McDonald's says it has made more Black millionaires than any other company. But Black franchisees say they face systemic inequality.

ktaylor@businessinsider.com (Kate Taylor)
·7 min read
mcdonalds systematic discrimination 2x1
McDonald's has been facing an internal reckoning on race.

Samantha Lee/Business Insider

  • As of late 2019, McDonald's Black franchisees netted $68,000 less a month when compared to McDonald's overall franchisee average. The gap has more than doubled in recent years.

  • While disparities between Black and white franchisees have continued in 2020, some insiders say McDonald's is making new efforts to address inequalities.

  • "McDonald's has created more millionaires within the Black community than probably any other corporation on the planet, but there's still work to do," CEO Chris Kempczinski told CNBC earlier in June. "We're certainly not perfect."

  • McDonald's recently met with Black franchisees to discuss "aggressive actions to address Black franchisee disparities."

  • For more on McDonald's Black franchisees, subscribe to Business Insider's podcast, "Brought to you by..."

  • Visit Business Insider's homepage for more stories.

McDonald's took a strong stance against racism in recent weeks.

The fast-food giant announced in early June it is donating $1 million to the National Urban League and the National Association for the Advancement of Colored People (NAACP). It produced an advertisement mourning the deaths of Black people killed by police or in incidents of racist violence. Joe Erlinger, the head of McDonald's US business, said in an internal meeting that "silence is not an option."

But a recent comment from the company's CEO raised eyebrows among some current and former Black franchisees who spoke with Business Insider.

Related: What McDonald's menu items look like around the world

"We've probably — McDonald's has created more millionaires within the Black community than probably any other corporation on the planet, but there's still work to do," CEO Chris Kempczinski told CNBC earlier this month. "We're certainly not perfect, we're talking with our franchisees about how do we continue to bring in diverse franchisees."

One current franchisee who was granted anonymity to speak freely, called the statement "inflammatory, misleading, and pandering."

As of late last year, Black McDonald's franchisees told Business Insider that their stores net $68,000 less a month, on average, when compared to McDonald's overall franchisee average. This cash flow gap has been a major problem for McDonald's Black owner-operators for decades, and the gap has more than doubled in recent years.

Back in 2012, the gap between the averages was less than $25,000. In 2017, the cash-flow gap was about $60,600, according to documents from the National Black McDonald's Owners Association. Business Insider was unable to obtain official updated figures for 2018 or 2019, but two franchisees say the gap has since grown to about $68,00

mcdonalds african american franchisee cash
McDonald's cash flow gap.

Shayanne Gal/Business Insider

In December, McDonald's said in a statement that it "is among our top priorities that all McDonald's franchises in all communities have the opportunity to prosper, grow, and achieve their business ambitions." The company declined to comment further on the topic or what changes the fast-food giant has made this year.

According to internal documents and franchisees who spoke with Business Insider, the disparities between Black and white franchisees have continued in 2020. But, insiders say McDonald's is finally making some efforts to address inequalities.

McDonald's Black franchisees have historically been treated as 'second-class citizens'

An investigation by Business Insider found that McDonald's Black franchisees earned hundreds of thousands of dollars less than the systemwide average.

"African American franchise owners have always struggled with being in the strange position where they were highly successful business people who ... became very wealthy through the system," said Marcia Chatelain, author of "Franchise: The Golden Arches in Black America."

"But they were second-class citizens within the larger McDonald's structure," she said.

mcdonalds cash flow gap african american franchisees
McDonald's cash flow gap.

Shayanne Gal/Business Insider

Black franchisees are more likely to own stores in areas where sales are lower and costs such as security are higher, in part because they are more likely to be in Black and Latino communities. While franchisees' personal preferences played a role in this, some said that McDonald's made it more difficult for Black franchisees to buy locations in higher-income areas.

