McDonald’s and Subway Attempt To Moderate Frustration Among Franchisees

Amid ongoing disputes with their franchisees, McDonald’s and Subway are making moves to quiet the tension.

McDonald’s CEO Chris Kempczinski recently suggested that issues at the heart of the dispute — namely, a “$70 million in additional technology fees” — are a “rounding error” when compared to the brand’s financial health, as the brand is recovering from the pandemic with a 13.5% increase in same-store sales on a two-year basis.

Some McDonald’s franchisees, however, are facing severe labor shortages, even offering $50 to anyone willing to come in for an interview.

But Kempczinski said that existing franchisees are acquiring more locations “at pretty healthy multiples right now” and believes “There’s always a push and pull that exists between franchisee and franchisor … That’s just the nature of the business. That’s the nature of the relationship.”

In response to its franchisees’ complaints about the brand’s high royalty rates, Subway is giving franchisees a choice in 2021: pay a 10% royalty (as opposed to the 8% royalty rate in 2020) or keep the old royalty rate but with several new terms, which prevent franchise owners from speaking out against the brand, makes franchise owners pay steep charges if they close their stores, gives corporate the power to dictate store hours and more.

Despite the chain closing more than 1,000 stores a year, Subway is standing firmly by its decision. “Our franchise agreement and all its terms are disclosed in the FDD," the brand said in a statement. “The terms are competitive with others in the QSR franchising industry.”

But the new franchise agreement almost completely ignores franchisees’ requests, who recently asked the brand to cut its franchise fees to 4.5% from 8%.

Operators predict that thousands of franchise owners will be forced to walk away from the brand as a result of Subway’s continuous struggle.