McDonald’s is tightening its franchise ownership standards

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Photo courtesy of McDonald’s

Claiming that the right to operate one of its restaurants is “earned and not given,” McDonald’s is making it harder for franchisees to stay in the system, by instituting a set of policy changes for franchise renewals that represent a massive shift in how the company values ​​long-term traders.

Franchisees, whose agreements typically run every 20 years, will no longer automatically be eligible to renew their agreement if they were previously considered a good operator strong enough to be allowed to buy new stores.

Instead, they will have to go through a tougher application process, a move that upends the Chicago-based burger giant’s decades-old policy and further alters a system that has undergone radical internal evolution over the past five years. years.

“We will no longer use the term ‘rewrite,'” McDonald’s U.S. President Joe Erlinger wrote in a system message viewed by Restaurant Business. “Going forward, we will adopt a ‘new term’ in the US market to describe the process for awarding another 20-year franchise contract based on performance history. The change is in line with the principle that receiving a new franchise mandate is earned, not given. »

The changes could fuel tensions between the company and some of its former franchisees, who have pushed back against the chain harder in recent years as the brand changed the way it interacts with its operators. A record number of operators left the system last year, with some of them longtime operators who said they didn’t like many of the changes the company was making to its franchise relationships.

Franchisees told Restaurant Business the new standards were “unexpected” and “overbroad” and questioned why they were needed at a time when the business was largely successful. Sales were strong coming out of the pandemic and operator cash flow hit a record high last year, as did the value of restaurants put up for sale.

Still, McDonald’s has been working to diversify its franchisee base and is clearly pushing to bring in new blood, especially to its US business. In December, the company announced a massive, worldwide effort to recruit new franchisees into the system, an effort that includes funding assistance and reduced requirements for the amount of equity new franchisees must have when buying a franchise. location.

And in a video message sent to the system and viewed by Restaurant Business, Erlinger argued that it’s important to continually “tweak” policies and procedures.

“McDonald’s defines excellence in franchising,” he said. “We attract the best franchisees in the industry and connect them to a powerful and culturally relevant brand.” He noted that this is “creating economic opportunity on an unprecedented scale.”

“But we cannot stand still,” he said.

The renewal standards also follow comments Erlinger made to franchisees at the company’s global convention in Orlando in April, when he said the company “will seek to grow with partners who share our commitment to greatness, and that could come from inside or outside the system.”

In his system message last week, Erlinger said the standards changes will bring “more clarity, transparency and consistency” to the franchising process.

In addition to changing terminology from “rewrite” to “new term,” McDonald’s is separating the renewal process from the assessment the company uses to qualify operators to buy new restaurants. Any franchisee who wishes to purchase additional restaurants must meet certain standards. These standards were generally used to determine whether they would be approved for renewal.

Erlinger also said the company will create a unique approach for evaluating new owner-operators who are children or spouses of existing franchisees. All approved candidates will also receive a new training program “to best position them for the process.”

And he said the company plans to “elevate the importance of values” in the standards the company uses to judge its operators. “Our customers, our employees and our partners expect us to live by our values,” Erlinger wrote. “We must embed them deeply into the way we work and into the standards we set and seek to achieve.”

Erlinger in his post said that many operators won’t know about the changes for “several years” and that none of the changes will happen until 2023. He also said the company would use the year to make sure the franchisees understand the steps and how the process will work. .

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