McDonald's Makeover Promises to Be Pricey for Franchisees

McDonald's Makeover Promises to Be Pricey for Franchisees
Image credit: Monica Dipres

McDonald’s needs to make changes – fast. But will franchisees be willing to cough up the extra bucks?

In a discussion at the UBS’s Global Consumer Conference in Boston today, McDonald’s executives said their focus is on “reigniting momentum.” The fast-food giant had a horrific 2014, posting some of its worst declines in more than a decade.

“As we look to the future, we recognize the urgent need for a reset in the business,” said chief administrative officer Pete Bensen. “These include fixing the fundamentals that are key to our business, while making bigger bolder moves in areas that have a meaningful impact with our customers.”

Making these changes takes cash. McDonald’s CFO Kevin Ozan said in the discussion that McDonald’s was still on track to return $18 to $20 billion to shareholders from 2014 to 2016, due in part to money saved and gained by cutting new openings in struggling markets and refranchising efforts. However, franchisees will find themselves shouldering some of the costs of McDonald’s image makeover.

Two of the most publicized strikes against McDonald’s reputation are the chain’s alleged food quality and labor practices. In 2015, McDonald’s is rethinking both.

Related: Unions, Charity Accuse McDonald's of Avoiding $1.1 Billion in Tax

McDonald’s “Create Your Taste” customizable burger platform has the potential to bring a fast-casual breath of fresh air to a company that has become the face of fast food. McDonald’s is rolling out the platform in Australia this year, as well as expanding the test in the U.S. from 15 restaurant to up to 2,000 locations.

However, bringing interactive kiosks and other equipment needed for Create Your Taste isn’t cheap. Installing the new platform costs a restaurant $100,000 to $150,000. Ozan said that McDonald’s may help contribute to the cost to speed up roll out, but did not go into details on how the company would assist franchisees.

McDonald’s executives also touched on the minimum wage question – another cost that will likely be shouldered by franchisees.

“A big part of Mike [Andres, McDonald’s U.S. president’s] turnaround agenda in the U.S. is, ‘What are we doing around the employment image and our employee-employer relationships?’” said Bensen. “In the U.S., 90 percent of our restaurants are franchised, so any minimum wage discussion or increase is really significantly impacting small business men and women around the U.S.”

Bensen said that while the issue was “top of mind,” any minimum wage changes would be staged, instead of all at once, to better prepare franchisees for increased costs.

For months, McDonald’s franchisees have been demanding that corporate make significant changes to help boost sales. The company is finally taking steps towards the franchisee-approved plan to simplify and streamline the menu. If franchisees will respond as positively to other, more costly changes remains to be seen – and will likely depend on if McDonald’s can prove the reputation makeover is worth the cash. 

Related: McDonald's Takes a Cue From Chipotle With Latest Menu Change

Edition: November 2016

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