95% of McDonald's franchisees vote to cut all 'non-essential' contact with corporate in protest over millions in new costs

  • 95% of McDonald's US franchisees voted to pause nonessential meetings with the corporate office, according to a Monday memo from elected franchisee leadership viewed by Business Insider. 
  • Franchisees are outraged by changes that shift certain costs from corporate to operators.
  • McDonald's told Business Insider it had a "productive meeting" with franchisees on Tuesday morning, and is actively working through these issues. 
  • "The company acknowledges the situation and will continue to make every effort to engage franchisees so that together we can effectively operate our businesses," McDonald's said in a statement. 
  • Visit Business Insider's homepage for more stories.

McDonald's franchisees have formally voted to ice out the corporate office. 

95% of McDonald's US franchisees have voted to support a proposal to pause nonessential work and engagement with the corporate office, according to a memo sent to franchisees by National Franchisee Leadership Alliance (NFLA) leadership viewed by Business Insider. 

Business Insider previously reported that franchisees held a system-wide call on Friday to discuss cutting contact, following changes that infuriated many operators. Changes included the loss of a long-running Happy Meal subsidy, adding a temporary new tech fee, and having franchisees partially fund the education program Archways to Opportunity. 

Read more: McDonald's franchisees give corporate the silent treatment, canceling non-essential meetings over millions of dollars in new costs

"The decision to consider a 'pause' as franchisees is and has been intended to be a symbol of support for National Owner Operator elected leadership as the voice of the system," the NFLA memo reads, with franchisees seeking "a recognition by McDonald's of our interdependence and to address the recent announcements."

The NFLA is the elected group that represents the McDonald's franchisees who own and operate 95% of the fast-food chain's locations in the US.

Franchisees told Business Insider leading up to Friday's call that it is rare for operators to take such a unified stance against the company. According to Monday's memo, more than 1,800 franchisees participated in the call last Friday, with less than 48 hours' notice. 

McDonald's said in a statement to Business Insider that it had a "productive meeting" with the NFLA on Tuesday morning, and is actively working through these issues. 

"The company acknowledges the situation and will continue to make every effort to engage franchisees so that together we can effectively operate our businesses," McDonald's said in a statement. 

"We agree that running 14,000 restaurants during a pandemic demands continued collaboration and focus on protecting the safety of McDonald's restaurant crew and exceeding the expectations of our customers," the statement continues. "We have every confidence that franchisees will continue to rise to this extraordinary responsibility and are committed to maintaining positive and productive relationships with them in that pursuit. "

McDonald's says it is shifting what investments it makes in franchisees

McDonald's said last week that the company plans to make new investments in franchisees in 2021, focusing on investing in workers. 

The company announced a number of ways it planned to support franchisees financially in 2020, including a $100 million investment in marketing. The company also rolled out a subsidy that made the popular Travis Scott meal more profitable for franchisees.

Franchisees told Business Insider that the recently announced changes represent a loss of trust between franchisees and the company. The new fees will add up to a total of $170 million next year, according to an estimate from Restaurant Business.

In Monday's memo, NFLA leadership emphasized that the pause is not intended for franchisees to "stop planned meetings or work that he or she deem essential to operate their business or that would impede their business results."

"The pause is a symbol of Unity, a show of support and recognition that we will not be divided," the memo continues. "No Owner Operator should feel pressured to engage on non-essential, non-time-sensitive concerns throughout the pause."

Franchisees plan to hold another call for all elected owner operator leadership this Friday, to discuss immediate next steps. NFLA leadership said that they will hold another full system call by mid-January to share an update on progress. 

Tensions between franchisees and corporate were mentioned by UBS analyst Dennis Geiger in a report about McDonald's on Monday. UBS upgraded its rating on McDonald's to buy from neutral, with Geiger highlighting current and upcoming same-store sales drivers including celebrity partnerships, McRib sales, and a new chicken sandwich slated to debut in March.  

"Specific to recently reported incremental franchisee costs, franchisees highlight disappointment & frustration, w/ a response likely soon," Geiger wrote. "We expect relationship friction could persist over coming wks or longer, but ultimately believe brand momentum & interests which are largely aligned should prevail, w/ results not likely to be significantly impacted."

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