McDonald’s franchisees are dissatisfied with the cost of promotions such as the $5 value menu announced this month by the burger giant, arguing in a letter that they “require funding from McDonald’s.”
The National Owners Association, an independent, self-funded advocacy group representing McDonald’s franchisees, sent a letter to its members urging them to bring more customers back to the Golden Arches in a time of soaring inflation. He praised the move to roll out value meals with high expectations. .
However, franchisees warned that due to low profit margins, they would not be able to maintain long-term business without financial support from corporate management.
“The fact remains that in order to provide more affordable options for consumers, they must also be affordable for owners and operators,” NOA said in a letter to members.
“McDonald’s significant resources and financial investment are essential to our sustainable affordability strategy.”
The letter First reported by CNBC. The Post has reached out to McDonald’s and NOA for comment.
NOA’s letter noted that McDonald’s franchises are “penny-profit businesses with profit margins of 10 to 15 percent.”
“There is not enough profit to warrant a 30% discount to make this model sustainable,” NOA wrote in a letter to members. “That requires funding from McDonald’s.”
NOA encouraged McDonald’s to bring back other value-added items, such as its existing chicken breast snack wraps, so that it can price and market them with low-income customers in mind.
Franchisees also suggested that McDonald’s start selling the top two drinks from its popular spinoff chain, Cosmac, in its flagship restaurants to lure customers back.
McDonald’s confirmed to the Wall Street Journal last week that it would begin a month-long promotion starting June 25th. Under the campaign, customers can spend $5 on a meal that includes either a McChicken or a McDouble sandwich, plus a side order of four small fries. Chicken nuggets and a small drink.
Fast food fans have slammed the $5 menu as “frugal” and also complained about the fact that it only lasts a month. Meanwhile, company executives acknowledge that McDonald’s menu items are becoming more expensive for the company’s traditional customer base of low- to middle-income Americans who are struggling with persistent inflation.
Some McDonald’s locations are charging as much as $18 for a Big Mac meal and $7 for an Egg McMuffin.
Coca-Cola, which has had a decades-long partnership with McDonald’s, is investing marketing dollars to make the $5 deal more appealing. According to CNBC.
Financial terms of the partnership were not disclosed.
“We routinely partner with our customers on marketing programs that meet consumer needs,” a Coca-Cola representative told CNBC.
“This will help us grow our business together.”
When contacted by the Washington Post last week, a McDonald’s representative said: “We know how much it means to our customers that McDonald’s provides meaningful value and communicates that with national advertising.”
“That has been true since our inception and has never been more important than today.”
Approximately 95% of all McDonald’s restaurants in the United States are operated by franchisees, who pay the company royalties (a monthly fee equal to 5% of sales) in exchange for permission to use the brand and access to marketing and production expertise.
The company said anyone wanting to open a McDonald’s restaurant in the United States must invest a minimum of $500,000 in non-debt cash.
Before a franchisee can sell a single Big Mac, they incur start-up costs, including rent, inventory, equipment, décor, training and other operating expenses that can exceed $2 million in some locations.
McDonald’s recently announced that its franchisees’ cash flow has increased by nearly 50% since 2018. McDonald’s said last year was one of the best in its history for franchisees’ cash flow, despite continued inflation.
