McDonald’s steers Black franchise owners into locations doomed to fail, lawsuit says
McDonald’s treatment of Black franchise owners is “moving backwards” — and it’s been happening for decades, according to a 51-page lawsuit filed Monday.
More than 50 Black franchise owners sued the fast food giant for racial discrimination in a complaint filed in the Northern District of Illinois. The lawsuit points to failed locations in bad areas, lost profits and disparate expectations from white counterparts as evidence of the company’s alleged prejudice against Black franchisees.
Attorneys for the franchise owners said McDonald’s steered them “toward the oldest, most decrepit stores in the toughest neighborhoods” that were “destined to fail” because of low sales and high operating costs.
“Each and every one of these businessmen and women tell a story of dashed hopes and lost dreams,” attorney James L. Ferraro, who is representing the franchise owners, said in a news release Tuesday. “The world will soon see how these 52 people of color risked everything on the Golden Arches only to be kept down, marginalized and driven to ruin.”
McDonald’s denied the accusations. The company told McClatchy News in a statement Tuesday the claims “fly in the face of everything we stand for as an organization and as a partner to communities and small business owners around the world.”
“Not only do we categorically deny the allegations that these franchisees were unable to succeed because of any form of discrimination by McDonald’s, we are confident that the facts will show how committed we are to the diversity and equal opportunity of the McDonald’s System, including across our franchisees, suppliers and employees,” McDonald’s said.
The 52 franchise owners are seeking between $4 million and $5 million in damages for each of the more than 200 stores they lost as a result of the alleged discrimination, according to the lawsuit.
They also want compensatory and punitive damages, pre- and post-judgment interest, as well as attorney’s fees.
A history of discrimination
Monday’s lawsuit is not the first to accuse McDonald’s of discrimination.
A Black McDonald’s franchise owner sued the company in 1983, saying Black people were prevented from purchasing franchise locations in predominantly white neighborhoods, the complaint states. Ferraro’s law firm said they were “usually offered only recycled stores, which are generally more expensive and less profitable than new ones.”
Then-Executive Vice President Thomas S. Dentice admitted in the late 1990s that Black people had not been afforded the same opportunities in the corporation as white people, Ferraro’s law firm said.
“[T]he company has placed many Black Franchisees in restaurants that have not allowed them to achieve the same level of economic success as their peers,” Dentice reportedly said in a 1996 letter to the chairman of the National Black McDonald’s Operators Association.
The cash flow gap between Black and white-owned franchises has also widened between 2010 and 2019, according to the lawsuit, with average annual sales at Black-owned franchises more than $700,000 below the nationwide average.
‘Doomed to fail’
The Black franchise owners behind Monday’s lawsuit said McDonald’s pattern of discrimination started with the location of their franchises.
They formerly operated McDonald’s locations in some of the country’s largest metro areas, including in Atlanta, New York, Detroit, Raleigh, Houston, Nashville, Las Vegas, Chicago and Philadelphia.
Those restaurants were routinely “the oldest stores, in need of the most reinvestment, in tough and depressed areas, that had been routinely rejected by White franchisees, many of which McDonald’s wanted to close, but needed someone to operate until McDonald’s could sell its real estate,” the lawsuit states.
Those locations required higher operating costs due to extra security and higher insurance premiums while netting fewer profits due to the nature of the predominantly Black neighborhoods in which they operated, according to the complaint.
Attorneys referred to the locations as “tough areas, often filled with high-crime, (and) patrons with little to no means to purchase significant meal tickets.”
McDonald’s ignored the different revenue and operating costs between Black and white-owned franchises and instead provided misleading financial statements to induce Black franchise owners to purchase troubled locations, the lawsuit states.
The complaint referred to it as a “financial suicide mission.”
Black entrepreneurs were also reportedly led to believe it would be months or years before another restaurant site was offered.
Once the site was purchased, the complaint alleges, McDonald’s forced Black franchise owners to complete costly repairs and renovations to bring them up to “brand standards.” White franchise owners, however, were reportedly not required to do the same.
Black franchise owners were also denied the opportunity to expand to more profitable areas and instead were redirected to more “hood” restaurants — “meaning it was a low-volume store in an economically distressed community with a high crime rate,” the lawsuit states.
They were then denied rent relief and other financial assistance and were subject to “targeted, rigorous, and unreasonable inspections and harsh grading” before eventually being forced to sell — often at a loss, according to the complaint.
McDonald’s response
McDonald’s CEO Chris Kempczinski sent a video statement to employees and suppliers on Tuesday saying the company “disagree(s) with the claims in this lawsuit.”
“McDonald’s stands for diversity, equity and inclusion,” he said. “I’m proud of the work we have done as a company to foster entrepreneurship, economic growth and mobility. I want this company to continue to be a place where everyone is given equal opportunities to excel and where that is part of the lived experience for each member of the system.”
The company told McClatchy News it’s “highly inaccurate to suggest that McDonald’s limits opportunities for Black franchisees to operate in certain communities,” saying it might suggest a location but franchise owners ultimately operate in locations of their choosing.
McDonald’s added most of the transactions occur “directly between franchisees” and that all sales and performance data are made available ahead of time.
The company said it also doesn’t evaluate those Black-owned businesses differently than their white-owned counterparts and denied varying financial agreements based on a person’s race..
It also said cash flow at Black-owned franchises has been steadily improving and that McDonald’s works with those that are under performing on “a case-by-case basis” to help provide financial relief.
This story was originally published September 1, 2020 at 3:10 PM with the headline "McDonald’s steers Black franchise owners into locations doomed to fail, lawsuit says."
