McDonalds Clashes with Franchisees Over Technology Costs

As McDonald’s introduces more technology designed to improve ordering experiences and maximize profits, many franchisees are complaining about the increased costs of implementing new systems. Some restaurant owners claim they will be forced to raise prices to the consumer based on the fast-food giant’s increasing costs.

ZDNet reports that while fast-food companies such as McDonald’s have performed surprisingly well during the coronavirus pandemic, relationships between corporate and franchisees have become strained. One key issue has been the implementation of new technology and the extra cost this puts on franchisees that already operate on extremely thin profit margins.

McDonald’s previously purchased a tech company called Dynamic Yield which claimed to be able to predict what customers would order and vary displays at drive-thrus based on parameters such as weather and traffic. The purchase appeared to pay off as McDonald’s rolled out these new predictive menus and saw third-quarter results beat estimates.

But with this new tech came a change for franchisees. McDonald’s would begin charging franchisees monthly fees for all the new tech rather than every six months. At the same time that franchise owners began dealing with increased costs, questions emerged about the tech’s effectiveness. The Wall Street Journal recently reported that an email between the National Owners Association to its members stated in part: “McDonald’s deserves the best-in-class technology. This is not.” The email appeared to imply that the new Dynamic Yield tech was not as beneficial as McDonald’s initially believed.

McDonald’s also recently announced that it would be ending a monthly subsidy it has paid to each franchisee for years to subsidize the cost of toys including in children’s Happy Meals. McDonald’s planned to use that money to fund other investments, likely including new tech.

This has resulted in franchisees stating that they may be forced to increase the price of Happy Meals. Nationally the children’s meals sell for around $3.76, Now many are considered raising prices by 20 cents or more to offset costs. McDonald’s reportedly only controls pricing at about five percent of its restaurants around the country.

Charlie Strong, the chief field officer for McDonald’s U.S.A., commented in a recent call: “The family business is absolutely a priority. We just believe the dollars are better invested elsewhere.”

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