Persistent tensions between the Chicago-based company and its U.S. franchisees have escalated over the past month.
Photo: Mark Lennihan/Associated PressThe coronavirus pandemic is exacerbating a longstanding feud between McDonald’s Corp. and its U.S. franchisees, as social-distancing measures cut deep into the burger giant’s sales and profits.
McDonald’s has asked the more than 1,600 owners of its restaurants in the U.S. to do more to protect workers after some employees have contracted the virus and others have gone into quarantine.
Franchisees, in turn, say they want more financial relief from the company to help keep them afloat. Same-store sales at the chain’s U.S. restaurants fell by 13% last month as dine-in service stopped across most of the country. McDonald’s continues to make delivery and drive-through sales from many restaurants.
Tensions between the Chicago-based company and its U.S. franchisees have escalated over the past month in a series of communications viewed by The Wall Street Journal.
“Our membership and most owners are increasingly losing faith in the partnership and company leadership,” the National Owners Association wrote to McDonald’s executives in one letter last week.
Joe Erlinger, McDonald’s U.S. division head, wrote back to the franchisee group to say that their support for the company’s strategy seemed predicated on unlimited financial support.
“If that’s how the NOA seeks to define its relationship with McDonald’s, then in reality, we don’t have a relationship, and I am extremely disappointed and disheartened by this,” he wrote in a letter reviewed by the Journal.
The National Owners Association, a subset of franchisees that was formed in 2018, says it represents nearly 1,300 U.S. owners. It is separate from the National Franchisee Leadership Alliance, the company-recognized franchisee body representing all McDonald’s owners in the U.S.
McDonald’s spokesman David Tovar said on Tuesday that it is engaged in productive discussions with franchisees. “Everybody is trying to pull together to get us through this,” Mr. Tovar said.
The coronavirus pandemic is decimating business at restaurants across the country. Customer transactions at restaurants declined 41% in the week ended April 5, according to NPD Group, an industry research firm.
Fast-food chains have held up better than many full-service and casual-dining chains that lacked robust drive-through and takeout operations. But the pandemic still represents a tough blow to McDonald’s, which was struggling to boost customer traffic in the U.S., its biggest market.
The halt to dine-in services in most of the country has cut into sales.
Photo: Daniel Acker/Bloomberg NewsLeading the company’s response is Chris Kempczinski, who was promoted to CEO after his predecessor, Steve Easterbrook, was fired in November. The two executives began mandating upgrades to stores in 2016, and franchisees balked at shouldering the cost.
Some NOA members said they held productive discussions earlier this year with Mr. Kempczinski and Mr. Erlinger, the U.S. division head, about issues including the continuing store upgrades. But discord flared again as U.S. restaurants began to feel the effects of the pandemic in recent weeks.
Franchisees, including members of the National Franchisee Leadership Alliance, have asked McDonald’s to eliminate rent payments and service fees for three months. Unlike many fast-food chains, McDonald’s owns most of the real estate that it leases to its franchisees.
The company has deferred rent payments from those operators for three months beginning in March. It also extended deferrals to service fees for owners who recorded the steepest sales drops.
The chain said those and other measures add up to $900 million in assistance to U.S. restaurant owners. “McDonald’s has provided an unprecedented level of financial support,” Mr. Erlinger wrote to franchisees last week.
McDonald’s and some franchisees are also at odds over how to compensate workers who are infected with the virus or need to be quarantined after exposure to an infected person. The company last month said it would pay employees of its roughly 700 corporate-owned U.S. restaurants for two weeks if they were exposed to the virus at work.
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That policy angered some of the franchisees that run 95% of the 14,000 McDonald’s restaurants in the U.S. Many didn’t offer sick leave before the pandemic.
In his letter, Mr. Erlinger asked the owners’ association to endorse two weeks of pay for any quarantined worker and a 10% raise to all restaurant workers for the next two months.
“Overnight McDonald’s could transform our employer reputation and customers’ perceptions,” he wrote.
The NOA said franchisee members as a general rule do more for their workers than McDonald’s does for its company-store employees.
Franchisees have asked McDonald’s for public-relations help if someone associated with their restaurants contracts the virus. Unions seeking to organize McDonald’s employees walked out of some California stores earlier this month after learning that an employee at one Los Angeles restaurant tested positive for the virus roughly two weeks ago.
Write to Heather Haddon at heather.haddon@wsj.com
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