McDonald’s agrees to independent review of contentious technology fees

Dive Brief:

McDonald's reportedly plans to use Ernst & Young to conduct a third-party review of the company's new technology fees assigned to franchisees, who contest that they owe corporate a debt, according to Business Insider. The review comes at the request of the National Franchisee Leadership Alliance (NFLA), which is made up of McDonald's operators.
Business Insider reported Friday that McDonald's Chief Restaurant Officer Mason Smoot said in an email to franchisees Friday that the review "will provide an additional layer of certainty and assurance that the payable is owed." The review is expected to take a few weeks. McDonald's did not respond to Restaurant Dive's request for comment by press time.
McDonald’s implemented $423-per-month technology fees to pay back what it called a $70 million lag from its old payment structure. Franchisees pushed back over these and other fees, cutting off all "non-essential" contact with corporate in December. Operators reignited some communications last week, Restaurant Business reports, but remained at odds with corporate over the technology fees.

Dive Insight:

Though soliciting an independent review of the situation suggests McDonald's is taking operators' cold shoulder seriously, the divide between corporate and the chain's franchisees seems as fraught as ever. The NFLA concluded earlier this month that operators owed no outstanding tech fees, Business Insider reports, proving documentation showing pre-payment of tech fees. Smoot said in an email that this "does not invalidate the existence of the technology payable," according to the publication.

McDonald's also said it would address a misinterpretation of the tech fee language to "indicate the existence of a pre-payment, which was no the case."

NFLA chair Mark Salebra reportedly shared doubts about Ernst & Young's ability to remain independent during the review on a call with operators last week. This distrust is a big problem for McDonald's — more than 95% of its system is franchised, and not having an open line of communication, essential or non-essential, is a detriment to its business.

If franchisees are convinced their tech payments were covered, but corporate insists they "misinterpreted" that coverage from 2015 to 2017, that is a long time for both sides to not be on the same page in regards to tech fees. This is especially problematic at a time in which McDonald's ramped up tech investments significantly, with the company's acquisition of AI company Dynamic Yield in 2019, for example, or the acquisition of voice tech company Apprente and the establishment of McD Tech Labs. A number of franchisees told Restaurant Business in December they were caught off guard by the new fees, and that their technology costs have increased 10-fold throughout the past 10 years.

It's possible the formation of a franchisee tech co-op, as previously discussed, could provide more oversight into technology investments and improve communication around those investments going forward. This may not reconcile the current disagreement between corporate and operators, but NFLA leadership said on a call with franchisees that the relationship with McDonald's corporate "will be repaired."