McDonald’s (MCD.N) is increasing royalty fees for new franchise restaurants in the U.S. and Canada, marking the first such adjustment in nearly thirty years. This adjustment will align the fees with what McDonald’s charges in other global markets.
Effective from 1 January, the fees will be raised from 4 per cent to 5 per cent. It’s important to note that this change will not impact franchises seeking to rebuild, renovate existing locations, or transfer outlets to other parties, as indicated in the letter.
This decision comes as McDonald’s anticipates a slowdown in revenue growth for the remainder of the year, primarily due to easing inflationary pressures, prompting the company to reduce menu prices.
Northcoast Research analyst Jim Sanderson expressed the view that the increase in rates is unlikely to significantly impact McDonald’s revenue. This is mainly because there is a limited number of new store openings in the United States.
McDonald’s currently operates approximately 13,400 stores across the United States, with roughly 95 per cent of them being operated by franchisees as of 31 December. These franchises accounted for nearly 30 per cent of the company’s total revenue in 2022.
Additionally, the company is instituting a change in terminology, shifting from “service fees” to “royalty fees,” which is consistent with the terminology used in all other McDonald’s markets worldwide. In this context, royalty fees refer to the payments made by restaurant operators to the owner, with the rate being determined based on the revenue generated by the licensed property.
