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McDonald's franchisees: It's bad and getting worse

Sarah Whitten

Just when you thought it couldn't get much worse for McDonald's (MCD), it did.

The six-month outlook for franchisees is at an all-time low, according to a small survey by Mark Kalinowski, a long-time restaurant industry analyst. (Tweet this).

Some 29 franchisees, who collectively own and operate 208 McDonald's restaurants in the United States, were asked to give their six-month forecast from 1 (poor) to 5 (excellent). The average response was 1.69, the lowest in the survey's 12-year history.

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Previously, the lowest rating was 1.81, which was recorded three months ago.

Those 29 franchisees said their same-store sales fell 2.3 percent in June-2 full percentage points worse than Wall Street expectations, Kalinowski wrote. The respondents expect sales to fall 1.2 percent more this month, whereas analysts were assuming sales would rise.

"Corporate has no answers," one respondent said. "They are throwing ideas at the wall hoping something will stick. Their collective arrogance has come home to roost."

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McDonald's shares fell 1.8 percent Thursday. The company, in a statement, defended its record.

"Approximately 3,100 franchisees own and operate McDonald's restaurants across the U.S.," McDonald's said. "Less than 1% of them were surveyed for this report. We value the feedback from our franchisees and have a solid working relationship with them."

Franchisees in the survey cited a range of issues, including weak marketing, poor customer perceptions and corporate ignorance.

"My numbers are not good due to new competitors," one franchisee said. "Overall, sales are still in a slump and I don't see much to get excited about in 2015."

Another respondent said, "At least half of the operators in my region are on [the] verge of collapse. With minimum wage for fast food workers potentially increasing to incredibly high levels, we are facing a crisis situation."

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McDonald's faces stiff competition in the burger segment as brands like Shake Shack (SHAK), Sonic (SONC) and Whataburger expand. Meanwhile, U.S. same-restaurant sales at McDonald's continue to retreat, having fallen 2.4 percent this year as of late June.

In May, McDonald's announced a massive corporate restructuring initiative aimed at reorganizing the struggling business. According to CEO Steve Easterbrook , the plan is set to save the company $300 million annually.

As part of this restructuring, only 10 percent of McDonald's stores will be company owned by 2017. Currently, 80 percent of all restaurants are owned by franchisees. The company also plans to report same-store sales numbers on a quarterly basis, rather than monthly, starting in the third quarter.



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