May 17, 2017

More On EOTF and the Four Percent Myth

When I first heard that McDonald's management was proposing a change to the 4% advertising requirement I assumed it was because of the Oak Brook management team's 
lack of knowledge of McDonald's.

But now that the idea is moving forward I'm beginning to wonder if this isn't a huge 
scam  on McDonald's Operators. Lower the franchise agreement advertising percentage 
but raise OPNAD?

As we've discussed before, the 4% is meaningless since most McDonald's Operators spend 
far above that percentage in advertising and promotion.

As a comparison - Let's say you have a store that's been paying percentage rent for years. 
Base rent and base sales are merely numbers in your lease, the important line item is the 
rent percentage you pay every month.

McDonald's comes to you and offers to lower your base rent if you do such and such. Your percentage stays the same. How did adjusting your base rent benefit your business? Or 
make any difference at all?

This proposal is/would be the same, a meaningless change to the terms of your franchise.

Since I'm not an attorney I can't give contract advice but I understand negotiations. If 
there's a deal in place, whether a handshake or a rock solid franchise agreement, once 
you open it up for changes, anything goes. Both sides can ask for changes to unrelated
terms. And the more powerful party usually prevails.

Renegotiating the contract carries a big risk for McDonald's Operators. The language 
about advertising is short and pretty simple and wide open on how an Operator should 
spend the 4%. There's no mention of Co-Ops or any kind of advertising funds. These 
things developed organically over the decades. But they could be cast in concrete by 
messing with your current agreements.

I'm not so worried about reducing the number of Co-Ops and agencies. That can all 
be normalized after this management team is gone. But negotiating  changes to your 
existing franchise agreements in any way? Don't do it.

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Of course there are huge gaps in my knowledge about EOTF because I don't attend your meetings but, I keep hearing about "votes". If those votes are related to changing the advertising percentage in the franchise agreement, I don't see how that's possible. Co-Op 
votes are valid because membership is voluntary and members use a democratic process 
to decide on contribution rates, expenditures, etc. You're operating as a homogeneous  
body in a cooperative manner, hence the term "Co-Op".

But your franchise agreements are between you as an individual and McDonald's. The 
other Operators in your Co-Op or OPNAD are not a party to your franchise agreements.
They can't vote to change them.

That's why I now think this is a scam to get more control over the individual Operators 
(what's new) and getting rid of Co-Ops and agencies is the biggest power grab in the 
history of McDonald's.
.

3 comments:

Anonymous said...

This is a Trojan horse. They are tempting operators with a lower ad fee and taking away their voice in ad spending by consolidating power at opnad. Also by trying to consolidate coops they are further reducing the voice of an owner.

This is a complete power grab and goes against the fundamentals that have built this business. I am looking forward to voting HELL NO!

Anonymous said...

I can pretty much guarantee our fee will not reduce to 3.5% and will eventually rise back up to 4% as the local co-ops will just raise their fee saying they don't have enough money.

I don't get on the gallery walk they show all the competitors how much they spend on national advertising and how much McD's spends as a percentage which is totally reverse more local less national then they show AUV and we are like double seems like what we are doing as a system works better than other national QSR's so no reason to change strategy. Maybe consolidating Co-Ops in this day & age with the media buying works I can see but thinking OPNAD is better at driving customers to the restaurants than local Co-Ops is crazy; just look over the last 4-5 years at OPNAD promotions and your local ones and see which ones produced better results.

Richard Adams said...

"our fee will not reduce to 3.5% and will eventually rise back up to 4%"

Still meaningless numbers that only the clones in Oak Brook would worry about.