Analyst: McD franchisees concerned over chain's pricing plans

Staff Writer
Analyst: McD franchisees concerned over chain's pricing plans

A new survey of McDonald’s franchisees shows same-store sales expectations for December and January remain strong, but concern over unit-level profitability is becoming apparent under the franchisor’s pricing plans in an inflationary environment.

Janney Capital Markets securities analyst Mark Kalinowski surveyed 30 McDonald’s owner-operators, representing 212 U.S.-based units, who together reported that they expect a 9.1-percent collective increase in December same-store sales, and expect January results to be strong as well.

“All in all we continue to believe that McDonald’s is generating some of the very best U.S. same-store sales trends out of the top seven burger brands in the country,” Kalinowski wrote.

McDonald’s will release its fourth-quarter earnings before the market opens on Jan. 24. The Oak Brook, Ill.-based company’s vice president of global external communications, Heidi Barker Sa Shekhem, said McDonald’s would not comment on the analyst report.

The survey covers a small percentage of McDonald’s domestic franchise system, which has more than 2,500 owner-operators and more than 14,000 total restaurants in the United States and 33,000 restaurants worldwide.

Kalinowski, however, has said the correlation of his franchisee surveys with actual chain results is high. In 49 previous publications of the McDonald’s Franchisee Survey, the actual same-store sales result for McDonald’s domestic system was within 1 percentage point of the survey’s projection 36 times, Kalinowski noted. The actual figure has been within 2 percentage points of the survey estimate 44 times. The average magnitude of the difference between the survey and the reported same-store sales figure is about 1 percent.

Pricing concerns loom

Despite the optimism for sales, franchisees responding to Janney’s survey expressed growing discontent with McDonald’s pricing strategies in response to high commodity inflation, which is straining the franchisor-franchisee relationship for some respondents.

Janney’s survey asked: “Will McDonald’s operators be able to adjust menu prices to cover future commodity increases and still keep the Dollar Menu in place?” Respondents overwhelmingly answered no, with 23 of the 30 respondents, and just four franchisees responding yes. Three respondents either didn’t answer or said they did not know.