McDonald’s franchisees worried new grading system will lay off employees

McDonald’s franchise owners are expressing concern and frustration with a new grading system that the fast food giant plans to roll out early next year, with some saying it’s a bad time due to unprecedented workforce pressures.

The company plans to launch a system called Operations PACE in January 2023, which stands for Performance and Customer Excellence. McDonald’s notes in a 60-page overview of the PACE system that “business climate is changing”, as seen by CNBC, says it needs a “new approach that helps us achieve our growth plan goals.”

Some franchisees, however, are concerned that the new process will hurt operations and isolate workers in a tight labor market. The program calls for six to ten visits per year from companies and third-party evaluators on top of other inspections for issues such as local food safety regulations. McDonald’s has about 13,000 franchised locations in the United States.

Other owners fear it could turn into a less-collaborative approach to operations, including rigorous grading, according to three people familiar with the matter and two separate surveys of the franchise. These people declined to be named because they were not authorized to speak publicly about PACE

“It just kills morale, and as tough as the current recruitment environment is, I can’t beat anyone else,” said one franchisee with decades of experience and nearly a dozen positions. This person has 500 employees, but less than 100 16 per hour despite being paid 100.

The owner added that McDonald’s previous grading systems were more collaborative and mutually agreed upon. “You tell my managers that they can’t improve things that have failed,” the person said.

McDonald’s favors new valuation plan.

“We must focus on lasers in our restaurants to maintain our world-renowned standards. This comprehensive performance management system, designed with ongoing input from franchisees, will offer restaurants appropriate support and coaching to help them deliver a seamless McDonald’s experience.” Keep coming back, ”the company said in response to a request for comment.

The company added that the valuation framework includes personalized resources that will help franchisees improve day-to-day operations and increase sales, profitability and guest numbers.

Companies are under pressure to attract and retain employees. Labor costs have also risen at McDonald’s and other fast-food companies, causing franchisees to raise prices along with wages, and intensifying competition for employees. There is also the push for a growing union at various restaurants and retail outlets across the country, with Starbucks workers taking the lead in the food sector, workers trying to organize for lawyers and better benefits and conditions.

The McDonald’s logo was seen on January 27, 2022 at a restaurant in Arlington, Virginia.

Joshua Roberts | Reuters

Tensions with franchisees are nothing new in companies where business has strengthened in the United States, even in the face of ongoing labor problems and record-high costs. In the past, CEO Chris Kempzinski has said that different sets of company owners reflect society and different perspectives. The owners and McDonald’s latest publicly clashed over technology fees McDonald’s said it was due to the owners for uncollected arrears, and separately, for epidemic assistance.

The National Owners Association, an independent franchise advocacy group for McDonald’s owners, recently shared an internal survey of PACE with its members, as seen by CNBC. The survey showed that 71% had been trained at PACE so far, and only 3% of restaurant operators who responded said the planned grading curriculum was an accurate reflection of operations. More than half thought it was right or something was wrong. The survey was sent to 900 owners and they received up to 500 responses

About a quarter thought it would help the operation or somewhat. In addition, 64% said the stuffing environment has gotten worse or a bit worse, which speaks to the frustration of owners with the introduction of this new system at the moment. More than 80% said it would not be helpful for the company’s “people-first” purposes. A separate letter from NOA board members said leaders were working with the company on recommendations to reduce program pressure.

“Who would put so much pressure on a widely known distressed industry in their right mind [and its] Employees face the worst labor shortages in history, inflation and rising prices, fears of an epidemic, and much more. ”

A recent survey by Kalinowski Equity Research, a sales-side firm of more than 20 owners who operate more than 200 restaurants, also expressed some disagreement with PACE. It contains comments from operators that underscore what it feels like to have a bad-consulted timeout rollout.

“PACE audits will prevent us from generating sales and increasing the turnover of our employees. This is the worst time in the history of the system to implement such a program,” said one respondent. “Stop PACE programs, which will destroy the staff we need to manage them,” said another. Overall, the ownership survey ranked the franchise’s relationship with corporate at 1.19 on a scale of 1 to 5, the third-lowest score in mid-2003 history.

Another franchisee, with decades of experience and more than a dozen positions, said employees were still recovering from the epidemic and “tone-def” during the system. The owner has more than 500 employees.

PACE will have “strangers who have little experience in the restaurant and will evaluate and communicate with my staff,” the person said. “The problem for me is not grading, the problem for me is that my workforce is fragile.”

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