Starting January 1, Royalty Fees for New Franchise Restaurants will Climb to 5%
McDonald’s has disclosed plans to increase royalty fees for new U.S. and Canadian franchise locations, Reuters has reported. This marks the first such hike in nearly 30 years, according to that report.
As of Jan. 1, royalty fees will rise to 5%; they had previously been 4%. In a letter that Reuters reviewed, McDonald’s stated that the higher fee will not apply to franchisees who will be rebuilding or renovating existing sites or to those who transfer a unit to another owner. McDonald’s has about 13,400 U.S. restaurants, with around 95% operated by franchisees.
New Label for Fees
The company will also alter its past “service fee” terminology to “royalty fee,” the label used at other McDonald’s markets globally. Each franchise location is required to pay its corporate owner royalty fees based on revenues earned by that particular restaurant. The letter reviewed by Reuters indicated that average cash flows for U.S. McDonald’s franchisees have grown more than 35% during the past five years.
The fast-food giant is anticipating a lag in revenue growth for the remainder of 2023. But the royalty fee bump won’t help McDonald’s bottom line all that much, according to Northcoast Research analyst Jim Sanderson. Reuters quoted him as saying the boost would be “very limited’ because very few new U.S. stores are in the works.