"Historically, we're always taking on the worst stores," former McDonald's franchisee Juneth Daniel told Business Insider. "They had the lowest cash flows. ... They had serious problems with having to be staffed — if they weren't being robbed. But, you want into the system, you want it to be a McDonald's owner-operator. So you took the bad to hopefully get to a better place."

Some McDonald's insiders also said Black franchisees were judged more harshly when visited by corporate consultants. A former consultant who left McDonald's in 2016 said she was pressured to inspect the restaurants of Black franchisees far more frequently than locations owned by white franchisees.

"We have said for many, many years as African American operators, there's two standards. There is one for us and there's one for our general market operator," said Kenneth Manning, a former McDonald's franchisee.

McDonald's did not respond directly to allegations of harsher restaurant visits, but emphasized that the claims do not represent the chain's 1,700 franchisees.

mcdonalds franchisee count shrinking
McDonald's franchisee count.

Shayanne Gal/Business Insider

McDonald's shift towards a business model in which fewer franchisees own more locations — a trend throughout the fast-food industry — has also disproportionately forced out Black franchisees. In 2007, Black franchisees made up 304 of the chain's 2,270 franchisees, or 13.4%, according to a 2018 presentation by the National Black McDonald's Operators Association (NBMOA). At the end of 2017, that figure had fallen to 222, or 12.5% of the chain's 1,781 franchisees in the US.

Read more: McDonald's black franchisees are fighting to earn as much as their white counterparts, as dozens leave the company they once considered family

Inequality at McDonald's has been forced into the spotlight

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mcdonalds coronavirus drive-through

Catherine Ivill/Getty Images

Black franchisees have been discussing inequalities within the system for years. But, tensions bubbled over in 2019.

"In general the trajectory of the treatment of African American Owners is moving backwards," NBMOA CEO Larry Tripplett said in a letter to McDonald's executives in March 2019 obtained by Business Insider.

"Through no fault of our own we lag behind the general market in all measures," Tripplett continued.

In November, McDonald's CEO Steve Easterbrook was abruptly ousted from the company after an investigation into the executive's relationship with a coworker. With Kempczinski as the new CEO and Erlinger taking his position as US president, the new leadership team attempted to improve McDonald's image — including addressing franchisees' and executives' claims of racism.

Read more: Inside McDonald's quest to address claims of racial discrimination and erase former top executives' 'party culture'

Two days after Business Insider published its investigation into McDonald's Black franchisees, the company announced it was creating a new role focused on franchisee diversity. However, public criticism continued into the new year.

In January, two Black McDonald's executives filed a lawsuit claiming they faced discrimination, a hostile work environment, and "irrational, vile, and cruel" retaliation on the job. In the complaint, the executives said that Black franchisees were "disparately strong armed" out of the McDonald's system.

In February, Business Insider reported that a group of minority franchisees had retained a law firm to investigate allegations of discriminatory practices. James Ferraro, the president of the firm and lead attorney in the investigation, declined to comment on the matter to Business Insider.

Erlinger recently said internally he has attempted to surround himself with diverse executives, noting that 100% of field officers are now people of color. The company has also internally emphasized efforts to further diversify its suppliers and corporate office, including building on recruitment programs at historically Black colleges and universities.

In the months since Erlinger and Kempczinski's promotions, numerous Black franchisees have met with McDonald's corporate office to discuss their cash flow and renegotiate rent, according to a source with knowledge of the situation. According to an NBMOA template from February viewed by Business Insider, franchisees were encouraged to push for permanent rent reductions when meeting with the company.

According to a source with knowledge of the matter, cash flow for Black franchisees began to improve in the fourth quarter of last year and has continued to improve through 2020 against average franchisee cash flow. However, as Kempczinski said in his CNBC interview, the company admits there is still work to do.

In early June, following the protests linked to the death of George Floyd, Kempczinski and Erlinger met with the NBMOA. The top two orders of business were McDonald's relationship with Black franchisees and "aggressive actions to address Black franchisee disparities."

Read the original article on Business Insider