Survey: Affordability does not equal discounting

Small restaurant franchisees endangered?

Despite a return to promoting value, with various versions of “McPick2,” a new consumer survey ranks McDonald’s only sixth on affordability among 12 major burger/sandwich chains. This a drop from its fifth-place ranking on the last survey, in 2014, conducted for investment firm RBC Capital markets. The surveyed companies included national competitors Burger King, Wendy’s and Sonic along with largely regional chains such as In-N-Out Burger and Culver’s.

The results challenged the idea that chains have to discount heavily to be seen as affordable, an approach McDonald’s Owner/Operators have been complaining about for years. In-N-Out and Chick-fil-A were ranked the top two most affordable chains — and also among the highest in average spend per visit. “Stable and compelling core menu prices seem to be working well” for those companies, rather than discounting and value advertising, according to RBC investment analyst David Palmer.

Palmer contends that moves to improve the perception of McDonald’s food quality – such as cage-free eggs and antibiotic free chicken – “will be a multi-year journey with slow improvement in perception rather than a quick and dramatic fix.”

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Expanding All-Day Breakfast Strains McDonald’s Franchisees

mcdonald's arches sign

In a move franchisees fear will create even more operational headaches, McDonald’s is now offering its full breakfast menu all day at over 150 locations in the Tulsa, Oklahoma area and the Triad region of North Carolina, and is adding McGriddles to the all-day menu at 1,000 additional stores throughout the South.

When the chain launched all-day breakfast in October, it limited the breakfast menu after 11:00 AM, in part to reduce the operational complexity associated with executing over 100 menu items. Even with the limited menu, franchisees reported backed up kitchens, with one franchisee describing “people falling over each other and equipment jammed in everywhere.” Operational complexities lead to staffing concerns, with one franchisee worried that all-day breakfast would require additional hiring, and another noting that the program has “caused management turnover, and crew turnover out of frustration.” One franchisee felt her store would lose customers over the initiative because of slower service times and lower quality food.

If McDonald’s moves forward with a fuller breakfast menu all day, it may only create more difficulties for franchisees. For example, owner/operator LeAnn Richards, who led a task force on all-day breakfast, points out the complexity of serving just one of the breakfast items,

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Most states lack key protections for franchisees

WAMS_Map

Our new, comprehensive guide to state franchising laws finds that 32 states do not have laws that protect small-business franchisees from abusive franchisor practices. The analysis of franchise laws, available here, allows current and potential franchisees to better understand franchise-specific legal protections, which are too scarce.

See the state-by-state guide:
www.wearemainst.org/map  

To spur reform, We Are Main St. is reaching out to every member of the legislatures in 49 states, calling on them to establish franchisee-specific protections where there are none and strengthen laws where they exist. Working with franchisees, the group helped push through the nation’s strongest pro-franchisee legislation in California last year and is not contacting lawmakers there. Hawaii, Minnesota and Pennsylvania are currently considering legislation to strengthen franchisee rights.

“There are unique risks inherent in franchising because of  the profound imbalance of power between franchisors—often large, multinational companies like McDonald’s—and small-business franchise owners,” said Joan Moriarty, Director of We Are Main St. “Hardworking franchisees should have the necessary, common-sense protections that create an even playing field. These changes promote stability and prosperity for small business owners and the people they employ.”

Previously,

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Small restaurant franchisees endangered?

Small restaurant franchisees endangered?

Private equity firms and other large investors are taking over more and more franchised restaurants, contributing to a shift toward larger operators that may threaten the future of smaller and even medium-sized franchisees.

Franchise Times reported in 2015 that the country’s largest 200 restaurant franchisees operated over 23,000 restaurants, or an average of 116 units. Ten years ago, franchisees in the top 200 owned 78 units on average. In other words, the big restaurant operators have gotten bigger by nearly 50 percent over the period.

As larger operators grow, some smaller franchisees leave. Rick Ormsby, co-founder of investment bank NDA Inc., which specializes in the sale of YUM! Brands units (Taco Bell, KFC, and Pizza Hut) reports that 25-30 percent of YUM! operators with 10-15 units or fewer have left the system over the past four or five years.

Even medium-sized franchisees are losing ground, according to Franchise Times: “Many of the franchisees on the Restaurant 200 are getting bigger not by purchasing these mom-and-pops, but because they’re buying out mid-scale operators with 10 to 20 locations. These franchisees are retiring or simply getting out of the business.”

According to Nation’s Restaurant News,

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