McDonald's suggests franchisees downsize, offers $40 million in aid

McDonald's Corp. estimates that tens of millions of dollars will be required in order to aid US franchisees, but has also warned that some franchisees may need to consider downsizing or sell off locations outright.

The company has reserved around $40 million in aid for restaurant owners that are in a crisis due to the Covid-19 outbreak, according to Bloomberg News.

Temporary assistance will be made available depending on the case, and individual franchisees are asked to work alongside the parent company to "find a suitable financial solution."

Aid will likely manifest in the form or rent service fee deferrals for those who have a large chunk of restaurants in malls, airports, and other areas hit hard by the pandemic.

The franchisees who want more aid than the existing measures were told by McDonald's US President Joe Erlinger that they may need to consider selling locations or seeking other alternatives. This stance had angered a lot of people.

"Each restaurant must financially stand on its own, irrespective of any relief program or vendor concessions related to the COVID-19 crisis," according to statement about an assistance plan.

The pressure in some areas is more severe in others, especially those areas that depend heavily on tourism. Operators in this situation are encouraged to seek aid from the parent company.

McDonald's said earlier this month that it is making an injection of $100 million in additional funds for marketing across the US, Europe, and Canada. The ad spending is designed to stimulate sales for the loss of revenue since the coronavirus outbreak.

"For many years we've had a process in place to work with franchisees who are having financial hardship, and there's a number of options that we would explore with them to help them address their financial situation," said spokesman David Tovar. "We’re pleased to be able to provide additional financial support to our franchisees to continue to weather the storm."

Franchisees have pressed the parent company to increase the level of assistance as the economic impact has become apparent.

McDonald's March comparable sales—a barometer for restaurant performance—dropped 13 percent in the US, and more than 22 percent around the globe.

And while sales are showing encouraging signs of rebounding, restaurant owners are a bit apprehensive about opening up the dining rooms due to the risk of a new outbreak of the illness, even though more and more US states are giving the green light.

Other fast-food chains, including Jack in the Box Inc., Dunkin' Brands Group Inc., Restaurant Brands International Inc., and Wendy's Co. have also committed to pledging aid to struggling restaurant operators. McDonald's and the rest of these companies have implemented an asset-light business model, which allows the parent company to maintain the intellectual property while dishing much of the operational risk to franchisees.

Other fast-food chains, including Jack in the Box Inc., Dunkin' Brands Group Inc., Restaurant Brands International Inc. and Wendy’s Co. have also pledged aid to struggling restaurant operators. These companies, along with McDonald’s, have largely adopted an asset-light business model, which keeps the intellectual property with the parent while pushing much of the operational risk to franchisees.

These companies are nevertheless in the hot seat for assistance and concessions on rent, royalty, and marketing payments as financial hardship rises amid the pandemic.