McDonald's hikes royalty fees for new US, Canada franchise restaurants
All markets will transition to the term 'royalty fees' rather than service fees
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Fast-food giant McDonald's is raising royalty fees for new franchisees throughout North America for the first time in three decades, according to an internal notice obtained by FOX Business.
Starting January, McDonald's said it is raising this fee to 5% to help maintain its competitive edge. The royalty rate, the fee franchisees pay to the parent company, had been at 5% in all markets except for the U.S. and Canada, according to the notice.
According to the International Franchise Professionals Group, the royalty fees in the U.S. and Canada were previously 4%.
There are some exceptions, including franchisees looking to rebuild existing locations, if ownership transferred to another party or if one operator sells to another, according to the notice.
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A sign outside a McDonald's in Louisville, Ky., Jan. 14, 2019. (Luke Sharrett/Bloomberg via Getty Images / Getty Images)
This comes a few months after McDonald's Chief Financial Officer Ian Borden told investors the company is still "operating in a challenging macro environment where costs remain elevated, customer discretionary spending is limited and industry traffic is pressured."
However, CEO Chris Kempczinski noted the company's value in the market puts it in a good position to weather current economic challenges.
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In the notice viewed by FOX Business, the company said it's "outpacing the competition, and our combined investments have made the brand stronger and more accessible than ever."
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| MCD | MCDONALD'S CORP. | 285.70 | -5.19 | -1.78% |
According to the company, the average cash flows for U.S. franchisees increased more than 35% over the past five years.
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McDonald's has over 38,000 locations in over 100 countries, according to its website. Over 90% of them are owned and operated by independent local business owners.
The company replaced the terms "service fee" or "service charge" with "royalty" fees in all of its markets, according to the notice.