Franchisees attack McDonald's for overexpanding chain

By Kathy Bergen

Chicago Tribune; 22nd May 1997

McDonald's Corp. shareholders aren't the only ones who have a possible beef with the hamburger giant.

On the eve of the company's annual meeting, a group of dissident franchise owners turned up the heat on the restaurant chain Wednesday by claiming its strategies were burning their operations.

Specifically, the McDonald's Consortium, which claims to represent owners of about 1 in 12 McDonald's restaurants, claimed the Oak Brook giant's domestic expansion is cannibalizing existing restaurants, cutting their cash flow and lowering their value as real estate.

In a joint press conference with the American Franchise Association, the owners also depicted the Oak Brook-based chain as a controlling parent that punishes the outspoken and gives owners few or no options when they renew their franchise contracts or attempt to sell a restaurant.

"I don't know that it's Orwellian, but maybe it's close," said Gerardo Perez, owner/operator of a McDonald's located outside of Sacramento, Calif. In fact, Susan P. Kezios, president of the franchise association, notes that McDonald's franchisees, while facing the same issues as franchisees in other industries, have been slow to speak out.

Franchise association members "have been saying, `What's taking the McDonald's guys so long to sit at the table with us?"' she said, adding that she thinks fear of retribution has been a factor.

"The corporation can yank these guys' chains any time it wants," she said, noting that her group is pushing for federal legislation, for the third year running, that would give franchisees in all industries greater protections.

The criticism came a day before the McDonald's annual meeting, and added to other worries for the giant, which is planning a major overhaul of its sluggish U.S. operations.

The company's "Campaign 55" promotion, offering Big Macs at 55 cents, if purchased with fries and a drink, is proving to be confusing and less than a wild success.

Meanwhile, industry observers are saying competitors are serving up food that is tastier and more appealing than McDonald's offerings.

McDonald's executives dismissed the franchisees' complaints as the gripes of a few malcontents.

"There's an insidious spin job that has gone on," said Chuck Ebeling, a spokesman for McDonald's.

Saying he "absolutely rejects" the consortium's claim that it represents 1,000 of 12,000 U.S. restaurants, Ebeling said the group's efforts "come back to the fact that a couple of squeaky wheels are associated with a guy whose career is built on selling consulting services to franchisees." Ebeling was referring to Dick Adams, a franchise consultant and former McDonald's franchisee who is executive director of the consortium.

Adams holds that the company has deteriorated over the last five years and is now "run by lawyers and accountants and other bureaucrats whose primary focus is on the stock market and building personal wealth at the expense of franchisees." On Wednesday, several franchisees, some of whom are suing McDonald's, elaborated on their complaints.

One of them, Bob Srygley, owner/operator of four restaurants in Arkansas, said he opened two of the units in the last three years at McDonald's urging.

But each has produced only half the projected volume, he said, and they have eroded the volume at one of his other restaurants by 12 percent.

Meanwhile, he said, his fourth store has seen volume decline due to the opening of a McDonald's down the road by another operator.

"I see my equity going down the crapper," Srygley said. "We're our own worst competitor." McDonald's Ebeling argued that the company must grow to stay competitive, and therefore plans to open 500 to 600 U.S. restaurants in 1997. "In the whole U.S. last year, the effective impact, meaning one McDonald's restaurant taking the business of another, was less than 1 percent of sales," he said. "Another way of saying it is this is being exaggerated out of all proportion." Srygley said his outspoken posture has had repercussions.

A few days after telling a news service that he felt Campaign 55 was slow in taking off, he said he received a "threatening letter" from McDonald's in regard to how he operated his restaurants.

McDonald's dismissed such claims.

"Why would we take retribution against the people who are the bread and butter of our business?" Ebeling asked.

About 85 percent of McDonald's restaurants in the U.S. are franchises, with the remainder being company-owned.

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