Editor’s note: This article was first published in August 2013, and its data are from 2013: about 90% of McDonald’s restaurants franchised, a share price of $98.69 against an all-time high of $102, and a fast-food workers’ strike the previous week.
McDonald’s problems are starting to pile up. Last week we learned the outcome of the lawsuit brought by the famous chef Jamie Oliver, a ruling that sided with him and found that McDonald’s burgers are not fit for human consumption. According to the chef, the fast-food company washes its burgers in ammonium hydroxide, so that meat that should only have been fit for dog food ends up on human plates.
Now McDonald’s franchise owners are organizing against the company over the rising cost of running a franchise.
Remember that about 90% of all McDonald’s restaurants today are run as franchises. These franchisees say the company is charging too much for rent, store remodeling, training and software, as Bloomberg reported.
McDonald’s is trying to raise its profit margin by shifting as many costs as possible onto its franchisees. According to experts, this delicate and risky strategy of focusing solely on Wall Street and pleasing the markets could seriously damage what has so far been a healthy relationship between the company and its franchisees: it might lift profits for the next earnings report, but in the long run it may not be a good idea.
Some franchise owners say the business isn’t as profitable as it used to be, while last week many workers at these franchises went on strike to demand a pay rise.
When asked whether it really is raising costs for franchisees, a McDonald’s spokeswoman replied:
“We continue to work together with McDonald’s owners/franchisees and our suppliers to make sure our restaurants are delivering a great experience for our customers, which involves investments in training and technology.”
This is probably a bad time to carry out such a strategy, since McDonald’s is facing the biggest wave of competition in its entire corporate history. Although there are no figures to confirm it yet, everything suggests that the pace of new McDonald’s franchise openings may have all but stalled, while other fast-food chains are growing faster.
And if we add the confirmation that the meat it has been selling is unhealthy, we could predict that hard times lie ahead for McDonald’s, which will in principle have to change the type of meat it uses and stop using dozens of chemicals that it has used until now.
McDonald’s (NYSE: MCD) is currently trading at $98.69, very close to its all-time high ($102).
Further reading: 40 of the most profitable business ideas of recent years
See also: Starting a business with less than 1,000 euros
Featured image: David Schott, CC BY 2.0, via Flickr.
