McDonald’s franchisees are increasingly feeling “cash-strapped” from remodeling requirements and constant menu changes that are increasing restaurants’ complexity and hurting speed, according to a survey of operators by the company’s franchisee leadership.
The survey, a copy of which was obtained by Restaurant Business, was done online in November and commissioned by the company’s internally created National Leadership Council (NLC).
It lists two primary issues of concern for the company’s franchisees: economics and the company’s operating platform.
“This stems from the fact that owner-operators feel cash-strapped—like they’ve had to incur a lot of costs without seeing an uptick in profit—and feel operational pressure from constantly changing menu items and initiatives,” the survey’s report said.
Nearly nine in 10 franchisees in the survey said they were unsatisfied with their cash flow, including 69% who said they were “very unsatisfied” with cash flow.
In a statement, a McDonald’s spokeswoman said that the company does not comment on “internal discussions” but said 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.”
Still, the survey results crystalize the issue at the center of growing franchisee unrest at the Chicago-based company: Operators are concerned that the numerous initiatives they’ve been asked to implement over the past couple of years aren’t improving sales or their profits—and could be making an already complex operation more difficult.
McDonald’s U.S. franchisees last year formed the National Owners Association, a separate independent franchise association and the first of its kind in the company’s history—though such associations are common throughout franchising.
McDonald’s operators over the last year-plus have been asked to start making quarter-pound burgers with fresh beef to order, add to the company’s coffee program, change the way some sandwiches are made, implement delivery and curbside service and add a national value menu.
But they’ve also been asked to remodel nearly all of their restaurants by 2020 in the kiosk-centric “Experience of the Future” image.
Many operators say that the remodels are putting them under a financial strain even though the company is paying for 55% of their costs.
Operators at an initial meeting in October were told that 40% of franchisees would not qualify for lease renewal under the company’s own financial standards if expected sales increases from the remodels don’t materialize.
McDonald’s, however, disputes that number and has said that the vast majority of its operators are in strong financial health.
But the company has been giving operators more leeway and control in recent weeks. McDonald’s said operators could remodel locations in 2021 or 2022 if they accept a lower, 40% contribution from the franchisor.
The company is also giving operators more say in value offers, for instance.
Still, operators say that they are being required to do some things to their stores they disagree with. For instance, the company requires franchisees to put a wall between the kitchen and the lobby as part of the remodel.
In a recent National Owners Association survey obtained by Restaurant Business, all but six of 182 operators surveyed said that the wall neither generates a return nor makes operations better. And the vast majority said that the wall doesn’t have value for the customer and generates security concerns, and most operators say it should be an option, not a requirement.
The NLC survey polled 1,154 McDonald’s operators—most of the company’s U.S. franchisees.
In that survey, operators say they have high operating costs, too many expensive initiatives that don’t necessarily pay off and are paying higher wages for more workers as labor costs rise.
They’ve also had to take on more loans to stay solvent.
Franchisees in the NLC survey also cite lower traffic and say that remodels keep stores closed for a time, which also hurts revenue.
Franchisees say that some of the initiatives are “overwhelming,” particularly the remodeling project to add kiosks to the restaurants’ lobbies. And many operators have spruced up their stores in recent years only to be required to remodel again.