McDonald's franchisees in the US say a 'discounting addiction' is killing them

McDonald’s franchisees claim the fast-food chain’s sales turnaround is slowing down.

The company is lapping last year’s launch of all-day breakfast, which helped boost same-store sales by as much as 5.7% in the fourth quarter of 2015.

But the excitement of all-day breakfast has been wearing off, and McDonald’s franchisees are now expecting flat-to-negative growth for the rest of the year, according to a survey by Nomura analyst Mark Kalinowski.

“No way we can beat last year,” one franchisee wrote in response to the survey, which polled 30 operators who collectively run about 271 restaurants. There are more than 14,000 McDonald’s locations in the US.

The franchisees surveyed said their same-store sales growth slowed to 0.2% in the third quarter, and that they expect that metric to decline by 0.8% in the fourth quarter of this year. McDonald’s reports third quarter earnings next week.

Several franchisees complained that McDonald’s is squeezing their profits by forcing them to offer too many discounts, and that things will only get worse for them as the cost of labour rises.

“Kick the discounting addiction. Focus on profitable sales, not just customer counts,” one franchisee wrote.

Some franchisees claimed that smaller operators are getting pushed out of the system because of shrinking profits.
“We have an image problem and a people problem,” one franchisee wrote. “Will have to pay at least $10-$12 per hour to compete, maybe even $15 per hour.”

“The increased cost of labour today and in the near future means the days of discounting our food are coming to an end,” one franchisee wrote. “Smaller operators who do generally run superior operations continue to leave the system. Welcome to mediocrity!!!”

Another wrote: “We are discounting almost everything from all drinks to many items on the regular menu, and some items on the breakfast menu. It is all about top-line sales, not running profitable restaurants. That is why operators need several restaurants today, as the return on their investment dwindles.”

One franchisee had a creative suggestion for McDonald’s corporate office: spice up the fries.

“Do something incredible with our fries,” the franchisee wrote. “Like add a sauce: cheese, garlic… something to energize our incredible fries.”

Half a dozen people complained that the menu and kitchen operations are still too complicated however and slowing down service, despite McDonald’s CEO Steve Easterbrook’s promise to simplify the menu.

“The kitchen is impossible, and our service is challenged more than ever,” one franchisee wrote.

Two franchisees said business is strong, however.

“My part of the country is on a roll,” one operator wrote.

Another said: “Our region has a good mix of value, core products, and breakfast.”

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