The National Operator Association (NOA) was formed because the McDonald's franchise community needed an independent voice and did not like the way the head of MCD USA (now the CEO) was handling the business. Pre the COVID-19 pandemic, those issues were never cleared, and now things are getting worse. Given the ongoing stress, the greater Mcdonalds community is under significant pressure, and the NOA is pushing back on how the company is dealing with franchisee support.
Below are some of the highlights from the letter Joe Erlinger President, McDonald's USA wrote to Blake Casper, Chairman of the NOA:
Rent and Service Fees
- No base rent was drafted on April 1, nor will any be drafted on May 1 and June 1.
- For organizations with greater than 25% sales decline in the last 14 days of March, we have deferred rent and service fee payments until August 10, interest-free.
- We will defer April rent and service fees (for April sales) for ALL restaurants until September 10, interest-free.
- We will defer May rent and service fee payments (for May sales) for organizations with greater than 25% sales decline in the month of May to October 10, interest-free.
Initial/Franchise Fees:
- We are deferring all initial/franchise fees from April 1 through June 30 for three months from their original due date.
Development Projects:
- We have suspended drafts for all development projects until September 15, interest-free.
- We have delayed all construction ground breaks through June 30, and will honor our financial commitments for those projects that move into 2021.
According to the memo, McDonald's has provided U.S. owner/operators with approximately $900M of additional liquidity with:
- 1/3 of owner/operators who will be asked to pay March rent and service fees have strong liquidity are well-capitalized, and able to meet their short-term financial obligations.
- 65% of U.S. owner/operators are able to defer March rent and service fee payments totaling approximately $180 million, and not just for 14 days, but until August.
What MCD is not doing, is helping to support the additional payroll costs (hazard pay) that others in the industry are doing to support front line employees. Both CMG and SBUX have stepped up to provide further compensation to those employees who are working in hazardous conditions. Both of those companies are well-capitalized and have the cash to support their employees. McDonald’s corporation does not believe it should provide “unlimited” franchisee support, despite being the best-capitalized company in the industry.
To make matters worse, Joel said in his letter, “you would have seen me, along with Chris and other senior executives, make voluntary, tangible demonstrations of our leadership priorities via a meaningful salary reduction.” The franchise community has already taken a hit to their incomes, and the CEO expects them to do more.
Then he went on to say “similarly, the National Franchisee Leadership Alliance (NFLA) and NOA could demonstrate tangible leadership during this crisis by supporting the following (all of which were implemented in McOpCo stores):
- Endorsing two weeks of pay for any restaurant employee whose health is impacted by COVID-19.
- Supporting 10% “hero” pay for crew members who are working during this crisis over the next 60 days.
- Establishing an employee emergency relief fund to provide one-time payments to employees in company-operated and owner/operator restaurants who are facing hardship due to COVID-19. The company will match owner/operator contributions.
- Ensuring the health and wellness of employees and customers at McDonald’s by, among other things, committing to completing wellness and temperature checks at the beginning of every restaurant employee’s shift.
- Reviewing current policies and ensure that not only all crew get free food while they are working, but a 50% discount when they’re off work.
Is the CEO making the right decision to hold back additional franchise support and make the franchisees do it? Many of them don't have the cash to do this while the McDonalds’ corporation does. Additionally, $900 million of the support provided is deferred, not forgotten, so the franchisees will have to pay it back at some point.
By not taking the extra step, the CEO is only hurting the franchisee's cash position further, which will ultimately tarnish the McDonald’s brand!
The issues this company is dealing with have not even begun to play out in the current stock price!
