7 ms·

McDonald's is considering rent deferrals for franchisees

87 points by supdatecron 7y ago

wegs 7y ago
Without voluntary deferrals, we'll see cascading defaults.
hef19898 7y ago
If a company like McDonalds can pull it off, that will most likely give them quite an advantage. Once things go back to normal, that would mean McDonalds franchise network is likely to be in omaprativley good shape. When competitor don't implement solutios like this, McDonalds would have quite a head start! Not to speak about the franchise owners, and their employees to a certain extent.
- 0xcde4c3db 7y ago
  As far as I know, most fast food franchises don't own the land under the restaurants in the way that McDonald's does. I'm not familiar with the numbers, but I've seen quips to the effect that McDonald's is a real estate investment firm that does fast food as a side hustle.
  - hef19898 7y ago
    I read a similar article once as well. Back then I wondered where the benfit would be, other than it being kind of a company store for franchise owners. Turns out to be a very robust set-up for crisis, doesn't it?
  - klenwell 7y ago
    That quip was actually documented quite lucidly in The Founder (where Michael Keaton plays Ray Kroc). I really enjoyed that film.
- tclancy 7y ago
  I don't really get the question of "if" for anyone close to this size. It goes back to the old adage, "If you owe the bank a million dollars, you have a problem. If you owe the bank a billion dollars, the bank has a problem". A corporation as large as McDonalds can dictate terms to whoever holds their debt.
  - elliekelly 7y ago
    But in the case of rent payments McDonalds is the bank. Whether or not McDonalds decides to defer rent the number of franchisees who can afford to remit payment is going to decline. A handful of franchisees unable to pay is a problem for those franchisees. A majority of franchisees unable to pay is a problem for McDonalds. It's better for McDonalds to address the issue/uncertainty now.
  - heavenlyblue 7y ago
    However, if you and a thousand others owe the bank a million dollars, bank has an even bigger problem than just being owed a billion
BubRoss 7y ago
The actual title is: "McDonald’s says it can’t estimate coronavirus impact to its business, it will consider rent deferrals for franchisees"
yownie 7y ago
FORE!
ukabwlsbeux 7y ago
Now would be a good time for a general rent strike until the government steps in to help small businesses
- JadeNB 7y ago
  > Now would be a good time for a general rent strike until the government steps in to help small businesses If we're talking about the US here, 'until' seems to be an optimistic presumption that our government has any intentional of helping small businesses.
  - ryanmercer 7y ago
    >If we're talking about the US here, 'until' seems to be an optimistic presumption that our government has any intentional of helping small businesses. There are dozens of articles of Trump taking something to congress today apparently to do just this https://www.chicagotribune.com/coronavirus/ct-nw-coronavirus-trump-economic-stimulus-20200317-zpsv5weei5gexphfrbog6g2eyq-story.html https://www.chicagotribune.com/coronavirus/ct-nw-coronavirus... >Mnuchin planned to outline that roughly $850 billion package to Senate Republicans at a private lunch, with officials aiming to have Congress approve it this week. and >“The Senate will not adjourn until we have passed significant and bold new steps above and beyond what the House has passed to help our strong nation and our strong underlying economy weather this storm," McConnell said.
    - JadeNB 7y ago
      Ah, good point. Pandemics make even ISPs and Trump seek to be seen to be acting in the public good. (But not Charter, and not hoarders.)
      - ryanmercer 7y ago
        Yeah, politicians need voters to not completely hate them so they can get re-elected. Imagine if instead politicians were selected by lottery, served shorter terms, and had their appointments staggered. I wonder if any authors have given this a shot in fiction, I'd read it.
rubidium 7y ago
This sort of action is what we need across the economy. Cancellation or deferral. Rent deferral, interest deferral, mortgage deferral... etc. At the individual level maybe limit it to the lower 50%-70% of income earners. Cancel interest and utility/rent/mortgage payments for lower income population. Do it for 2-3 months. The upper half will just eat into their savings some but won’t suffer like those living paycheck to paycheck. I’m fine coming out of this with $15k less savings. Im not ok with my neighbor becoming homeless or permanently in debt because of it.
- heymijo 7y ago
  This is a massive question: how do we nearly shut down an economy and still meet people's basic needs? Today's crisis is not 2008's crisis. The economic changes seem more akin to WWII when there was rationing and production shifted to war efforts. Now we are shifting efforts to healthcare, and the logistics of maintaining basic consumer goods to the populace. Both in WWII and today we want the ability to spin things back up once (fingers crossed) the virus abates without having made the situation worse by displacing or further indebting huge amounts of people. When surveys show somewhere between 70-80% of Americans live paycheck to paycheck the potential consequences of the economy grinding to a halt would be devastating. Talk of $1,000 payments to people help move the Overton Window, but don't solve the problem.
- kevin_thibedeau 7y ago
  McDonald's franchisees are the upper half.
  - HeWhoLurksLate 7y ago
    Feels a bit like this is a "pass it on" type deal- killing the worries for the people in the middle probably relieves a lot of stress for people at the bottom- if I'm not worried about making rent, I'm probably not going to be pushing hours quite as hard, nor am I going to be as strict about people coming in. (Personally, I'd be ensuring that all my workers still had places to live and good food to eat, even if it cost me personally to do so.)
larrywright 7y ago
This is a good move on their part (assuming they go through with it). People tend to think of restaurant owners like this as “the rich”, but if you look at the numbers there’s actually not that much profit in a single restaurant. The only ones who make good money own a bunch of them. Even then, the profit margins are pretty low, and they’re going to struggle to remain profitable.
