Coalition of Franchisee Associations

August 31, 2022

Empty Threats - Opinion

On California AB 257:

"One Republican state lawmaker says that McDonald’s warned her that they may stop expanding in California or even abandon the Golden State entirely. How, exactly, is that supposed to make Californians better off?"

If this conversation actually happened, it repeats an outdated, impractical strategy.

In the late 1990s, the state of Iowa passed a set of laws that were not friendly to franchisors. Companies like McDonald's announced they would no longer build new stores in Iowa. Eventually, the state backed down and made changes to the laws that were more friendly to franchise companies.

A major reason changes were made was that McDonald's franchisees stepped forward and testified that the new laws would be bad for their businesses. Then, as today, Owner/Operators and corporate were on the same side of the issue.

But those are empty threats in 2022 as McDonald's will only open a handful of new stores a year in California. Neither the state economy nor the McDonald's system would feel the loss of new McDonald's stores.

As for "abandoning the state"? That's not really possible. The McDonald's system couldn't stand the loss of income from nearly 10% of USA stores. Shareholders would not tolerate such a sacrifice.

But a larger impact would be the breaching of 1,200 Owner/Operator franchise and lease agreements that remain in place. Some Owners would understand, but many would not.

And then there are the various lease agreements with landlords, none of whom would understand.

Long term, if AB 257 becomes law, a lot of sales will be lost because it will be very difficult to sell franchises in California. Eventually, the franchised industries would dwindle back to the small Ma and Pa operations from 100 years ago.


Richard Adams said...

When the legislative fight in Iowa took place McDonald's was still a growth company and was still building a substantial number of new stores, especially in small towns and freeway interchanges. Owner/Operators grew by opening new stores, not just by acquisitions.
So if McDonald's were to shut down development in a particular state, it would have been easy to get McDonald's Owners to march on the state capitol. Especially in a small population state like Iowa where the Owner/Operator probably knows their legislators personally.

Anonymous said...

"Eventually, the franchised industries would dwindle back to the small Ma and Pa operations from 100 years ago."

And that is probably not the intent but for many it's seen as a bonus. McD's and BK and for that matter, Wal Mart or any other national organization is despised by many for whatever reason.

They WANT us to go away, they not only see no value in what we do but they see us as destructive or at least undesirable.

That's why it is so important for owners to put a face to their stores, to humanize it, to make it plain that the people who own this live in your community, their kids go to school with your kids, they support your community and they provide opportunities for many that these "mom and pop" places simply cannot provide.

National companies don't just provide jobs, they are an avenue for upward mobility for anyone who works there and a significant opportunity that does not require a MBA from an ivy league school. Those "mom and pop" places may be cute and might be desirable on the surface but thsy typically provide a living for the owners. Beyond that are often dead-end jobs with no real opportunities for growth for anyone else.

Nobody is talking about this and it's a powerful argument with many, many stories of success that would have never happened at McDowell's or whatever.