In their new “McLandlord” report, trade unions detail how McDonald’s market power and real estate practices enable the corporation to extract excessive rental payments from its franchisees
Most of McDonald’s profits come from its real estate operations rather than its burger business
Report shows that customers at franchised McDonald’s stores may pay higher prices as a result
Brussels, 6 March 2017 | Today, a coalition of European and American trade unions unveiled a report about McDonald’s real estate strategy revealing how the fast-food giant’s dominant market position allows it to extract excessive rents from its franchisees, which may be leading to higher prices for consumers and lower wages for workers.
McDonald’s is the biggest franchisor and among the largest real estate companies in the world, controlling most of the property on which its 36,000 stores in 120 countries are located. More than 80% of the company’s stores are operated by 5,000 individual franchisees, not McDonald’s itself, and the corporation reaps over 50% more in gross profit from the rent it charges to its own franchisees than from selling food directly to customers. Thus, while the company earned a global gross margin of €2.6 billion from its stores in 2014, it earned an estimated €4 billion in real estate margin that same year.
McDonald’s real estate strategy is based on uniquely long and onerous agreements and property leases for its franchisees. Doing so, McDonald's restricts franchisees' ability to provide fair wages to their employees, since their profit margins are reduced. The report argues that such practices can distort competition as prospective business partners may have little choice but to do business with a market dominant corporation like McDonald’s regardless of the fairness of the contract terms. Customers at franchised McDonald’s stores may also pay higher prices as a result of the high rent McDonald’s charges its franchisees.
More specifically, the report highlights that the rent McDonald’s charges to its franchisees appears to be more than four times its own real estate costs in the United States and more than three times those costs in Europe. Franchisees pay substantially more in rent than McDonald’s corporate-operated stores do, and the company charges its franchisees significantly higher rent as a percentage of sales compared to franchisees in competing chains.
As a result of the potentially excessive rental payments extraction, customers at franchised McDonald’s stores may pay higher prices. Data included in the report collected in November and December of 2015 indicates that in several major cities in Europe, McDonald’s franchised stores charge higher prices than corporate-owned stores in the same geographic areas. In Bologna, Italy, for example, menu items priced higher at franchised stores were €0.34 more on average than the same items at corporate stores, a difference of 8%. In France, data gathered by the Que Choisir Magazine confirms an average difference of 4.4% with at least ten products being 10% to 27% more expensive in franchised stores than in corporate-owned stores.
Kerstin Howald, Tourism Sector Secretary at EFFAT, said: “It is shameful to see that a multibillion euro company enforces such abusive rent practices with its franchisees as this, in turn, might restrict franchisees’ ability to provide fair wages, as well as decent and safe working conditions for their employees.”
Scott Courtney, Executive Vice President of SEIU added “Today’s report is yet another illustration of how McDonald’s continues to abuse its dominant market position, ultimately hurting franchisees, consumers and workers alike. McDonald’s has a clear record of mistreating workers and communities virtually everywhere it operates and it’s time that the company is held accountable.”
McDonald's is one of the world's largest and most recognized corporations. In Europe, McDonald’s claims to be larger than its next nine competitors combined, and throughout its top markets, it is consistently the fast food market leader. Over the last five years, McDonald’s has produced operating profit averaging nearly US$8 billion per year, and net income averaging US$5 billion annually. McDonald’s European division accounts for nearly 40 percent of the company’s operating income.
The report follows an antitrust complaint against McDonald’s filed with the European Commission by a coalition of Italian consumer groups last year. The complaint alleges that the exorbitant rents and onerous contracts McDonald’s imposes upon franchisees gives it an unfair advantage.
Poverty wages, poor working conditions and aggressive tax avoidance have all featured for too long on McDonald's menu and have triggered government actions, from the US to Brazil, and most recently Europe. In the U.K., for example, workers have protested McDonald’s practice of “zero-hours contracts”, which leaves workers without any guarantee of regular work or stable income. The company’s low wages have also been criticized for imposing substantial costs on taxpayers, as many McDonald’s workers are forced to rely on public assistance to afford food and rent.
Today’s report also follows a formal probe opened in December 2015 by the European Commission into Luxembourg's tax treatment of McDonald's. The Commission’s preliminary view is that a tax ruling granted by Luxembourg may have granted McDonald's an advantageous tax treatment in breach of EU State aid rules, with McDonald's virtually not having paid any corporate tax in Luxembourg nor in the US on its profits since 2009.
This report has been co-authored by EFFAT and SEIU, a coalition of European and American trade unions, representing 15 million workers in different sectors of the economy across almost 40 countries. It calls upon Governments around the globe to investigate McDonald’s franchising practices, and to take action against the unfair contracts it imposes on its franchisees, which ultimately affect workers and consumers.
The Service Employees International Union (SEIU) unites 2 million diverse members in the United States, Canada and Puerto Rico. SEIU members working in the healthcare industry, public sector and in property services believe in the power of joining together on the job to win higher wages, benefits and create better communities, while fighting for a more just society and an economy that works for all of us, not just corporations and the wealthy.
EFFAT is the European Federation of Trade Unions in the Food, Agriculture and Tourism sectors. As a European Trade Union Federation representing 120 national trade unions from 35 European countries, EFFAT defends the interests of more than 2.6 million members towards the European Institutions, European employers’ associations and transnational companies. EFFAT is a member of the ETUC and the European regional organization of the IUF. For more information please go to: http://www.effat.org