Dive Brief:

• McDonald’s provided updated guidelines Thursday for franchising decisions to provide greater clarity and consistency within its system, according to a letter to franchisees from McDonald’s U.S. president Joe Erlinger.
• The company will update how it awards 20-year franchise agreements to existing franchisees and will adopt a single approach for the evaluation of any new owner/operators, including spouses and children of existing franchisees, he said. 
• These changes are expected to roll out next year and come amid a refresh of its franchising guidelines, which could also include a performance grading system. The chain is also devoting $250 million over the next five years to help franchisee candidates that may face socioeconomic challenges.

Dive Insight:

McDonald’s franchisee refresh is meant to create higher performance standards across its system, but many franchisees have already expressed concern over some of the changes like the forthcoming grading system. This program would mandate about six to 10 visits by assessors and company representatives to every location, which could put a strain on managers and employees having to be subject to frequent inspections.  

Franchisees have already criticized the latest moves, telling Restaurant Business they were “overreach,” especially with cash flow at an all-time high. McDonald’s foot traffic hasn’t suffered during the current high inflationary period. Same-store sales were up 3.5% in the U.S. during Q1 2022 as well. According to The Wall Street Journal, franchisees are expected to push back on these changes during meetings with executives next week. Hundreds of franchisees have already left the system over concerns regarding the company’s direction.

As part of its newest guidelines, the company will no longer use the term “Rewrite,” instead using “New Term” to describe the process of awarding a 20-year franchise agreement to reflect that these agreements are “earned, not given” based on performance, Erlinger said. What that means for existing franchisees is that they will need to go through the application process again to obtain a another agreement. McDonald’s will also use a separate New Term process to assess qualifications for franchisees to buy additional restaurants. 

Its single approach will group children of franchisees with new applicants, and move away from franchisees designating heirs to take over operations as part of its agreement with the franchisor. Additionally, it will provide an onboarding and training program for all approved candidates, Erlinger said. 

It will also more clearly incorporate McDonald’s values into its Owner/Operator Involvement Standard, he said.

“These moves will better position the System for the long term: how we remain ‘green and growing,’ guided by our values and with the right mix of owner/operator skills and experience,” Erlinger said.