By Annie Gasparro
Pessimism has grown among some McDonald's Corp. franchisees
about the fast-food giant's ability to reverse lagging sales and
rebuild its damaged image, according to the latest survey of
franchisees by Janney Capital Markets analyst Mark Kalinowski.
Respondents to the quarterly survey, which covers about 25
franchisees who own a total of about 215 U.S. McDonald's
restaurants, rated the outlook for the business over the next six
months as between poor and fair. Their assessment equated to a
rating of 1.81 out of 5 on Mr. Kalinowski's scale, the worst in the
more-than-11-year history of the Janney survey.
The survey is Janney's first since Steve Easterbrook took over
as McDonald's chief executive on March 1 touting plans to revamp
the restaurant giant after more than two years of weakening sales.
The report suggests that at least some franchisees aren't impressed
by his efforts so far, which have included plans to curtail
antibiotic use in chicken in the U.S., to add a premium sirloin
burger and to raise wages for the 90,000 employees at McDonald's
company-run stores to $1 above local minimum wages.
"The system is broken," the Janney report quoted one franchisee
as saying.
A spokeswoman for the Oak Brook, Ill., company said
approximately 3,100 franchisees run McDonald's restaurants across
the U.S. "We value the feedback from our franchisees and have a
solid working relationship with them," she said. "Less than 1% of
them were surveyed for this report."
Franchisees overall operate nearly 90% of McDonald's 14,350 U.S.
locations, making them central to the brand's success in its most
important market. The company's turnaround efforts, while winning
praise from some analysts, have raised concerns among some
franchisees that their costs will increase-in particular the
minimum wage move, which doesn't apply to franchisees but could
pressure them to follow suit.
"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," Mr. Kalinowski said in
his report.
Response to his survey had hit a previous low three months ago,
before Mr. Easterbrook took over. In the latest one, two-thirds of
respondents expressed concern about not having the cash to
implement the changes in McDonald's turnaround plan. "Simply can't
afford what Oak Brook wants to do," one said, according to Janney.
"They really do not understand the financial position that the
two-store, three-store and four-store operators are in," another
franchisee was quoted as saying.
Several said they feel betrayed by the wage-increase
announcement. Others complained that menu changes are complicating
things further rather than simplifying them, as McDonald's has said
it planned to.
Those surveyed reported March same-store sales fell an average
3.7% from a year earlier. McDonald's is expected to report March
same-store sales along with first-quarter earnings next week.
Write to Annie Gasparro at annie.gasparro@wsj.com
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