Restaurants

McDonald's is passing along more fees to franchisees, reigniting tensions

Key Points
  • McDonald's is planning to pass on more fees to U.S. franchisees next year, including changing how franchisees pay for tech investments and jointly funding its tuition program.
  • The move is reportedly reigniting tensions with its franchisees, according to Business Insider.
  • The franchisor's relationship with its operators improved this year, thanks to its response to the pandemic.

In this article

A McDonald's Happy Meal.
Emile Wamsteker | Bloomberg | Getty Images

McDonald's plans to pass along more fees to franchisees next year, risking the wrath of its U.S. operators.

Starting in January, the fast-food chain will stop paying out a $300 subsidy per month at each restaurant for Happy Meals, according to a memo from U.S. leadership viewed by CNBC. In March, the company will also change how franchisees pay for tech investments to a monthly "pay as you go" model rather than one payment every six months, resulting in an additional charge of $423 per month. And in April, McDonald's plans to start funding its tuition program jointly with its operators, rather than just using corporate funds.

McDonald's said that the change to its technology fees will let it stop carrying about $70 million annually in deferred payments on its balance sheet. The rest of the changes won't affect its balance sheet next year.

But franchisees are preparing for a financial hit. Two operators told Business Insider that franchisees are overwhelmingly against the changes. The new fees will hurt their profitability at the same time that operators are already shouldering extra costs related to the coronavirus pandemic.

The company has been at odds with its U.S. franchisees in the past. In 2018, flaring tensions over restaurant renovations resulted in the formation of an independent franchisee group, the National Owners Association.

But the relationship between corporate management and its operators has improved since then, particularly thanks to its pandemic response. Kalinowski Equity Research's quarterly franchisee survey in October found that respondents were nearing an all-time high in their confidence in the relationship. McDonald's earmarked $100 million of its own money to pitch into U.S. marketing as part of its efforts to boost sales during the health crisis.

Shares of McDonald's were essentially flat afternoon trading. The stock, which has a market value of $163 billion, has risen nearly 7% so far this year.

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