September 15, 2016

Speaking of McDonald's Operators

It's been 2 weeks since stunning changes in McDonald's USA management were announced. 
While I haven't communicated with every McDonald's Operator I've heard from enough to 
form a consensus of their opinions about the move:

1 - Appointing a new hire with ZERO McDonald's operational experience as President of McDonald's USA indicates that management and the board of directors no longer prioritize 
Quality, Service, Cleanliness, or restaurant profitability.

2 - Appointing someone with ZERO franchising experience as President of McDonald's USA indicates that management and the board of directors has no respect for the Operator community or interest in relations with that community. Any yokel can handle McDonald's Operators.

3 - It doesn't really matter because McDonald's USA presidents come and go so fast they 
don't have much impact on the system. The real damage will be done by the people who 
made this decision.
.

16 comments:

Richard Adams said...

When asked if the current CEO and the new USA Pres. will be at the 2018 worldwide few Operators expect these individuals to be in attendance.

Anonymous said...

The CEO will not make it past May 2017 unless the stock price has moved past $128 or it's equivalent.

All the discussion about a turnaround is just HOT air. All Day Breakfast sales will be a point on a graph, but will not fuel a full blown turnaround. A true turnaround will have to encompass all aspects of the business. And that will start by treating operators like business professionals and energizing them to go out kill it and drag it home.

Anonymous said...

WE need an operator UNION. NLC is a FARCE!

Richard Adams said...

Since the word "Union" is a dirty word in American business better to use the word "Association" or similar.

Anonymous said...

theres no way the new presi makes it, o/os will laugh him out of the job in short order.

Anonymous said...

Don't they change USA presidents every 18 months? I've never seen so many people in their 50s go into so-called retirement. I can't remember all the different people who were in that job over the past 10-15 years.

Anonymous said...

I can't remember when the usa president made a difference in the usa.

Anonymous said...

As a factual matter QSC in MCD lost its priority years ago. Operators are not rewarded for high QSC scores on the contrary low QSC scores are used as a weapon against the operators. The truth is that QSC is only meaningful when MCD wants it to be. An operator could have all A's in QSC with sales increasing but if the operator was not current on the reinvestments that improved MCD assets the QSC scores are meaningless. Does anyone dare talk about QSC and MCD diversity policies? I believe that strong QSC is important for the business and the operators should strive to keep it high but don't do it to impress MCD do it because it is good for your business.

Looking back over my years in MCD I have seen lots of change and I know many of you have as well. The biggest change for the U.S. business was when huge emphasis was placed on international growth. Our best people went to international. I recall going to Opnad meetings and listening to presentations from second stringers and asking where is Tom Gruber or others and told they were working to set up the business in Europe. MCD USA took a real hit in terms of people and that level of experience never returned, in my opinion. We had a great opportunity when Jim Canolopo (sp) returned but when he died and Jack Greenberg became CEO we reached new lows. They finally gave him fourteen million dollars to go away but things were going down hill fast. Spool forward to today. Easterbrook says he will cut five hundred million dollars out of MCD USA P&L costs by 2018. If he does that it will make the last three cEO's look like Larry, Mo and Curley. This will be the biggest change any of us have seen. Much of it is needed and long over due. Example, is the costs of having the innovation center at the costs of millions. The work they were doing was impressive but, I think, that responsibility rested with our suppliers working in concert with MCD. The "beast" as I refer to it is the company payroll. A 20% cut would benefit the system. No question about it. Big change is coming and employee's and operators are going to feel the pain. It is the natural evolution of the industry that will drive operator organizations out because of the lack of cash flow to impliment necessary changes.
MCD built too many low volume stores thinking they were necessary to maintain "market
share" Competitors came into those trading areas anyway driving sales even lower and MCD kept pushing massive reinvestments and driving operator debt to unreasonable levels. Easterbrook is right to close over 200 stores and fire people those stores should have never been built and those people should never have been hired. It needs to continue. Going forward, technology will become a major part of the future and it will be extreamly costly. If you don't have it when you go to sell stores you will see their value drop well below your expectations. Those who can't afford it or can't get the financing will have big decisions to make. This new technology is what these new people are bringing to the table. And, its not just MCD. Look around, every industry is gearing up and it is having much the same impact. It is all about the money because it has to be. Operators don't need a union and they don't need the NLC. They/we need to be better business people and make better decisions. MCD people, in my opinion, just don't have the intellect to lead or make good decisions. We need to accept what's coming and be prepared.

