McDonald’s Happy Meal prices set to increase as subsidy ends

• McDonald’s will no longer send franchisees the $ 300 per month subsidy that was intended to reduce the costs of Happy Meal.
• As a result, franchisees told Business Insider that prices for Happy Meal will likely increase in 2021.
• Franchisees are not happy with the change.
• “COVID is booming, and they’re worried about taking our Happy Meal grant?” a franchisee told Business Insider. “It’s not something families in America want. They want Happy Meal at a great price.”
• McDonald’s told Business Insider that franchisees control menu prices and that it plans to financially support operators in other ways in 2021.
• Visit the Business Insider homepage for more stories.

McDonald’s Happy Meal prices are expected to rise in 2021, as the fast food giant ends a long-standing subsidy.

McDonald’s officially announced internally on Thursday that it was ending its roughly $ 300 per month Happy Meal grant, which has been around for decades. The grant, which was about $ 3,600 per year, will officially end on January 1, 2021.

“We recognize that this grant has been in place for many years,” the company said in an internal memo viewed by Business Insider. “However, it no longer nurtures growth like it once was.”

Read more: ‘Ketchup hit the fan’: McDonald’s changes transfer costs to franchisees, reignites internal battle at fast food giant

The change, along with other adjustments that will cause franchisees to pay more in 2021, has infuriated operators who own around 95% of McDonald’s locations in the United States. According to franchisees who spoke to Business Insider, the change will almost certainly result in more expensive Happy Meals.

“COVID is booming, and they’re worried about taking our Happy Meal grant?” a franchisee told Business Insider. “It’s not something families in America want. They want Happy Meal at a great price.”

“I’m not going to eat” the cost of maintaining the price of Happy Meal without a subsidy, said another franchisee. “If McDonald’s doesn’t want to eat it, why would I?”

When asked for comment, McDonald’s told Business Insider that franchisees are responsible for setting the prices of menu items. McDonald’s only controls prices at 5% of its company-owned locations in the United States; 95% of the sites are owned and operated by independent franchisees.

Changes spark battle at McDonald’s

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Internal changes that were officially announced on Thursday have rekindled tensions within McDonald’s.

“It was the proverbial straw that broke the camel’s back,” said a former McDonald’s executive, who continues to work with franchisees and was in touch with more than 100 operators about the changes on Thursday. “At McDonald’s, we call it – the ketchup hit the fan.”

Recently, McDonald’s franchisees and corporate management have been publicly unified. While other restaurants in the United States struggled during COVID, McDonald’s flourished, with comparable store sales in the United States up 4.6% in the third quarter. Kalinowski Equity Research’s most recent quarterly survey, released in October, found that McDonald’s franchisee optimism for the company was the highest in years.

Read more: McDonald’s franchisees are more optimistic than they have been in years, as analysts predict 20% of independent restaurants will close across America

However, there has been bad blood between franchisees and corporate executives at McDonald’s in recent years.

Franchisees founded their first independent organization, called the National Owners Association, in 2018 to combat what they saw as corporate indifference to the interests of franchisees. More recently, franchisees and business executives clashed over how best to handle the slump in sales amid the pandemic in early April.

Read more: ‘Traumatized’ McDonald’s franchisees face falling sales of coronavirus, with some criticizing company for ‘anemic’ response

McDonald’s stressed that it plans to invest in franchisees in other ways in the future. In Thursday’s note, the company said it was considering options “such as taking bold steps to support our restaurant workers.”

As it kills the Happy Meal grant, McDonald’s has made a number of financial investments to support franchisees in 2020, including a $ 100 million marketing investment. One such grant was tied to the Travis Scott Meal, which made celebrity promotion more profitable for franchisees while keeping menu prices low.

If you are a McDonald’s employee or franchisee with a story to share, send an email to [email protected].