McDonald’s (MCD.N) is implementing its first increase in royalty fees for new franchise operators in the United States in nearly 30 years, as revealed in an internal communication obtained by Reuters.
The renowned burger giant is elevating the fees paid by franchisees for utilizing the brand from 4% to 5%, effective January 1st, for any forthcoming restaurant ventures.
The rationale behind this adjustment, as stated in the internal memo, is to “sustain our competitive advantage, ensuring we can provide opportunities to independent small business owners and their families for generations to come.”
It is important to note that this alteration will not impact current franchisees who maintain their existing establishments or those who acquire franchised locations from other operators. Similarly, it will not apply to the renovation of existing sites or the transfer of restaurants within family circles.
Across the United States, the fast-food titan oversees a network of over 13,000 establishments. As of December 31st, approximately 95% of these restaurants are operated by franchisees, contributing to nearly 30% of the company’s overall revenue in 2022.
Furthermore, in alignment with the global standard used by all other McDonald’s markets worldwide, the company is transitioning the terminology for payments in the U.S. from “service fees” to “royalty fees.”
In this context, royalty fees are charges paid by restaurant operators to the brand owner, with the rate determined based on the revenue generated by the licensed property.
While McDonald’s had previously indicated that it anticipates a moderation in revenue growth during the latter half of the year due to signs of declining inflation, leading to a more measured adjustment of menu prices, it notably reported better-than-expected quarterly profits in its recent financial results released in July.
