This last quarter marked the first drop in operating profits for McDonald’s franchisees in nine years. Franchisees aren’t happy about that. But many franchisees are angry because of what they see as the heavy discounting and undercutting McDonald’s corporate is doing in response. Ad Age reports that there have been changes in pricing and advertising highlighting the Dollar Menu that have sent some franchises reeling.
The Dollar Menu was McDonald’s answer to the economic downturn. While you might think of visiting a McDonald’s after scraping together the change off the floor of your car, McDonald’s was specifically targeting people who decided to save by doing without a $4 burger. They even discounted premium items to introduce them to the low-cost masses by pricing the McWrap at $2 instead of the regular price of $3.99. And while franchisees did what McDonald’s ordered them to do, some weren’t happy about the cuts their profits were seeing to help McDonald’s stay on top, giving the lowest satisfaction scores McDonald’s has ever seen. What’s more, these discounting techniques obviously didn’t work as well as they had hoped, judging by the operating profits drop this last quarter. While it might have helped McDonald’s hang on to profits it might otherwise have lost, some franchisees are disenchanted.
While franchisees probably couldn’t have predicted the downturn, knowing the strategy a franchise will take if things get rough can help you make a decision about your best franchise business investment.
When you interview franchisees as part of your due diligence, ask about the past and the future as well as the present. Ask franchisees what their perspective is on the future as part of the franchise they opened—do they see themselves still owning the franchise in five, ten years? Do they see the model as still being profitable or will it change?
Have they seen how the franchise responds to tough times? How have past changes affected their profits?
It isn’t realistic to expect that franchisors will put franchisees ahead of themselves, nor that franchisees will always agree with corporate decisions. It is good to know what the franchisors do when the chips are down.