- AmVess 7y ago
  You have to have a lot of money and a track record of success before McDonald's will consider taking you on as a franchisee. McDonald's franchisees are wealthy before they open their first restaurant.
  - mywittyname 7y ago
    Because Corporate knows they are going to fuck with franchisees on occasion and they want people who can weather that kind of abuse. A SIL of mine is a district manager of one of the largest MD franchisees in the region and she has some stories about how corporate tends to make the franchises pay for their mistakes. It's usually forcing the stores to take more food than they could possibly sell, but sometimes includes things like buying equipment for menu offerings that they never see a positive ROI on and is later discontinued. You can absolutely make money running an Mickey Ds, but you have to run a very tight ship to do it.
  - larrywright 7y ago
    It depends. A lot of them start out with a couple of restaurants and then work their way up. At least that was the way it worked years ago. But you’re somewhat correct at least, they’re picky about who they give franchises too. They’re also somewhat unique amongst the big restaurant franchises in that they limit the number of restaurants you can own. They want hands-on owners, and they actually require the owners to be trained on every function in the restaurant. Source: I worked for a local franchisee about 30 years ago, and still know them casually.
    - AmVess 7y ago
gerland 7y ago
It's funny how pretty much everyone was against the buyout of Lehman's Brothers, but now those same people will tell you that you should buy them out. Here is an idea - why don't we all mind our own business? inb4 this will affect us all - so did LB defaulting. If you're strong enough to wrestle a pack of toilet paper out of a senior arms, then you are probably strong enough to survive for a while by eating out of a dumpster.
- ceejayoz 7y ago
  This is a substantially different scenario.
  - gerland 7y ago
    No it's not. You just FEEL different about this.
- runawaybottle 7y ago
  Lehman were crooks. Like actual crooks.
  - gerland 7y ago
    That may be true, but a lot of legit business was based around and on LB. A lot of good, honest people that would go down with it. How many of the people involved were really reaping the benefits and making the shots? We are in a similar scenario now. A few people made the wrong calls and did nothing to contain the disease. A lot of people will suffer. Why should we care this time?
- gerland 7y ago
  It's also funny that people are ready to downvote anything they do not agree with. Let me explain to you how it works - the downvote button is a tool that should serve to mark comments that are unnecessarily inflamatory or provide no value on their own. This is not a toy for you to remove opinions that you do not agree with. For this unique situation in which the whole world somehow does not agree with you, please use the hidden "reply" functionality. I know it's hard to imagine that something that you FEEL is wrong might be true, but it's just such a cruel cruel world that we live in.
linsomniac 7y ago
I suspect basically all commercial landlords are going to have to consider rent deferrals or outright eating 3-6 months of rent. The alternative very likely could be the majority of their properties simply becoming vacant, which isn't a good business stance for coming out of all this.
- bequanna 7y ago
  This kind of thinking astounds me. What kind of margins do you think landlords are making so that they can afford to ‘eat’ 3-6 months of rent?
  - tmnvix 7y ago
    Talking residential here (but probably a very rough proxy for commercial): In Wellington NZ, a 3 bed house is almost NZD700k on average, having risen almost 15% in the past year. That property might earn a bit less than NZD3k/m. Capital gains have been outstripping income (rent) for property here for some time. Many investors have the luxury of not even bothering with the hassle of tenants for this reason. A 3-6 month rent holiday would not be an issue for many.
    - bequanna 7y ago
      Since most commercial properties are leveraged, this would definitely be an issue. Theoretical ‘capital gains’ don’t mean much when you have no income but still have mortgage, taxes, insurance and utilities.
  - linsomniac 7y ago
    What do you think the alternative is? What kind of margins do you think most businesses run on? I think it's a very real possibility that many or even most businesses will simply cease to exist if they have to pay 3-6 months of rent on a space they are making 0 revenue on. My statement was not based on margins, but on these alternatives: eating 3 months of rent and getting 9 months of rent after that, or asking for (and possibly not getting) 3 months of rent, then getting 9 months of NO rent because the business is closed. 9 months of rent being better for margins than 0 months of rent. But, I'm not of the opinion that landlords get screwed here. There's probably going to have to be this sort of deferment on a massive scale to really jump-start coming out of this. I'd imagine the landlord would also be getting breaks from their upstream.
Simulacra 7y ago
The least they can do. I was thinking of all of the strip mall style mom and pop places, and how rent and such would affect that. I cannot imagine a landlord evicting tenants any time soon, because who the hell is going to then rent the space?!
starpilot 7y ago
Title has blatant typo for past 2 hrs.
jkestner 7y ago
Next, it would be good if they would also cover the 90% of McDonalds workers who aren’t their direct employees. Pretty weak to say they can’t tell franchisees to follow their policy, and help cover the costs, when they can dictate how to run most other aspects of the business. Critical especially since these 500K workers are likely to need the income, and become a vector for the spread of the virus. https://www.eater.com/2020/3/16/21181862/are-mcdonalds-starbucks-and-other-chains-offering-paid-sick-leave-for-coronavirus https://www.eater.com/2020/3/16/21181862/are-mcdonalds-starb...
akeck 7y ago
For context, McDonald's Corp buys the land (and building?) for each location. Franchisees then rent those from the McDonald's Corp in addition to their other franchise costs. Not all restaurant franchises work this way, as far as I know.

