McDonald’s stock gains 0.3% despite franchisee pushback over store upgrades

Investing.com -- McDonald’s Corp. (NYSE: MCD) shares rose 0.3% Tuesday despite a Bloomberg report that franchisees are balking at an approximately $800,000 per-location bill to overhaul stores under the company’s new business initiative.

The fast-food giant’s ambitious plan to upgrade restaurants and menus is facing resistance from U.S. franchise owners who say they were surprised by the price tag announced two weeks ago. Combined with scheduled remodels costing at least $400,000, franchisees face a total bill of about $1.2 million per restaurant, according to the report.

McDonald’s has pledged approximately $8.5 billion in cash and rent relief to offset part of those costs, with support levels varying by franchisee. The company said it remains confident in its plan and has set up task forces with franchisees and company leaders to review the financials.

The upgrades are part of CEO Chris Kempczinski’s "Next" business plan, which aims to improve food quality, service and efficiency. The initiative comes as McDonald’s works to restore investor confidence after shares plunged 32% from late February through the end of September, erasing nearly $80 billion in market value.

Franchisees have been discussing concerns about the project’s cost and lack of details in recent meetings. Restaurant operators say they are worried about taking on more debt and are seeking more information about expected sales increases from the changes.

The company is grappling with slowing U.S. sales, partly due to a value lineup that underperformed last quarter. Rising costs of beef, labor and equipment have also been pressuring restaurants across the industry.

Guggenheim Securities analyst Gregory Francfort wrote that franchisees will likely look to negotiate the price tag down 20% to 40% as they accept certain elements of the plan and push back on others.

Original Article

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