McDonald's is considering rent deferrals for franchisees | Hacker News Reader

McDonald's is considering rent deferrals for franchisees

cnbc.com

87 pointssupdatecron65 comments

This sort of action is what we need across the economy. Cancellation or deferral.

Rent deferral, interest deferral, mortgage deferral... etc.

At the individual level maybe limit it to the lower 50%-70% of income earners. Cancel interest and utility/rent/mortgage payments for lower income population. Do it for 2-3 months.

The upper half will just eat into their savings some but won’t suffer like those living paycheck to paycheck.

I’m fine coming out of this with $15k less savings. Im not ok with my neighbor becoming homeless or permanently in debt because of it.

McDonald's franchisees are the upper half.

Feels a bit like this is a "pass it on" type deal- killing the worries for the people in the middle probably relieves a lot of stress for people at the bottom- if I'm not worried about making rent, I'm probably not going to be pushing hours quite as hard, nor am I going to be as strict about people coming in. (Personally, I'd be ensuring that all my workers still had places to live and good food to eat, even if it cost me personally to do so.)

Unfortunately, this feels like it relies on the same mechanism as trickle down economics.

Maybe, but in this instance the trickle down is personal... the people who benefit (franchisees) would be trickling the benefits down to people they know -- their employees. I think the calculus ends up being different when you are giving benefits down to people you know (as opposed to the more nebulous trickle down). McDonalds could also dictate how any rent deferral was handled.

In reality this is the effect of trickle up economics. Ie the upper class relies on extracting wealth from the bottom mostly through labor. This is a fight for their own survival.

I would like this relief to be tied to "keep paying people and maintain cleanliness at your stores".

To use the term, "trickle down" but with requirements for the trickle part.

Definitely upper half. Considering it costs about $400k just to be able to bid on a franchise...

Why the divide? The middle class already pays most of the taxes and not getting the benefit as much as the lower income earner and now they are not getting help as well? If you want to make the divide why not just the really high upper income earner vs the rest of the population, since most people in middle class, though they have savings more than $15k are just regular people like you and me, with families and responsibilities.

I personally don't like it, and I think a lot of middle class won't like it. If you want to do something like this then do it like Andrew Yang, no questions asked to all.

I'm not a lower income earner, but I don't have big ticket items as well (not even a car or house).

The lower 70% includes pretty much the entire middle class.

Those poor middle classes, haven't they been through enough? They can't even lift themselves up through their bootstraps like those deplorable "low income earners".

One social program for me, but not for thee.

Why the name calling? Nowhere we mentioned low income earners as deplorable. Fix the speck in your eye first.

> The middle class already pays most of the taxes

I'm not so sure about that. The top 1% pays 37% of federal income taxes. Meanwhile, the bottom 50% paid only 3% and 44% of paid nothing at all. Depending on the source you use the middle class in America is typically considered to top out at incomes between 100k and 122k. In either case the middle class pays less than half of income taxes. Then looking at the bigger picture we see income taxes only account for 60% of all taxes.

Sources: https://taxfoundation.org/summary-latest-federal-income-tax-... https://www.irs.gov/statistics/soi-tax-stats-irs-data-book

This can be misleading because it doesn't account for wealth concentration. When you realize HOW MUCH of the wealth the 1% control, 37% seems small.

That doesn't make the statement misleading. We tax income. The middle class doesn't pay the majority of taxes.

You may think there should be a wealth tax but the statement isn't misleading. The prior statement was inaccurate.

I don't think it will make sense if a lot of landlords start kicking out restaurants and small business, or a bunch of residential tenants start getting evicted.

Why? It's not like they'll find people to replace them in paying the rent. Everything will be shut down. Just hit the pause button.

This is a massive question: how do we nearly shut down an economy and still meet people's basic needs?

Today's crisis is not 2008's crisis.

The economic changes seem more akin to WWII when there was rationing and production shifted to war efforts. Now we are shifting efforts to healthcare, and the logistics of maintaining basic consumer goods to the populace.

