McDonald’s franchisees are pushing back against a series of charges and subsidy cuts that one estimate suggests could cost operators $170 million next year.
In an email the company's leadership team sent to operators on Thursday, and seen by Restaurant Business, the company is telling U.S. franchisees that it plans to end a more than 30-year-old subsidy and have franchisees pre-fund technology charges and pay for the brand’s Archways to Opportunity education initiative.
McDonald’s said many of these initiatives have been years in the making and were set to take place as part of an agreement between the company and its franchisees in 2017. But some franchisees said they were “blindsided” by the letter. One operator said privately that it was “shortsighted” and could lead operators to vote against efforts to promote value in the coming year as they seek to recoup their costs.
The letter featured three major changes in how different initiatives are funded.
First, the company said that it would end a Happy Meal Rent & Service Fee subsidy, which are funds provided to franchisees designed to keep down the cost of McDonald’s popular Happy Meals.
That subsidy dates back more than 30 years and averages $3,600 per restaurant, per year. McDonald’s wants to take the funds it provides operators under the subsidy to use for other programs—notably “people”-focused initiatives. The company argues that the subsidy is no longer necessary.
McDonald’s also wants franchisees to help fund its Archways to Opportunity, a program the company has had over the past few years designed to provide tuition to restaurant employees or help them earn a high-school diploma.
The burger giant has invested more than $100 million into the program over the past four years and wants to keep it going. But it wants to change Archways to a joint-funded program in which the company matches the contributions of its franchisees.
The company would continue funding the program, but funds from franchisees would improve the effort at a time when competition for workers remains fierce despite high unemployment.
Still, one estimate provided to Restaurant Business calculates that it would cost the typical store $3,571 per year.
The end of the Happy Meal subsidy and the shift to a jointly funded Archways model was included as part of what is known as the “Bigger, Bolder Vision 2020” plan operators signed in 2017 and which featured a combination of McDonald’s investments and franchisee remodels.
The third change involves McDonald’s technology investment charges. The company in March will start charging operators monthly for technology investments, rather than every six months.
Yet the company said the older payment model featured a six-month lag that amounts to about $70 million. To eliminate the lag and move to what it calls a “pay-as-you-go” model it wants to charge franchisees an additional $423 per month.
Those additional charges are designed to end once the $70 million is repaid. Yet operators say it would cost them an additional $5,000 per store over the course of the year.
All told, the additional charges and reduced fees would cost franchisees a total of $170 million over the course of the year, or more than $12,000 per location.
To McDonald’s, the changes are designed to either increase investments in a popular program—Archways is considered a key recruitment tool, for instance—or shifting payment structures to one that is more palatable to franchisees.
The changes also come on top of a number of investments the company has made in the brand in recent months and years, such as a $100 million marketing commitment this year that funded initiatives such as the Travis Scott meal.
Yet operators argue that the changes are all coming at once and continue a pattern in which the brand is shifting more costs to franchisees. They argue that cuts in support at the corporate level, for instance, has put more of the cost for training and other support on the franchisees.
Mostly, it damages a relationship that has been up-and-down in recent years amid significant changes in the way the company deals with its franchisees.
Operators banded together two years ago over a dispute regarding the company’s kiosk-centric remodel program, leading to the creation of the National Owners Association. Disputes between the company and the franchisees flare up periodically—as they did over corporate support and employee pay back in April.
Those relations appeared to improve more recently, especially after the company’s sales surged in September. But operators now appear united in their frustration with the franchisor. “I really feel as if McDonald’s and operators were on the same team,” one operator said privately. “Now it feels like we are on opposite teams.”
UPDATE: This story has been updated to clarify that the email from McDonald's came from its leadership team.