McDonald’s is increasing royalty fees for new franchise restaurants in the U.S. and Canada, according to a letter seen by RushHourDaily. This is the first time in nearly three decades that the fees have been raised, bringing them in line with what the company charges in other markets. The fees will be raised from 4% to 5% starting January 1. However, franchises that are rebuilding, renovating existing locations, or transferring outlets to another party will not be affected by the increase.
The decision to raise the fees comes as McDonald’s experiences slowing revenue growth for the remainder of the year. The company is lowering menu prices in response to signs of easing inflation. Despite the rate increase, Northcoast Research analyst Jim Sanderson believes the impact on McDonald’s revenue will be minimal. This is because there are very few new stores opening in the United States.
McDonald’s operates approximately 13,400 stores in the United States, with around 95% of them being operated by franchisees. These franchisees contribute nearly 30% of the company’s total revenue in 2022. The letter also reveals that average cash flows for U.S. franchisees have grown by over 35% in the past five years.
In addition to the fee increase, McDonald’s will also change the term for payments from “service fees” to “royalty fees.” This change aligns with the terminology used by McDonald’s markets worldwide. Royalty fees are paid by restaurant operators to the owner, and the rate is determined based on the revenue generated by the licensed property.
Overall, the increase in royalty fees for new franchise restaurants is a significant development for McDonald’s. It brings the fees in line with other markets and reflects the company’s efforts to address slowing revenue growth. Despite the increase, the impact on McDonald’s revenue is expected to be limited due to the low number of new store openings in the United States.