Both in WWII and today we want the ability to spin things back up once (fingers crossed) the virus abates without having made the situation worse by displacing or further indebting huge amounts of people.

When surveys show somewhere between 70-80% of Americans live paycheck to paycheck the potential consequences of the economy grinding to a halt would be devastating.

Talk of $1,000 payments to people help move the Overton Window, but don't solve the problem.

> The upper half will just eat into their savings some but won’t suffer like those living paycheck to paycheck.

What makes you think the upper half does not also contain people living paycheck to paycheck?

They have fewer people in that category, and also more room to make lifestyle adjustments so they can remain afloat. Also, access to credit and family loans.

If a company like McDonalds can pull it off, that will most likely give them quite an advantage. Once things go back to normal, that would mean McDonalds franchise network is likely to be in omaprativley good shape. When competitor don't implement solutios like this, McDonalds would have quite a head start! Not to speak about the franchise owners, and their employees to a certain extent.

As far as I know, most fast food franchises don't own the land under the restaurants in the way that McDonald's does. I'm not familiar with the numbers, but I've seen quips to the effect that McDonald's is a real estate investment firm that does fast food as a side hustle.

I read a similar article once as well. Back then I wondered where the benfit would be, other than it being kind of a company store for franchise owners. Turns out to be a very robust set-up for crisis, doesn't it?

That quip was actually documented quite lucidly in The Founder (where Michael Keaton plays Ray Kroc). I really enjoyed that film.

I don't really get the question of "if" for anyone close to this size. It goes back to the old adage, "If you owe the bank a million dollars, you have a problem. If you owe the bank a billion dollars, the bank has a problem". A corporation as large as McDonalds can dictate terms to whoever holds their debt.

But in the case of rent payments McDonalds is the bank. Whether or not McDonalds decides to defer rent the number of franchisees who can afford to remit payment is going to decline. A handful of franchisees unable to pay is a problem for those franchisees. A majority of franchisees unable to pay is a problem for McDonalds. It's better for McDonalds to address the issue/uncertainty now.

However, if you and a thousand others owe the bank a million dollars, bank has an even bigger problem than just being owed a billion

This is a good move on their part (assuming they go through with it). People tend to think of restaurant owners like this as “the rich”, but if you look at the numbers there’s actually not that much profit in a single restaurant. The only ones who make good money own a bunch of them. Even then, the profit margins are pretty low, and they’re going to struggle to remain profitable.

You have to have a lot of money and a track record of success before McDonald's will consider taking you on as a franchisee. McDonald's franchisees are wealthy before they open their first restaurant.

Because Corporate knows they are going to fuck with franchisees on occasion and they want people who can weather that kind of abuse. A SIL of mine is a district manager of one of the largest MD franchisees in the region and she has some stories about how corporate tends to make the franchises pay for their mistakes. It's usually forcing the stores to take more food than they could possibly sell, but sometimes includes things like buying equipment for menu offerings that they never see a positive ROI on and is later discontinued.

You can absolutely make money running an Mickey Ds, but you have to run a very tight ship to do it.

It depends. A lot of them start out with a couple of restaurants and then work their way up. At least that was the way it worked years ago. But you’re somewhat correct at least, they’re picky about who they give franchises too. They’re also somewhat unique amongst the big restaurant franchises in that they limit the number of restaurants you can own. They want hands-on owners, and they actually require the owners to be trained on every function in the restaurant.

Source: I worked for a local franchisee about 30 years ago, and still know them casually.

It doesn't depend. You need a lot of cash to open one, otherwise McDonald's will not consider you.

I’m not disagreeing with you, I’m just saying there’s a difference between the capital needed to buy a two store franchise, and a ten store franchise. But yes, neither is pocket change.

Next, it would be good if they would also cover the 90% of McDonalds workers who aren’t their direct employees. Pretty weak to say they can’t tell franchisees to follow their policy, and help cover the costs, when they can dictate how to run most other aspects of the business. Critical especially since these 500K workers are likely to need the income, and become a vector for the spread of the virus.

https://www.eater.com/2020/3/16/21181862/are-mcdonalds-starb...