87 points by supdatecron 7y ago

wegs 7y ago

Without voluntary deferrals, we'll see cascading defaults.

hef19898 7y ago

If a company like McDonalds can pull it off, that will most likely give them quite an advantage. Once things go back to normal, that would mean McDonalds franchise network is likely to be in omaprativley good shape. When competitor don't implement solutios like this, McDonalds would have quite a head start! Not to speak about the franchise owners, and their employees to a certain extent.

0xcde4c3db 7y ago
As far as I know, most fast food franchises don't own the land under the restaurants in the way that McDonald's does. I'm not familiar with the numbers, but I've seen quips to the effect that McDonald's is a real estate investment firm that does fast food as a side hustle.
- hef19898 7y ago
  I read a similar article once as well. Back then I wondered where the benfit would be, other than it being kind of a company store for franchise owners. Turns out to be a very robust set-up for crisis, doesn't it?
- klenwell 7y ago
  That quip was actually documented quite lucidly in The Founder (where Michael Keaton plays Ray Kroc). I really enjoyed that film.
tclancy 7y ago
I don't really get the question of "if" for anyone close to this size. It goes back to the old adage, "If you owe the bank a million dollars, you have a problem. If you owe the bank a billion dollars, the bank has a problem". A corporation as large as McDonalds can dictate terms to whoever holds their debt.
- elliekelly 7y ago
  But in the case of rent payments McDonalds is the bank. Whether or not McDonalds decides to defer rent the number of franchisees who can afford to remit payment is going to decline. A handful of franchisees unable to pay is a problem for those franchisees. A majority of franchisees unable to pay is a problem for McDonalds. It's better for McDonalds to address the issue/uncertainty now.
- heavenlyblue 7y ago
  However, if you and a thousand others owe the bank a million dollars, bank has an even bigger problem than just being owed a billion

BubRoss 7y ago

The actual title is: "McDonald’s says it can’t estimate coronavirus impact to its business, it will consider rent deferrals for franchisees"

yownie 7y ago

FORE!

ukabwlsbeux 7y ago

Now would be a good time for a general rent strike until the government steps in to help small businesses

