Earlier this year fast-food franchise giant McDonald’s announced that it would be making significant changes to its franchise policies. In a statement titled “The Next Steps on Our Journey of Greatness” released on the company website on June 23 2022 and communicated to its US franchise network, McDonald’s USA President Joe Erlinger said that the policy changes were intended to bring “greater clarity, transparency and consistency into our franchising process” as he outlined changes to the way in which potential new franchisees would be evaluated, removing the previous preferential status awarded to spouses and children of existing franchisees, as well as separating out the process for the renewal of franchise terms from the assessment of the ability of an operator to expand through additional locations. The company stated that these changes are aligned with its pledge to recruit more franchisees from diverse backgrounds, having previously committed in December 2021 to dedicate $250 million over five years to help potential franchisees in the US who have difficulty getting funding from other sources to buy a McDonald’s restaurant.
Alongside these recruitment and renewal changes, the brand have also stated that they will be rolling out a new restaurant grading system in 2023 named Operations PACE , which stands for Performance and Customer Excellence, in January 2023. The system will involve between six and 10 visits a year from company and third-party assessors per restaurant location, together with other inspections covering aspects such as local food safety regulations.
The planned changes have not found favour with a large proportion of McDonald’s US franchisees, who between them operate around 13,000 locations across the states. The McDonald’s franchisee owner leadership group The National Franchisee Leadership Alliance have raised a number of concerns and had asked for the proposed date of introduction of the new systems of January 1 2023 to be shifted back to June 2023. The group stated that franchise owners are already under pressure from a number of external factors and that they were seeking clarification and education on the proposed changes before they were implemented. NFLA chair Mark Salebra was quoted as saying in a letter addressed to company chiefs that “Several of these internal changes in my opinion may further limit the marketplace, reduce demand and strain the financial capability for sales between owners beyond the external factors that presently exist today.”
The fast-food industry is of course still in recovery following the global pandemic, is experiencing supply chain issues, battling staffing issues in light of the post-covid “Great Resignation” and the owners group also highlights the fact that some operators are also facing legislative changes at state level. This most likely refers to the newly signed law, A.B. 257 in California which will regulate workers pay and conditions in the fast food industry through the establishment of a “Fast Food Council”. Franchisees therefore argue that these policy changes and new processes could not be more badly timed and that the strict grading and monitoring system will put additional strain on managers, damage staff morale and make hiring significantly more difficult.
However, the NFLA’s request for more time has been rejected by McDonald’s who say that they will continue with the planned implementation date of January 2023. The company had already said that they were offering learning and education sessions to franchisees in the second half of 2022 ahead of the changes, saying “We must remain laser focused on maintaining our world-famous standards of excellence in our restaurants. This comprehensive performance management system, designed with ongoing input from franchisees, will offer tailored support and coaching to restaurants to help them provide a seamless McDonald’s experience that will keep customers coming back.”
In any franchisor-franchisee relationship, introducing and implementing change can be a cause of friction. McDonald’s is of course no stranger to conflict with its franchise network over the years, most recently with allegations levied around levels of support offered by corporate during the pandemic and an issue over technology fees in 2020 which saw the company revise their position, apparently saying they wished to “reset” their relationship with franchisees. This latest disagreement is unlikely to calm already strained relationships, but the burger franchise will be hoping that they can garner the support of their network and secure full buy-in to the McDonald’s Values of “Serve, Inclusion, Integrity, Community and Family” that they say underpin all of the proposed changes as the brand heads into 2023.