A McDonald’s golden arches logo is seen at a franchise restaurant owned by Rippon Family Restaurants.
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McDonald’s franchisees who add new restaurants will soon have to pay higher royalty fees.
The fast-food giant is raising those fees from 4% to 5%, starting Jan. 1. It’s the primary time in nearly three many years that McDonald’s is mountain climbing its royalty fees.
The change won’t affect existing franchisees who’re maintaining their current footprint or who buy a franchised location from one other operator. It can also not apply to rebuilt existing locations or restaurants transferred between members of the family.
Nonetheless, the upper rate will affect new franchisees, buyers of company-owned restaurants, relocated restaurants and other scenarios that involve the franchisor.
“While we created the industry we now lead, we must proceed to redefine what success looks like and position ourselves for long-term success to make sure the value of our brand stays as strong as ever,” McDonald’s U.S. President Joe Erlinger said in a message to U.S. franchisees viewed by CNBC.
McDonald’s can even stop calling the payments “service fees,” and as an alternative use the term “royalty fees,” which most franchisors favor.
“We’re not changing services, but we try to change the mindset by getting people to see and understand the ability of what you purchase into whenever you buy the McDonald’s brand, the McDonald’s system,” Erlinger told CNBC.
Franchisees run about 95% of McDonald’s roughly 13,400 U.S. restaurants. They pay rent, monthly royalty fees and other charges, similar to annual fees toward the corporate’s mobile app, so as to operate as a part of McDonald’s system.
The royalty fee hikes probably won’t affect many franchisees immediately. Nonetheless, backlash will likely come, due to the corporate’s rocky relationship with its U.S. operators.
McDonald’s and its franchisees have clashed over a lot of issues lately, including a new assessment system for restaurants and a California bill that can hike wages for fast-food staff by 25% next 12 months.
Within the second quarter, McDonald’s franchisees rated their relationship with corporate management at a 1.71 out of 5, in a quarterly survey of several dozen of the chain’s operators conducted by Kalinowski Equity Research. It is the survey’s highest mark for the reason that fourth quarter of 2021, but still a far cry from the potential high rating of 5.
Despite the turmoil, McDonald’s U.S. business is booming. In its most up-to-date quarter, domestic same-store sales grew 10.3%. Promotions similar to the Grimace Birthday Meal and powerful demand for McDonald’s core menu items, similar to Big Macs and McNuggets, fueled sales.
Franchisee money flows rose 12 months over 12 months consequently, McDonald’s CFO Ian Borden said in late July. The corporate said average money flows for U.S. operators have climbed 35% during the last five years.
— CNBC’s Kate Rogers contributed to this report