Photo courtesy of McDonald’s
McDonald’s earlier this month announced plans to invest $250 million over the next five years to help bring in a more diverse group of operators, marking a rare effort by the Chicago-based burger giant to recruit franchisees into the system.
But existing Black franchisees still make less profit than others in the system despite growing sales at the company, the National Black McDonald’s Operators Association said in a release this week.
“McDonald’s needs to address the systemic barriers to success that are currently facing Black franchisees,” Larry Tripplett, chairman and CEO of NBMOA, said in a statement. “Without permanent change to address existing inequities, new generations of franchisees will be saddled with extraordinary debt, huge financial challenges, and unable to become meaningful contributors to the communities they serve.”
NBMOA was founded in 1972 to address issues facing McDonald’s Black franchisees. The association said last year that the annual cashflow gap between Black franchisees and non-Black franchisees ballooned to $65,706 in 2019, from $19,017 in 2010. Black operators generated $78,996 less in average annual sales than non-Black operators.
The association’s release this week suggested that the profitability gap remains, even though McDonald’s sales recently have been strong and have recovered quickly from the pandemic.
“Despite sales growth, currently Black franchisees collectively earn lower profits than non-Black McDonald’s franchisees due to systemic inequalities within McDonald’s Corporation,” the group said. “It is unacceptable that this one cultural group should experience a profit gap.” The association said it continues to work with McDonald’s leadership to address the issues.
The association’s letter to McDonald’s last year highlighted the difference in profitability between Black franchisees and others in the system. It ignited a trio of lawsuits from a pair of existing franchisees and a class action now involving dozens of former operators.
Two lawsuits filed by existing franchisees were settled this month with the company agreeing to buy out their stores. McDonald’s agreed to pay $6.5 million to acquire four restaurants owned by brothers James and Darrell Byrd, and then $33.5 million to buy out 13 restaurants owned by Herb Washington. At one point, Washington owned more McDonald’s restaurants than any other franchisee in the system.
Those lawsuits accused the company of directing Black operators to stores in lower-income markets that are more expensive to operate and generate less revenue. They also accused the company of not providing them with the same level of assistance as other operators. There is also another class-action lawsuit filed by dozens of Black former franchisees in the system.
The franchisees’ lawsuits have also come as now-former executives have sued the company for discrimination, as has The Weather Channel owner Byron Allen, an action that has been dismissed, at least for now.
In response, McDonald’s has taken numerous steps to improve its record on diversity. Executive bonuses are now tied to diversity targets and the company has vowed to spend more with Black media and with diverse-owned suppliers. It is also working with some suppliers on improving diversity in hiring.
The $250 million investment, which is designed to provide a more diverse set of operators with more financing options over the next five years, is viewed as a key element of that effort.
In its statement, NBMOA said that the investment is the type of commitment necessary to improve the system’s track record. “Meaningful change and progress require this kind of commitment and significant resources,” the association said in its statement.
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