McDonald's to Hike Royalty Fees for New Franchisees, Marking First Increase in 30 Years

McDonald's has informed its operators of plans to increase its royalty fees from 4% to 5% starting Jan 1, 2024, marking the first increase in nearly three decades, CNBC reports. 

The increment will commence next year and will primarily impact new operators and those acquiring corporately owned units. However, current operators maintaining their stores or those who purchase a franchised restaurant from another franchisee will be exempt from this new rule. The move is aimed at aligning the fee structure in the U.S. and Canada with that of other global markets where the brand already applies a 5% royalty rate.

"While we created the industry we now lead, we must continue to redefine what success looks like and position ourselves for long-term success to ensure the value of our brand remains as strong as ever," Joe Erlinger, McDonald's USA president, said in a message to domestic franchisees. 

The burger giant also intends to change its terminology from "service fees" to "royalty fees" to reflect this adjustment.

Approximately 95% of McDonald’s outlets are operated by franchisees. To function as part of the McDonald’s network, they are obligated to pay rent, monthly royalty fees and additional costs, including annual contributions for the company’s mobile app.

This decision to increase royalty fees unfolds against a backdrop of tense relations between McDonald's and its franchisees. This pressure has been exacerbated by recent legislative changes, like California's fast-food bill mandating a $20 per hour minimum wage. McDonald's franchisees have reportedly expressed their overall dissatisfaction, rating their relationship with the corporate body at a mere 1.71 out of 5 in a quarterly survey, CNBC reports.

Despite the controversy, McDonald’s is experiencing strong growth, ending the second quarter with 13,445 restaurants in the U.S. Of these, 12,759 were franchised, and 686 were company-owned. The company has reported a 10.3% rise in U.S. comps in the second quarter, attributed mainly to successful campaigns like the Grimace Birthday Meal, which gained substantial traction on TikTok, accumulating over 3 billion views.

Read more, here.

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