McDonald's Needs Its Franchisees, This Rift Could Be Dangerous!

A rift is developing between McDonald’s MCD and its franchisees, Bloomberg reports.

Operating more than 80 percent of the store’s restaurants, Bloomberg says the disagreement has been going on for at least several months as franchisees are upset with the amounts they have to pay corporate.

Franchisees are also outraged by the remodeling program which looks to cost at least $600,000, and new stores built in a close proximity of existing ones, cannibalizing sales.

In 2012, franchise margins (before rent and depreciation) made up two thirds of the company’s total margins. Margins are 83 percent of the restaurants’ revenue.

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On top of income from margins, revenue for rent, royalties and initial fees accounted for almost nine billion of 2012 revenue, or 33 percent of total revenue.

In terms of rent agreements, for the next five years McDonald’s looks to spend 11 billion on operating leases for almost 12 billion of revenue, giving 823 million profit. This works out to an average of 165 million of income a year, or roughly three percent of total income.

McDonald’s would be crippled without its franchise network, which led franchisee Kathryn Slater-Carter to speak out against growing fees: “Putting too much focus on Wall Street is not a good thing in the long run. It is not as profitable a business as it used to be.”

Shares of McDonald’s are trailing the market by more than ten percent this year, and closed at $99.31 on Monday.