Published: 16:54, September 23, 2023 | Updated: 17:11, September 23, 2023
McDonald's to hike royalty fees for new franchise restaurants
By Reuters

This Jan 27, 2022 photo shows the logo for McDonald's restaurant is seen as McDonald's Corp. reported fourth quarter earnings, in Arlington, Virginia, US. (PHOTO / REUTERS)

McDonald's is raising royalty fees for new franchise restaurants in the US and Canada for the first time in nearly three decades, according to a letter viewed by Reuters on Friday, bringing them on par with what it charges in other markets.

The fees are being hiked to 5 percent from 4 percent, starting Jan 1, and will not affect franchises that are looking to rebuild or renovate existing locations or transfer an outlet to another party, the letter showed.

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Around 95 percent of McDonald's stores in the US were operated by franchisees as of Dec 31, making up nearly 30% of the company's total revenue in 2022

The move comes as the restaurant chain sees slowing revenue growth for the rest of the year as signs of easing inflation prompt it to lower menu prices.

Northcoast Research analyst Jim Sanderson, however, said the impact of the rate increase on McDonald's revenue would be "very limited", since there are very few new stores opening in the United States.

The fast-food giant operates around 13,400 stores across the US. Around 95 percent of these were operated by franchisees as of Dec 31, making up nearly 30 percent of the company's total revenue in 2022.

Average cash flows for these US franchisees have grown more than 35 percent over the past five years, the letter showed.

READ MORE: McDonald's eyes faster expansion in lower-tier cities

The company will also change the term for payments from "service fees" to "royalty fees", used by all other McDonald's markets around the world.

Royalty is a fee paid by restaurant operators to the owner and the rate is set based on the revenue generated by the licensed property.