McDonald’s Increases Royalty Fees for New Franchisees in 2024
McDonald’s, the fast-food giant, is set to raise its royalty fees for new franchisees in 2024 from 4% to 5%, marking the first such increase in nearly three decades, as reported by CNBC.
For more than 30 years, McDonald’s franchisees had been paying a 4% royalty fee, which is a percentage of their gross sales, in addition to other expenses such as rent and fees related to the company’s mobile app.
The rate hike, now referred to as “royalty fees” instead of “service fees,” will solely affect new franchisees, purchasers of company-owned restaurants, and relocated restaurants, according to an internal message reviewed by CNBC.
Existing franchisees who plan to maintain their current operations, acquire franchises from other operators, rebuild existing locations, or transfer their franchises to family members will not be impacted by this pricing adjustment.
In an internal message to US franchisees obtained by CNBC, McDonald’s US President Joe Erlinger stated, “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.”
Erlinger emphasized that despite the fee increase, there will be no changes in services. Instead, the goal is to change the mindset of franchisees regarding the value of being part of the McDonald’s brand and system.
While existing franchisees won’t feel the immediate effects of this fee increase, it is expected to generate attention when it comes into effect on January 1, 2024.
This move could potentially lead to friction between McDonald’s and its franchisees. The company already faced backlash this year when it introduced a new grading system called Operations PACE (Performance and Customer Excellence). This program involved up to 10 annual visits from company and third-party assessors, as well as additional food safety inspections per location each year. Some franchise owners criticized the program for adversely affecting morale and making it challenging for managers amid a challenging hiring environment.
Additionally, McDonald’s franchisees in California voiced their concerns when the landmark fast-food bill AB 1228 was enacted. The bill established a Fast Food Council in California with equal representation from workers and employers, along with two state officials. This council has the authority to set minimum standards for wages, hours, and working conditions in the state, including a wage floor of $20 for fast-food workers in California, with the potential to increase to $22 per hour.
The advocacy group representing McDonald’s franchisees in California projected an annual cost of $250,000 per McDonald’s restaurant due to the new legislation.
McDonald’s, which operates more than 13,500 locations in the US, relies heavily on its franchisees, who operate approximately 95% of its restaurants nationwide.