McDonald's Franchisees: Turnaround Plan Is a 'Farce'

Some Franchisees Appear To Resent 'Create Your Taste' Initiative

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McDonald's new CEO Steve Easterbrook
McDonald's new CEO Steve Easterbrook

McDonald's has found itself in the hot seat lately, with everything from sagging sales to the "Fight for $15" protests that seek to raise wages for hourly workers.

Now McDonald's appears to also have some unrest among its franchisees, according to the latest franchisee survey from Janney Capital Markets analyst Mark Kalinowski. According to a report Mr. Kalinowski wrote, franchisees' six-month outlook for McDonald's U.S. business is the worst in the survey's 11-year history.

Likewise, franchisees rate the relationship between them and corporate the worst they've seen since the survey began, with multiple operators giving comments like, ""Relations between McDonald's Corporation and the operators [franchisees] are the worst I have ever seen!"

McDonald's said of the survey: "Approximately 3,100 franchisees own and operate McDonald's restaurants across the U.S. Less than 1% of them were surveyed for this report. We value the feedback from our franchisees and have a solid working relationship with them."

Although the Janney survey pool is relatively small, franchisee-owned stores account for about 90% of McDonald's U.S. locations. The results indicate that new CEO Steve Easterbrook, who took the post last month after the chain posted its worst sales slump in more than a decade, has one more item to add to the list of troubles for the company.

One particular point of contention for the franchisees was the company's turnaround plan, which executives at its suburban Chicago headquarters recently unveiled. When asked whether they see hurdles for the chain's "experience of the future" plans, many of the franchisees said yes.

Part of that "experience of the future" involves the Create Your Taste platform, an ordering kiosk that enables customers to customize their burgers. When the company announced it late last year, it said that it would implement the system in 2,000 of its 14,000 U.S. stores in the next year.

Simultaneously, McDonald's said it was trying to reduce operational complexities by paring down the menu starting in January, the beginning of a year that former CEO Don Thompson said was one of "gaining momentum." Also in January, the chain launched a brand refresh focused on the "lovin'" in "I'm lovin' it."

"The Turnaround Summit was a farce," wrote one franchisee. "The idea presented -- such as Create Your Taste -- DO NOT fit our business model. McDonald's Corporation has panicked and jumped the shark. The problem is an unwieldy menu (too big) and trying to be all things to all people. The suits in Oak Brook still don't get it."

"I came away from the summit completely confused," wrote another. "McDonald's management does not know what we want to be. Expensive (and slow) custom burgers in the same restaurant where we sell the Dollar Menu?"

On whether there will be hurdles to implement Create Your Taste, one franchisee said: "Definitely, as Create Your Taste will cost approximately $125,000 per restaurant. It sounds like initially sales with this new concept are very slow taking off."

Not all franchisees were griping though. "I thought it was a great, motivational, fairly clear vision and the commitment to make changes were needed."

For 2014, global same-store sales decreased 1% and in the fourth quarter, U.S. same-store sales fell 1.7%. McDonald's hasn't had a positive sales quarter in the U.S. since third quarter 2013, when it posted a 0.7% bump.

Fight for $15

McDonald's also continues to face criticism from the organizers of the Fight for $15 protests, a two-and-a-half year old movement that seeks to raise hourly wages in retails establishments to $15 per hour and let employees unionize without retaliation.

Earlier this morning, organizers launched what they called the "largest-ever mobilization of underpaid workers in U.S. history" that will include protests in about 230 U.S. cities. Beyond fast-food employees and employees of other retail giants like Walmart, the protests expanded to include adjunct professors, as well as home-care and child-care workers.

The Golden Arches two weeks ago announced that it would raise wages and offer vacation time to employees at its company-owned stores, which account for about 10% of the U.S. locations. While some credited the company with improvement, others, like the Fight for $15 organizers, criticized it, saying it was a publicity grab because it only affected a small portion of McDonald's U.S. employees.

Of today's protests, McDonald's said in a statement: "We respect people's right to peacefully protest, and our restaurants remain open every day with the focus on providing an exceptional experience for our customers. Recently, McDonald's USA announced a wage increase and paid time off for employees at its company-owned restaurants and expanded educational opportunities for eligible employees at all restaurants. This is an important and meaningful first step as we continue to look at opportunities that will make a difference for employees.

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