Markets & Investing
McDonald’s at Odds with Franchisees over Breakfast
19 Oct 2015
The Golden Arches finally launched all-day breakfast earlier this month, leading the company management to declare the move a success (somewhat premature, don’t you think?).
To be fair, the company may have been basing that declaration on its brand perception, which hit its highest point in two years, according to YouGov BrandIndex. “In our best judgment, it would seem like those events are related and that’s what would explain some of the recent sentiment improvement in McDonald’s brand scores,” said Ted Marzilli, CEO of YouGov BrandIndex.
The launch seemed like a last-ditch effort to find something that could help ease the company’s dropping sales in the United States, and while we’ll have to wait until the next quarter’s earning announcement to see how it affected the top and bottom lines, this improvement in brand perception is certainly good news.
Franchisees not happy
Though shareholders may be happy to see the statement by McDonald’s management, franchisee dismay could spell trouble for the new initiative. According to Business Insider, there have been several complaints from franchisees on a survey led by Nomura:
- “In small stores, the problems are vast with people falling over each other and equipment jammed in everywhere.”
- “All-day breakfast is a non-starter. We are trading customers down from regular menu to lower-priced breakfast items. Not generating new traffic.”
- A third called it “erratic, distorted, disorganized direction from McDonald’s,” slowing down service.
- “Customers are abandoning us in droves because we are either too slow, or sub-par quality.”
This was a problem that had been discussed when McDonald’s originally started playing with the idea. It doesn’t help that the company has too many menu items in the first place. So while the idea is solid, McDonald’s would have done better to give franchisees more time to prepare themselves for the implementation.
Another problem franchisees are running up against isn’t that they didn’t have enough time to make the changes, it’s that they didn’t have the capital to do so. Cash-strapped franchisees simply can’t make the upfront investment in added labor and kitchen upgrades, and they certainly aren’t getting any help from the company.
In those situations, restaurants that are already struggling to increase sales (or even keep them level) will likely run into even more problems when customers come and face long wait times to get their breakfast meal.
Can McDonald’s solve this?
It’s unlikely that McDonald’s will do much to help struggling franchisees to keep up with its initiatives, including this one. It doesn’t help that the company has already put a squeeze on struggling franchises with its minimum wage increase announcement and other upcoming changes that will increase costs for the owners.
McDonald’s answer? More franchises.
While it’s understandable that McDonald’s needs to keep its shareholders happy, and many of them haven’t been since it started losing sales two years ago, keeping franchisees happy should be a major step in those efforts. Unless it can do that, all of these changes the company is making may be in vain. Since customers are actually dealing with the franchisees, if they’re not able to provide the service the company’s management is promising, they lose.