JadeNB 7y ago
> Now would be a good time for a general rent strike until the government steps in to help small businesses If we're talking about the US here, 'until' seems to be an optimistic presumption that our government has any intentional of helping small businesses.
- ryanmercer 7y ago
  >If we're talking about the US here, 'until' seems to be an optimistic presumption that our government has any intentional of helping small businesses. There are dozens of articles of Trump taking something to congress today apparently to do just this https://www.chicagotribune.com/coronavirus/ct-nw-coronavirus-trump-economic-stimulus-20200317-zpsv5weei5gexphfrbog6g2eyq-story.html https://www.chicagotribune.com/coronavirus/ct-nw-coronavirus... >Mnuchin planned to outline that roughly $850 billion package to Senate Republicans at a private lunch, with officials aiming to have Congress approve it this week. and >“The Senate will not adjourn until we have passed significant and bold new steps above and beyond what the House has passed to help our strong nation and our strong underlying economy weather this storm," McConnell said.
  - JadeNB 7y ago
    Ah, good point. Pandemics make even ISPs and Trump seek to be seen to be acting in the public good. (But not Charter, and not hoarders.)
    - ryanmercer 7y ago
      Yeah, politicians need voters to not completely hate them so they can get re-elected. Imagine if instead politicians were selected by lottery, served shorter terms, and had their appointments staggered. I wonder if any authors have given this a shot in fiction, I'd read it.

rubidium 7y ago

This sort of action is what we need across the economy. Cancellation or deferral. Rent deferral, interest deferral, mortgage deferral... etc. At the individual level maybe limit it to the lower 50%-70% of income earners. Cancel interest and utility/rent/mortgage payments for lower income population. Do it for 2-3 months. The upper half will just eat into their savings some but won’t suffer like those living paycheck to paycheck. I’m fine coming out of this with $15k less savings. Im not ok with my neighbor becoming homeless or permanently in debt because of it.

heymijo 7y ago
This is a massive question: how do we nearly shut down an economy and still meet people's basic needs? Today's crisis is not 2008's crisis. The economic changes seem more akin to WWII when there was rationing and production shifted to war efforts. Now we are shifting efforts to healthcare, and the logistics of maintaining basic consumer goods to the populace. Both in WWII and today we want the ability to spin things back up once (fingers crossed) the virus abates without having made the situation worse by displacing or further indebting huge amounts of people. When surveys show somewhere between 70-80% of Americans live paycheck to paycheck the potential consequences of the economy grinding to a halt would be devastating. Talk of $1,000 payments to people help move the Overton Window, but don't solve the problem.
kevin_thibedeau 7y ago
McDonald's franchisees are the upper half.
- HeWhoLurksLate 7y ago
  Feels a bit like this is a "pass it on" type deal- killing the worries for the people in the middle probably relieves a lot of stress for people at the bottom- if I'm not worried about making rent, I'm probably not going to be pushing hours quite as hard, nor am I going to be as strict about people coming in. (Personally, I'd be ensuring that all my workers still had places to live and good food to eat, even if it cost me personally to do so.)

larrywright 7y ago

This is a good move on their part (assuming they go through with it). People tend to think of restaurant owners like this as “the rich”, but if you look at the numbers there’s actually not that much profit in a single restaurant. The only ones who make good money own a bunch of them. Even then, the profit margins are pretty low, and they’re going to struggle to remain profitable.

AmVess 7y ago
You have to have a lot of money and a track record of success before McDonald's will consider taking you on as a franchisee. McDonald's franchisees are wealthy before they open their first restaurant.
- mywittyname 7y ago
  Because Corporate knows they are going to fuck with franchisees on occasion and they want people who can weather that kind of abuse. A SIL of mine is a district manager of one of the largest MD franchisees in the region and she has some stories about how corporate tends to make the franchises pay for their mistakes. It's usually forcing the stores to take more food than they could possibly sell, but sometimes includes things like buying equipment for menu offerings that they never see a positive ROI on and is later discontinued. You can absolutely make money running an Mickey Ds, but you have to run a very tight ship to do it.
- larrywright 7y ago
  It depends. A lot of them start out with a couple of restaurants and then work their way up. At least that was the way it worked years ago. But you’re somewhat correct at least, they’re picky about who they give franchises too. They’re also somewhat unique amongst the big restaurant franchises in that they limit the number of restaurants you can own. They want hands-on owners, and they actually require the owners to be trained on every function in the restaurant. Source: I worked for a local franchisee about 30 years ago, and still know them casually.
  - AmVess 7y ago

gerland 7y ago

It's funny how pretty much everyone was against the buyout of Lehman's Brothers, but now those same people will tell you that you should buy them out. Here is an idea - why don't we all mind our own business? inb4 this will affect us all - so did LB defaulting. If you're strong enough to wrestle a pack of toilet paper out of a senior arms, then you are probably strong enough to survive for a while by eating out of a dumpster.

