Why McDonald's franchisees are simmering

The independent business owners complain that steadily rising rents and fees the company charges have gotten too high.

By Jonathan Berr Aug 7, 2013 2:54PM
File photo of a McDonald's restaurant in Suffolk, England (© Geography Photos/Universal Images Group via Getty Images)There's trouble under the Golden Arches.

According to Bloomberg News, McDonald's (MCD) is facing a "brewing franchisee revolt" because the burger chain has increased fees and costs that the independent business owners pay, such as rent, software and remodeling. Not surprisingly, rising expenses are discouraging franchisees, who operate about 90% of the chain's U.S. locations, from opening new restaurants or refurbishing existing ones, the news service says.

The operators say McDonald's has been squeezing them for a while as its overall business stagnated. Bloomberg noted that the revenue, including rent and fees, McDonald's took in from franchised stores has risen an average of 8% during the past five years, double the 4% increase in total revenue during the same time.

Operators have felt that impact their bottom lines.

Some franchisees are paying 12% of their sales in rent, an increase from the historic levels of 8.5%. Since U.S. McDonald's locations on average net about $2.5 million in annual sales, operators who recently renewed leases are paying an average of $300,000 under the new rate, a steep increase from the $212,500 under the previous rate. Not surprisingly, franchisees want McDonald's to roll back fees to the old rate.
 
Remodeling a McDonald's costs about $800,000, more than twice as expensive as the $300,000 rival Burger King (BKW) charges its franchisees. It also tops the $375,000 Wendy's (WEN) expects to charge for its least-expensive model, according to Bloomberg News

And that's not all.

Operator Kathryn Slater-Carter told the news service that McDonald's has tacked on an additional $10,400 per store (she owns two) in annual costs for Wi-Fi, software and employee training costs in the past five years.

Franchisee discontent is the last thing McDonald's needs in the wake of its recent disappointing earnings report, which has prompted many on Wall Street to worry about its growth prospects. CEO Don Thompson has said that the rest of 2013 "will remain challenged." 

That may be an understatement.

Jonathan Berr owns a small stake in McDonald's. Follow him on Twitter @jdberr.


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373Comments
Aug 7, 2013 3:10PM
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It's all about the corporate bottom line.  When the franchisee keeps profits it goes to them not the corporate bottom line.  Got to keep them share holders happy and CEO paid, screw the people who make you money and the workers they employ.

Aug 7, 2013 3:26PM
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Good old Trickle Down Economics at work.

 

Give it all to the fat cats at the top.  And let the PENNIES trickle down to those that do all of the hard work.

 

 

Aug 7, 2013 3:29PM
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GREED!!!!!  It's nothing but GREED!!!!!!!!.
Aug 7, 2013 4:04PM
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Someone once told me corporate McDonald's was NOT about selling food at all... that 'behind the curtain', it was ALL about real estate, and collecting rent. Sounds about right.
Aug 7, 2013 4:09PM
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Quality of the food is down and prices are at all time high.  And they wonder why they are disappointed in their earnings reports.  DUH
Aug 7, 2013 4:14PM
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$10,400 per year for WiFi???  I can get a 20meg line from the local cable company for less than $100 per month.   Throw in a couple of routers and wham bam thank you mam we got us a Network.   Mickey D's is screwing the owners.
Aug 7, 2013 3:45PM
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It's called GREED, or the American way, or Competitive pricing, or Good Business Practice. Like sending all the manufacturing Jobs to China.
Aug 7, 2013 4:02PM
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I'll just not go to McDonald's anymore. Very simple.
Aug 7, 2013 4:26PM
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Notice how in all the articles about increasing the minimum wage to $15 for fast food workers, no one bothered to check with the franchise owners to get their side.   Looks like they may not have nearly the wiggle room as many believe. 

It's too bad that so many who comment on these articles are so ignorant of how a company like McD's works.  90% of the stores are NOT owned by some huge, publicly traded corporation.  Most of them are owned and operated by franchisees -ie small business owners.  Most of these franchisees are your neighbors.  Most of their kids go to the same school your kids do.  Most of them contribute heavily to the community via charity work, sponsoring little league teams, etc...  Stop confusing massive corporate entities with your local franchisee.

Aug 7, 2013 3:29PM
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Haven't been to a McD's in at least 10 years. Or any of the others - BK, Wendy's, Taco Hell. Likely to be at least another 10 as well.

Aug 7, 2013 3:18PM
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a  good  old  fashioned boycott  would fix this mess, its the same  owner/operators that squeeze  every  penny ( drop of blood ) they  can  , to me its a  game of  ripping  people off because of  ( investors ) fvck  the investors, they want all the profits  this  year  and do not care about  next  year  till it  time to rip them off again


Aug 7, 2013 4:05PM
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I have not eaten at Mcdonalds in well over a year; maybe going on 2 years now.  Everytime I did before I quit going there, I would get minor stomach pains for about 24 hours afterwards, and I do mean everytime.  Sad, because I used to love a Big Mac every now and then.
Aug 7, 2013 4:07PM
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I'm not sure who designs the "newly renovated" but the McD's 2 blocks from my house was torn down and rebuilt.  The new one is the most inefficient thing I have ever experienced in a restaurant.  A 2 year old could have done a better job with a blank piece of paper and a crayon.
Aug 7, 2013 4:13PM
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we stopped dining there, service is bad food never right besides its not what it used to be, oh and it could stand a good over haul, more adult supervison plus cleaning the play room would be good......
Aug 7, 2013 4:03PM
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I go for the senior coffee. The cost is anywhere from 30 cents to $1 depending on who owns the franchise. There should be a set price like all other items. Seniors rule.
Aug 7, 2013 4:05PM
Aug 7, 2013 4:25PM
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Boycotting will not really hurt the big corporations, only hurt the local guy who owns the franchised location.  Just like with Exxon and the Valdez ship wreck, people cut up their Exxon cards and didn't buy gas at Exxon locations, which only hurt the local guy trying to make a living and their employees who lost hours or jobs.

If you really want to make a difference, find out if you local store is corporate or franchise and only shop at franchised or mom&pop stores for anything and everything you can, from food, to gas, to hardware & paint, to tires, to WHATEVER and keep you money local, with companies that will give back to your community.  Even if you have to spend a few more $'s versus Wal-mart, Lowe's, HomeDepot, Firestone, McDonald's etc, do it anyway.  You will probably get better service and better food from them also.  

FYI - as a volunteer fireman in my hometown, most all the big corporate stores (98%) give us NO donations, some store managers help us out in other ways with items we can raffle off.  But the small, local, hometown business almost always donation (80%), even when times are tuff.  So where do you think I shop and spend my money.  Also, don't think I don't tell as many people as possible that the big guys don't support us. 
Aug 7, 2013 3:22PM
Aug 7, 2013 4:24PM
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And don't forget that if you go to any of the fast food outlets whether you drive in or *dine* (LOL) in, be prepared to use a second language - at least in California.
Aug 7, 2013 4:38PM
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Maybe that's why I don't go to Micky Ds Im sick of everybody getting rich off hourly wage employees, Nobody wants to pay any money to anybody, Then you got a guy that wears a suit & tie has a nice ac office to go to earning millions, Greedy basturds is what they are, They can suck the big D.
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