McDonald’s is codifying low prices.
The fast-food giant is adding a value provision to its global franchising standards as it seeks to keep operators from raising prices too aggressively.
The new standard applies to franchisees in the U.S. and its biggest international markets. The company informed operators of the new franchising standards in system messages on Monday, seen by Restaurant Business.
“Delivering value consistently to customers is critical to growing our business and this elevated standard helps achieve our shared focus on closing gaps so that every customer—and every owner/operator—benefits,” Mason Smoot, chief restaurant officer for McDonald’s USA, said in a message to the U.S. system.
In franchises such as McDonald’s, franchisees set prices based on local market conditions and their own costs for real estate, labor and food. As such, the cost of a Big Mac can vary from one city to the next.
McDonald’s operators work with a third-party pricing consultant that helps them set those prices.
The company stressed that franchisees will continue to set prices—a potentially sensitive subject in a franchise system.
But, starting in January, the franchisor will assess the outcomes of franchisees’ pricing decisions “in relation to providing great value to our customers,” Andrew Gregory, SVP of global franchising, development and delivery, said in a system message.
McDonald's has always had some value component in its standards, but Gregory said that its new approach will enable “franchisees to bring local insight to how value is delivered in their restaurants.”
As part of the standard, McDonald’s will assess operators’ use of pricing tools the company has available, their work with pricing consultants, support for system promotions and business performance. The company will also consider local circumstances that impact individual restaurants.
But the messages included few details about how these standards would be enforced.
The value standard was one of four changes to McDonald’s franchising standards. The standards are a set of guidelines the company uses to assess operator performance. Franchisees’ scores on those standards are used to determine whether they can expand or if they will be allowed to renew their franchise agreement, among other things.
The new value standard comes as McDonald’s continues to fight traffic challenges that the company blames on weakness among lower-income consumers. Executives have suggested that everyday pricing was to blame. Consumers have been expressing frustration about prices at fast-food chains, and McDonald’s in particular.
McDonald’s prices have risen about 40% since 2019, the result of franchisees’ own soaring costs. The company has responded with more national price points and, more recently, steeper discounts on bundled meals.
“This is our collective opportunity to create the experience our customers expect, and delivering on this promise will take all of us across every leg of the stool,” Gregory said, referring to the company’s “three-legged stool” of the company, franchisees and suppliers. “By working as One McDonald’s, we can turn value leadership from a principle into a practice that drives success for the system.”
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