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McDonald’s to give operators more time on remodels

The company will let some franchisees wait until 2021 or 2022 to complete store overhauls.
Photograph by Jonathan Maze

McDonald’s Corp., facing an unprecedented revolt by some of its biggest franchisees, is giving operators more time to finish remodels.

The company is giving operators until 2022 to finish remodels under the kiosk-centric “Experience of the Future” design.

Operators that choose to take their time on newer remodels, however, will have to forgo some of McDonald’s contribution to the cost.

McDonald’s has been contributing 55% to the cost of the remodels, with franchisees paying the rest. According to an update to the company’s plan for its U.S. market, the company will pay 40% of the cost of remodels finished in 2021 or 2022. The company said that it now expects most of its nearly 14,000 U.S. restaurants to be remodeled by the end of 2022.

In a statement, the company said that the adjustments will “provide greater local operator flexibility.”

“Our growth strategy remains rooted in making positive food changes, offering new restaurant experiences and providing our guests better value,” the company said. “In 2018 alone, we launched fresh beef quarter-pound burgers, reached a deployment of EOTF in about half of restaurants and introduced a new national value menu. The adjustments we are making will allow us to continue on this path and provide greater local operator flexibility.”

The extension comes as some of the company’s largest and best-known operators have formed the first independent franchisee association in McDonald’s history.

While the association said it is determined to work with the company and its executives, it has been widely viewed as a sign of discontent in a franchisee base responsible for the remodels and many other changes, such as the addition of fresh-beef Quarter Pounders in May.

There has been some concern that the remodels are hurting restaurant sales in the short term because of construction and full or partial closures.

Company executives acknowledged in October that the remodels are hurting sales more than expected and that it takes longer for the sales and traffic to recover once the remodels are finished. “The sales and guest count recovery has also been a little inconsistent,” CFO Kevin Ozan said.

And executives have been acknowledging some of the work being done by the company’s operators. CEO Steve Easterbrook said in October that the remodel program is “the most significant transformation ever taken in the largest market in the McDonald’s system.”

“Franchisees are undertaking a lot all at once.”

In addition to the remodel extension, McDonald’s said it is increasing its focus on drive-thru operations to improve speed—which executives have indicated has slowed down recently with the new product additions and with fresh beef.

The company is also providing some media-buying alternatives to some local markets “to increase the effectiveness of our media dollars.” That follows a decision earlier this year to consolidate its media buying to one agency.

And McDonald’s plans to provide more flexibility for local markets to push value offerings. That comes as the company’s new $1 $2 $3 Dollar Menu has not quite worked as well as executives had hoped.

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