McDonald's franchisees are cautiously optimistic about the company's new CEO, according to multiple interviews and leaked memos viewed by Business Insider. But, franchisees are also determined to make their voices heard following a period of tense relations that resulted, in part, from the new CEO's previous actions as head of the US business.

On Sunday, McDonald's announced that Steve Easterbrook had been fired from his position as CEO due to his relationship with another employee. Chris Kempczinski, who had previously butted heads with franchisees as the head of the company's US business, is now CEO, while Joe Erlinger became the president of McDonald's US business.

As an outsider who joined McDonald's from Kraft in 2015 and became US president in 2017, Kempczinski struggled to get franchisees on board with bold initiatives like a remodeling program that could cost up to $750,000 per location.

McDonald's franchisees, who view themselves as a "McFamily" that celebrates people who worked their way up over decades in the business, bristled against Kempczinski's aggressive plans for modernization. They responded by organizing the company's first-ever independent franchisee group, the National Owners Association (NOA), which is determined to protect franchisee interests and grow cash flow, or the money moving in and out of each franchise in a month.

'Ray Kroc would would roll over in his grave'

McDonald's U.S President Chris Kempczinski fresh beef
McDonald's U.S President Chris Kempczinski fresh beef
Richa Naidu/Reuters

Unlike the elected National Franchise Leadership Alliance (NFLA) and minority-centric groups like the National Black McDonald's Operators Association (NBMOA), the NOA formed in 2018 remains an independent organization, unsanctioned by McDonald's corporate office.

The NOA pushed back against costly investments that cut into cash flow, with franchisees across the US banding together to show their discontent. According to a leaked memo on Monday written by franchisee Larry Tripplett, who is the CEO of NBMOA and an NOA board member, the majority of operators have now joined the NOA.

"It's sad that you have to do it that way," instead of working hand-in-hand with the corporate office, a franchisee of three decades told Business Insider. This franchisee was granted anonymity so that they could speak freely without fear of retribution. "[McDonald's founder] Ray Kroc would roll over in his grave if he was here today."

Cash flow has been a major issue for African-American franchisees in particular. According to NBMOA franchisee documents shared with Business Insider, there is a substantial gap between the average African-American franchisee's cash flow and the overall average cash flow a gap that has more than doubled in recent years.

In 2012, the average overall cash flow at African-American locations was $319,381, or $24,591 less than the average cash flow overall. In 2017, African-American franchisees' average cash flow was $311,515, or $60,581 less than the average cash flow of all franchisees, according to NBMOA documents.

According to a franchisee with knowledge of the situation, the gap between African-American franchisees' cash flow and the average has only grown since 2017. Closing the cash-flow gap is the McDonald's black franchisee group's current No. 1 priority, according to a leaked memo that Tripplett sent on Monday and that was viewed by Business Insider.

McDonald's declined to comment on the cash-flow gap and the internal memos shared with Business Insider.

McDonald's is determined to get franchisees back on board

McDonald's CEO Steve Easterbrook
McDonald's CEO Steve Easterbrook
Getty Images

Following franchisee pressure, McDonald's gave franchisees more time to remodel stores and revamped its delivery plans. Travis Heriaud and Courtney Goodwin, two franchisees who have worked on the NFLA, told Business Insider on Monday that franchisee morale has improved over the past year as financials have improved and leadership has started to work more closely with franchisees under Kempczinski's lead.

"Average franchisee restaurant cash flow is moving in the right direction with 11 consecutive months of cash flow growth through September," Easterbrook said in an October call with investors. "We expect this trend to continue through the rest of 2019."

Tripplett said in a NBMOA memo on Monday that leadership is "cautiously optimistic in some of the results we are beginning to see." In the memo, Tripplett said that Kempczinski personally called him on Sunday evening. In the call, Kempczinski "expressed his plans to continue to work on our cash-flow gaps."

Kempczinski continued to build franchisee goodwill on Monday with a video that played at field-office summits McDonald's regional planning meetings in Bethesda, Atlanta, and Dallas. In the video, Kempczinski told franchisees the company is aiming to grow US comparable sales by 4% next year, beating Wall Street's expectations, Bloomberg reported. On Wednesday, Kempczinski and chairman Rick Hernandez Jr. held a town hall in Chicago to discuss the future of the company .

"The mission I'm asking you to re-enlist in is to make this company an example for the world and to do the right thing each and every day," Kempczinski said in the town hall.

Erlinger is also mobilizing. The new president of the US business is heading to the field summits this week, then kicking off a tour of the US stores, according to an internal memo .