I suspect basically all commercial landlords are going to have to consider rent deferrals or outright eating 3-6 months of rent. The alternative very likely could be the majority of their properties simply becoming vacant, which isn't a good business stance for coming out of all this.

This kind of thinking astounds me.

What kind of margins do you think landlords are making so that they can afford to ‘eat’ 3-6 months of rent?

Talking residential here (but probably a very rough proxy for commercial):

In Wellington NZ, a 3 bed house is almost NZD700k on average, having risen almost 15% in the past year. That property might earn a bit less than NZD3k/m. Capital gains have been outstripping income (rent) for property here for some time. Many investors have the luxury of not even bothering with the hassle of tenants for this reason. A 3-6 month rent holiday would not be an issue for many.

Since most commercial properties are leveraged, this would definitely be an issue.

Theoretical ‘capital gains’ don’t mean much when you have no income but still have mortgage, taxes, insurance and utilities.

What do you think the alternative is?

What kind of margins do you think most businesses run on? I think it's a very real possibility that many or even most businesses will simply cease to exist if they have to pay 3-6 months of rent on a space they are making 0 revenue on.

My statement was not based on margins, but on these alternatives: eating 3 months of rent and getting 9 months of rent after that, or asking for (and possibly not getting) 3 months of rent, then getting 9 months of NO rent because the business is closed. 9 months of rent being better for margins than 0 months of rent.

But, I'm not of the opinion that landlords get screwed here. There's probably going to have to be this sort of deferment on a massive scale to really jump-start coming out of this. I'd imagine the landlord would also be getting breaks from their upstream.

He's saying if they don't, they will have to eat those rents permanently.

Well said.

>majority of their properties simply becoming vacant,

Which is exactly what landlords in Hong Kong are doing. And they couldn't care less, since most of those properties were already paid off.

Without voluntary deferrals, we'll see cascading defaults.

For context, McDonald's Corp buys the land (and building?) for each location. Franchisees then rent those from the McDonald's Corp in addition to their other franchise costs. Not all restaurant franchises work this way, as far as I know.

The actual title is:

"McDonald’s says it can’t estimate coronavirus impact to its business, it will consider rent deferrals for franchisees"

Now would be a good time for a general rent strike until the government steps in to help small businesses

> Now would be a good time for a general rent strike until the government steps in to help small businesses

If we're talking about the US here, 'until' seems to be an optimistic presumption that our government has any intentional of helping small businesses.

>If we're talking about the US here, 'until' seems to be an optimistic presumption that our government has any intentional of helping small businesses.

There are dozens of articles of Trump taking something to congress today apparently to do just this

https://www.chicagotribune.com/coronavirus/ct-nw-coronavirus...

>Mnuchin planned to outline that roughly $850 billion package to Senate Republicans at a private lunch, with officials aiming to have Congress approve it this week.

and

>“The Senate will not adjourn until we have passed significant and bold new steps above and beyond what the House has passed to help our strong nation and our strong underlying economy weather this storm," McConnell said.

Ah, good point. Pandemics make even ISPs and Trump seek to be seen to be acting in the public good. (But not Charter, and not hoarders.)

Yeah, politicians need voters to not completely hate them so they can get re-elected. Imagine if instead politicians were selected by lottery, served shorter terms, and had their appointments staggered.

I wonder if any authors have given this a shot in fiction, I'd read it.

Well, there's https://en.wikipedia.org/wiki/The_Lottery_in_Babylon , but not in the realistic spirit that you probably intended. (There's also HHGttG's https://hitchhikers.fandom.com/wiki/Ruler_of_the_Universe , again in a different spirit.)

The Lottery in Babylon sounds worth a read, thanks!

I mean, yeah, that’s the point of a rent strike. To apply pressure

The least they can do. I was thinking of all of the strip mall style mom and pop places, and how rent and such would affect that. I cannot imagine a landlord evicting tenants any time soon, because who the hell is going to then rent the space?!

Title has blatant typo for past 2 hrs.

FORE!

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