Dive Brief:
- Originally set for 2020, McDonald’s will extend its remodeling requirement by two years, but franchisees who accept the offer will be reimbursed the regular rate of 40% rather than 55%, reported Restaurant Business. The "Experience of the Future" design upgrades include self-order kiosks, delivery systems and extra drive-thru lanes.
- About half of domestic locations sport the new model, which can cost up to $700,000, according to Business Insider. A spokeswoman told Bloomberg the extended timeline will "provide greater local operator flexibility" as the company pursues changes to the menu and customer experience.
- CEO Steve Easterbrook said in the third-quarter earnings call that sales and traffic were "inconsistent" during and after renovations.
Dive Insight:
Easterbrook has pushed for the "Experience of the Future" upgrades since becoming CEO in 2015, and last year the company vowed to invest $6 billion over three years to speed up the remodeling process.
Executives claimed during a January earnings call that franchisees had "near all-time high cash flow," making now the ideal time to invest in upgrades. If true, franchisees seem to have a different idea of record-setting.
As state and local governments raise the minimum wage, operators are struggling to hire and retain workers, let alone offer them a raise. In the wake of these challenges, some of the chain’s largest franchisees met in October and voted firmly in favor of forming an owner's association. Though the chain has experienced 13 consecutive quarters of positive same-store sales growth, franchisees could be losing valuable dollars every day they close during remodels. Analysts think traffic and sales might not even out until the entire system has been remodeled, but pushing back the date to 2022 could hurt McDonald’s until then.
Countless chains have decided store remodels hold the key to near-future success in this extremely competitive marketplace, especially as diners increasingly use delivery apps. Subway, which of course has suffered from other woes in recent years, has pushed $100,000 renovations on its 100%-franchised network, but perhaps at the cost of improvements to the food and brand itself.
Remodeling a McDonald’s costs much more than a Subway, though, and franchisees are already paying corporate for royalties, advertising and sometimes rent fees. Seasonal menu items and equipment can also add costs. Operators who wait until 2022 will shoulder more of the cost burden of these renovations, which could add friction to already tense franchisee-corporate relations, even though they were likely intended to ease them.
