December 8, 2012

Obamacare and Food Inflation

A McDonald's Operator asks - "How are Operators planning to pass
along costs  to customers when the Affordable Healthcare Act kicks in?"

In my humble opinion - in the short term - they can't. 

Quick Service Restaurant menu prices are already at the upper limits and
speaking as your customer, we're just not going to take it anymore. 
Future increases are going to seriously damage guest counts. It's fine to 
ponder factors like Food Away From Home but because of  the AHA  and
possible food shortages Operators are headed into the great unknown.

Shareholders have enjoyed the fruits of food inflation in recent years and
it appears that managements of QSR companies do not want franchisees 
or investors to see any challenges ahead.

In particular, at McDonald's, the corporate folks are counting on a food
inflation windfall to continue to indulge shareholders and to pay for MRPs.

So McDonald's customers will be asked to pay $5.00 or $6.00 for a Big Mac
to cover increased food costs, healthcare costs, and to help the Operator
pay for remodeling their landlord's building? That's just not going to work.

I'm suggesting McDonald's Operators do several things:

* Don't count on food inflation when making plans for the future. Your
customers will outsmart you and they'll certainly outsmart Oak Brook.

* Back off on borrowing money. Even though interest rates are favorable 
you're in rough seas, there's a killer wave of unknown magnitude on the 
horizon, and Operators are willingly taking on water?

* Do not let management use Operator "leadership" as a tool to rush you 
into taking on debt.

* Take another look at our comments on the Dollar Menu.

In a recent letter to fellow Operators a member of an RLC wrote, 
"Our finances are under pressure and will most likely continue to stay
that way." The letter went on to encourage Operators to hurry and sign 
up for more MRPs! 

An obvious Oak Brook form letter but is this the kind of schizophrenic 
financial advice one gets for their McDonald's franchise fees?

The challenges of 2013 and 2014 could not have been imagined five years
ago and sticking to a corporate agenda developed a decade ago may do a 
lot harm.

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