MCD McDonalds Corp

By Julie Jargon 

Some 400 McDonald's Corp. franchisees gathered for a rare meeting Wednesday to discuss their concerns about the burger giant's plans for improving weak sales.

The U.S. restaurant operators met at the office of a large franchisee in Tampa, Fla., in a session that became so crowded two tents had to be set up outside, according to one of several attendees interviewed.

The attendees, who represent about one-quarter of U.S. franchisees, agreed to proceed with steps to form an independent operators' association. The group passed out pledge cards asking franchisees to contribute $200 a restaurant to form the association. Many signed, according to some franchisees who attended. No formal vote has been taken or scheduled.

Franchisees of other fast-food chains -- including Dunkin Brands Group Inc.; sandwich chain Subway, owned by Doctor's Associates Inc.; and Tim Hortons, a unit of Restaurant Brands International Inc. -- have created independent franchisee groups to agitate for change. But this is the first time such a large group of McDonald's franchisees has taken serious steps to organize. A group of Jack in the Box Inc. franchisees on Tuesday called for the chief executive of that chain to step down because of concerns about a lack of marketing support and lackluster sales.

McDonald's franchisees, who have been tasked with updating stores, buying new refrigerators to store fresh beef and installing touch-screen kiosks as part of the company's turnaround strategy, say the cost of those upgrades is becoming a burden while sales aren't growing fast enough to yield a sufficient return.

A spokeswoman for McDonald's said the company is committed to a collaborative dialogue with its franchisees and said that restaurants that are fully modernized in the U.S. typically record mid-single-digit-percentage sales increases in the first year. She added that already-remodeled restaurants that add elements such as the self-order kiosks usually record a 1% to 2% sales increase. McDonald's is sharing in the cost of upgrades.

One franchisee who attended Wednesday's meeting said the internal goal for U.S. franchisees was to achieve 5% same-store sales growth this year and for each of the next two to achieve positive cash flow after remodeling restaurants. McDonald's posted U.S. same-store sales growth of 2.6% in the second quarter, short of analyst forecasts for 3% growth.

McDonald's is increasingly relying on franchisees around the world to operate its restaurants as it moves to an "asset light" model that has gained favor in the restaurant industry. The company collects royalties for the use of the brand name and other support. About 95% of the more than 14,000 McDonald's restaurants in the U.S. are operated by franchisees.

The group plans to meet again in December. It intends to narrow its concerns to one or two priorities where it will seek changes from McDonald's management, according to one of the franchisees who attended.

The franchisees haven't decided how to communicate their concerns to the company's executives; some franchisees said a face-to-face meeting is preferred.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

October 10, 2018 19:50 ET (23:50 GMT)

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