McDonald’s franchisees upset with management over changes to ownership rules
Photo by Jonathan Maze
An overwhelming percentage of McDonald’s franchisees in a survey last week said changes to ownership rules should have been made to operator management before they were implemented and said the new rules would make it harder for them to sale of their stores, according to a company survey. Independent National Owners Association seen by Restaurant Business.
The survey was completed by more than 600 operators and is indicative of operator anger that has been on display in recent weeks after McDonald’s announced the changes, designed to make it harder for traditional operators to continue operating once their franchise agreements expired, even though they had previously been seen as good enough operators to expand.
The vast majority of operators in the survey objected to various provisions of the changes and said they were a “veiled attempt to raise rents”.
Eighty-seven percent of franchisees surveyed support the association by calling for a vote of no confidence in Joe Erlinger, president of McDonald’s USA, and the company’s CEO, Chris Kempczinski. The National Black McDonald’s Operators Association has already approved a vote of no confidence in Kempczinski.
McDonald’s would not comment on the investigation. But the company has argued that its new ownership guidelines are important for diversifying the franchisee pool, which is one of the chain’s main goals. The executives also argued that owning a store should be “earned, not given.”
The Chicago-based burger giant announced the new rules to its franchisees last month. The rules raise the standards for renewing franchise agreements, ensuring that only the best operators can be allowed to continue owning the restaurant. The rules also put in place stricter standards for spouses or children of franchisees who run restaurants.
“We will no longer use the term ‘rewrite,'” Erlinger wrote in a system message at the time. “Going forward, we will adopt a ‘new term’ in the US market to describe the process for awarding another 20-year franchise contract based on performance history. The change is in line with the principle that receiving a new franchise mandate is earned, not given. »
Franchisees have rioted against the rule changes, with various operators calling them an “overrun” or “transfer of assets” from operators to the company.
The change comes at a time of upheaval among the franchisee base. A record number of operators left the system last year, including some of the chain’s largest and oldest franchisees. This was underscored earlier this month when the company acquired Caspers Company, a third-generation, 60-unit franchise in Florida that dates back more than 60 years. He helped found the association, which intensified the perception among franchisees that the company targets militant operators.
McDonald’s has taken a more aggressive stance in its franchise relationships in recent years, reducing operator support and imposing stricter requirements that have frustrated longtime franchisees. In the case of the rule changes, the company chose to implement the rules without consulting franchise executives. Ninety-nine percent of franchisees in the NOA survey said the company made a mistake by not consulting with executives.
And 98% said the rules would make it harder for their stores to sell. Meanwhile, 83% of franchisees in the survey called the new rules “a veiled attempt to raise rents”. McDonald’s has taken over a large number of stores, often locations that pay lower rent. It then resells these stores to other franchisees at a higher rent level.
Ninety-five percent of franchisees answered “no” when asked in the survey if they felt valued by the company.
It remains to be seen whether the results of the investigation lead to a vote of no confidence in Kempczinski. There has been more and more talk in recent months of such a vote among franchisees. Reports have intensified since black owners voted their defiance. Either way, such votes are extraordinary and rare: only Jack in the Box franchisees have made the results of such a vote public, as they did in 2018. But it will take another two years to the company changes direction.
And McDonald’s has been among the best performers in the industry coming out of the pandemic and its stock has fallen just 9% so far this year, far less than the vast majority of publicly traded restaurant stocks.
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