McDonald's (NYSE:MCD) is facing a growing revolt among U.S. franchisees, who have been meeting to brainstorm ways of getting the chain to stop pushing costs onto them, Bloomberg reported on Tuesday (Aug. 6).
Franchise operators say the company is increasingly charging them too much to operate their restaurants, including rent, remodeling and fees for training and software. One franchisee who operates two stores said McDonald's told her recently she must now pay $80 a year to switch to the company's e-mail system, along with an extra $10,400 per store annually for new software, Wi-Fi and employee training costs—all fees that McDonald's has added in the last five years.
Almost 90 percent of McDonald's 14,100 U.S. locations are run by franchisees, although the chain owns or leases most of the stores and rents them to franchise holders. Revenue from franchised stores, including rent and royalties, rose 8 percent on average during the past five years, even with the recession.
But franchisees say shifting additional costs to them makes them less likely to open new restaurants and refurbish them, potentially slowing down sales growth. Some franchisees are paying as much as 12 percent of store sales in rent, compared to a historic rate of about 8.5 percent, according to notes from a meeting in April.
Another big cost is remodeling. McDonald's charges franchisees at least $800,000 for a remodel, compared with $375,000 for the least expensive remodel for a Wendy's (NASDAQ:WEN) franchise. Burger King (NYSE:BKC), which previously faced its own revolt over remodeling costs, cut the cost of a remodel to about $300,000.
- See this Bloomberg story
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