McDonald's to raise royalty fee to 5%
McDonald's will raise royalty fees to 5% for franchisees opening new restaurants in the U.S. and Canada. This is the first increase in 30 years.
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| The logo for McDonald's restaurant is seen as McDonald's Corp. reports fourth quarter earnings, in Arlington, Virginia, U.S., January 27, 2022. (Photo: REUTERS/Joshua Roberts) |
Reporting from CNBC International, this fast food restaurant is increasing its cost from 4% to 5% starting January 1, 2024.
The royalty charge only applies to those opening a franchise for the first time
This change only applies to those opening franchises for the first time or buying restaurants that use certain scenarios. Meanwhile, for those who extend the lease and sell the franchise to other operators, the royalty fee will remain the same.
McDonald's will also stop using the term service fee and switch to the word royalty.
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"We're not changing the service system, but we're trying to change the mindset by making people see and understand the power of the McDonald's brand when they buy it," McDonald's U.S. President Joe Erlinger told CNBC.
Franchising became an important part of McDonald's business. About 95% of the 13,400 restaurants in the U.S. are run by franchises. They pay rent, monthly royalty fees, and the company's mobile app fees.
This increase in royalty fees probably won't directly impact many franchisors. In recent years, McDonald's and its franchisors have been embroiled in several issues, such as a new grading system and a California bill that raises the salaries of fast-food restaurant workers by 25% next year.
Even so, McDonald's business continues to grow rapidly. In the fourth quarter, sales of the restaurant grew by 10.3%. Several factors drive sales. They range from promotions like the Grimrace Birthday Meal and high demand for McDonald's mains, like Big Macs and McNuggets. As a result, the average cash flow for U.S. carriers increased by 35% over the past five years.