McDonald’s Franchisees, $100k+ in Costs for New Coffee Drinks

McDonald’s franchisees are being asked to invest at lease $100,000 per store to accommodate the new upscale variety in coffee drinks, creating the ability to sell caramel lattes and cappuccinos. While the franchisees generally do not doubt this new offering will increase sales, it’s still a big price to pay and dents the immediate cash flow.

The equipment alone will cost franchisees about $25,000 per restaurant. Plus, they are being asked to invest considerably more to retool their stores to better handle the specialty coffee and other new beverages, from sweet tea to smoothies to energy drinks.

Lesson

Can a franchisor require franchisees to investment capital to implement a new offering?  It all depends on the terms of the franchise agreement, but almost all franchise agreement require a franchise timely adaptation to reasonable requests to implement new services and products.  Worst case, you will be required to make the investment at time of renewal of your franchise agreement.  The renovation costs required for franchisees is often a reason for walking away from a franchise at renewal time.

As a franchisee, if you are able to pay yourself about $60,000/year, and your franchisor is requiring you to invest $50,000 at renewal for renovations that you forecast will take 5 years to recover, what do you do?  Do you have the equity or cash to borrow the funds?   A wise businessman will run the numbers, a foolish businessman will automatically pay up without figuring the impact.

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