McDonald’s raising fees for some franchisees

Royalties on franchised store sales are standard in the industry and vary between companies. Burger King charges 4.5%, while Wendy’s Co. charges 4% to 6% and Subway charges 8%, according to data compiled by researcher Technomic. For most franchisees outside the US, McDonald’s royalties are already at 5%.

The burger chain is also standardizing the name for the rate, which it will now call royalty in all markets. The company is looking “to define the payment that franchisees make to access the power of the McDonald’s Brand,” according to the memo. In markets including the US, it had been known as a service fee. Borden said in the memo that the change “will resolve any confusion in the system.”

Franchisees operate about 95% of McDonald’s 13,400 U.S. restaurants. Beyond royalty fees, they also pay rent, annual technology fees and other required payments.

This is the latest in a string of changes McDonald’s has made to its franchisee requirements. Last summer, McDonald's raised the bar for the renewal of franchisee agreements and implemented a stricter performance review process for restaurant owners. It also changed the criteria for franchisees to pass their businesses to spouses or children, saying it would evaluate all potential new franchisees the same way.

The changes have put McDonald’s and its franchisees on rocky ground. Tensions are rising as McDonald's looks to accelerate growth by stepping up store openings, an initiative that needs support from franchisees. Experts warn that a rift between Mcdonald’s and its restaurant operators could alter or slow the chain’s growth plans.

Some franchisees have been pushing to better balance the power in their relationship with the fast-food giant.  

Franchisees also resent edicts requiring them to spend more money as inflation squeezes their margins. The fortunes of McDonald's and its operators have diverged recently—franchisees say their cash flow has shrunk while same-store sales increases boost corporate profits and McDonald's stock price.

—Bloomberg News with contribution from Crain Chicago’s Ally Marotti