McDonald’s is raising the cost of being a franchisee within its system.
Several media outlets stated the burger giant will increase royalty fees to 5 percent, up from 4 percent, beginning next year. CNBC reported that it’s the first time in almost 30 years that McDonald’s has raised its rates.
“While we created the industry we now lead, we must continue to redefine what success looks like and position ourselves for long-term success to ensure the value of our brand remains as strong as ever,” Joe Erlinger, McDonald’s USA president, said in a message to domestic franchisees.
According to CNBC, the new rule won’t impact current operators maintaining their stores, those who buy a franchised restaurant from a fellow franchisee, rebuilt existing locations, or stores swapped between family members. It will affect new operators, those who purchase corporately owned units, and other situations. Additionally, McDonald’s plans to switch its terminology from “service fees” to “royalty fees.”
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Erlinger told franchisees that the company is “trying to change the mindset by getting people to see and understand the power of what you buy into when you buy the McDonald’s brand, the McDonald’s system.”
He also noted the change is so the U.S. and Canada are consistent with most global markets. Currently, the brand uses a 5 percent royalty rate in all owned markets except for the U.S. and Canada. According to Business Insider, McDonald’s first service fee (now royalty fee) was 1.9 percent in 1955. That rate grew five times in 30 years.
McDonald’s finished the second quarter with 13,445 restaurants in the U.S.—a net growth of 12 stores year-over-year. Of that number, 12,759 were franchised and 686 were company-owned. In the second quarter, U.S. comps rose 10.3 percent, rolling over a 3.7 percent increase in 2022. The brand owed its robust second-quarter sales to the Grimace Birthday Meal campaign, which racked up over 3 billion views on TikTok. The promotional meal included a purple milkshake, mirroring the iconic hue of Grimace, and offered the option of either a Big Mac or a 10-piece Chicken McNuggets with fries. CFO Ian Borden characterized it as “one of our most interactively successful campaigns ever.”
The recent move comes amid a reportedly tense relationship between McDonald’s and franchisees, including operators’ public disdain over California’s fast-food bill that will increase minimum wage to $20 per hour. Pulling from Kalinowski Equity Research, CNBC reported that McDonald’s franchisees rated their relationship with corporate at 1.71 out of 5 in a quarterly survey of several dozen. Although low, it’s the highest mark since Q4 2021.
