that."

McDonald's, he said, had promised to support the domestic economy. "And we've done that". Ninety-seven percent of inputs came South African firms, he said, and suppliers were "fully" representative of the South African population.

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