A wall is dividing McDonald’s Corp. and its franchisees.
The chain’s newly created, independent National Owners Association (NOA) is telling members to hold off on remodel projects not already “in the works” until negotiations with the company are complete.
“To put it bluntly, stop everything that is not currently in the works,” the association’s board wrote in a memo to its membership obtained by Restaurant Business.
The organization thinks that franchisees should not sign onto new projects or financial decisions until McDonald’s internal franchise organization, the National Leadership Council, negotiates changes to the company’s remodel strategy.
“No one is against investing in our restaurants, but we do not want to repeat the mistakes we made in 2018,” the memo said. “We cannot afford the waste that a ‘one-size-fits-all’ reinvestment program creates.”
At issue in particular is a wall separating the kitchen from the dining area, also known as a SAM wall, or service area modernization wall.
Franchisees appear to be overwhelmingly against the wall as a required part of the remodel. A survey of more than 180 operators found the vast majority of them don’t think the wall generates a return or makes operations better and should be eliminated or be an operator option.
McDonald’s wouldn’t comment on the specifics, saying only that “we are committed to continuing to work closely with our franchisees so they have the support they need to run great restaurants and provide great quality experiences and convenience for our guests.”
The wall is at the heart of issues operators are raising with the company in a bid to gain more flexibility and local control, as well as reduce some of the costs associated with an aggressive remodel timeline.
McDonald’s wants its operators to remodel their restaurants in the new “Experience of the Future” design by 2020 and will pay for 55% of the cost of the remodel. Yet that still costs franchisees hundreds of thousands of dollars.
The company has since backed off that timeline, agreeing to grant extensions of up to two years in exchange for a smaller, 40% franchisor contribution.
Sources indicated that many franchisees are opting for the smaller contribution in exchange for the longer timeline, at least in part out of hope that the company changes the remodel or eases some of its requirements.
Franchisees, who formed the independent NOA late last year, argue that the remodels and several other company initiatives are hurting their finances. They argue that 40% of franchisees would not qualify for lease renewal based on McDonald’s own criteria if the projects’ sales projections aren’t met.
And in a November survey by McDonald’s internal franchise leadership group, the National Leadership Council (NLC), seven in 10 franchisees said they were “very unsatisfied” with their cash flow.
McDonald’s has taken issue with the 40% lease renewal figure and argues that its operators are in strong financial health.
The association’s creation, and an NLC that has been charged with taking a stronger stance in negotiations with the company, are putting pressure on management to show results and address operator concerns.
The company has already started addressing them, with the extensions on remodels as well as changes to value marketing that give local areas more control.