McDonald’s focus on value is creating tensions with some franchisees

The restaurant sector has spent the past 18 months trying to figure out how to reach consumers in a hypercompetitive and uneven economy. McDonald’s has doubled down on value messaging to customers via Extra Value Meals and Snack Wraps, which boosted its sales in the fourth quarter.

On Wednesday the company reported better-than-expected sales and delivered beats on the top and bottom lines, driven by buzzy promotions and value offerings.

“By listening to customers and taking action, we have improved traffic and strengthened our value & affordability scores,” CEO Chris Kempczinski said in a statement.

But the focus on value has caused frustrations at times among parts of the chain’s operator base.

The company rolled out new franchise standards for McDonald’s operators on Jan. 1, including assessing locations on how their prices deliver value. McDonald’s said its owners are still able to set their own prices, but the standards nonetheless shape and define how franchisees — which operate 95% of McDonald’s restaurants — run their stores.

A cohort of operators is standing ground in their ability to continue to independently set prices.

The National Owners Association, an independent franchisee advocate group, adopted a Franchisee Bill of Rights in August and circulated it in an email to members last month as the standards took effect, according to a copy of the message viewed by CNBC.

The last of the bill’s rights is the “right to set prices without fear of recourse,” which says, “Franchisees, as independent Owner/Operators, have the right to set menu prices for their restaurants based on their own business judgment and market conditions. This right exists irrespective of the pricing decisions of any national, regional, or local co-op or franchisor initiative. Franchisees must be free to manage their pricing strategy without fear of intimidation, or diminished support from McDonald’s or its affiliated entities.”

It also lists the “right to renewal and transfer,” giving owners the “absolute right to a fair and reasonable opportunity to renew franchise agreements … subject only to objective, clearly stated standards of approval.”

In December, McDonald’s told operators it would begin value assessments as part of its updates to franchising standards. Continued noncompliance could result in penalties or even termination.

At the time, the company said its new standards would provide “greater clarity … to ensure every restaurant delivers consistent, reliable value across the full customer experience,” according to a memo reviewed by CNBC.

In a statement, McDonald’s told CNBC that the business model creates the opportunity for entrepreneurs to be in business “for themselves, but never by themselves,” adding, “As franchisor, we have a responsibility to protect the strength and integrity of the brand and ensure every Owner/Operator upholds the standards that make McDonald’s so successful, for the benefit of all. This includes showing up for customers with…