McDonald's franchisees are worried the company's new grading system will alienate workers (2024)

McDonald's franchise owners are expressing concern and frustration over a new grading system the fast food giant is planning to roll out early next year, with some saying it is poor timing due to unprecedented pressures in the workforce.

The company plans to enact the system, called Operations PACE, which stands for Performance and Customer Excellence, in January 2023. McDonald's notes its "business climate is changing" in a 60-page overview of the PACE system, which was viewed by CNBC, and says it needs a "new approach that supports achieving our growth plan objectives."

Some franchisees, however, are worried the new process will instead harm operations and alienate workers in a tight labor market. The program calls for between six and 10 visits a year from company and third-party assessors per location, layered on top of other inspections for things such as local food safety regulations. McDonald's has about 13,000 franchised locations in the United States.

Other owners fear it will result in a less-collaborative approach to operations, with harsher grading, according to three people with knowledge of the matter and two separate surveys of franchisees.These people declined to be named because they are not authorized to speak publicly about PACE.

"It just kills morale, and with the current hiring environment being as tough as it is, I can't afford to lose any more people," said one franchisee with decades of experience and about a dozen locations. This person has 500 employees, but is short 100 despite paying $16 an hour.

The owner also said that prior McDonald's grading systems were more collaborative and featured mutually agreed upon goals. "You cannot improve things by telling my managers that they failed," the person said.

McDonald's defended the new assessment plan.

"We must remain laser focused on maintaining our world-famous standards of excellence in our restaurants.This comprehensive performance management system, designed with ongoing input from franchisees, will offer tailored support and coaching to restaurants to help them provide a seamless McDonald's experience that will keep customers coming back," the company said in response to a request for comment."To give time for restaurants to learn the new system, optional learning visits are being offered in 2022 ahead of the official start in January 2023."

The company added that the assessment framework includes personalized resources that will help franchisees improve everyday performance and drive sales, profitability and guest counts.

Companies continue to face pressures in attracting and retaining workers. Labor costs have also gone up at McDonald's and other fast-food companies, causing franchisees to increase prices along with pay, and competition for workers is steep. There's also a growing union push at different restaurant and retail outlets nationwide, with Starbucks workers leading the charge in the food sector, as workers advocate and seek to organize to get better benefits and conditions.

Tensions with franchisees are nothing new at the company, where business in the U.S. has been strong, even in the face of ongoing labor woes and record-high costs. In the past, CEO Chris Kempczinski has said the company's diverse set of owners are reflective of society and different points of view. The owners and McDonald's last publicly clashed over technology fees McDonald's said it was owed by owners thanks to uncollected dues, and separately, over pandemic support.

The National Owners Association, an independent franchisee advocacy group for McDonald's owners, recently shared with its membership an internal survey on PACE, which was seen by CNBC. The poll showed that 71% had been trained in PACE so far, and just 3% of the restaurant operators who responded said the planned grading curriculum is an accurate reflection of operations. More than half felt it was not accurate or somewhat inaccurate. The survey was sent to 900 owners, and they received up to 500 responses.

Nearly a quarter felt it would help or somewhat help operations. In addition, 64% said the staffing environment has gotten worse or somewhat worse, which speaks to the frustrations owners have with this new system being rolled out at this moment in time.More than 80% said it would not be helpful to the company's "people-first" objectives. A separate letter from the NOA board to its membership said leaders were working with the company on recommendations to reduce the pressure of the program.

"Who in their right mind would add so much pressure to a widely-known distressed industry [and its] employees, facing the worst labor shortage in history, inflation and price increases, the fear of pandemic tremors, and so much more by instituting such a laborious program as PACE?" a source in franchisee leadership with knowledge of the situation said.

A recent survey from sell-side firm Kalinowski Equity Research of more than 20 owners who operate over 200 restaurants also expressed some disapproval with PACE. It includes comments from operators that underscore what some feel is the ill-advised timing of the rollout.

"The PACE audits will hold us back from building sales and will increase our turnover of employees. The worst time in the history of the system to implement such a program," one respondent said. "Stop PACE programs, which will decimate the staffs we need to operate," another said. Overall, the proprietary survey ranks franchisee relations with corporate a 1.19 on a scale of 1 to 5, the third-worst score in its history dating back to mid-2003.

Another franchisee, who has decades of experience and more than a dozen locations, said employees are still recovering from the pandemic and the timing of the system is "tone-deaf." The owner has more than 500 employees.

PACE will have "strangers with little-to-no restaurant experience coming in and evaluating and interacting with my staff," this person said. "The issue for me is not the grading, the issue for me is that my workforce is fragile."