- Hollis Johnson
A new report claims that some of the biggest problems plaguing McDonald’s – including customers’ complaints of higher prices and employees alleging that they are underpaid – can be traced to a multi-billion dollar aspect of McDonald’s business that most people don’t even know about.
A recent report by two major unions that represent the food and service industries, the European EFFAT and the American SEIU, highlights the negative consequences of McDonald’s real estate business. The report titled, “McLandlord: Global Rent Excess at the World’s Largest Franchisor,” argues that the fast-food giant’s unique system of requiring franchisees to rent restaurants through McDonald’s corporate allows the company to over-charge franchisees.
The report claims that franchisees pay more for rent than the average fast-food franchisee as a percentage of sales. While McDonald’s charges franchisees 8.5 to 15% of what they make in sales for rent, the average franchisee pays just 6 to 10%, according to the research firm Technomic.
Most fast-food chains, such as Burger King, Taco Bell, and KFC, don’t require franchisees to rent property through the corporate franchisor. However, at McDonald’s, renting the building and land is a required part of the franchise agreement.
McDonald’s made more than $3 billion in rent from US franchisees in 2015.
The unions argue that McDonald’s real estate business has a trickle down effect on customers and workers. If franchisees are forced to pay more in rent, they have less money left over to increase pay and cut prices for food.
“The extraction of these rents and McDonald’s control over franchisees’ profitability translate into increasingly limited investments in quality products, family-supporting jobs, decent wages and tax revenues for the communities in which McDonald’s operates,” the report states.
“We work closely with our franchisees so they have the support they need to operate their restaurants and provide a great quality, experience and convenience for our customers,” McDonald’s said in a statement to Business Insider. “Our business model helps our franchisees secure prime real estate locations and reflects a significant level of company investment in the restaurant premises as well as through training expertise and well-established, high-quality supplier networks.”