ceejayoz 7y ago
This is a substantially different scenario.
- gerland 7y ago
  No it's not. You just FEEL different about this.
runawaybottle 7y ago
Lehman were crooks. Like actual crooks.
- gerland 7y ago
  That may be true, but a lot of legit business was based around and on LB. A lot of good, honest people that would go down with it. How many of the people involved were really reaping the benefits and making the shots? We are in a similar scenario now. A few people made the wrong calls and did nothing to contain the disease. A lot of people will suffer. Why should we care this time?
gerland 7y ago
It's also funny that people are ready to downvote anything they do not agree with. Let me explain to you how it works - the downvote button is a tool that should serve to mark comments that are unnecessarily inflamatory or provide no value on their own. This is not a toy for you to remove opinions that you do not agree with. For this unique situation in which the whole world somehow does not agree with you, please use the hidden "reply" functionality. I know it's hard to imagine that something that you FEEL is wrong might be true, but it's just such a cruel cruel world that we live in.

linsomniac 7y ago

I suspect basically all commercial landlords are going to have to consider rent deferrals or outright eating 3-6 months of rent. The alternative very likely could be the majority of their properties simply becoming vacant, which isn't a good business stance for coming out of all this.

bequanna 7y ago
This kind of thinking astounds me. What kind of margins do you think landlords are making so that they can afford to ‘eat’ 3-6 months of rent?
- tmnvix 7y ago
  Talking residential here (but probably a very rough proxy for commercial): In Wellington NZ, a 3 bed house is almost NZD700k on average, having risen almost 15% in the past year. That property might earn a bit less than NZD3k/m. Capital gains have been outstripping income (rent) for property here for some time. Many investors have the luxury of not even bothering with the hassle of tenants for this reason. A 3-6 month rent holiday would not be an issue for many.
  - bequanna 7y ago
    Since most commercial properties are leveraged, this would definitely be an issue. Theoretical ‘capital gains’ don’t mean much when you have no income but still have mortgage, taxes, insurance and utilities.
- linsomniac 7y ago
  What do you think the alternative is? What kind of margins do you think most businesses run on? I think it's a very real possibility that many or even most businesses will simply cease to exist if they have to pay 3-6 months of rent on a space they are making 0 revenue on. My statement was not based on margins, but on these alternatives: eating 3 months of rent and getting 9 months of rent after that, or asking for (and possibly not getting) 3 months of rent, then getting 9 months of NO rent because the business is closed. 9 months of rent being better for margins than 0 months of rent. But, I'm not of the opinion that landlords get screwed here. There's probably going to have to be this sort of deferment on a massive scale to really jump-start coming out of this. I'd imagine the landlord would also be getting breaks from their upstream.

Simulacra 7y ago

The least they can do. I was thinking of all of the strip mall style mom and pop places, and how rent and such would affect that. I cannot imagine a landlord evicting tenants any time soon, because who the hell is going to then rent the space?!

starpilot 7y ago

Title has blatant typo for past 2 hrs.

jkestner 7y ago

Next, it would be good if they would also cover the 90% of McDonalds workers who aren’t their direct employees. Pretty weak to say they can’t tell franchisees to follow their policy, and help cover the costs, when they can dictate how to run most other aspects of the business. Critical especially since these 500K workers are likely to need the income, and become a vector for the spread of the virus. https://www.eater.com/2020/3/16/21181862/are-mcdonalds-starbucks-and-other-chains-offering-paid-sick-leave-for-coronavirus https://www.eater.com/2020/3/16/21181862/are-mcdonalds-starb...

akeck 7y ago

For context, McDonald's Corp buys the land (and building?) for each location. Franchisees then rent those from the McDonald's Corp in addition to their other franchise costs. Not all restaurant franchises work this way, as far as I know.