McDonald’s is passing extra charges on to franchisees, creating rigidity

A McDonald’s happy meal.

Emile Wamsteker | Bloomberg | Getty Images

McDonald’s plans to pass more fees on to franchisees over the next year to risk the wrath of its US operators.

As of January, the fast food chain will stop paying monthly subsidies of $ 300 for Happy Meals in every restaurant. This emerges from a US leadership memo watched by CNBC. In March, the company will also change the way franchisees pay for technology investments to a “pay as you go” model, resulting in an additional fee of $ 423 per month. And in April, McDonald’s plans to co-fund its study program with its operators, rather than just using company funds.

McDonald’s told Bloomberg that the change in its technology fees will mean that it will no longer see approximately $ 70 million a year in deferrals on its balance sheet. The rest of the changes will not affect the balance sheet for next year.

But franchisees are preparing for financial success. Two operators told Business Insider that franchisees are overwhelmingly against the changes. The new fees will hurt their profitability while operators are already bearing additional costs related to the coronavirus pandemic.

The company has historically been at odds with its US franchisees. In 2018, growing tensions over restaurant renovations led to the formation of an independent franchisee group, the National Owners Association.

However, the relationship between corporate management and their operators has improved since then, thanks in particular to responding to a pandemic. Kalinowski Equity Research’s quarterly franchisee survey in October found that respondents’ confidence in the relationship was nearing an all-time high. McDonald’s donated $ 100 million of its own money to U.S. marketing to help grow sales during the health crisis.

McDonald’s stocks were essentially flat afternoon deals. The stock, valued at $ 163 billion, is up nearly 7% so far this year.

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