McDonald’s franchise owners support a vote of no confidence in the CEO, the survey said

McDonald’s franchise owners support a vote of no confidence in the CEO, the survey said

Chris Kempczinski, McDonald’s, speaks at a press conference in New York, November 17, 2016.

Shannon Stapleton | Reuters

McDonald’s franchisees, who are dissatisfied with changes in the terms of ownership, express a lack of confidence in the company’s CEO and US president, according to a new ownership survey seen by CNBC.

The National Owners Association, an independent franchisee group for McDonald’s owners, recently asked the membership about changes being made to the franchisee’s lease terms.

The results show that an overwhelming majority – 87% – of those polled support calling a “distrust” of CEO Chris Kempczinski and the company’s US president, Joe Erlinger.

In addition, almost 100% believe that the company should have collaborated with and consulted owner managers before announcing changes to the franchise system, and 95% said that the company’s top management does not have the owners’ best interest in its approach to franchising.

NOA has around 1000 members, and almost 700 responded to the vote. McDonald’s had more than 2,400 owners by the end of last year. Franchisees operate around 95% of McDonald’s locations and are the key to the company’s business.

NOA did not immediately respond to a request for comment on the survey results.

McDonald’s notified owners at the end of June that from 2023 onwards they would evaluate potential new operators equally, instead of giving preferential treatment to the spouses and children of current franchisees.

It also separates the process by which it renews leases, given for 20 years, from assessments of whether owners can operate more restaurants. In a message to owners about some of the changes, seen by CNBC, the company said: “This change is in line with the principle that receiving a new franchise period has been earned, not given.”

The move sent a shock wave through the franchisee community. It came on the heels of plans to roll out a new grading system for restaurants next year that some fear will alienate workers in a time of unique work challenges. The company has worked actively to recruit new and more diverse owners, emphasized in a message to franchisees from Erlinger that was seen by CNBC.

“We have given a lot of thought to how we continue to attract and retain the industry’s best owners / operators – individuals who represent the different communities we serve, bring a growth mindset and focus on workmanship, while cultivating a positive work environment for restaurant teams,” he said.

In December, McDonald’s promised to recruit more franchisees with different backgrounds, and committed $ 250 million over the next five years to help these candidates fund a franchise. McDonald’s declined to comment on the new changes or survey.

McDonald’s controls the rental terms for owners, and there is speculation among some in the franchisee community that the changes will be made to bring in new owners with higher rental prices than established owners would face.

The NOA survey found that 83% of respondents said the new rules were a “veiled attempt to raise rents.” And 95% said they do not feel valued by companies given the latest developments. In addition, 71% of respondents said that existing or older owners should not be treated in the same way as potential new operators.

Other franchisee organizations are also frustrated by the changes.

A separate poll by the National Franchisee Leadership Alliance, also seen by CNBC, showed that almost 100% of the over 400 respondents believe McDonald’s Leadership should have worked with and consulted with owners before announcing changes. More than 90% said that the changes were not supported, and 90% said that they felt that their business would be negatively affected by the proposed changes.

The National Black McDonald’s Operators Association also returned a no-confidence motion to CEO Kempczinski, Restaurant Business Online reported in late June.

The excitement comes at a time when McDonald’s US business is strong and franchisee profits have been at record highs. The company topped the estimates for earnings and sales in the same store last quarter. The stock is down 5% so far this year.

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