McDonald's franchisees frustrated with chain's coronavirus response, survey shows

Dive Brief:

A survey of McDonald’s franchisees conducted by Kalinowski Equity Research shows that a number of franchisees are unhappy with the company’s response to the novel coronavirus outbreak.
McDonald's same-store sales were down an estimated 25% to 30% in the first week of April, 20% to 25% in the second week of the month, and have improved since then, according to the Kalinowski report.
“Deferrals only kick the can down the road. When the balloon comes due 25%-35% of Operators will go bankrupt," one franchisee wrote in the survey.

Dive Insight:

Franchisee responses in this survey offer insight into the tensions between corporate and operators, and the picture isn't pretty. For example, one writes that “Other companies are doing FAR MORE for their franchisees than McDonald’s. We get useless rent deferrals; others get rent ABATEMENTS.”

The Wall Street Journal reported earlier this month that the National Owners Association claimed "membership and most owners are increasingly losing faith in the partnership and company leadership." The NOA represents about 75% of McDonald’s more than 1,600 franchisees, according to Reuters.

At issue specifically for the NOA is McDonald’s decision to decline a two-week extension for franchisees’ April payments and requiring deferral payments as opposed to abatement on rent. McDonald’s owns most of its restaurants, while operators pay the company rent. That can complicate things, especially when company sales are down double digits because of the crisis. A sizable slice of McDonald's revenue stems from rent, according to Barron's.

Times are hard for restaurants big and small, and tensions like this can easily arise in such a challenging environment. But perhaps most troubling for McDonald’s is the public nature of these grievances, including back-and-forth between NOA president Blake Casper and McDonald's U.S. president Joe Erlinger. As Business Insider reported, Erlinger responded to Casper in an April 9 letter by stating: “Your letter suggests that owner/operators in our US business are losing faith in management, but this faith seems predicated on unlimited financial support. If that's how the NOA seeks to define its relationship with McDonald's, then in reality, we don't have a relationship."

McDonald’s will report its earnings on Thursday, which may provide more insight on the state of the business and its relationship with franchisees. It’s worth noting, however, that the coronavirus isn’t the impetus behind franchisor/franchisee tensions at the company. The NOA was formed in late 2018 in response to costly remodeling fees and other issues. McDonald's extended its renovations deadline in response to the association’s demands. The NOA has also pressured corporate on menu changes, like adding a chicken sandwich to compete with Popeye’s and Chick-fil-A, which McDonald’s has been testing. In other words, the association has corporate’s ear.

Further, McDonald’s has a strong balance sheet, which should insulate the company more than most during this crisis. If the company needs to iron out any tensions, a strong recovery in a challenged environment can only help.