McDonald’s is trying to orchestrate a massive overhaul to improve business.
The company is slimming down the menu, improving the quality of its ingredients, and making restaurant upgrades to improve service.
But according to Bloomberg, there’s one hurdle that’s standing in the way of McDonald’s turnaround strategy: franchisees.
Franchisees operate 90% of McDonald’s restaurants in the US and about 81% of its restaurants worldwide.
The company is completely dependent on them for success. And unfortunately for McDonald’s, franchisees are furious with corporate executives and have major doubts about their ability to turn business around, according to a recent survey by Janney Capital Markets.
Tensions between operators and corporate have never been higher in 12 years of the survey.
McDonald’s CEO Steve Easterbrook will have to repair the company’s relationship with franchisees if he wants his turnaround strategy to work, according to analysts.
“They don’t work for him, and he can’t order them around,” Richard Adams, a former franchisee, told Bloomberg. “For him to get anything done, he needs franchisee cooperation.”
Franchising has some major advantages. It has helped nearly ever major restaurant chain — including McDonald’s, Subway, KFC, Pizza Hut and Starbucks — finance rapid growth over the past several decades.
But franchising also requires companies to give up some control over restaurant operations, and that can make it difficult to react quickly to changes in the market.
Unlike McDonald’s, chains like Chipotle and Shake Shack don’t franchise any restaurants. That means they have more control than McDonald’s over menu pricing, staffing, equipment upgrades and other aspects of their restaurant operations.
Chipotle says that control is critical to its success.
“When you franchise, you give up control over how restaurants are run and that can compromise the experience,” Chipotle spokesman Chris Arnold said in an interview with Business Insider last year. “What’s more, our business model is so strong, we would rather not sell off our revenues to franchisees in exchange for only a small percentage of that.”
Chipotle keeps a close watch over how effectively its assembly lines are operating and how quickly queues of people are moving. Sometimes that means reviewing restaurants’security footageto make sure employees are doing their assigned jobs.
The company also maintains tight control over its food sourcing without having to worry about potential pressure from franchisees, Arnold said.
“Because of our food culture… we tend to have the highest (or among the highest) food costs in the industry as a percentage of revenue,” he said. “That very much flies in the face of conventional industry wisdom, and it can be hard to do things like that if you have franchisees who don’t agree with those decisions or fall out of favour with them for some reason.”
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