Boost Your Franchise Success: Exciting News! McDonald’s to Increase Royalty Fees for New Restaurants

McDonald’s franchisees who add new restaurants will soon have to pay higher royalty fees.

The fast-food giant is raising those fees from 4% to 5%, starting Jan. 1. It marks the first increase in nearly three decades for McDonald’s royalty fees.

The change will not impact existing franchisees who maintain their current footprint or purchase a franchised location from another operator. It will also not apply to rebuilt existing locations or restaurants transferred between family members.

However, the higher rate will affect new franchisees, buyers of company-owned restaurants, relocated restaurants, and other scenarios involving the franchisor.

“While we pioneered the industry we now lead, we must continually redefine success and position ourselves for long-term greatness to preserve the strength of our brand,” stated McDonald’s U.S. President Joe Erlinger in a message to U.S. franchisees viewed by CNBC.

In addition to the fee increase, McDonald’s will also change the terminology from “service fees” to “royalty fees,” aligning with industry standards.

“We’re not altering the services, but we are aiming to shift mindsets by highlighting the value and power of the McDonald’s brand and system,” Erlinger told CNBC.

Approximately 95% of McDonald’s roughly 13,400 U.S. restaurants are operated by franchisees. These franchisees pay rent, monthly royalty fees, and other charges (such as annual fees for the company’s mobile app) to be part of the McDonald’s system.

While the royalty fee increase is unlikely to immediately impact many franchisees, backlash is expected due to the strained relationship between McDonald’s and its U.S. operators.

In recent years, McDonald’s and its franchisees have faced conflicts related to various issues, including a new assessment system for restaurants and a California bill that will raise wages for fast-food workers by 25% in the coming year.

In the second quarter, McDonald’s franchisees rated their relationship with corporate management at 1.71 out of five in a quarterly survey conducted by Kalinowski Equity Research. Although this is the survey’s highest score since the fourth quarter of 2021, it falls far short of the potential high score of five.

Despite these challenges, McDonald’s U.S. business is thriving, with domestic same-store sales growing by 10.3% in the most recent quarter. Promotions like the Grimace Birthday Meal, along with strong demand for core menu items such as Big Macs and McNuggets, have contributed to this growth.

McDonald’s CFO Ian Borden stated in late July that franchisee cash flows have increased year-over-year. Average cash flows for U.S. operators have risen by 35% over the last five years.