McDonald’s to invest $250 million to diversify franchise owners

The five-year commitment to help disadvantaged groups find better financial terms comes amid controversy over the company’s own performance on diversity.

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McDonald’s CEO Chris Kempczinski, shown in 2016, when he was the incoming president of McDonald’s USA.

McDonald’s CEO Chris Kempczinski

AP file

McDonald’s, facing a lawsuit from Black former franchisees that alleges discrimination, said Wednesday it will commit $250 million in a five-year plan to diversify the ranks of its restaurant owners.

The program will bolster recruitment and training and focus on alternative financing to lower upfront costs for prospective franchisees who have limited access to capital. The company did not propose a specific reduction in its equity requirements.

“Meaningful change does not happen overnight or with a one-size-fits-all solution, but it certainly comes from a concerted vision and an ambition to continuously reflect the communities we serve,” CEO Chris Kempczinski said in a message to employees. “That is how we continue to ensure we keep the escalator of opportunity that McDonald’s franchise ownership represents strong and accessible around the world.”

It marked Chicago-based McDonald’s third action this year aimed at increasing diversity. The first promised new goals for its corporate employment, tying executive pay to the plan’s results. In July, the company announced an effort with its largest U.S. suppliers to increase purchases from minority-owned firms.

But it has faced intense criticism of its commitment to racial equity. More than 50 Black former franchisees sued the company in 2020, accusing it of steering them to stores in low-income areas with higher security and insurance costs, and of giving white franchisees better financial terms. The company has denied those charges. The case is pending.

Kempczinski faced calls for his resignation last month after his text to Mayor Lori Lightfoot surfaced regarding the deaths of two children in highly publicized shootings. The CEO appeared to blame the parents for putting the children at risk. He later apologized in a message to employees.

McDonald’s said that as of 2020, persons from historically underrepresented groups, including Asians, Blacks and Hispanics, accounted for 29.6% of all U.S. franchisees; women accounted for 28.9%.

McDonald’s has industry-leading revenue per restaurant, but it carries high barriers to entry for franchisees. It reports that prospective owners must have at least $500,000 of free cash to get a location and invest anywhere from $1 million to $2.2 million. Terms also involve a $45,000 initial franchise fee.

The company said it will work with banking partners to provide better financing to disadvantaged groups.

“Access to capital continues to be a challenge in closing the wealth gap in the U.S. — particularly for minority entrepreneurs,” said Nicole Elam, president and CEO of the National Bankers Association, which is part of the program.

In a statement provided by McDonald’s, she said, “Efforts that eliminate barriers to entry for aspiring entrepreneurs are critical in helping to bridge that gap — providing a foundation for a lifetime of opportunity and generational wealth creation. This is more important than ever.”

McDonald’s said it has 39,000 locations worldwide, 93% owned by franchisees.

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