WASHINGTON--(BUSINESS WIRE)--The Service Employees International Union (SEIU) Wednesday launched a website to help McDonald’s franchisees protect themselves from the financial risks posed by the company’s proposed sale of its 20-year franchise rights in China valued at more than $2 billion.
In the online “McDonald’s China Franchisees Information Center,” SEIU outlines the rights that McDonald’s small business operators in China have to raise concerns about the potential impact on their business of the company’s recently-announced deal to sell its stores and master franchise rights in the country to the American private equity firm Carlyle Group and the Chinese company CITIC.
“SEIU believes that this ownership structure now under review poses serious risks for McDonald’s franchisees in China, and the terms of the deal that have been revealed publicly suggest that it could result in future conflict with and mistreatment of your business, as well as negatively impacting your communities and the workers in your stores,” the website reads.
In analysis published on the website, the union explains how the new “master franchisee” could cut support to sub-franchisees or increase rent costs and other fees, citing reports that McDonald’s plans to charge royalties of six percent of sales – double those taken out of the country by Yum Brands, and higher than the five percent royalties previously paid by franchisees in China. The union also warns that the burger giant’s plan to open 1,500 new stores over the next five years may also hurt existing franchisees who would be forced to compete with the new stores in similar markets.
SEIU informs franchisees of their rights to weigh in on the transaction and to demand from McDonald’s a guarantee that they won’t face increases in royalties, rents and other costs as a result of the deal and that existing operators won’t face competition by new stores opened by the master franchisee. The site also details complaints about the deal filed with China’s Ministry of Commerce by the Chinese consultancy Hejun Vanguard Group, informing franchisees of their opportunity to voice concerns about the deal’s effect on their businesses to regulators.
The website marks the latest effort by SEIU to inform McDonald’s franchisees in China about the dangers of the proposed sale to their bottom lines. SEIU first wrote to McDonald’s franchisees in China last summer, before the deal was announced, warning of the risks of a potential sale. A second letter went out to franchisees earlier this year, once McDonald’s announced the sale to Carlyle and Citic, warning of “serious risks” of the new ownership structure to their businesses.
"McDonald’s master franchisee model allows it to reap significant benefits from its brand while avoiding costs and risks associated with running stores and supporting franchisees,” SEIU Executive Vice President Scott Courtney said. “We believe franchisees in China, many of whom have invested their life’s savings in their business, should be well aware of their rights as McDonald’s plans to adopt a master franchise model that has negatively affected operators in other markets around the world."
SEIU has a proven track record of working with franchisees to improve their rights. In March, SEIU filed complaints with attorneys general in Illinois and California charging McDonald’s with violating franchise laws in the two states by distorting how it calculates the inflated rents it forces franchisees to pay. The union teamed up with California franchisees in 2015 to win the passage of the toughest franchise reform legislation in years.
McDonald’s sale of its business in China and Hong Kong has faced growing scrutiny since its announcement in January. In addition to the Hejun Vanguard complaints before China’s Ministry of Commerce, the Hong Kong Confederation of Trade Unions last month announced its objection to the sale, noting that the high royalties and onerous terms of the deal could have a harmful effect on McDonald’s workers.