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Investing Future, 6/14/23
"McDonalds Is In Deep Trouble As Biggest Fast
Food Chains In USA Face Collapse, with Clayton Morris"
"Now, this is very serious, folks. A new report by Tucker Carlson at Fox News has exposed that the McDonald's business model is in its dying days. Believe it or not, the biggest fast food chain in the entire world is facing rising unrest among franchisees that generate over two-thirds of its revenues in the U.S. They say the company is on a destructive path. One of them has gone bankrupt and filed for bankruptcy just 45 days ago. An insider familiar with the matter is saying that systemic risks are rapidly growing for the food service retailer, given that about 30 percent of franchisees are currently insolvent. To make things worse, by the end of 2023, 2,000 McDonald's restaurants may disappear from U.S cities. Pressure from regulators, labor tensions, and financial losses may force the fast food giant to sharply reduce its brick and mortar footprint this year as it faces a reckoning after years of mismanagement, according to the analysis.
A new report released by Franchise Consulting Group, in partnership with VF Franchise Consulting, titled "McDonald's Model in Dying Days: 30% of Franchisees Insolvent," reveals that some really big risks are facing the world's biggest fast food chain. Analysts say that for the first time in over 40 years, the ranks of McDonald's franchisees are dwindling, and hundreds of them are on the verge of bankruptcy. The report notes that management is struggling to justify higher fees and other charges to franchisees that are already coping with rising wages and the unrelenting climbing costs for ingredients and packaging, which have been eroding profits over the past few years.
Franchisees operate 95% of McDonald's locations in the U.S. and generate about 70% of revenue in the country. The National Owners Association estimates that McDonald's restaurants, on average, will generate less cash for a second straight year in 2023. To further complicate the situation for operators that aren't financially sound, in an emailed statement, McDonald's acknowledged that inflation has trimmed profitability for franchisees last year. But executives argued that the higher operating costs were necessary to keep the company aligned with its long-term expansion goals.
Squeezed by higher costs and grumbling at new operating rules, franchisees are joining a meeting this month with the company's board to press their case in person. The session will give U.S. operators an opportunity to share with the board of directors why we believe we are on a destructive path, one group of owners said in an email newsletter to about a thousand members. Backed by analysts, many of them fear the franchise system is nearing a major crisis, some going so far as to suggest that the business model is doomed.
What also came to the fore is that franchisees are in disagreement with the direction of CEO Chris Kempczinski. Franchisees have been complaining about the erratic nature of McDonald's corporate decision-making process and view Oak Brook's leadership as inconsistent and characterized by jumping from one failed marketing scheme to another. "The CEO is sowing the seeds of our demise. We are a Quick Serve fast food restaurant, not a fast casual like Five Guys or Chipotle," said one franchisee. "The system is very lost at the moment," said another franchisee. "Our menu boards are still bloated. We're still trying to be too many things to too many people. Things are broken from the franchisee perspective."
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