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McDonald's franchisees in the US are terrified for the future

McDonald's Golden Arches are seen at the Union Square location in New York January 29, 2015. REUTERS/Brendan McDermid Thomson ReutersMcDonald’s Golden Arches are seen at the Union Square location in New York

McDonald’s franchisees are terrified for the future of the company, according to a new survey.

The operators’ six-month outlook for McDonald’s business is the worst in the 12-year history of the survey, which was conducted by former Janney Capital Markets analyst Mark Kalinowski.

“At least half of the operators in my region are on the verge of collapse,” one franchisee wrote in response to the survey. “With minimum wage for fast food workers potential increasing to incredibly high levels, we are facing a crisis situation.

Another said: “The operators sit on a cliff right now. With sales going in the wrong direction, all must be conservative in our decisions. It will take only one bad decision to put any operator down and out.”

McDonald’s same-store sales have declined for the past six straight quarters in the US. The company is battling falling traffic, increasing competition from fast-casual chains like Chipotle and Panera, and an eroded brand perception among American consumers.

For the survey, Kalinowski interviewed 29 franchisees who own and operate 208 restaurants in the US. McDonald’s said that represents only a fraction of their franchisees.

“Approximately 3,100 franchisees own and operate McDonald’s restaurants across the US,” McDonald’s spokeswoman Lisa McComb told us. “Less than 1% of them were surveyed for this report. We value the feedback from our franchisees and have a solid working relationship with them.”

Operators said in the survey that they are squeezed for cash due to high rent, remodeling costs, and new equipment.

One franchisee wrote, “We are tapped out,” and another wrote: “We may be doomed.” A third said, “Everyone is paralysed with fear for their jobs.”

Several complained that the company’s new CEO, Steve Easterbrook, hasn’t made any meaningful improvements to the business since he took over the position in March.

“Mike Andres and Steve Easterbrook promised a rapid turnaround, improved taste and quality, significant SIMPLIFICATION,” a franchisee wrote. “None of that has happened. They added four sandwiches and breakfast all day! … It may be too late for any meaningful recovery.”

Easterbrook unveiled his turnaround plan in May. He said he planned to turn McDonald’s into a “modern, progressive burger company” by restructuring management, refranchising restaurants, and listening more to customers.

“Our recent performance has been poor; the numbers don’t lie,” Easterbrook said at the time. “I will not shy away from the urgent need to reset this business.”

The chain has cut several sandwiches from the menu since Easterbrook took over, but it has also added a new Sirloin burger and new mid-priced sandwiches, including a McChicken sandwich with leaf lettuce and tomato and a double burger with leaf lettuce and tomato.

Some operators said top management is out of touch with what it’s like to run a restaurant and the types of issues that employees face in the restaurants every day.

“For example, labour needed to run stores during lunch hour,” one franchisee wrote. “Our competitors have 6-8 people to run close to the same volume that we need 20-25 people.”

Several franchisees also said the food quality needs to be fixed before the restaurants get upgrades, and many are just hoping for flat sales going forward.

“Brand loyalty is history for us,” one franchisee wrote.

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