McDonald's owners group says company rejected request to delay big changes to franchise system

A group representing McDonald’s owners said the company rejected its request to delay changes to franchising policies, including updated standards and adjustments to how the company evaluates potential new restaurant operators, according to a letter seen by CNBC.

The National Franchisee Leadership Alliance said in a letter to owners Wednesday that McDonald’s denied its request to make the changes in June 2023 instead of Jan. 1.

The leadership group represents McDonald’s owners across the country. As of the end of last year, according to the company, there there were more than 2,400 franchise owners. Franchisees run some 95% of McDonald’s locations.

The company declined to comment on the changes or the NFLA’s letter and its request to delay the adjustments.

McDonald’s unveiled new policy changes during the summer, sparking tensions between some operators and the company. Several owners unhappy with these changes expressed a lack of confidence in the company’s CEO, Chris Kempczinski and its U.S. president, Joe Erlinger, in a poll taken by a separate group, the National Owners Association.

The NFLA is seeking more clarity and education from the company on what it calls “McDonald’s Values,” as it pushes to hold franchise owners accountable for how they represent the brand online and in person. McDonald’s says its values are: “Serve, Inclusion, Integrity, Community and Family,” and the update is meant to reflect how these should be incorporated into owner and operator standards, according to a previous document obtained by CNBC.

The new policies also call for evaluating potential new operators equally, instead of giving preferential treatment to spouses and children of current franchisees.

McDonald’s is also separating how it renews leases, which are given in 20-year terms, from assessments of whether owners can operate additional restaurants – meaning, a lease renewal would not automatically make an owner eligible to operate additional locations. In a previous message to owners about the changes that was viewed by CNBC, the company said: “This change is in keeping with the principle that receiving a new franchise term is earned, not given.”

The company has been actively working to recruit new and more diverse owners, underscored in a message to franchisees from Erlinger that was viewed by CNBC earlier this summer.

“We’ve been doing a lot of thinking about how we continue to attract and retain the industry’s best owner/operators – individuals who represent the diverse communities we serve, bring a growth mindset and focus on executional excellence, while cultivating a positive work environment for restaurant teams,” he said.

In December, McDonald’s pledged to recruit more franchisees from diverse backgrounds, committing $250 million over the next five years to help those candidates finance a franchise. The company has yet to reveal how its recruitment effort is going.

“Several of these internal changes in my opinion may further limit the marketplace, reduce demand and strain the financial capability for sales between owners beyond the external factors that presently exist today,” NFLA chair Mark Salebra wrote in the letter.

It goes on to underscore other challenges facing operators today including legislative changes at the state level, likely alluding to a newly signed law, A.B. 257 in California, which would regulate the fast food industry’s pay and conditions. The law was championed by the AFL-CIO, the biggest federation of unions in the United States, and condemned as “radical” by the U.S. Chamber of Commerce, the nation’s largest business advocacy group.

McDonald’s is also rolling out a new grading system for restaurants in 2023.

Owners said they were concerned about alienating workers as employers fight to lure and retain employees. The letter said that given all of these factors, “a consideration to delay (not change or renegotiate) the implementation felt appropriate and warranted.” It added that the company has provided more than 20 documents on the changes and educational sessions are forthcoming for further clarity.