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McDonald's Franchisees Furious Over Costs

By Aditi Mukherji, JD | Last updated on

Many McDonald's franchisees are furious over the rising costs of running their businesses, and they're complaining directly to the company.

McDonald's is struggling to sell burgers as it is, and now a (Caution: Hot) brewing franchisee revolt is on the horizon, Bloomberg reports. From sky-high costs to a lack of control, franchise owners' patience with corporate is wearing as thin as a soggy French fry.

Here are a few of the McDonald's franchise owners' top complaints:

  • High operating costs. McDonald's is shifting more costs to operators, according to Bloomberg. The rising costs to operate the restaurants -- including rent, remodeling and fees for training and software -- are making franchisees less likely to open new restaurants and refurbish them, potentially constraining sales. For example, some franchisees are forking over up to 12 percent of store sales for rent. It used to be about 8.5 percent.
  • Lack of transparency. Franchise owners contend they aren't given a fair idea of the actual profitability (or lack thereof) of the business. A number of owners are backing a proposed California law that would require good faith and fair dealing between parties in a franchise contract, reports Bloomberg. It would also allow franchisees to associate freely with fellow store owners.
  • Not a fiduciary relationship. The tone of McDonald's has reportedly become much more controlling and less inclusive. But alas, courts have held for the last 25 years that the franchise relationship is not a fiduciary relationship, according to the ABA.
  • Slowed expansion. Before, franchisees suffered when McDonald's expanded too quickly and new stores began to cannibalize existing franchise locations. Under pressure from franchisees, the company slowed the expansion -- to the point where consumer confidence has dropped. The company is struggling to grow and franchisee morale is low.
  • Lack of system-wide changes. Franchisees want to fix up their run-down stores to attract customers. They also want to find a way to get the company to reduce rents and other costs. However, it's ultimately up to the franchisor to make changes to the system. That being said, the franchisor's right to change the system may be limited where it directly benefits the franchisor at the franchisees' expense.

Take a cue from the McDonald's revolt and the company's deteriorating relationship with its franchisees. You may want to hire a small business attorney to help you plan ahead so that you can leave your pitchfork at home.

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