McDonald’s franchisees nationwide, including those in New Jersey, are about to see their costs rise 5% in 2024, but that doesn’t mean higher prices for menu items. The company says the increase coincides with a plan to lower prices as the Biden Administration’s supply chain and inflation woes are slowly being resolved.
McDonald’s is hiking its royalty fees for new franchise restaurants in the U.S. and Canada from 4% to 5%, effective Jan. 1. The fee adjustment, which is the first in nearly 30 years, will align with rates charged in other global markets. Existing franchises looking to rebuild, renovate, or transfer locations will not be affected by the increase, according to a company letter.
The change comes as McDonald’s anticipates slower revenue growth and is lowering menu prices amid signs of easing inflation. Jim Sanderson of Northcoast Research stated that the impact on the company’s revenue is likely to be minimal, citing the low number of new store openings in the United States.
As of December 31, around 95% of McDonald’s 13,400 U.S. stores were franchise-operated, accounting for nearly 30% of the company’s total revenue last year. Average cash flows for these U.S. franchisees have increased over 35% in the past five years, the letter revealed.
Additionally, McDonald’s will reclassify the payments as “royalty fees” instead of “service fees” to align with terminology used in other international markets. Royalty fees are paid by franchisees to the corporate owner and are calculated based on the revenue generated by the individual restaurant.