McDonald's has been dealing with problems ranging from lagging sales to labor activists, but now it's got a home-cooked headache: Unhappy franchisees.
Some franchisees are complaining about the fast food giant's efforts to reverse a decline in sales and polish its image, according to a survey from Janney Capital Markets analyst Mark Kalinowski. The survey of about 25 franchisees who own roughly 215 U.S. locations pegged the six-month outlook for the business at a 1.81 rating on a 5-point scale, or the lowest in the 11 years that Janney has conducted the survey, The Wall Street Journal reports.
Franchisees said they aren't "lovin'" a number of new steps taken by McDonald's, including the decision to raise wages at company-owned locations. Respondents' frank remarks include comments such as: "Corporate has betrayed us" and "McDonald's' system is broken." Since about 90 percent of McDonald's stores are owned by franchisees, their lack of confidence in its corporate management poses yet another headache for company, which needs the support of the restaurants to make the turnaround a success.
"In general, we argue that corporations who have franchisees on board and enthusiastic about senior management's plans and strategy tend to fare better than those that don't," Kalinowski wrote in the report, according to The Journal.
In a statement emailed to CBS MoneyWatch, McDonald's said, "Approximately 3,100 franchisees own and operate McDonald's restaurants across the U.S. Less than 1% of them were surveyed for this report." It added, "We value the feedback from our franchisees and have a solid working relationship with them."
The wage increase has caused bad feelings, with some franchisees worried that they'll have to also boost pay for the workers as a result. McDonald's earlier this month said it would increase hourly wages for its low-paid workers to $10 an hour by the end of 2016, as well as provide paid time off. The raises only extend to the 90,000 workers who are employed at company-owned restaurants, however, and doesn't include the 90 percent of employees who work for franchisees.
Two-thirds of the surveyed franchisees said they are concerned about not having enough cash to carry through on McDonald's turnaround plan. While the wage increase isn't mandated for franchisees, McDonald's is also working on reviving its menu, adding options such as the "Create Your Taste" program, which allows consumers to build their own burgers, as well as bigger sirloin burgers with a $5 price tag.
"They really do not understand the financial position that the two-store, three-store and four-store operators are in," one franchisee told Janney.
McDonald's, which will release its first-quarter earnings on Wednesday, may continue to report more bad news. The franchisees that were surveyed said March same-store sales, a key metric for restaurants open at least a year, fell an average of 3.7 percent.