McDonald’s slows pace of remodels amid reports of franchisee tension

McDonald’s slows pace of remodels amid reports of franchisee tension

Operators who adopt new look after 2020 will get less funding from company

McDonald’s has pushed back the 2020 deadline for remodeling 14,000 U.S. locations amid reports that the ambitious pace is stressing operators, who have united in recent weeks to raise concern about store profitability.

In a note sent to investors this week, McDonald’s said franchisees have until 2022 to convert restaurants to the Experience of the Future model. But taking advantage of the two-year extension will come at a price for operators.

For stores completed by 2020, McDonald’s will continue to pay 55 percent of the remodel costs. Operators completing makeovers in 2021 or 2022 will receive less funding – or 40 percent of the costs, according to the McDonald’s memo.

By the end of 2018, 7,000 McDonald’s restaurants will sport the EOTF look, which includes 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.

The company didn’t give a specific reason for slowing the pace of the remodels, stating only that results are positive on locations that have adopted the new look.

“EOTF continues to enhance the customer experience by elevating convenience, hospitality, and personalization. We are pleased with our progress and we are seeing the sales lifts we expected,” the company said in the Nov. 27 memo.

In a Wednesday morning report, BTIG analyst Peter Saleh said the changes are the result of “recent franchisee discussions” where management was told that the remodel pace was stressing the system.  In October, a group of about 400 operators created a franchisee advocacy group called the National Owners Association. The group’s goal is to “work with McDonald’s to positively impact the system,” according to its website.

In a statement made to NRN, the Chicago-based chain said the adjusted remodel timeline comes as the brand sets new goals for 2019 including bolstering transactions and improving speed of service at the drive-thru. McDonald’s said they also plan to give operators more flexibility on deploying the company’s value and deal offerings.

“Our growth strategy remains rooted in making positive food changes, offering new restaurant experiences and providing our guests better value,” the company told NRN in a statement Wednesday. “In 2018 alone, we launched fresh beef quarter-pound burgers, reached a deployment of EOTF in about half of restaurants and introduced a new national value menu. The adjustments we are making will allow us to continue on this path and provide greater local operator flexibility.”

The company declined to comment further on its 2019 goals, saying additional details will be revealed during the company’s fourth quarter 2018 earnings report in January 2019.

Contact Nancy Luna at nancy.lun[email protected] 

Follow her on Twitter: @fastfoodmaven

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