McDonald’s MCD-N is raising royalty fees for new franchise operators in the United States and Canada for the first time in nearly three decades, according to an internal letter viewed by Reuters on Friday.
The burger giant is hiking the fees that franchise owners pay for the brand to 5 per cent from 4 per cent, starting Jan. 1, for any new restaurants they open.
The change will not affect existing franchisees who are maintaining their current footprint or who buy a franchised location from another operator. It will also not apply to rebuild existing locations or restaurants transferred between family members.
The revised rate “will help us maintain our competitive edge – so we can continue offering opportunity to independent small business owners and their families,” according to the letter.
The fast-food giant operates more than 13,000 locations across the United States, with 95 per cent of the restaurants run by franchisees as of Dec. 31, making up nearly 30 per cent of its total revenue in 2022.
Average cash flows for these U.S. franchisees have grown more than 35 per cent over the past five years, the letter showed.
The company will also change the term for payments from “service fees” to “royalty fees,” used by all other McDonald’s markets around the world.
Royalty is a fee paid by restaurant operators to the owner and the rate is set based on the revenue generated by the licensed property.
McDonald’s had said in July it expects revenue growth to moderate in the second half of the year as signs of easing inflation prompt it to temper menu prices, even as it reported better-than-expected quarterly profit.