New franchisees in the McDonald’s system will have to pay 5% royalty fees starting Jan. 1, up from the current rate of 4% and the first increase in nearly 30 years. CNBC initially reported the increase Friday morning, citing an internal message from McDonald’s U.S. President Joe Erlinger.

The new rate will not impact existing franchisees nor will it apply to existing locations that have been rebuilt or restaurants transferred between family members, the story notes. It will impact new franchisees, franchisees who acquire company-owned units, and those who relocate their restaurants.

In his message, Erlinger wrote that the change is a way to position the company for long-term success and “ensure the value of our brand remains strong as ever.” He told CNBC that services won’t change.

“We are trying to change the mindset by getting people to see and understand the power of what you can buy into when you buy the McDonald’s brand, the McDonald’s system,” he said.

McDonald’s is mostly franchised. Its longtime 4% royalty rate is lower than most of its competitors, though franchisees also pay the company rent, technology fees and other fees.

This change comes as the company manages some tension with some franchisees over fees and other changes, including the technology fee first implemented in late 2020. There has also been some franchisee pushback over the chain’s recently created Operations PACE system, which measures performance management. In Q2, Kalinowski Equity Research found that McDonald’s franchisees rated their relationship with corporate at 1.71 out of 5.

That said, the company has experienced strong performances in both sales and traffic throughout the past several years, including record cash flow.

Original Article:
[H/T] RestaurantBusinessOnline.com