Anonymous said...

The above comment is GREAT.

I have a somewhat strong ratio (over 2.5) but leadership is twisting my arm on 3 MRP's and even with their contribution almost half
it will put a small strain on my cash flow. Talked with my accontant and we decided a 4 percent increase would be about the top.
With that said we ran a pro-forma and the ratio with the MRP is about 1.60 still above the dreaded 1.20 but a lot closer to the bottom.

I prefer not to do it but like he previous comments if I don't modernize when I sell in 5 years or so that will come off my selling price.
So MCDONALDS has you both ways. A long time ago RENSSI (who is on TV occasionally ) said when there is a sale they are on the
side of the new operator because that is their customer now not the person selling.

With crew and management shortages, turnover, cost of technology,new equipment, minimum wage ECT ECT it is harder to be
solvent. Second, who is going to but these restaurants unless it's a blue light special?

Lastly, RICHARD you sent an article recently about smaller operators leaving and being taken over by larger operators, that is happening
in our co-op. as well. Not that we can change anything but for formation purposes can someone provide the number of operators
over the last 20 years and then th decending slide we are on. The article is right MCDONALDS would rather deal with one 15-20
store operator than 4 operators running 15-20 restaurants.

TRYING TO PLAY THE GAME AS LONG AS I CAN. THINGS HAVE CHANGED AND NOT FOR THE BETTER.

Anonymous said...

Your desire to maintain a strong cash flow coverage ratio is good business. However, like QSC it is good only if you are current with the reinvestments from their perspective. They are now saying that MRP's will not exceed $500,000.00. You should confirm that to be a fact. Rerun the pro formas using a 40% equity position for each MRP. The important thing for you long term, is its impact on your predebt cash flow. If you are planning to pay cash for your MRP's and not take on additional debt that is your best option as there is nothing cheaper than reaching into your pocket and paying cash. It will certainly protect your predebt cash flow and the 4% sales increase will help recover your cash investment. Selling prior to five years should be carefully considered. Once the technology and other costs are announced as being a basic element of a MCD restaurant you are screwed if you have it or not as any buyer will pro form that into the stores value. The company business plan short term is Florida. Once the keoisks are rolled out and working the next phase will be started. Which will clearly mean more money. They are moving very fast. The question you need to answer is will my stores increase in value faster than the increasing costs of new technology and other requirements. This is classic business risk. Your CPA should value your stores for you and then consider what you can really get from the market of local operators. If your sales price is lower than what is coming you should sell or plan on being an operator for another five to seven years beyond your current retirement date. In any case taking on a lot more debt makes little sense if you can pay cash. You may need that debt for technology going forward. Watch closely once the new system is installed and if more people are coming into the lobby. Are those new people in the lobby coming from our own drive thru's. You like so many have big important decisions to make. Espically us old guys. Invest the money in hopes of getting it back or get out fast with the cash you need to live on. Doing three MRP's and implimenting these new programs you are not likely to see a cash flow coverage ratio of 2.5 again for a very long time.

Anonymous said...

