McDonald’s Corp. is bumping up the fees it charges US and Canada franchisees to operate some restaurants.
Owners who open new restaurants or buy locations previously run by McDonald’s will have to pay the parent 5% of sales, up from the current rate of 4%, according to a message signed by Chief Financial Officer Ian Borden that was reviewed by Bloomberg. This rate will also apply to restaurants the company buys and then sells to an operator.
Franchisees will continue to pay 4% in many other cases, according to the document. Restaurants that change hands as a result of a transaction between franchisees won’t be subject to the new rate, and operators that sign new 20-year agreements won’t either. Transfers from current owners to next-generation family members are also unaffected.
“Existing owner/operator equity in existing restaurants will not be impacted,” according to the memo, which also said the rate hadn’t changed in about 30 years.
Royalties on franchised store sales are standard in the industry and vary between companies. Burger King charges 4.5%, while Wendy’s Co. charges 4% to 6% and Subway charges 8%, according to data compiled by researcher Technomic. For most franchisees outside the US, McDonald’s royalties are already at 5%.
The burger chain is also standardizing the name for the rate, which it will now call royalty in all markets. The company is looking “to define the payment that franchisees make to access the power of the McDonald’s Brand,” according to the memo. In markets including the US, it had been known as a service fee. Borden said in the memo that the change “will resolve any confusion in the system.”
Author: Daniela Sirtori-Cortina
