March 30, 2017

The Four Percent is More Than OPNAD Plus Co-Ops

There are some strange conversations going on between McDonald's and their franchisees.

What's this talk about making changes to the 4% spend for advertising and promotion required by the McDonald's franchise agreement? In reality that 4% is a meaningless 
number.

Here's what the McDonald's website says on the topic:

"each restaurant is required to spend a minimum of 4% of gross sales annually for 
advertising and promoting the business."

Source: McDonald's franchising US 

Please compare that to the language in your franchise agreement(s). Assuming it's similar
or identical consider that in practical application that has always meant that McDonald's franchisees add two lines on their P+Ls, "advertising" and "promotion".  

The 4% has never been the sum total of local Co-Op and OPNAD expenditures. It has 
always been just what the language says, advertising and promotion.

And most, if not all, McDonald's Operators have exceeded 4% when combining the two.

I don't know if there's ever been any litigation concerning this requirement but there's 
tons of anecdotal evidence to support what the McDonald's website states. For instance:

* When Operators decline to belong to a local Co-Op or OPNAD they are sometimes 
audited by McDonald's Corp. Promotional activities are always considered to be part of 
the 4% requirement. Billboards, Little Leagues, donations, etc. etc. were considered to 
be a component of the 4%.

* In the 1970s we were developing small towns in the Southwest and often went into markets where television and radio was very inexpensive. The Operator often got to the 4% spend by buying freeway billboards along with other promotional activities.

I'm sure veteran McDonald's Operators can think of many more examples.

While the 4% is set in stone OPNAD and Co-Op contributions have changed constantly over the years, they've never been determined solely by the "advertising" line on Operator P+Ls. 

Because the newbies in management have apparently never studied the agreements they 
seem to be making up the McDonald's franchise as they go.
.

7 comments:

Anonymous said...

MCD feels free to violate the franchise agreement terms because it has Operators by the throat. If you don't acquiesce or even if you object too loudly, you do not get re-written as a franchisee and tenant in the land MCD owns.

This is exactly why the CA franchise law that got done last year and the having a hearing in FL next week are critical. Franchisor a are ADMITTING that they WILL steal the restaurants from their franchisees, taking their equity for themselves without paying a dime for it.

People, call your stat reps and senators in FL today.Dont wait or risk losing everything. You will not be allowed to sell, because really, you don't have anything to sell. That is what MCD and their lobbyists told the legislature in C and are RIGHT NOW telling legislators in FL.

Wake up and protect what you built.

Anonymous said...

The Co-Ops are going to end up giving a bigger portion to OPNAD; look who is on your Co-Op boards they already are operators that just roll over and rubber stamp everything and always just say "we had no choice" they are all scared of the Regional Manager sitting there looking at their vote and worried about their future. Intimidation at it's best.

Anonymous said...

To the O/O who mentions "steal(ing) restaurants", the other device which accomplishes the same purpose is when an O/O has a contract to sell, the Field Services goons visit that or those restaurants and draw up a list of "must do" repairs and upgrades which, essentially, reduces the seller's equity to zero at the point of sale.

Richard Adams said...

While McDonald's Corp. has been interfering in this way for decades a little pre-planing can lessen the damage to the seller. We can't blame the buyer for standing back and letting corporate lower the purchase price.

However, if the seller and the buyer have an up-front and honest discussion about what to do when the goons show up the deal might be able to go forward.

You might talk with your attorneys about putting something in the contract.

It's harder and harder to sell a McDonald's franchise "as is" but if all parties agree on what deducts are appropriate and fair then anything corporate comes up with at the last minute could be ignored by both parties.

But, if those discussions don't take place and everyone waits until "surprise, the goons are here" the seller either takes the hit or it blows the deal.

Richard Adams said...

Generic advice on such transactions is impossible to provide because so much depends on the personalities involved. Is the buyer under the thumb of corporate or at least a little entrepreneurial? Is the seller an independent person or are they terrified of anyone from McDonald's Corp? Is this a deal in a rush or can the seller walk away from the table?

Anonymous said...

There is some what of a change in the normal bueaucratic behavior because they know that no one's job is safe for very long. In 2018 when the bulk of MRP's are done there will be more cuts coming. Recently heard that when this region is caught up that of the 13 people in construction department they will run it with three. Finance will consolidate with home office. Regions combined and top people gone. More cuts are underway in Oak Brook. However, on store sales Corp. will be guided by the most recent NRBS put on their clipboard. It is either done or not done. The sale will only be approved if it is done by the seller before the sale closes or if the buyer agree's to do it within six months. EOTF is not on NRBS, yet. But, it will be and that will be the sellers cost. If you are selling do it before EOTF goes on NRBS. After 2018 Corp. will not contribute 50% to the MRP and it will be 100% cost to the operator. Some operators have been in long enough that doing the MRP before or after 2018 will never get their money back. So, if you are going to sell, my opinion is, that you should make that decision within the next six months.

Anonymous said...

The NRBES is being rewritten Now with All of the Vision 2020 things going in to it. The 1st Draft should be out in May. It will be Vetted by Legal and NLC in June - August. Then it will be presented to the Operator Body in September and October. On Jan 1, 2018 we will be under the New NRBES. It will Include Replacing Dining Rooms every 10 yrs; Technology every 5 years, EOTF items and anything that has been added since 1/1/2012. CAN SAY GOOD BY EQUITY?