CHICAGO (CN) — More than 50 Black former McDonald’s franchise owners claim in a federal lawsuit that the fast food giant systematically placed them in less desirable locations and did not provide the same level of support given to white-owned stores.
McDonald’s steered Black franchisees to inner-city locations with less profits and higher costs, according to the lawsuit filed late Monday in Chicago federal court. The 52 plaintiffs, who say they have been forced to sell around 200 stores in the last decade, are seeking $4 to $5 million in damages per store from the Chicago-based company.
“Blacks are just getting crappy stores [in] substandard locations,” James Ferraro, a Miami-based attorney who filed the lawsuit, said in an interview. “And you know why they are substandard? Because in the tough areas, high crime areas, low income areas, what you tend to have is the need for security. Most McDonald's that you go into do not have armed security guards, and have higher insurance costs, and the revenue is much lower.”
McDonald’s denied the allegations in a statement.
“These allegations 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,” the company said. “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.”
Ferraro said revenue suffers in inner-city locations because many people living in those areas lack disposable income. The average ticket is lower, and customers are always looking for discounts.
The plaintiffs claim the average Black-owned store brought in $2 million in annual revenue compared to $2.7 million for a white-owned store between 2010 and 2019.
“Revenue at McDonald's is governed by one thing: location,” the attorney said. “People do not go to a specific McDonald's because they like the Big Macs better there than the other McDonald's. They're not French restaurants, you like the maître d’ or you like to duck. And when you want a Big Mac, you go to the nearest McDonald's.”
Once Black owners take possession of an inner-city location, they are often pressured to renovate it. Ferraro says McDonald’s sets up the owner to get a loan from a preferred bank and the owner is stuck paying for a renovation for a building that McDonald’s owns.
That loan is on top of excessive rent, a service fee – 4% of the store’s gross revenue – and paying vendors.
Ferraro said staying current on all the bills is how owners get an A+ grade from the company. Lower grades mean the company can push owners out or force them to sell.
“Even though you only made $1 of profit, they could care less how much profit you made,” Ferraro said. “They only care about did you pay the rent to them, did you pay the service fee to them and are you current with your vendors? That's it.”
He said that leaves a razor thin profit margin for Black owners.
Ferraro noted that his clients are not lacking in intelligence or know-how. One of the plaintiffs has a Ph.D. from Harvard and another worked his way up from being an employee to an owner of several locations. That owner was so successful that McDonald’s pressured him into taking 15 stores in depressed areas in Birmingham, Alabama.
“And guess what? Those stores had an average loss of $40,000 per store, and it ran him right out of business,” Ferraro said. “And then they turned on him and said that he's a moron.”
The lawsuit claims the company has a patten of discriminating against Black owners.
It notes that a boycott of McDonald’s in 1969 led to the first Black franchisees opening stores in depressed areas of Cleveland, 14 years after the company was founded.
In 1972, the National Black McDonald’s Operators Association was founded to help promote growth in the industry for Black owners. In 1983, a Black McDonald’s owner in Los Angeles filed a lawsuit asserting similar allegations as the current complaint.
McDonald’s admitted in the late 1990s to steering Black owners to impoverished areas, according to Monday’s lawsuit.
“Yet, parity was never truly achieved,” the complaint states. “McDonald’s spent the next decade instituting aspirational and temporary measures and promising Black franchisees, including plaintiffs, that it was working to achieve parity between Black and white McDonald’s franchisees. Plaintiffs relied on these representations and had no reason to believe McDonald’s was discriminating against them.”
The plaintiffs believe their claims are backed up by the dwindling number of Black-owned stores. In 1998, the were 377 Black-owned franchises within the McDonald’s chain, according to the lawsuit, compared to just 186 in 2020. During that same time, the total number of franchises more than doubled – from 15,086 in 1998 to 38,999 in 2020.
In its statement, McDonald’s pushed back on the lawsuit’s claims. The company said “it is highly inaccurate” to suggest that it systematically limits opportunities for Black franchisees. While the company may suggest locations, franchisees ultimately select the locations they buy.
McDonald’s also claims the plaintiffs operated restaurants in a variety of communities, which undermines their claims, and that the company has sold high-performing restaurants in various communities to Black owners.
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