McDonald’s passes more costs on to franchisees, fueling tensions

McDonald’s plans to pass more fees on to franchisees next year, at the risk of angering its US operators.

Starting in January, the fast food chain will stop paying a $ 300-per-month subsidy to each restaurant for Happy Meals, according to a note from U.S. management seen by CNBC. In March, the company will also change the way franchisees pay for technology investments to a “pay as you go” model, which will result in an additional fee of $ 423 per month. And in April, McDonald’s plans to start funding its education program jointly with its operators, rather than just using corporate funds.

McDonald’s told Bloomberg that changing its technology fees would allow it to stop carrying about $ 70 million in deferred payments annually on its balance sheet. The rest of the changes will not affect its balance sheet for next year.

But franchisees are bracing for a financial blow. Two operators told Business Insider that franchisees were overwhelmingly opposed to the changes. The new fees will hurt their profitability at the same time as operators already bear additional costs related to the coronavirus pandemic.

The company has disagreed with its US franchisees in the past. In 2018, rising tensions over restaurant renovations led to the formation of an independent franchise group, the National Owners Association.

But the relationship between the management of the company and its operators has improved since, in particular thanks to its response to the pandemic. Kalinowski Equity Research’s quarterly franchisee survey in October found that respondents were approaching an all-time high of trust in the relationship. McDonald’s has allocated $ 100 million of its own money to American marketing as part of its efforts to boost sales during the health crisis.

McDonald’s shares were essentially flat in the afternoon. The stock, which has a market value of $ 163 billion, has risen nearly 7% so far this year.