McDonald’s executives have big plans for the chain in the coming years. In addition to its beverage expansion, it is plotting to upgrade its chicken, testing new technologies and service models, and is preparing another, major round of store remodels that will cost the company and its franchisees billions.

All of which makes the chain’s disappointing, second-quarter performance in the U.S. all that much more problematic. Franchisees, who will be the ones responsible for footing much of the bill for all these changes, have seen their store-level profits take a big hit of late, just as they could be asked to pay for these improvements.

Those challenges were highlighted in a recent survey of some operators by the National Owners Association (NOA), an independent group of the chain’s franchisees.

Nearly all the franchisees surveyed, 95%, said their profitability declined in the first quarter compared with a year ago, and 97% said they believe McDonald’s current plan isn’t working to increase cash flow. Nearly nine in 10 said that cash flow is “significantly negative compared to the prior year.”

And nearly eight in 10 said that their cash flow is “not sufficient to support required reinvestment obligations.”
That last part is key because of what is on the horizon: A 10-year remodel cycle, expected to begin in 2027 and 2028. Franchisees in the survey estimated that their per-store cost for the remodel will range from $400,000 to $700,000.

“Restaurant-level profitability continues to deteriorate, while rising operating costs, constrained pricing flexibility, and increasing reinvestment obligations are placing significant pressure on owner/operators,” the association said in a message, seen by Restaurant Business.

“Recent U.S. business performance isn’t where any of us want it to be, which is why we are focused on taking action together,” the company said in a statement. “McDonald’s has always been strongest when the company and owner/operators work side-by-side to create real solutions that work in the restaurants. This survey represents a small subset of the thousands of franchisees in the U.S., and it doesn’t reflect the ongoing collaboration that’s happening across elected owner/operator leadership groups, specialized committees and local Field Offices. We’re confident in the work underway today across the System to strengthen restaurant performance while positioning the business to win for the long-term.”

More than 100 owner/operators completed the survey, which is a small percentage of the more than 2,000 franchisees in the system. But the results contextualize the primary issue facing McDonald’s U.S. business, and why company executives were so critical of its performance as they changed its leadership.

Franchisee profitability is crucial if McDonald’s is to accomplish many of its goals, because operators who can’t make profits cannot afford to fund remodels and may be more resistant to discounts and other marketing offers.
McDonald’s U.S. same-store sales rose 0.8% in the second quarter, but that came along with weak traffic. The company’s U.S. market president, Joe Erlinger, stepped down and was replaced by longtime McDonald’s executive Skye Anderson.

CEO Chris Kempczinski was then unusually pointed in his criticism of the U.S. market, citing excessive marketing and a new $3 and Under menu that didn’t generate expected traffic.

The company spent considerable political capital to convince franchisees to go along with that deal, along with a series of discounts, including lowered prices on Extra Value Meals.

In the NOA survey, franchisees believe the company pressured them into the discount strategy, in the process taking control of pricing that is supposed to be the responsibility of local store operators. Three-quarters of franchisees said they were directly pressured to lower prices. And more than eight in 10 said that the discounts didn’t generate traffic to balance the costs.

Deals that fail to generate traffic are particularly damaging to franchisee profits because existing customers buy the cheaper items but stores don’t get the incremental sales from additional customers to cover the gap.
The failed deal also damaged progress McDonald’s had made with lower-income consumers. The lost sales cost the brand and its franchisees an estimated $310 million last quarter alone.

Company executives will now have to convince franchisees again to go along with a new value offer to replace the old one. And Kempczinski hinted at the challenge associated with such a request. “We’ve got some work that we need to do to get that fixed,” he said. “As you know, in our system, that’s not something that we just flip the switch on. It requires franchisees.”

Some franchisees suggest that the push for more discounts sapped one of the key responsibilities of operating their stores: The ability to set prices based on local market conditions. All but 3% of franchisees in the survey said their control over pricing was either weakened or removed altogether.

All this comes as the cost of operating a store is soaring. Ninety-nine percent of franchisees in the survey said their food and paper costs have increased since late 2025. Franchisees regularly borrow money to fund remodels, and some operators are still paying off loans they took out just before the pandemic to fund those store upgrades.

That remodel program featured massive upgrades to the interiors of McDonald’s locations, including the addition of in-store kiosks. Frustration over those renovations helped spur the creation of NOA, the first independent franchisee association in McDonald’s history.

Franchisees appear to be bracing for a similarly sized remodel program this time, citing the prototype revealed at the company’s recent convention. McDonald’s unveiled its newest business strategy, called “Next,” at the event. In its letter, the association is asking “why is it necessary to have such a significant and unprecedented entire-facility investment on the heels” of the previous remodel.

Kempcinski, however, believes that franchisees have plenty of cash to borrow the funds it takes to pay for remodels. He called their financial position “still quite healthy,” and said it should not interfere with the company’s effort to remodel stores.

They’ve got a lot of borrowing capacity still,” he said. “I feel very confident we’ll be able to get this thing done.”

Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.

Source https://www.restaurantbusinessonline.com/financing/mcdonalds-franchisee-profitability-takes-hit-just-company-eyes-remodels