Four restaurants, including three McDonald’s outlets, will close within the next three weeks on Navy installations, according to Navy Exchange Service Command officials.
And two other contractors — a name-brand sandwich eatery and a name-brand pizza parlor — have asked to be released from their Army and Air Force Exchange Service contracts to operate fast food restaurants at two other installations, according to AAFES officials.
A source with knowledge of military on-base resale operations said the issue likely has to do with two new government regulations — one implemented, one pending — that will affect wages for contract workers in such on-base concessions.
These closings “are the tip of the iceberg,” the source said. “I don’t think anybody has realized what the far-reaching effects of this will be.”
McDonald’s restaurants will close at Naval Weapons Station Charleston, S.C., on March 16; at Naval Support Activity, Bethesda, Md., on March 21; and at Naval Base Kitsap-Bremerton, Wash., on March 31, said Kathleen Martin, a NEXCOM spokeswoman.
Another eatery, I Love Country, has notified NEXCOM that it will close its restaurant at Naval Station Pearl Harbor, Hawaii, on April 4, Martin said.
Martin said the McDonald’s outlets “came to the end of their contract term. We were in the process of renegotiating and McDonald’s made the unilateral decision to close those three” outlets. She referred questions about the reasons for the closures to McDonald’s.
Lisa McComb, a company spokeswoman, said McDonald’s, along with the independent owner/operators of the individual restaurants, are closing the three eateries “due to the fact that we have lost our lease.”
McDonald’s independent owners operate about 30 restaurants on military installations. “Whenever we reach the end of a term, whether on a military site or otherwise, we consider many factors in deciding whether to renegotiate a new term,” McComb said.
She said the owners of the three closing outlets are offering affected employees transfers to other nearby McDonald’s restaurants.
Martin said new Labor Department rules issued last fall for fast food workers on federal contracts under the Service Contract Act require an increase in the minimum wage for such employees, varying by region. The rules also require payment of new, additional “health and welfare” fringe benefits at a rate of $3.81 per hour to those employees.
Contractor-operated fast food concessions on military installations fall under those regulations.
The new rules “have to be part of any contract we negotiate,” said Martin, adding that many vendor partners “have verbally indicated hesitation” to accept contract changes reflecting the revised wage rules.
“NEXCOM is working closely with our contracted food service providers to assess the impact of the new wage determinations,” she said. “This is part of the quality-of-life benefit we provide to sailors and their families, and our goal is to continue to do that.”
In addition, President Obama recently signed an executive order that will increase the minimum wage for employees of companies with new federal contracts beginning Jan. 1. At that time, the minimum wage for all federal contract workers — not just those working for fast food concessions — will increase to $10.10 from the current $7.25. It is not yet known how far-reaching the effects will be for contracts on military installations.
The wage hikes are good news for the many military spouses and veterans who work for these contractors — but only if the concessionaires continue to operate.
“At the end of the day, there will be fewer jobs,” said the industry source. “And for [the contractors] who stick it out, there will be higher costs and the customers will pay more.”
The two AAFES contractors asking to be released from their contracts did so after the new Labor Department wage rules were released.
AAFES officials are declining at this time to name the two name-brand restaurants, said spokesman Chris Ward, although he added that there is no set timeframe for that to happen.
“Once the paperwork is completed by both parties, they’ll be out of it at that time,” he said.
Concessions contracts are negotiated on a rolling basis for fast food restaurants on military installations throughout the year, so exchange officials continue to monitor and assess the impact of the new wage rules.
AAFES officials said the Service Contract Act has had a limited impact on their operations because that exchange service directly operates about 75 percent of its fast food outlets.
The new wage rules “were a small concern, but not a major concern,” in the I Love Country Cafe eatery’s decision not to renew the contract at Pearl Harbor, said Richard Chan, a spokesman for the company.
“The Hawaii labor market is tight and we need to pool our resources and move to other areas,” he said, adding that the Navy has posted signs to let the customers know about the impending move.
“We really enjoy serving the service members of our country,” he said. “Some customers are sad, but our other locations are not too far from the bases.”