McDonald's Set to Increase Royalty Fees for New Franchised Restaurants

McDonald's franchisees who are expanding their restaurant portfolio will soon face an increase in royalty fees, marking the first such increase in nearly three decades. Starting from January 1, the fast-food giant will raise these fees from 4% to 5%.

This change will not impact existing franchisees who are maintaining their current operations or acquiring franchised locations from other operators. It will also not apply to rebuilt existing locations or restaurant transfers between family members. However, the higher royalty rate will affect new franchisees, buyers of company-owned restaurants, relocated restaurants, and other scenarios involving the franchisor.

McDonald's U.S. President Joe Erlinger explained that this adjustment is part of the company's efforts to position itself for long-term success and maintain the strength of its brand. Additionally, McDonald's will rebrand these payments as "royalty fees," aligning with the terminology commonly used by franchisors.

Currently, franchisees operate approximately 95% of McDonald's roughly 13,400 U.S. restaurants. They pay rent, monthly royalty fees, and other charges to be part of the McDonald's system, including annual fees related to the company's mobile app.

While the royalty fee increase is not expected to have an immediate impact on most franchisees, it may face backlash due to the sometimes contentious relationship between McDonald's and its U.S. operators. In recent years, disputes have arisen over various issues, such as a new assessment system for restaurants and impending wage hikes for fast-food workers in California.

A survey by Kalinowski Equity Research found that in the second quarter, McDonald's franchisees rated their relationship with corporate management at 1.71 out of 5, the highest score since the fourth quarter of 2021 but still far from the potential high score of 5. The National Owners Association, an independent advocacy group representing over 1,000 McDonald's owners, also addressed the fee increase in a memo to its members, characterizing it as an "extremely hectic day" for U.S. owners.