How McDonald’s plans to diversify its franchisee pool

McDonald’s is making some super-sized changes that will affect how its US franchisee ownership structure will operate moving forward.

Starting next year, the fast-food chain plans to drastically alter parts of its franchise business policies, which include changes to franchise-application standards and signing of new locations by existing franchisees, according to an email penned by McDonald’s US president, Joe Erlinger.

The changes, in part, are an effort to diversify the company’s franchisee pool. McDonald’s also plans to more strictly review renewals of 20-year franchise agreements: The “term is earned, not given,” the company said in a statement.

• It will now take into consideration factors like performance history to evaluate if franchisees are eligible for new 20-year agreements and will treat renewal applications the same way it treats new applicants.
• Additionally, when evaluating potential franchise owners, McDonald’s will no longer give preferential treatment to the immediate family members of current franchisees.

Evaluating all applicants the same way “will provide a consistent process based on equally applied criteria. For all approved candidates, we will provide a comprehensive onboarding and training program to best position them for the process,” McDonald’s said in its statement.

Not lovin’ it: The move comes on the heels of the company facing backlash after announcing a new grading system for franchisees that is set to go into effect next year. Plus, some Black-owned franchises have filed racial-discrimination lawsuits against the chain, with a high-profile case involving former MLB player Herb Washington ending in McDonald’s purchasing 13 restaurants owned by Washington in a $33.5 million settlement.

• That suit alleged that McDonald’s discriminated against Washington “by having him helm low-volume restaurants in Black neighborhoods and by forcing him to downsize his store base years later after grading his locations unfairly,” according to CNBC.
• McDonald’s noted that “the court did not find that the company violated any laws,” per a statement.

In March, McDonald’s Global Chief People Officer Heidi Capozzi penned a letter to all of McDonald’s global staff, franchisees, and suppliers, stating that all officers “are accountable for developing strong, diverse employee talent pipelines.”

• In December, McDonald’s announced plans to spend $250 million over the next five years to help diverse franchisees finance their locations.
• About 93% of McDonald’s 38,000 locations globally are locally owned and operated.

The big picture: As DE&I standards have broadly come under scrutiny in recent years, McDonald’s hasn’t been the only major company to pledge change. Starbucks said in January it will refocus its diversity and inclusion efforts among lead roles in corporate and manufacturing roles this year, while Best Buy last year committed $1.2 billion through 2025 to diversify its suppliers and business partners.—KM