Dive Brief:

• McDonald’s estimates that it will need tens of millions of dollars to help its franchisees recover from the COVID-19 crisis in which dining rooms were closed across the country, according to Bloomberg.
• Temporary aid will be available for franchisees on a case-by-case basis, most likely in the form of rent and service fee deferrals for operators that have a large number of restaurants in malls, airports and other areas heavily impacted by novel coronavirus restrictions. McDonald’s will set aside about $40 million to help struggling operators.
• McDonald’s U.S. President Joe Erlinger told franchisees on a call last week that they may still have to consider selling locations or downsizing, which has angered a franchisee group, according to the publication.

Dive Insight:

McDonald's has noted that its goal is for each restaurant to stand on its own, regardless of relief programs, Bloomberg reports. However, franchisees that were significantly affected by the nationwide lockdown are encouraged to request help from corporate.

Company spokesperson David Tovar told the publication that McDonald’s has had a process in place “for many years” to work with struggling franchisees, adding, “we’re pleased to be able to provide additional financial support to our franchisees to continue to weather the storm.”

McDonald’s is no doubt in a unique position to help its franchisees, as it owns its restaurants’ property and therefore serves as franchisees’ landlord. The company has also vowed to help in other ways, offering about $100 million in marketing support, for example. Also, through the company’s “distressed restaurant team” program, owners who are struggling can apply for relief by specifying sales and traffic losses during the lockdown, the impact to their market and specifics about how much help they’re requesting from corporate, according to The Wall Street Journal. For March and April, it deferred rent and royalties earned in most of its markets around the world, according to the company's Q1 earnings call.

Still, franchisees have pressured the chain to do more, like increasing assistance and broadening its availability. No doubt, the chain feels that pressure, especially as franchisee cash flows were at or near record highs prior to the coronavirus outbreak, according to the company’s Q1 earnings call. To go from record highs to a suggestion that some franchisees may need to sell or downsize is quite a swing. However, also according to that call, most McDonald’s franchisees were also able to get approved for a federal stimulus loan. If those franchisees are still not able to stand on their own with federal relief coupled with the corporate relief, recovery will be hard to come by.

It’s worth noting that other chains, including Wendy’s, Restaurant Brands International and Dunkin’ have vowed to help struggling franchisees. McDonald’s also isn’t the only company warning of potential retrenchment. During Yum Brands’ Q1 call, for example, CEO David Gibbs said one option for struggling franchisees is “we have ... interested buyers outside the system ... to take over those businesses and restructure them.”