McDonald's to raise royalty fees for new franchised restaurants for first time in nearly 30 years

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A McDonald’s golden arches logo is seen at a franchise restaurant owned by Rippon Family Restaurants.

Paul Weaver | Lightrocket | Getty Images

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’s the first time in nearly three decades that McDonald’s is hiking its royalty fees.

The change will not affect existing franchisees who are maintaining their current footprint or who buy 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 that involve the franchisor.

“While we created the industry we now lead, we must continue to redefine what success looks like and position ourselves for long-term success to ensure the value of our brand remains as strong as ever,” McDonald’s U.S. President Joe Erlinger said in a message to U.S. franchisees viewed by CNBC.

McDonald’s will also stop calling the payments “service fees,” and instead use the term “royalty fees,” which most franchisors favor.

“We’re not changing services, but we are trying to change the mindset by getting people to see and understand the power of what you buy into when you buy the McDonald’s brand, the McDonald’s system,” Erlinger told CNBC.

Franchisees run about 95% of McDonald’s roughly 13,400 U.S. restaurants. The franchisees pay monthly royalties, rent and other fees, including annual fees for the mobile app. However, backlash will likely come, due to the company’s rocky relationship with its U.S. operators.

McDonald’s and its franchisees have clashed over a number of issues in recent years, including a new assessment system for restaurants and a California bill that will hike wages for fast-food workers by 25% next year.

In the second quarter, McDonald’s franchisees rated their relationship with corporate management at a 1.71 out of 5, in a quarterly survey of several dozen of the chain’s operators conducted by Kalinowski Equity Research. This is the highest score in the survey since the fourth quarter 2021. However, it’s still far from the possible high score of 5.1001010Despite all the turmoil, McDonald’s U.S. businesses are booming. In the most recent quarter of its business, same-store sales in the United States grew by 10.3%. Promotions such as the Grimace Birthday Meal and strong demand for McDonald’s core menu items, such as Big Macs and McNuggets, fueled sales.

Franchisee cash flows rose year over year as a result, McDonald’s CFO Ian Borden said in late July. According to the company, average cash flow for U.S. operators has risen 35% in the past five years.