Franchisee Discontent Over McDonald’s Fee Hike Sparks Fast-Food Fracas

by Ella

McDonald’s, often seen as merely a burger chain, is, in fact, a colossal franchising powerhouse that extends far beyond serving burgers and fries. The world’s largest fast-food company operates a sprawling global network of franchisees, and tensions are brewing over its plans to increase royalty fees for new franchise restaurants in the United States and Canada.

Franchisees manage a staggering 95 percent of McDonald’s 40,275 locations worldwide, and their fees constituted a substantial 61 percent of the company’s $23 billion in revenue last year. However, recent clashes between franchise operators and McDonald’s have cast a shadow over this partnership, driven by the company’s efforts to tighten franchise standards and regulations.


Starting next year, franchise owners launching new restaurants or acquiring previously McDonald’s-operated locations will see their payments to the parent company rise from the current 4 percent to 5 percent of their sales, as revealed in a letter seen by the Financial Times.


McDonald’s contends that the average cash flows for US franchisees have surged by over 35 percent in the past five years, with royalty fees remaining unchanged for nearly three decades. The proposed fee increase aims to align McDonald’s levies with what it charges in other markets and what other major fast-food chains collect from their franchisees.


However, the optics of this move are significant. Franchisees have garnered support from Washington, with the Government Accountability Office releasing a report earlier this year that highlighted that franchisees “do not enjoy the full benefit of the risks they bear.” The Federal Trade Commission is now considering new regulations to increase its oversight of the franchising industry.


Despite being one of the world’s most recognizable brands, McDonald’s needs to tread carefully in this matter. The company is already highly profitable, projected to earn approximately $8.5 billion in net income this year, a third more than last year. Shares in the nearly $200 billion company reached an all-time high, approaching $300 earlier this summer. Avoiding a David versus Goliath scenario where franchisees feel their earnings are being siphoned off will be crucial for McDonald’s reputation and relationships with its vital network of franchise operators.



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