Top Stories
Top Stories
Restaurants

Here's why McDonald's earnings could test the patience of its restaurant owners

Key Points
  • McDonald's reports earnings Wednesday, and franchisees will be waiting to hear the company's plans for pricing and any updates to its store renovation project.
  • Franchisees formed the National Owners Association in 2018.
  • Price increases, promotions and store renovations continue to be big concerns for them, according to a survey of franchisees by Kalinowski Research.
A customer enters a McDonald's restaurant in San Francisco.
Getty Images

McDonald's reports earnings Wednesday before the bell, and franchisees will be watching to see if the fast food giant addresses any of their concerns.

Last year, franchisees formed the National Owners Association as the Chicago-based company pushed discounts and high-tech store renovations.

The Wall Street Journal previously reported that about 400 franchisees — a quarter of U.S. franchisees — attended the group's first meeting in October.

In November, McDonald's said it would slow its pace for remodeling most of its U.S. locations, pushing its deadline from 2020 to the end of 2022. The renovations include adding self-order kiosks, digital menu boards and parking spots for pick-up orders.

The NOA held a second meeting in December, this time reporting more than 1,100 owners present, and is planning to hold a third in April.

Mark Kalinowski, president and CEO of Kalinowski Research, wrote in his recent survey of McDonald's franchisees that he expects "significant interest" in the NOA to continue this year. Concern about pricing continues to be a big issue for franchisees, he said. McDonald's has turned to raising prices on its more premium items like its Signature Crafted Sandwiches, which can cost more than $6, as it tried to woo customers from rivals such as Five Guys and Smashburger.

"My prices are approaching those of a fast-casual restaurant," one respondent to Kalinowski's survey said.

Another franchisee said that "excessive" discounting has affected sales, with cash flow issues leading to labor cutbacks and difficulty hiring employees.

McDonald's has been promoting its $1 $2 $3 Dollar Menu by rotating the items included on the deal. In December, the chain brought back its 2 for $5 Mix & Match deal for a limited time.

Franchisees will also be waiting to see if the company announces additional changes to its store renovation plans. One comment from the NOA's December meeting highlighted in notes on the organization's website said McDonald's decision to slow down renovations did not go far enough. The McDonald's National Leadership Council is negotiating with management, according to a Jan. 11 update from NOA.

Respondents to Kalinowski's survey, which was released last Friday, also voiced frustration with the degree of control held by corporate management, which some see as out of touch. Operators will be eager to see if there are any changes to the McDonald's system that gives more power back to them.

"Corporate guys have no idea what they are doing," one franchisee said in the survey. "This isn't Boston Consulting, Pepsi, or Kraft. "

McDonald's did not immediately respond to a request for comment from CNBC.

A survey of analysts by Refinitiv said McDonald's is expected to earn $1.89 per share on revenue of $5.16 billion in the fourth quarter.