The tension between McDonald’s Corp. and its operators escalated this week as a newly formed franchisee coalition has asked its members to halt any commitments to new remodels.
“To put it bluntly, stop everything that is not currently in the works,” the National Owners Association told members this week in an email.
The franchisee advocacy group formed in late fall as an independent organization to work with McDonald’s to impact the system positively. Specifically, the group has been concerned about eroding profits, lack of control over menu pricing and costs tied to the “Experience of the Future” remodel program.
McDonald’s declined to comment on the NOA letter. However, in a statement, the company said: “We are committed to continuing to work closely with our franchisees so they have the support they need to run great restaurants and provide great quality experiences and convenience for our guests.”
The modernization project, which McDonald’s slowed last year, is the primary focus of the NOA memo. A small number of NOA members are concerned specifically about the project’s so-called “SAM Wall,” or service area modernization barrier, that separates the front counter from the kitchen.
“The opposition is overwhelming,” according to the NOA email, a copy of which was sent to Nation’s Restaurant News.
A majority of the roughly 180 franchise members surveyed said the wall does not offer any return on investment, does not improve operations and offers no value to the customer. NOA says it represents more than 400 U.S. McDonald’s franchisees.
According to McDonald’s insiders familiar with the remodels, the wall hides the kitchen so customers can’t see back of the house operations.
A larger wall is also placed around the McCafe station, which NOA says creates safety issues and operational challenges.
In a remodeled store in Santa Ana, Calif., a black wall partially blocks the view of some kitchen operations. The McCafe station is also hidden from customers.
The suggestion to halt remodels comes several weeks after McDonald’s agreed to push back the 2020 deadline for remodeling 14,000 U.S. locations. In November, McDonald’s told franchisees they have until 2022 to convert restaurants to the “Experience of the Future” model.
But taking advantage of the two-year extension means McDonald’s would give less financial support.
NOA said the Chicago-based chain has been sending “extension letters” to franchisees “asking for new recasting of projects (SAM Walls) and including demands with regards to the new financing options.”
In some cases, McDonald's is pushing operators to have these walls retrofitted into existing stores that don't need remodeling or have completed remodeling without the walls, said franchisee consultant Richard Adams, a former McDonald’s owner.
Franchisees argue that the walls should not be forced on operators because they don’t boost sales.
NOA told members that the National Leadership Council, an internal corporate group that represents operators, “is currently in negotiations on our behalf as it relates to the evolution” of McDonald’s 2020 bolder vision plans.
As such, NOA has asked members to “not sign and commit to any new projects or financial decisions until the NLC has had the time to negotiate on your behalf.”
This is the second flap this week between McDonald’s and its franchisees. In a recent poll commissioned by the NLC, McDonald’s operators said they felt “cash-strapped” and hampered by the growing complexity of the chain’s menu. They said the wave of new products are hurting speed of service and creating labor challenges.
As of the end of 2018, about 7,000 restaurants, or about half the U.S. locations, sport the new “Experience of the Future” look. The remodeled restaurants feature modern furniture, kiosks, curbside pick-up, upgraded drive-thrus, power outlets for charging devices and an Uber Eats pick-up counter for delivery orders.
Some remodels of aging buildings are so extensive, they require franchisees to raze restaurants and rebuild from scratch. As a result, remodel costs range from $160,000 to about $750,000, depending on the scope of the project, McDonald’s said.
For stores completed by 2020, McDonald’s pays 55 percent of the remodel costs. Operators completing makeovers in 2021 or 2022 will receive less funding – or 40 percent of the costs, McDonald’s has stated.
NOA said the organization is not against investing in their restaurants. The group, instead, wants McDonald’s to listen to franchisees about initiatives that work, and don’t work, at restaurants.
“We canNOT afford the waste that a ‘one size fits all’ reinvestment program creates,” the NOA memo states. “We must allow our owner operators to take back control of the reinvestment that is happening, stop the useless and problematic investing (SAM Walls) and focus our reinvestment in what will actually produce a return on investment (drive-thrus and kitchens).”
The NOA group has held two national meetings since forming in October. A third franchisee meeting is scheduled April 1 in Washington D.C., according to the group’s website.
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