Among McDonald’s franchisees, cautious optimism with a dose of discontent

Operators like what they’ve seen from new U.S. boss Joe Erlinger so far, says RB’s The Bottom Line, but many remain frustrated by the past few years.
Photograph by Jonathan Maze

the bottom line

McDonald’s franchisees who’ve been able to meet the new head of the U.S. market, Joe Erlinger, are cautiously optimistic about what they’ve heard thus far and hopeful he’ll collaborate more on new strategies to move the brand forward.

Erlinger, named president of McDonald’s USA last week following the promotion of Chris Kempczinski to CEO in the wake of the firing of Steve Easterbrook, has won some fans in meetings with operators throughout the U.S. in recent days.

Franchisees have cited Erlinger’s easygoing style and his operations background, saying they’re hopeful his ascendance will mean a better relationship between the company and the people responsible for running the vast majority of the chain’s 13,800 U.S. locations.

“He seems to be a restaurant guy,” said Terry Shugart, a franchisee with 10 locations in Georgia and South Carolina. “He seems to have a style that is easy to relate to, and he seems interested in our success.”

At the same time, however, there remains among many franchisees a sense of discontent after years of massive changes, and at least some tell us privately that change in leadership might not help.

For Erlinger, this will be a unique challenge. McDonald’s operators in the U.S. have generated strong cash flow over the past year: It’s grown each of the past 11 months. Same-store sales have risen for 11 straight quarters, and the company has traded some value customers for those willing to buy more premium items.

But that improvement has followed a dramatic change in how the company relates to its franchisees, and many operators remain bruised by the process.

The company has required operators to remodel restaurants to add kiosks, even though many franchisees had remodeled their stores relatively recently. It started making Quarter Pounders using fresh beef. And it removed foam cups, a seemingly simple move that angered many franchisees in the South.

McDonald’s has unleashed many of these strategies with speed that is remarkable for such a big company, particularly given its history of reacting more slowly to change than many of its competitors.

That speed, however, has often come at the expense of operations, some franchisees say. That has put more pressure on operators. What’s more, the company cut back on the number of field offices, and many operators lost longtime contacts while new field personnel had more franchisees to work with than ever.

All of that put more pressure on operators. Some have left the system, operators say, to the point that some believe the pressure was a deliberate strategy to filter out weaker franchisees.

“The company put a bigger burden than they know on our key personnel as well as owners,” one franchisee said, on the condition we don’t use his name. “I would agree that some people needed that pressure, but I never felt like I was one of them.”

“Everyone’s operation suffered,” he added. “Some owners could not weather the storm and are gone. Some of them should have went, but we lost plenty of good talent.”

The operator, who started working at McDonald’s in his teens and has been a franchisee for decades, has decided to sell his stores after the past three years.

The tension between the company and its franchisees led to the formation last year of the National Owners Association, the first broad-scale independent association in the company’s long and storied history.

The company has worked to assuage many of the franchisees’ biggest concerns in the wake of the association’s creation. It gave them more time on remodels, for instance, and it renegotiated its contract with Uber Eats to improve operators’ profits from delivery.

Improving cash flow also helped, as has the chain’s 5% same-store sales growth so far this year.

Tension between the company and its operators still flares up periodically, as it has recently with disputes over supplier support for the association and nondisclosure agreements. The leadership change has helped shed light on this tension.

Many operators hope that the change in leadership will bring about a more collaborative environment. More than one franchisee indicated to me that Kempczinski, though a primary architect of the plan they’ve been operating under in recent years, is a better fit in the CEO’s chair.

Amid all of this, the U.S. business faces major competitive challenges. Traffic remains a big problem. Top competitor Wendy’s is about to enter the breakfast daypart just as the company has seemingly gotten its own morning business in order. And the company is watching chains such as Popeyes Louisiana Kitchen develop high-quality chicken sandwiches and garner rave reviews, while chains such as Chick-fil-A also eat into its business.

For Erlinger, navigating this competitive environment will be an important early test. And he’ll do it while having to ease tension with the people responsible for operating the chain’s restaurants.

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