Joe Erlinger, president of McDonald’s USA, vowed to improve communications with operators on Tuesday amid a dispute over fees that has roiled a system despite strong growth in sales and profits.
In a note to the system viewed by Restaurant Business, Erlinger told the system that the company needs to improve its transparency and visibility to ensure that it doesn’t take operators by surprise again.
“There’s a lot we learned over the last few weeks,” he wrote. “While we believe the right teams and people had been engaged, we recognize there is an opportunity for more dialogue and discussion with owner/operator leadership on the critical issues.
“We need to collectively do a better job with how we engage on challenging topics and provide greater transparency and visibility directly to the entire system. We don’t want to be in a situation again where anybody feels surprised.”
The issue stems from a Dec. 3 email from company leadership to operators telling them about a pair of new fees and the end of a subsidy to keep down the prices of Happy Meals. One fee is to repay a debt for operators’ use of technology, another is for the Archways to Opportunity tuition program. Franchisees say the fees and end of the subsidy amount to $12,000 per location, or about $170 million overall.
The reaction from franchisees, many of whom said they didn’t know about any of the changes, was swift. Operators have since overwhelmingly approved a measure to restrict contact with the company to essential communications—a move that left Erlinger on hold for 15 minutes during a scheduled meeting with Ohio operators, who didn’t show up.
Franchisees are also rethinking a $1 drink value meal previously approved for the new year, citing a change in their economics.
The speed of the reaction and the unity of the franchise system clearly took the company by surprise. Last week, leadership from both the company and the franchisee base met and had what was deemed a “productive” dialogue.
The two sides decided to form sub-groups to discuss specific issues. According to Erlinger’s note, the groups will discuss identifying funding of “big, bold ideas” to support restaurant workers, providing “full visibility” into technology investment costs and improving the working relationship between the company and leaders of the system’s owners.
“The marketplace isn’t standing still,” he said, “and we must do all we can now to build on our momentum and progress.”
The dispute came at an otherwise good moment for the company, which has generated strong sales in recent months as consumers have gravitated toward drive-thru and other takeout services. McDonald’s had one of its best months in several years in September, for instance, and the return of the McRib appears to have provided its restaurants with an end-of-year boost.
McDonald’s executives had indicated they wanted to shift the subsidy for Happy Meals to other programs to assist workers—employee pay and retention have become vital at a time when the pandemic is keeping some younger workers from taking jobs, for instance, while others fear for their health. They also said that operators’ contribution to the tuition program would be in addition to the company’s existing commitment and would improve its overall effectiveness.
But technology appears to be a particular challenge—the company said the excess tech fee set for next year would fund a debt stemming from the shift in the payment schedule from every six months to monthly. Operators disagree that they owe the debt. The discussion also grew into a discussion over the future of technology at the company, with franchisees pushing for a cooperative that would give them more say into tech spending.