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.
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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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