McDonald’s may consider rent deferrals for its franchisees

As the chain closes dining areas amid the spread of coronavirus, it is working to ensure its operators have the cash to get through a sales slump.
Photograph courtesy of McDonald's Corp.

McDonald’s Corp. said early Tuesday that it may defer franchisee rent payments for a time to help them get through a period in which their sales are expected to slump badly as restrictions to stem the spread of coronavirus take hold around the globe.

The Chicago-based burger giant said it is working with operators around the world “to evaluate operational flexibility and support financial liquidity (including rent deferrals) during this period of uncertainty.”

The company also said it is working with its suppliers on contingency planning to ensure it can get supplies to its restaurants around the world.

The comments, which came in a federal securities filing Tuesday, are the strongest indication that the spread of the coronavirus and restrictions that come with it are taking a financial toll on even the largest restaurant companies.

McDonald’s controls the real estate for its restaurants and generates revenue by charging operators rent as a percentage of revenue. It is rare for franchise systems to defer rent or royalty payments.

McDonald’s said it could not predict what kind of financial impact the issue will have, only that it would be negative. “At this time, neither the duration nor scope of the disruption can be predicted, therefore the negative financial impact to our results cannot be reasonably estimated.”

On Monday, McDonald’s said that it would close seating areas inside all of its U.S. company-owned restaurants and urged franchisees to do the same, noting that it expected franchisees to follow suit. Indeed, early Tuesday, big Tampa, Fla.-area franchisee Caspers Co. said it would close its seating area.

McDonald’s operates nearly 39,000 restaurants around the world, and many of them are in Europe, currently the epicenter of the spread of COVID-19 as countries such as Italy, Spain and France go on lockdown.

McDonald’s said that it has closed restaurants in several markets, including Italy and Spain. It said that most markets have limited options and some have closed locations.

But things are improving in Asia, where just about all of the company’s locations are open in Japan and 95% are open in China, where the coronavirus outbreak first emerged.

Still, the burger giant made some comments Monday publicly to assure franchisees that they would not be “left behind.”

“We’re going to do whatever is necessary to help any other owner and partner,” CEO Chris Kempczinski said in a video Monday. “We will not let you fail. Managing directors have the necessary tools and authority to help each operator and partner address your own unique situation. We are all in this together.”

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