Healthcare Costs Make Franchise Restaurateurs Sick?

May 28th, 2010

In Wisconsin, franchisees are recalculating the net profit on multi-unit operations based on President Obama's new healthcare law.

One particular franchisee "is expecting to sell two of his five restaurants — eliminating 25 employees in the process — to avoid having to provide health insurance for his workers at a pricey cost." He expects the new law to cost "about $90,000 per year in fines — roughly one-third of his annual profits, if he is unable to sell two of his restaurants."

“This is an industry whose business model is based on relatively low labor costs,” said Mark Kalinowski, a restaurant analyst with Janney Montgomery Scott, New York City. “The new health care law raises those labor costs substantially.”

However, there may be a threshold over which a certain number of employees participating in the purchase of healthcare will provide a certain economy of scale. One such operator stated the "individual mandate to have health insurance will push more people to enroll in the company’s health plan, which, in turn, increases buying power and lowers costs."