Photo by Jonathan Maze
An overwhelming percentage of McDonald’s franchisees in a survey last week said that changes to ownership rules should have been brought to operator leadership before implemented and say the new rules will make it more difficult for them to sell their stores, according to a survey from the company’s independent National Owners Association viewed by Restaurant Business.
The survey was completed by more than 600 operators and is indicative of operator anger that has arisen in recent weeks after McDonald’s announced the changes, designed to make it more difficult for legacy operators to continue operating once their franchise agreements expire—even if they had previously been considered good enough operators to be able to expand.
The vast majority of operators in the survey opposed various provisions in the changes and say that they are a “veiled attempt to raise rents.”
Eighty-seven percent of franchisees in the survey support the association calling a vote of no confidence in Joe Erlinger, president of McDonald’s USA, and company 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 survey. But the company has argued that its new ownership guidelines are important to diversify the franchisee group, which is one of the chain’s primary goals. Executives have 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 increase standards for the renewal of franchise agreements, ensuring that only top operators can be allowed to continue owning the restaurant. The rules also set in place tougher standards for spouses or children of franchisees to run restaurants.
“We will no longer use the term ‘rewrite,’” Erlinger wrote in a system message at the time. “Moving forward, we will adopt ‘new term’ across the U.S. market to describe the process for awarding another 20-year franchise agreement based on performance history. The change is in keeping with the principle that receiving a new franchise term is earned, not given.”
Franchisees have been up in arms about the rules changes, with various operators calling them an “overreach” or a “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 biggest and oldest franchisees. That was highlighted earlier this month when the company bought out Caspers Company, a 60-unit Florida third generation franchisee that dates back more than 60 years. It was instrumental in the creation of the association, which has intensified the perception of franchisees that the company is targeting activist operators.
McDonald’s has been taking a more aggressive stand in its franchise relationships in recent years, cutting support to operators and making harder requirements that have frustrated longstanding franchisees. In the instance of the rule changes, the company opted to implement the rules without consulting with franchise leadership. Ninety-nine percent of franchisees in the NOA survey said the company erred in not consulting with leadership.
And 98% said the rules will make it harder to sell their stores. Meanwhile, 83% of franchisees in the survey called the new rules a “veiled attempt to raise rents.” McDonald’s has been buying up a large number of stores, often locations that pay lower rent. It then resells those stores to other franchisees at a higher rent level.
Ninety-five percent of franchisees said “no” when asked in the survey if they feel valued by the company.
Whether the survey results lead to a no-confidence vote of Kempczinski remains to be seen. There has been growing talk in recent months of such a vote among franchisees. The reports have intensified since Black owners took their no confidence vote. Either way, such votes are extraordinary and rare: Only Jack in the Box franchisees have publicly released the results of such a vote, as they did in 2018. But it would take another two years for the company to change its management.
And McDonald’s has been among the industry’s strongest performers 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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