McDonald’s Franchisees are Furious About Costs of Doing Business
A showdown of capital proportions is taking place in the fast food world, as if the constant striking by workers were enough for the industry: McDonald’s franchise owners are alleging that McDonald’s costs are too high, citing rent, remodeling and training fees among other complaints.
According to a letter sent to Bloomberg News, franchisees have reported a deteriorating understanding between the corporation and its store owners.
Franchise owners remember a time not too long ago (the mid 1990’s) when McDonald’s Corporation’s desire to expand was greater than its desire to properly manage franchise-owned restaurants. Former McDonald’s owner Dick Adams of San Diego said that while franchisees are upset and morale is not quite as low as in the 1990’s, “we’re getting there again.”
One of the McDonald’s franchisee’s biggest complaints revolves around the rent and royalties they pay to the company. Bloomberg cites the notes from an April 23 meeting attended by store operators as revealing that some franchisees pay 12 percent of store sales in rent alone.
In response to this complaint, McDonald’s spokeswoman Ofelia Casillas said in an email to Bloomberg, “Across the country, the rent owner/operators pay for their McDonald’s restaurants is determined by local market real estate costs, as well as the cost of doing business in a particular market… The range for rent has historically varied based on these and other regular business variables.”
Business Insider notes that the goal of becoming a franchise owner is way out of reach for most Americans. The McDonald’s corporation would “require a minimum of $750,000 of non-borrowed personal resources to consider you.”
When it comes to customers, all this discussion of what franchise owners want seems to overshadow the effects on average Americans who purchase the food every day. The costs that a franchise might incur could mean financial ruin for its managers. High-rent McDonald’s franchises often find themselves in need of remodeling, which is a high cost activity for McDonald’s. Bloomberg cites Slater-Carter as quoting a McDonald’s renovation as costing at least $800,000; By comparison, Burger King franchisees can get a renovation done for about $300,000.
Although Burger King and Taco Bell’s remodeling may seem cheap, acquiring a Taco Bell of your own would require you to be sitting on a cool $1 million, while BK pushes it even further at $1.5 million.