McDonald's to Pay Some Restaurant Remodeling Costs; Investors Skeptical
Oak Brook, Illinois--McDonald's Corp. will offer U.S. franchisees financial incentives to win their support for a nationwide $1 menu and a major restaurant remodeling effort. To encourage enthusiastic franchisee participation in the $1 menu rollout, the company will provide what it calls "downside support" for those who find that the cheaper, low-margin menu hurts their bottom line. If a restaurant sells more Big N' Tasty burgers than the average McDonald's in its market but sees gross profits fall compared with the period last year, the company will pay an amount equal to 30 percent of the gross profit reduction.
McDonald's has also planned a set of economic incentives for franchisees to remodel or rebuild their restaurants. Under certain circumstances, the company would pay up to $150,000 in remodeling costs.
Franchisee leaders have thrown their support behind McDonald's plan to improve domestic sales via the $1 menu and increased restaurant investment in everything from d�cor to drive-thru lanes.
Meanwhile, shares of McDonald's Corp. fell to almost a seven-year low Thursday after two big investment banks cut their stock price targets and voiced pessimism about its turnaround plan in the United States. Shares of McDonald's, the fifth most-active issue on the New York Stock Exchange in early afternoon trade, fell below $20 for the first time since October 1995.
Many Wall Street analysts doubt the company's strategy of a low-priced menu and facelift of older restaurants will be sufficient to increase U.S. sales. They said the strategy could even backfire, eating into future earnings McDonald's said it will provide more details of its plans in a quarterly update Tuesday. The company has been plagued by several quarters of sluggish U.S. sales. -Dow Jones, Knight-Ridder, Reuters