Global restaurant giant McDonald’s (NYSE:MCD) is increasing the royalty rate for its new franchisees to 5% from 4%, according to CNBC. The higher rates, expected to go into effect from January 1, are the first such action from McDonald’s in about 30 years.
The higher royalties will not impact existing McDonald’s franchisees or operators buying an existing franchised location. However, the move will impact new franchisees, acquirers of company-owned outlets, and other situations involving the franchisor.
Further, the company is doing away with terming the payments as “service fees” and will use the term “royalty fees.” About 95% of McDonald’s outlets are operated by franchisees. The operators pay a variety of fees, such as royalties on a monthly basis, annual fees, and other charges to the company.
While the move may not impact all of the company’s franchisees immediately, McDonald’s has had run-ins with its operators in the past over wage hikes and restaurant assessment systems. The new royalty rate, too, could lead to a pushback for the company.
What Is the Target Price for McDonald’s Stock?
Overall, the Street has a consensus price target of $334.33 on McDonald’s, alongside a Strong Buy consensus rating. This implies a 23.3% potential upside in the stock, on top of an 8% price gain over the past year.
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