McDonald’s to raise royalty fees for new franchise restaurants in US, Canada

By Savyata Mishra

(Reuters) -McDonald’s is raising royalty fees for new franchise restaurants in the U.S. and Canada for the first time in nearly three decades, according to a letter viewed by Reuters on Friday, bringing them on par with what it charges in other markets.

The fees are being hiked to 5% from 4%, starting Jan. 1, and will not affect franchises that are looking to rebuild or renovate existing locations or transfer an outlet to another party, the letter showed.

The move comes as the restaurant chain sees slowing revenue growth for the rest of the year as signs of easing inflation prompt it to lower menu prices.

Northcoast Research analyst Jim Sanderson, however, said the impact of the rate increase on McDonald’s (NYSE:) revenue would be “very limited”, since there are very few new stores opening in the United States.

The fast-food giant operates around 13,400 stores across the United States. Around 95% of these were operated by franchisees as of Dec. 31, making up nearly 30% of the company’s total revenue in 2022.

Average cash flows for these U.S. franchisees have grown more than 35% over the past five years, the letter showed.

The company will also change the term for payments from “service fees” to “royalty fees”, used by all other McDonald’s markets around the world.

Royalty is a fee paid by restaurant operators to the owner and the rate is set based on the revenue generated by the licensed property.