e fast food chain, around 80% of the 152 franchisees that own half of the stores in Brazil are having difficulty to make ends meet at the end of the month(McDonald's 1). Some decided to sell their business. Others decided to fight. The first main concern of the franchisees is the rapid growth of new stores. The expansion program that increased the fast food chain in the last two years is creating cannibalization among the stores. This means that there are more stores to share the profit with. To cannibalize the sales of existing owner operators by installing new company stores within the owner operators trading area is against the law in Brazil. In early 1999, the value of the Real decreased which made profitability even more difficult. The proximity of the new stores is also a great concern. In 1994, in the Mooca district in the city of Sao Paulo there were only two McDonald's within four kilometers from each other, now there are 15(McDonald's 2). The company expands without giving attention to the impact on the sales of the "old" stores. One of the franchisees' biggest complaints has to do with rent paid to McDonald's. The value is calculated based on the restaurants net sales and varies from 14% to 21%, while the McDonald's pays the real estate owner 5%. The arrangement is typical of their business model worldwide, but in Brazil it is illegal and a criminal offense to sub-let a location for more than the original rent. The company also charges a 5% royalty (which in the United States is .4%) and 5% advertising fee. After trying to get rent reductions and not succeeding, many franchisees decided to take McDonald's to court. They formed together to make Independent McDonald's Operators Association, IMOA(McDonald's 4). They want to have their rent permanently reduced. About 20 stores already have closed down in Brazil and many more will continue if McDonald's doesn't do something.Fast food restaurants are not the only o...
