facebook pixal
Financing

McDonald’s franchisees want more control over technology

Operators are pushing for a technology cooperative that would give them more say in the company’s digital moves.
Photograph courtesy of McDonald's

As McDonald’s owners have pushed back against a temporary new technology fee set to be charged next year, they have raised another issue: How much control they have over the company’s overall spending on its digital strategies.

In a note to its membership on Sunday, the board of the National Owners Association—the independent association of McDonald’s franchisees—broached the topic of a technology cooperative that would give them more direct say in decisions on spending that is increasingly critical to fast-food operations.

“The $70 million tech fee debate has opened up a far greater debate about technology at McDonald’s,” the board said. “There is more and more discussion about establishing a national tech coop to monitor and develop better technology. Technology that works for our customers and crews. Technology that enables us and not inhibits us.”

McDonald’s did note in November that it is working with its franchisees “to make the competitive advantage of its size and scale work for its system.” But it also said in a statement that its current technology practices enable the company to get technology out more quickly, and that it collaborates with a franchisee-led tech team.

“McDonald’s is committed to driving innovation in our restaurants and for our customers through significant investments in exploring new technologies that can provide the company and our franchisees a competitive advantage,” the company said in an emailed statement. “McDonald’s has invested hundreds of millions of dollars in upfront costs to this effect. Our strategy and process for bringing new technology to our system and customers appropriately allows us to move quickly and stay at the forefront of innovation that provides a faster and more convenient experience to our customers.

“Our process, which includes collaboration with a franchisee-led technology team, has supported hugely successful innovations over the last several years, and we are confident the right processes are in place to drive future growth through technology.”

McDonald’s controls much of the technology operators use in their restaurants and charges these franchisees a fee for its use. Earlier this month, the company told its franchisees they would have to pay an extra charge, about $5,000 per store, to pay off a debt as its McDonald’s charges for that technology move from a six-month payment schedule to monthly. The company has said that it has discussed this debt for months.

Operators have vociferously pushed back against the fee—they argue there is no such debt.  

But it has also raised their overall concerns about the company’s technology efforts.

McDonald’s has been implementing a lot of technology in recent years, with an app, curbside service, a loyalty program expected in the new year, self-order kiosks and new drive-thru technology made possible with the company’s $300 million acquisition of Dynamic Yield in 2019. The moves are considered vital in a fast-food world increasingly defined by technology.

These efforts have resulted in considerably higher costs for franchisees, whose monthly payment to McDonald’s for technology is 10 times what it was a decade ago. Multiple operators in conversations wondered what they’re getting for that spending and argue that the company has fallen behind many of its closest competitors.

Operators pay $250 million to the company every year for technology fees.

Franchisees do have some input into the process via a Restaurant Technology Board. But, according to NOA, the board’s role in technology is limited. “The company ultimately controls how our money is spent and what technology gets developed,” NOA said.

Group purchasing cooperatives are common in franchising, though they are typically used to buy things like food and paper. Franchisees like them because it gives them a more direct role in decision making while keeping franchisors from taking too much profit. Franchisees will frequently push for cooperatives when they are concerned about rising costs.

In this case, there is also a sense that McDonald’s isn’t doing as well on technology as it could be, while companies such as Chick-fil-A add technology such as hand-held order taking devices in the drive-thru or companies like Starbucks push forward.

The NOA board argues that a legally defined cooperative would give operators more direct say in how its technology is developed and how its money is spent. “We are now spending $250 million in tech fees,” the board said. “You should have a vote in how that pot of money gets invested.”

The discussion on technology has come during a dispute between the company and its franchisees over a pair of new fees, including the tech fee and required contributions to Archways to Opportunity, as well as the end of a Happy Meal subsidy. The changes came in an email, which the association dubbed “the Dec. 3 surprise.”

“On Dec. 3, we were once again faced with a unilateral franchisor who seemingly has no regard for its partners,” the board said. “If our franchisor needs help financially, let’s talk about it. If growing the business wasn’t enough for the company, we can discuss it. If they think their pot of money isn’t going to the right places, let’s work on it. But to spring on these changes with little notice is not acceptable.”

UPDATE: This story has been updated to include comment from McDonald's.

Want breaking news at your fingertips?

Get today’s need-to-know restaurant industry intelligence. Sign up to receive texts from Restaurant Business on news and insights that matter to your brand.

Trending

More from our partners