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Now this is very serious, folks. A new report by Franchise Consulting Group has exposed that 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 revenue in the U.S. and say the company is on a “destructive path.”
One of them has gone bankrupt and filed for bankruptcy just 45 days ago, and insiders familiar with the matter are saying that systemic risks are rapidly growing for the food service retailer given that about 30% 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.
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 climb in costs for ingredients and packaging which have been eroding profits over the past few years.
Franchisees operate 95 percent of McDonald’s locations in the U.S. and generate about 70 percent 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, further complicating the situation of operators that aren’t financially sound.
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 emailed newsletter to about 1,000 members.
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Backed by analysts, many of them fear the franchise system is nearing a major crisis, some going so far as to suggest the business model is doomed.
“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, and we are still trying to be too many things to too many people. Things are broken from the franchisee perspective.”
In a financial survey by the Nomura Group, a franchisee stated that the company is in the “throes of a deep depression, and nothing is changing” and exposed that roughly “30 percent of operators are now insolvent”. Another franchisee cited by the FCC report went as far as to speculate that McDonald’s is literally “facing its final days”.
In recent months, Americans have taken to social media to voice their outrage about the McDonald’s prices. They say the chain has become wildly overpriced while quality is deteriorating. For U.S. consumers, some of the biggest draws of eating at fast-food chains are convenience and comfort, but the biggest of them all is certainly affordability. And while McDonald’s customers reckon with higher fast-food bills, the company itself is also in the midst of a reckoning about its future.
The bankruptcies, the closings, and the layoffs demonstrate why analysts believe McDonald’s business model is collapsing.
Article and video cross-posted from Epic Economist.