Owners of McDonald’s restaurants in the United States launched an effort to block the company’s plans to modernize the way it does business, saying the changes will cost them hundreds of millions of dollars, according to documents reviewed by Reuters and interviews with dozens of current and former franchisees.
According to an organisation that represents McDonald’s franchisees, the firm declined their request to postpone modifications to its franchising policy, including revised requirements and modifications to how it assesses potential new store operators.
McDonald’s rejected the National Franchisee Leadership Alliance’s request to implement the changes in June 2023 rather than on January 1st, according to a letter to owners sent on Wednesday.
The executive committee speaks for McDonald’s franchise owners nationwide. According to the business, there were more than 2,400 franchise owners as of the end of the previous year. About 95% of McDonald’s outlets are managed by franchisees.
The business chose not to respond to inquiries about the modifications or the NFLA’s letter asking for a postponement of the alterations.
During the summer, McDonald’s introduced new policy revisions, causing friction between certain franchisees and the corporation. In a survey conducted by a different organisation, the National Owners Association, a number of owners upset with these changes reported a lack of trust in the company’s CEO, Chris Kempczinski, and its U.S. president, Joe Erlinger.
As it works to make franchise owners accountable for how they represent the brand in person and online, the NFLA is requesting greater clarification and education from the corporation on what it refers to as “McDonald’s Values.” According to a prior document seen by CNBC, McDonald’s values are “Serve, Inclusion, Integrity, Community, and Family,” and the modification is intended to represent how they should be implemented into owner and operator requirements.
Additionally, the new standards mandate that prospective new operators be assessed equally, rather than giving current franchisees’ wives and children preference.
Additionally, McDonald’s is segregating how it evaluates whether owners are qualified to run additional restaurants from how it renews leases, which are granted for 20-year contracts. As a result, a lease renewal would not automatically qualify an owner to run additional sites. The business stated: “This change is in keeping with the notion that getting a new franchise term is earned, not given,” in an earlier mail to owners informing them of the changes that CNBC was able to access.
In a letter to franchisees from Erlinger that CNBC saw earlier this summer, the firm emphasised its active efforts to find new and more diverse owners.
We’ve been thinking a lot about how we can continue to draw in and keep the greatest owner/operators in the business — people that reflect the many communities we serve, have a growth mentality, are executional excellence-focused, and foster a supportive work environment for restaurant teams.
With a commitment to $250 million over the following five years to assist those individuals with financing a franchise, McDonald’s said in December that it will seek out additional franchisees from different backgrounds. The business has not yet provided an update on the status of its hiring programme.
NFLA chair Mark Salebra noted in the letter that “some of these internal changes in my judgement may further constrain the market, lower demand and strain the financial capabilities for transactions amongst owners beyond the external variables that are currently present today.”
It continues by highlighting other issues that operators face today, such as state-level legal reforms. Here, it’s likely referring to California’s recently enacted A.B. 257, which would govern the wage and working conditions in the fast food business. The AFL-CIO, the largest federation of unions in the United States, supported the measure, while the U.S. Chamber of Commerce, the largest corporate lobbying organisation in the country, denounced it as “extreme.”
In 2023, McDonald’s will also introduce a new rating system for dining establishments.
Owners expressed fear over alienating staff as businesses compete to attract and keep personnel. All of these criteria, the letter stated, “med reasonable and deserved,” and “a consideration to postpone (not amend or renegotiate) the implementation felt right.” The corporation has issued over 20 documents on the adjustments, and educational workshops will soon be held for further clarification, it was said.