Franchisees run about 95% of McDonald’s roughly 13,400 U.S. restaurants. They pay rent, monthly royalty fees and other charges, such as annual fees toward the company’s mobile app, in order to operate as part of McDonald’s system.
The royalty fee hikes probably won’t affect many franchisees right away. However, backlash will likely come, due to the company’s rocky relationship with its U.S. operators.
McDonald’s and its franchisees have clashed over a number of issues in recent years, including a new assessment system for restaurants and a California bill that will hike wages for fast-food workers by 25% next year.
In the second quarter, McDonald’s franchisees rated their relationship with corporate management at a 1.71 out of 5, in a quarterly survey of several dozen of the chain’s operators conducted by Kalinowski Equity Research. It’s the survey’s highest mark since the fourth quarter of 2021, but still a far cry from the potential high score of 5.
Despite the turmoil, McDonald’s U.S. business is booming. In its most recent quarter, domestic same-store sales grew 10.3%. Promotions such as the Grimace Birthday Meal and strong demand for McDonald’s core menu items, such as Big Macs and McNuggets, fueled sales.
Franchisee cash flows rose year over year as a result, McDonald’s CFO Ian Borden said in late July. The company said average cash flows for U.S. operators have climbed 35% over the last five years.