McDonald’s Next: $8.5 billion to help restaurants, not their owners
FRANCHISE - The massive investment plan announced by McDonald's this week aims to modernize its global network. Under the guise of support measures for franchisees, the backbone of the burger chain, "Next" resembles a financial bulldozer. The most vulnerable independent franchisees will likely be forced to restructure or close down.
What a fuss! To accelerate the modernization of its restaurants in support of its "Next" strategic plan, the Chicago giant announced this Wednesday that it will be opening its big wallet: "Approximately $5 billion" by 2030 to invest "alongside franchisees." This financial effort will then slow down to reach "approximately" $8.5 billion in total by 2036 .
So, obviously, McDonald's official communication doesn't acknowledge any major restructuring based on economic Darwinism or, to put it more simply, a desire to consolidate the number of franchisees. However, several factors, particularly figures, support the hypothesis of a transition towards a kind of oligopoly of highly capitalized franchisees, to the detriment of less well-off operators.
Support that is "flexible and targeted," and therefore unequal
McDonald's plans to phase in its "rent relief and capital support" based on franchisees' "capacity" and their "return on investment." This "focused" approach seems primarily aimed at selecting the franchisees best able to keep pace with the required investments.
In short: markets and franchisees deemed high-performing and strategic will be given priority. As for independent businesses with more limited capacity, this looks like an initial push to sell their restaurants to larger operators. At the very least, the parent company's strategy exposes them to a competitive disadvantage.
The abstraction of a ten-figure amount
The mere mention of billions of dollars makes some people dizzy. It took an amount commensurate with McDonald's "unparalleled scale," to quote CEO Chris Kempczinski. While impressive, it's important to put it into perspective.
The multinational's chief financial officer, Ian Borden, estimated that the total cost of the upgrades was $800,000 per restaurant . With some 14,000 franchised restaurants in the United States, the cumulative investment needs already exceed $11.2 billion.
The billions of dollars projected by the golden arches brand by 2030 don't even cover half of the modernization costs that franchisees will have to meet through their own funds or debt. For the least capitalized among them, this remaining expense could prove prohibitive.
An optimistic return on investment
McDonald's then anticipates a four-year return on investment for the franchisee who co-financed the project. This element of joint effort strongly suggests that support from headquarters will be very limited. Or it implies that without this support, the return on investment would be much longer, or even impossible for some franchisees.
A lack of clarity regarding ROI is a classic point of contention between national managers and local operators. Franchisees who do not receive sufficient support, because they are deemed less important, could find themselves with payback periods incompatible with their cash flow.
Owners of low-volume restaurants will not have the necessary funds or borrowing capacity to shoulder their share of the technological shift and infrastructure upgrade.
Unequal gains in financial efficiency
The estimated annual gross cash flow is $100,000. This is not a systemic benefit but rather a financial target dependent on operational improvement. Furthermore, this figure remains an average indicator: some restaurants could exceed this performance due to better locations, better management, and already relatively modern facilities; while others may never reach it due to low traffic in rural areas or high fixed costs.
Franchisees operating underperforming restaurants may therefore not fully benefit from these efficiency gains, while having to bear the same investment costs.
Beware of bad sellers
A brief statement in the press release's notes regarding revenue, which was described as "revealing the financial health of the franchise network," caught our attention. From an accounting perspective, McDonald's cannot include the gross sales generated by franchisees as its own revenue. The group only records what it receives directly: royalties, rent, and other fees .
But gross sales remain the most reliable metric for measuring a brand's overall commercial reach and its true market share relative to the competition. If revenue per restaurant stagnates or declines, the franchisee's net profit margin collapses very quickly.
For McDonald's, monitoring franchised revenue serves both to gauge its own future income and to identify weak links in the network before they become liabilities. The company could then make strategic decisions based on this "financial health." It's hard not to think of recommendations for divestment, non-renewal of contracts...
A margin target that increases the pressure, and consolidation
It should also be noted that the fast-food giant intends to maintain its overall operating margin in the range of 50 to 55% by 2030. This objective relies largely on efficiency gains at the restaurant level and means that McDonald's is counting on the modernization and optimization of its franchise network to achieve it.
From the perspective of franchisees, restaurants that fail to generate these efficiency gains, because they are poorly equipped or in unprofitable contexts, could be considered as "dead weight" for the system.
Is this the advent of a new franchise model towards a subgroup of large multi-unit operators, capable of managing highly digitized, capitalized units integrated into the corporate architecture? While small independent operators are gradually being pushed out of the network.
Is the McDonald's system gradually becoming reserved for structured groups, often owned by funds or entrepreneurial families, capable of mobilizing capital? Is it a system that is functionally closed to new entrants, effectively excluding small individual investors?
“McDonald’s size and financial strength are a testament to decades of rigorous execution, sound decision-making, and a proven ability to create long-term value,” CFO Ian Borden aptly pointed out. The question remains whether small, independent franchisees, once a symbol of American entrepreneurship, are becoming an endangered species. “Next,” a modernization plan, has never been more aptly named.
