McDonald’s Stock Breaks New Highs as Tensions Grow Between Franchisees

Pop quiz: Which company is more profitable, Apple or McDonald’s? From the title, we bet you already know the answer.

McDonald’s — the largest fast food franchise in the world — is thriving and has its most ambitious growth plans in years. A side of slowing economy with your Big Mac? No TY.

• In 2022, store traffic grew by 5%, and fourth quarter same-store sales expanded 12.6%.
• McDonald’s plans to open 1.9K new global locations in 2023 — with its first major US expansion in eight years.

McDonald’s wants max efficiency

Last week, McDonald’s laid off hundreds of employees as part of restructuring efforts to make it more efficient.

• That led Northcoast Restaurant Research analysts to upgrade the stock this week.
• The restructuring will create “an organization engineered for store development” and “they’re in a stage now where they can grow.”

The stock has risen 15% in the past year to its highest level ever — now trading at  valuation multiples surpassing those of even Apple, Meta and Google.

Franchisees have mixed emotions

With 95% of McDonald’s stores franchised out, franchisees are the ones keeping the lights on at McD HQ. But there’s growing tension between corporate and franchise owners:

• Franchisees carry the burden of higher food costs and labor shortages — reducing cash flow by $100K per store in 2022.
• Last year, McDonald’s made it harder for franchisees to get renewals, added new operating procedures and more regular inspections.

Franchisees are frustrated with the declining profitability and are worried they could be forced out during renewals. They may even take their complaints to the US Federal Trade Commission — a risk that would slow McDonald’s growth plans.