McDonalds Makes Major Change After 30 Years- Will There Be Fewer In Texas?
After 30 years of holding a steady franchise fee of 4%, McDonald's is upping their "royalty fees" fka "service fees" to 5%, according to qsrmagazine.com. Not all franchisees will have to fork over more of their earnings, though. Basically, all currently owned franchises are grandfathered into the previous rate.
Rather, it will apply to new franchisees, newly built restaurants, relocated restaurants, and properties purchased directly from the franchisor.
5% might not sound too bad, but it is only one category of fees that are assessed to franchisees. There's an upfront fee of about $45,000, along with other opening expenses. If you were thinking of owning a new McD's, it would probably cost you about $1,314,500 and $2,306,500, and you'd need to prove you have at least half a million in liquid assets. That's pretty steep.
However, other franchised restaurants charge up to 12% for the privilege of using a brand's moniker, image, and menu. And some franchises charge advertising fees of about 2-4% as well.
So will this increase in fees decrease McDonald's locations in Texas? Perhaps. If a current franchisee wishes to hang up their arches, a possible new candidate may decide to forgo this iconic U.S. brand for something more regionally appealing.
Wildly successful Chic-Fil-A only charges a $10K set-up fee and tends to rake in double yearly profits than what McD's does. Chic-Fil-A, however, charges much higher service fees. Texas iconic Whataburger charges a hefty $50,000 upfront franchise fee and requires a 4.5% service fee and a 3.25% advertising fee. Additionally, you must commit to opening at least 3 Whataburgers.
All in all, if you have millions to invest in opening your own franchise, you have some homework to do. If you land on opening a McD's, just please make sure the fries come out hot.