McDonald’s Corporation announced plans to raise its royalty fees for new franchise restaurants in the United States and Canada. This strategic move, aims to align these fees with rates charged in other international markets, effective January 1, 2024. The royalty fees will experience an uptick from 4% to 5%, marking the first increase since 1992. Additionally, the terminology will shift from “service fees” to “royalty fees.”
The decision to increase royalty fees in US and Canada comes amid McDonald’s observations of a gradual deceleration in revenue growth for the remainder of the year. This trend coincides with easing inflationary pressures, prompting the corporation to contemplate lowering menu prices. However, Northcoast Research analyst Jim Sanderson expressed the view that the rate hike’s impact on McDonald’s revenue is expected to be “very limited.” The rationale behind this assessment is rooted in the relatively low number of new store openings in the United States.
McDonald’s boasts a vast network of approximately 13,400 stores across the United States, with a notable 95% of them operated by franchisees. These franchisees played a pivotal role in contributing nearly 30% of the company’s total revenue in 2022. Over the past five years, U.S. franchisees have witnessed a substantial growth of more than 35% in their average cash flows.
Importantly, the increase in franchise royalty fees will not affect those seeking to refurbish or remodel existing locations, nor will it impact those considering transferring restaurant ownership to another party. This strategic shift aligns with McDonald’s commitment to bolstering its franchisee network, which has been instrumental in its longstanding success.
Investing in McDonald’s franchise restaurants has long been regarded as a lucrative opportunity, and the adjustment in franchise fees underscores the corporation’s commitment to long-term prosperity. By bringing U.S. and Canadian royalty fees in line with global counterparts, McDonald’s is bolstering its financial security and flexibility in franchise management.
This strategic move assures that McDonald’s can sustain its competitive edge within the fast-food industry while continuing to provide a compelling investment option for franchisees. Simultaneously, franchisees stand to benefit from McDonald’s steadfast commitment to long-term stability, coupled with the enhanced modern dining experience the brand offers.
In summation, the decision to raise franchise royalty fees in the United States and Canada underscores McDonald’s resolve to maintain its dominant position in the fast-food industry, all while ensuring the ongoing success of its franchisees. This bold step is a testament to McDonald’s proactive approach to sustaining excellence in an ever-evolving market landscape.
Source: Reuters
