McDonald’s Franchisees Served Service Fee Hike for First Time in Decades

McDonald’s has had a tenuous relationship with its franchise operators as of late. A new round of royalty fee hikes isn’t likely to help.

(Photo Credit: Visual Karsa/Unsplash)
(Photo Credit: Visual Karsa/Unsplash)

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This isn’t exactly the type of super-sizing that McDonald’s franchisees are used to.

McDonald’s corporate headquarters announced over the weekend that it plans to hike the service fee — which it now insists on calling a “royalty fee” — on its franchise owners, to 5% from 4%. When was the last time they raised franchise fees? You have to go back to around the time a little-known Jason Alexander was singing about how the McDLT keeps the hot stuff hot and the cool stuff cool.

Royale with Fees

Franchisees still run the ground game at McD’s, operating about 95% of the roughly 13,400 US locations. But for the deep-fried privilege of serving up the good food of the Golden Arches, franchisees pay both monthly and annual fees to Ronald and the other big bosses in its Chicago C-suites.

While the new rate won’t affect existing operators, it likely won’t help what’s become increasingly tense relations as of late between franchisees and their corporate partners/overlords:

  • In a survey conducted by Kalinowski Equity Research, McDonald’s franchisees were asked to rate their relationship with corporate HQ on a scale of 1 to 5. The average score: just 1.71. Worse, that’s the highest mark since Q421.
  • Franchisees have particularly taken issue with a new grading system for their locations, implemented at the start of this year, which sees both corporate and third-party agents dropping in for check-ups as many as 10 times a year. Operators have flagged it as burdensome for their workers — an unnecessary annoyance amid an incredibly tight labor market.

Live Free or Fry Hard: Still, sales at MacDizzle’s have been quite robust this year. In its most recent quarter, domestic same-store sales grew over 10%, thanks in part to a promotion for purple blob Grimace’s birthday. But franchisees say the money is mostly trickling up. In a memo responding to the fee hike seen by CNBC, the National Owners Association — an independent group representing over 1,000 franchisees — bemoaned the move, adding “In spite of the incredible sales growth the restaurants are driving, franchisees are making less money per restaurant today than they did in 2010.” We just hope corporate reinvests some of that revenue into making sure the McFlurry machines stop going bust.