The Recession May Not Be Good for Fast Food Franchises After All
The Wall Street Journal published a smart, counter-intuitive piece today that suggests fast-food giants, in an effort to stay ahead of the recession, are squeezing the hell out of their franchisees, leaving them with little to show for their efforts.
So much for the idea that McDonald's is making a killing in this bad economy.
The gist of the story is this: Fast-food companies are trying to lure customers back by demanding that franchisees add new, sometimes "gourmet" items, which then require new machines and new overhead costs. These same franchise operators also got hit with a minimum wage hike in July. There apparently just isn't that much margin in franchise operations to make those numbers work.
Reports the Journal:
To boost sales, franchisors are taking a scattershot approach. "Franchisors are trying to be everything to everyone right now," Riggs says. Given that penny-pinching consumers are eating more meals at home, franchisors are pulling out all the stops to reel them back in. They are asking franchisees to pitch cut-rate sandwiches and burgers and dreaming up premium, often exotic menu items to lure consumers back.
Just ask Mike Wright, a McDonald's Corp. franchisee in Shalimar, Fla. To make way for McDonald's new McCafé espresso-based coffee drinks, which launched nationally in May, he was looking at paying upwards of $125,000 to remodel the interiors of each of his seven stores. The company eventually changed its tune – after substantial pushback from franchisees – but Wright and his fellow franchisees were still strongly encouraged to purchase the necessary coffee and frappucino-style drink equipment. "At $14,000 a pop, you've got to sell a lot of coffee to make it up," Wright says.
In Southern markets, selling hot coffee isn't easy, Wright says. "When you start selling Bubba a cappuccino, it's like trying to sell grits to a New Yorker," he says. "They forced everyone to put this in their stores regardless of profitability."
Image courtesy of The Consumerist via Flickr Creative Commons, Attribution License