MCFAMILY DRAMA

In the race to modernize, McDonald’s is its own worst enemy

Inner turmoil.
Inner turmoil.
Image: AP Photo/Rogelio V. Solis
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The world’s largest burger chain is trying on a new look, and it’s running into a few hiccups.

As McDonald’s tries to modernize its operation and become more environmentally friendly, it’s finding the people who run individual franchises are pushing back.

To stay competitive, the chain’s corporate office wants to make the overall customer experience better. That includes investing about $6 billion by 2020 into its more than 8,700 US restaurants to refresh interior decor, install self-ordering kiosks, switch to digital menu boards, remodel counters to allow for table service, create a curbside pickup service for mobile orders, and expand its coffee service. The cost of modernizing the more than 750 in the state of New York alone has been estimated to be close to $320 million.

The changes being handed down from the corporate office to franchisees aren’t being welcomed by all. And that makes total sense. Even after their investment in new touch-screen ordering kiosks and other updates, sales on the individual store level aren’t increasing. In fact, net sales in the last quarter dropped 3% to $5.163 billion compared to the same period in the previous year, according to the company’s latest financial filings (pdf) released yesterday (Jan. 30). Even more of a headache for top McDonald’s execs, the franchisees in October formed an independent group called the National Owners Association—which means executives will have to compromise long-term visions with the realities restaurant operators say they face.

That group is eager to start making more noise if it has to. According to minutes from a meeting held in Dallas in December, the franchisees consider discord with the corporate office on par with a marriage problem (pdf).

“If we are doing anything to violate the marriage, it must be stopped. Full stop. Hard stop. Don’t pass go stop,” said Blake Casper, president of the owners group. “Stop the intimidation, stop the bullying, stop the apathy. But maybe most importantly, stop the contempt.”

As a nod to that group in its earnings filing, McDonald’s said its overall success relies on the willingness of franchisees to implement major initiatives.

Some of those major initiatives may wind up being more intense than installing self-order kiosks and making decor changes. McDonald’s and other fast-food chains are under pressure to be more environmentally friendly to help the world meet the ambitions set out by the Paris Climate Accord. The Farm Animal Investment Risk & Return Initiative (FAIRR), comprised of more than 80 investors representing more than $6.5 trillion, this week sent a letter urging the industry’s biggest companies to set policies for concrete actions.

In its earning report, McDonald’s said its future success relies on its ability to be more sustainable, or at least to be perceived by consumers as such. And it needs to get franchisees on board. The company has already faced heat from some for phasing out Styrofoam cups, a move that also sparked consumer backlash. That decision was brought up specifically at the franchisee conference in December.

“Things have changed since Styrofoam cups were pulled without owner input,” one of the franchisees said (pdf). “We will ask about the wants of the customer before making any similar decisions.”

McDonald’s said environmental initiatives will be essential in the long term, setting up the potential for more infighting.

“The ongoing relevance of our brand may depend on the success of our sustainability initiatives, which require systemwide coordination and alignment,” the earnings report states. “If we are not effective in addressing social and environmental responsibility matters or achieving relevant sustainability goals, consumer trust in our brand may suffer.”