Bigger Bolder Vision

Is McDonald’s committing a mistake by raising its franchise fees?

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McDonald’s has announced the increase in franchises as an integral part of its “Bigger Bolder Vision 2020 Plan.” However, this plan has received some backlash from some 36,000 restaurant owners.

An important question rises with this decision—will the investors appreciate the hike?

The reason why investors should be concernedM

During the short run, the investors would be glad about this decision. Since there are 36,000 franchised locations; an extra $12,000 could be sent to the corporate headquarters. This could eventually mean that the extra revenue earned by 2021 would be $432 million. Moreover, each year the earned revenue will be around $250 million.

Eventually, the decision of increasing the franchise would affect the investors in the long run. The investors are totally against the short-run profits that McDonald’s is after. They have stated that this would in-turn enrage the people as the franchisees might revolt. This untimely decision might also cause the company to lose some of the quality customers leading to a decrease in the service quality.

As this increase in the fees would raise the sales consequently leading to the expansion of McDonald’s profit margins. The investors say that McDonald’s should be focused on the upsurge of stakeholder value. They have put forth their disappointment as shifting its focus on helping its shareholders.

The notable changes are

McDonald’s is planning to change its franchise fee structure in three ways:

  • The happy meal subsidy will be canceled out as it lowers the kid’s meal. This averaged at $3,600 per restaurant per year.
  • The franchisees will be helping in raising the funds for the Archways to Opportunity program. This program is designed to help McDonald’s employees with their tuition payments. The catch in this update is that the franchise company will help in funding instead of the parent company. The estimated cost of this would be approximately $3,500 per restaurant.
  • The technology investment payments will be done monthly instead of every six months. This will cost the restaurants around $5,000 next year. The parent company is in favor of this as it wants to recover the $70 million “lag” from the six-month payment method. The annual cost for technology upkeep will be the same after the implementation of the transition.



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