Franchisees are still determined to make their voices heard

McDonald's bacon double quarter pounder
McDonald's bacon double quarter pounder
Irene Jiang / Business Insider

While McDonald's relationship with franchisees and those franchisees' financials have improved over the last year, franchisee organizations are determined to make sure their voices are heard under the new leadership.

"We believe that owner/operators are the backbone to this system," the McDonald's National Franchisee Leadership Alliance (NFLA) executive team wrote in an internal memo on Monday. "Owner/operators, along with our World Famous Fries, are our brand's true constants. We are the experts, in every community where we operate."

"This year, we have all been reminded of how much our voice matters," the letter continues. "No strategy, no matter how well proven, stands a chance without the belief and commitment of those charged with its implementation."

Tripplett's letter to black franchisees similarly linked their success with their pushback against corporate actions. Tripplett encouraged franchisees to join and renew their memberships to the NOA, a group he said was directly related to much of franchisees' "recent progress."

"The majority of Owners have joined," Tripplett wrote. "We need you to join as there is 'strength in numbers.'"

The NOA posted a letter on its website on Monday that did not directly mention Kempczinski's promotion or the new leadership. Instead, it focused on looking ahead to 2020 and on highlighting the company's progress since the NOA's formation.

"The NOA has played a critical role in the positive change we have witnessed this last year," the letter sates. "We went from running the play to owning the play. We are back to collaborating with our partners."

Franchisees are rallying around new leadership

McDonald's hamburger vs. bacon double quarter pounder
McDonald's hamburger vs. bacon double quarter pounder
Irene Jiang / Business Insider

With Easterbrook's abrupt departure, franchisee groups seem to be eager to adjust to the new normal. According to two franchisees, early response from the summits has been positive, with franchisees expressing optimism about Kempczinski's potential as CEO .

"Yesterday, we did our job: our McDonald's restaurants opened and operated," the NFLA executive team wrote in its internal memo.

The NOA, typically the franchisee organization that is most openly critical of McDonald's leadership, also focused on the positives in its Monday memo.

"We have done great work in the past few years," the letter reads. "Our stores are modernized, our technology is improving, our drive thru's are speeding up, and our marketing is poised for a major break out. And we haven't even mentioned our new food news. The lineup is strong and getting stronger. The future is bright at McDonald's."

In the letter, the NOA board also said it planned to stop publishing public blog posts.

"This will be our last Sunday fireside chat... for now," the letter reads. "We aren't going anywhere, but it's time for the NOA to focus on our core mission. Our mission of building ownership in our restaurants. Building a culture of operational excellence and world class hospitality."

It is in franchisees' best interest for McDonald's to thrive under its new leadership. Many franchisees have stock in the company; the company's stock dropped by as much as 3% with the news that Easterbrook was fired, with the company losing $4 billion in value. If McDonald's suffers, franchisees' sales may also dip.

"Nobody wants to lose the little piece of the pie they do have," the franchisee of three decades said. "So that's the hard part trying to correct it without cutting your own throat."

Easterbrook is firmly out of McDonald's good graces

FILE PHOTO: Steve Easterbrook, CEO of McDonald's Corp., attends the annual Allen and Co. Sun Valley media conference in Sun Valley, Idaho, U.S., July 10, 2019. REUTERS/Brendan McDermid/File Photo
FILE PHOTO: Steve Easterbrook, CEO of McDonald's Corp., attends the annual Allen and Co. Sun Valley media conference in Sun Valley, Idaho, U.S., July 10, 2019. REUTERS/Brendan McDermid/File Photo
Reuters

Multiple franchisees told Business Insider that they were still in shock over the news of Easterbrook's abrupt termination. At the same time, McDonald's leadership and franchisees have reinforced that Easterbrook's firing was a fair result for his actions.

During the town hall, chairman Hernandez Jr. alluded to Easterbrook's firing.

"I think [the policy] basically it tries to keep the workplace about work, an honest and open interaction with people and a place where people can believe that decisions are made or not made for personal reasons, but for professional reasons, for the best interest of the company," Hernandez Jr. said.

The NFLA, which serves as the official body of elected franchisees at McDonald's, also took a jab at Easterbrook.

"The responsibility of leading this brand is a privilege," the NFLA letter reads. "As we have stated before, a safe and respectful workplace is not a focus, it is a societal expectation, and it is core to our values."

The letter closes: "As our founder Ray Kroc said, 'The quality of a leader is reflected in the standards they set for themselves.' Your owner/operator leadership is committed to setting and living our standards, and we know you are too."

If you're a McDonald's franchisee or employee with a story to share, email ktaylor@businessinsider.com.

NOW WATCH: 9 items to avoid buying at Costco

See Also: