May 9, 2015

Comment of the Week

The operators need to take care of ourselves. "Just Say NO!" Don't do one thing that is not required in the license agreement. We have allowed them to do this to us hoping it will allow us to expand or to avoid being impacted by a new store going to another operator. It is time to stop. They need to get the message loud and clear. If we allow it they will continue to abuse us. Don't rely on operator leadership. Do it yourself. Take items off the dollar menu and raise the price, stop all reinvestment unless it is your best interests. Regardless, of what they say or want get your debt manageable and make money for yourself. This doesn't mean you have to be confrontational just explain that you are not in a position to borrow more money and that is your judgment to make not theirs. If we bend over and spread our cheeks they will continue to ram it to us. They simply don't care. Its not their name on all those financing agreements. Stop thinking this is the MCD of the past where the concept of the three legged stool was real. The three legged stool is now a myth. Take care of NUMBER ONE!! 
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9 comments:

Anonymous said...

SPOT ON !!!

Anonymous said...

Are you kidding? McDonald's response to your naive comment will be: "Go ahead, make my day."

Richard Adams said...

I would argue that it's naive to go around thinking that McDonald's has an endless supply of Operators. Oak brook claims there are 3,100 Operators in the USA. But, if you carve out the partnerships, family organizations, and other situations where multiple "Operators" are running a certain group of stores there are probably 2,600 actual operating entities in the country running 13,000 + stores.

Anonymous said...

The problems facing today's MCD are for the most part self-inflected. These issues were built by MCD's desire to control the operators and force the company's will on the operators regardless of its impact on the financial health of the operators. As the first generation of MCD top management began to leave the system they were graduly replaced by management with less sensitivity for the operators and suppliers and that important relationship. This trend has continued. When MCD decided to embark on a manic expansion program and at the same time rebuild the system they forced this decision on the operators. The MCD operators have been the best herd of sheep that any franchisor has ever had because of the "trust" in management gained from past experience. Then MCD completely ignored the license agreement and began "requiring" operators to do things that were never intended by our agreements. Before doing this the first thing they did was to require the operators to submit monthly balance sheets which was never required by the license agreement. They did this because, in my opinion, they could then calculate the borrowing capacity of each operator. With this information they would strongly suggest reinvestments projects that improved their real estate with little assurance of an ROI for the operator. As the operators complied MCD took it upon themselves to then spend every penny of the operators borrowing power on company assets.

Anonymous said...

Sadly, the operators fell in line trusting every thing they were being told. Debt on the operator increased at least ten fold. ROI at best was inconsistent. The operator "good will" and "trust" has been betrayed time and time again. EXAMPLE, Everyone will acknowledge that MCD has the very best architects and construction personnel in the world. They source the finest materials and know exactly what each store will cost to build and they hold general contractors to rigid cost control. Now comes the MRP program. MCD goes into the co-ops saying that the MRP's will cost between $300,000.00 and $400,000.00 and that MCD will contribute to this program as it is in both of our best interests. Personally, I have never seen or heard of an MRP coming in the numbers put out by MCD. My question is; With the depth of their experience in construction generally and specifically in building MCD restaurants , how could they possibly and consistently miss their own numbers by nearly 250% across the system. There are those who will say that MCD knew very well what they were doing and fully expected MRP costs to be what they were. Even the Banks financing these MRP's were shocked but continued to be encouraged by MCD to continue loaning the money for them. Some would say that MCD was just incompetent. Nothing could be further from the truth, in my opinion. This is just one example in recent years that has destroyed MCD credibility with the operators and the banks.

Anonymous said...

The concern is that this management style by MCD is not going away. Where does this leave the operators? My opinion is that we don't need to organize or be confrontational. We need to be less trusting of MCD and make good individual business decisions. Many times when an operators makes a good business decision it is viewed by the company as a "bad attitude". History says that MCD will punish the operator for it. The license agreement does not give us recourse to MCD for a failed project. They are not our partners in these things and they cannot force it even tho we let them. Being a "good operator" being positive and contributive and supporting the brand does not include going broke or running an insolvent business. Operators need to be better business people and make decisions that make sense for their organization. It doesn't mean that MCD will agree but it is what it is.


There is no better time for operators to be committed to their own organization than now. MCD may not yet realize it but the time is near when they are going to need the operators to be a big player in their "turn around" plans. My advice is to be loyal to the brand but don't put yourself at risk and think of debt as poison. If what they ask is not good business then don't do it. I have instructed my CPA not to transmit my balance sheet to the regional office going forward. We'll see what happens.

Anonymous said...

It's not naive and it doesn't matter anyway since the "go along, get along" attitude is now in-bred with second and third generation operators taking over the stores. They don't really need an endless supply of new operators and, I would argue, they want to keep the number of franchisees as small as possible due to economic and control issues. Don't forget, they will always have a supply of ex- company staff who think they can run their own store.

Richard Adams said...

"I would argue, they want to keep the number of franchisees as small as possible due to economic and control issues."

Agree - the number of Operators in the USA will continue to decline as smaller Operators are a corporate liability.

Richard Adams said...

"Don't forget, they will always have a supply of ex-company staff who think they can run their own store."

Really? Are there company people becoming Operators? That would be below my radar but I certainly remember the days when that was the goal of many corporate people but hasn't that changed? Plus it works against the Oak Brook goal of reducing the number of Operators.