It was a seemingly benign request designed to improve customer service and possibly sales, but asking employees to smile more was viewed as just the latest demand McDonald’s Corp. was putting on its already strained franchisees.
Independent owners control roughly 90 percent of Oak Brook-based McDonald’s 14,000 domestic restaurants. A sampling of them characterized their relationship with corporate as 1.93 on a scale where 5 would be excellent and 0 awful.
“We have more complicated items, with more elements coming from the (distribution center), more equipment coming from suppliers so everyone else is making more money sending us more ‘stuff’ and we are expected to deliver a product that takes 55 seconds on the best day in less than that, do it consistently and with a smile on our face,” one franchisee wrote in a quarterly survey released today by Janney Capital Markets in New York. “There’s little to smile about.”
McDonald’s declined to comment on the customer service plans, stating the company was in a quiet period leading up to its first-quarter earnings release scheduled for Friday.
Independent owners find their hands are tied when it comes to corporate edicts, including the latest one of improving customer service by being faster and friendlier.
“You have no choice in certain situations,” said Susan Kezios, president of the American Franchisee Association in Chicago. “They signed an agreement that says they’ll do whatever management says.”
The 25 franchise owners, representing 180 domestic restaurants, that participated in Janney Capital’s survey were also dissatisfied by McDonald’s aggressive stance on discounting and promoting its Dollar Menu.
Shareholders and analysts, however, are encouraged by McDonald’s product promotions. The company’s stock is trading at an all-time high with its share price up 14 percent for the year; it closed at $103.04 today.
But because McDonald’s is beholden to its investors, monthly sales performance is key, said John Gordon, founder and principal of Pacific Management Consulting Group, a San Diego, Calif.-based chain restaurant consulting group.
“That’s where the real rub comes in with franchisees — same-store sales,” he said.
After nine years of ever-higher sales at restaurants open for at least a year, the traditional measure of retail success, the streak snapped in October.
“The good news is that the chain has had a lot of success in the last four to five years,” said Jack Russo, an analyst at Edward Jones & Co. in St. Louis. “Unfortunately for owner-operators, it is bad news because the bar has been raised. (Corporate) is trying to do everything it can to get sales up.”
Janney Capital Markets expects first-quarter sales to be up 2 percent from a year earlier.