McDonald’s franchisees demand help with $5 value meal: ‘Simply not enough profit to discount 30%’
McDonald’s franchisees are griping over the costs of promotions such as the $5 value meal unveiled this month by the burger giant — and are claiming in a letter that it “necessitates a financial contribution by McDonald’s.”
The National Owners Association, an independent, self-funded advocacy group representing McDonald’s franchisees, sent a letter to its membership applauding the move to roll out value meals in hopes of enticing more customers back to the Golden Arches in an era of sky-high inflation.
But the franchisees warned that their narrow profit margins won’t allow them to sustain prolonged deals without financial assistance from corporate management.
“The fact remains that in order to provide the consumer with more affordable options, they must be affordable for the owner/operators,” the NOA wrote in the letter to members.
“McDonald’s vast resources and financial investment are essential to any sustainable affordable strategy.”
The letter was first reported by CNBC. The Post has sought comment from McDonald’s and NOA.
The NOA letter noted that McDonald’s franchises were a “penny profit business, with 10-15% margins.”
“There simply is not enough profit to discount 30% for this model to be sustainable,” the NOA wrote in the letter to its members. “It necessitates a financial contribution by McDonald’s.”
The NOA encouraged McDonald’s to bring back other value items such as snack wraps that use existing chicken breasts so that they can be priced and marketed with low-income customers in mind.
Franchisees also suggested that McDonald’s begin offering the top two beverages from the company’s popular spinoff chain CosMc’s for sale at flagship locations to lure back customers.
McDonald’s last week confirmed to The Wall Street Journal that it would be launching a month-long promotion beginning June 25, when customers can pay $5 for a meal that includes either a McChicken or McDouble sandwich along with a side order of small fries, four pieces of chicken nuggets and a small drink.
Fast-food fans have blasted the $5 meal as “skimpy” — also complaining about the fact that it will only last a month. Meanwhile, company executives have admitted that McDonald’s meals are becoming too pricey for its traditional customer base of low-to-middle income Americans who are feeling the pinch of sticky inflation.
Some McDonald’s locations have been charging as much as $18 for a Big Mac meal and $7 for Egg McMuffins.
Coca-Cola, which has maintained a decades-long partnership with McDonald’s, pitched in marketing funds to make the $5 value deal more appealing, according to CNBC.
Financial terms of the partnership were not disclosed.
“We routinely partner with our customers on marketing programs to meet consumer needs,” a Coca-Cola representative told CNBC.
“This helps us grow our businesses together.”
When reached by The Post last week, a McDonald’s rep said: “We know how much it means to our customers when McDonald’s offers meaningful value and communicates it through national advertising.”
“That’s been true since our very beginning and never more important than it is today.”
Roughly 95% of all McDonald’s locations in the US are operated by franchisees who pay the company a royalty rate — a monthly fee equal to 5% of sales — in exchange for permission to use the brand as well as access to its marketing and production expertise.
Anyone wishing to open up a McDonald’s in the US needs to bring a minimum investment of $500,000 in non-borrowed cash, according to the company.
Before selling a single Big Mac, franchisees are also on the hook for startup costs including rent, inventory, equipment, decor, training and other operating expenses that could exceed $2 million depending on the location.
McDonald’s has recently said that cash flow for franchisees are up by nearly 50% since 2018. Last year was one of the best years for franchisee cash flow in the company’s history despite sticky inflation, according to McDonald’s.