Your desire to maintain a strong cash flow coverage ratio is good business. However, like QSC it is good only if you are current with the reinvestments from their perspective. They are now saying that MRP's will not exceed $500,000.00. You should confirm that to be a fact. Rerun the pro formas using a 40% equity position for each MRP. The important thing for you long term, is its impact on your predebt cash flow. If you are planning to pay cash for your MRP's and not take on additional debt that is your best option as there is nothing cheaper than reaching into your pocket and paying cash. It will certainly protect your predebt cash flow and the 4% sales increase will help recover your cash investment. Selling prior to five years should be carefully considered. Once the technology and other costs are announced as being a basic element of a MCD restaurant you are screwed if you have it or not as any buyer will pro form that into the stores value. The company business plan short term is Florida. Once the keoisks are rolled out and working the next phase will be started. Which will clearly mean more money. They are moving very fast. The question you need to answer is will my stores increase in value faster than the increasing costs of new technology and other requirements. This is classic business risk. Your CPA should value your stores for you and then consider what you can really get from the market of local operators. If your sales price is lower than what is coming you should sell or plan on being an operator for another five to seven years beyond your current retirement date. In any case taking on a lot more debt makes little sense if you can pay cash. You may need that debt for technology going forward. Watch closely once the new system is installed and if more people are coming into the lobby. Are those new people in the lobby coming from our own drive thru's. You like so many have big important decisions to make. Espically us old guys. Invest the money in hopes of getting it back or get out fast with the cash you need to live on. Doing three MRP's and implimenting these new programs you are not likely to see a cash flow coverage ratio of 2.5 again for a very long time.

Anonymous said...

If McDonald's is cutting $500 million, then they could easily cut service fees back to 3%. That would give the average operator about $25-$30,000/store to help cover future investment debt service, and be a TRUE partnership. Alas, they won't, because they don't have to.

Anonymous said...

I agree that rent and service fee's are too high when the operators have and continue to spend millions of dollars improving company assets mainly with debt and unbelievably the operators own nothing!! The operators own everything that is worth a nickle on the dollar in a bankruptcy. When you consider that much of McDonald's Corporate wealth and value is it land and buildings that have been built,maintained and kept modern and insured by its operators it is almost inconceivable that rents are what they are. When you examine it closely it is difficult to explain the company's treatment of the operators. Except that these are not business people they are adminstrators who owe nothing and have nothing invested except for shares given to them. However, we all knew it when we signed the agreements or should have. Once again the use of the term "Partnership" keeps cropping up. We are not business partners with McDonald's and never have been. I believe that this common misunderstanding about operators being business partners with the McDonald's Corportation has led to bad business decisions by operators and unrealistic expectations. If an operator goes bankrupt and has the stores financed the banks have no recourse to the McDonalds Corporation as they would have in a "true Partnership". You are correct, they don't have to give us anything. Just read the licence agreement. In a true Partnership and insolvency was approching there would be a capital call and the partners would be required to bring cash to the table. McDonald's does help in many ways but they don't have to. They do it when it serves their interests to do so. The only reason they pay impact fee's, which never go far enough, is because the courts would crush them if they didn't. The best advice I could give any operator is to stop living under the illusion that they are in a partnership with the McDonald's Corporation. The McDonald's Corporation can't make you do anything that is not in the license agreement but we let them. Time and time again we let them. Afraid, they won't expand with us if we do not bow down to their every demand. The adminstrators just love it. It makes them feel powerful. The operators are their own worse enemy's. Many if not most of the time we do what is asked because it is good for the business and we listen to operator leadership. Don't forget we signed the license agreement and we signed and personally guaranteed the bank notes. Both McDonald's and the Banks will hold you to it as they should. McDonald's is not our parents, big brother or business partner. Do every thing you can to keep your equity high and growing, a positive cash flow and a high pre debt cash flow. Do it yourself don't expect McDonald's to do it for you.

Anonymous said...

That may all change with the NLRB finding that they are a Joint Employer. That puts the company at risk, and require that McD have much more control over franchise operations. If this regulation is implemented, I see a future where the all operators will be Joint Venture partners, unionized, with a 50/50 ownership split. It will end franchising as we know it.

Anonymous said...

They won't get 50% without paying for it.

Anonymous said...

The NLRB is a political organization. It has always been assumed that any ruling made by them will go against MCD and any other corporation. As long as the Democrates hold the white house this will be the case every time. Their ruling will be appealed to the courts and MCD arguments will get a fair hearing. But, not until then.

That does not mean MCD has nothing to worry about. MCD has plenty to be critized for in its relationship with operators and company employee's and suppliers. Both sides are likely reading this site and operator opinions are well represented on the negitive side.