Arcos Dorados and McDonald’s Renew Master Franchise Agreement for 20 Years

Rhea-AI Summary

Arcos Dorados Holdings (NYSE: ARCO), Latin America's largest restaurant chain and the world's largest independent McDonald's franchisee, has renewed its Master Franchise Agreement (MFA) with McDonald's for 20 years, effective January 1, 2025. The new agreement includes a potential 20-year renewal option starting January 1, 2045, at McDonald's discretion.

The updated MFA establishes a tiered royalty fee structure: 6.0% of gross sales for the first ten years, 6.25% for the following five years, and 6.5% for the final five years. Woods Staton, Executive Chairman, emphasized the company's position as the leading restaurant operator in Latin America and the Caribbean, highlighting their commitment to generating shareholder value and positive community impact.

Positive

• Secured long-term business continuity with 20-year franchise agreement renewal
• Potential for additional 20-year extension from 2045
• Clear visibility on royalty fee structure for next 20 years

Negative

• Gradual increase in royalty fees from 6.0% to 6.5% over the agreement period
• Renewal option after 2045 solely at McDonald's discretion

Insights

Financial Analyst

The renewal of ARCO's Master Franchise Agreement with McDonald's for 20 years represents a critical business continuity milestone. The tiered royalty structure starting at 6.0% of gross sales, increasing to 6.25% and 6.5% over different periods, provides clear visibility into future cost structures. This progressive fee structure suggests McDonald's confidence in ARCO's growth potential while allowing for margin management in the initial years. The option for another 20-year renewal adds strategic value, though being at McDonald's discretion creates some uncertainty. For investors, this agreement secures ARCO's position as the largest independent McDonald's franchisee globally, providing stable, long-term revenue visibility through 2045. The timing coincides with Latin America's growing QSR market, positioning ARCO to capitalize on regional expansion opportunities. The structured royalty increases also indicate planned operational efficiencies to maintain profitability.

Market Research Analyst

This agreement solidifies ARCO's dominant position in Latin America's quick-service restaurant sector. With exclusive rights across 20 countries, the renewal enables long-term strategic planning and capital investment decisions. The graduated royalty structure reflects market maturity expectations - starting lower to support current operations and increasing as markets develop. For context, ARCO operates over 2,300 restaurants across Latin America, making this renewal important for regional market dynamics. The agreement's structure suggests both parties anticipate significant market growth potential, particularly in underserved regions. The extended timeframe allows ARCO to pursue aggressive expansion strategies, modernization initiatives and digital transformation without near-term franchise agreement concerns. This creates a competitive moat in a region where organized food service penetration remains below developed market levels.

MONTEVIDEO, Uruguay--(BUSINESS WIRE)-- Arcos Dorados Holdings Inc. (NYSE: ARCO) (“Arcos Dorados” or the “Company”), Latin America’s largest restaurant chain and the world’s largest independent McDonald’s franchisee announced that, on December 30, 2024, it renewed its Master Franchise Agreement (“MFA”) with McDonald’s (NYSE: MCD).

The parties have finalized a new, 20-year MFA, that became effective on January 1, 2025, and replaced the previous MFA. The new MFA also includes a renewal option, at McDonald’s discretion, for a new, 20-year MFA, beginning January 1, 2045.

As previously announced, the new MFA includes a royalty fee of gross sales of 6.0% for the first ten years, 6.25% for the subsequent five years and 6.5% for the final five years.

“I am very pleased to have reached an agreement to renew our long-standing and successful relationship with McDonald’s. Arcos Dorados is, by far, the best restaurant operator in Latin America and the Caribbean. We are proud McDonald’s franchisees and, guided by a clear purpose, we have generated strong, long-term shareholder value and made a meaningful, positive impact on the communities where we operate,” said Woods Staton, Executive Chairman of Arcos Dorados. “Over the next 20 years, we will work even harder to consolidate our market leadership in all aspects of our business for the benefit of all our stakeholders,” he concluded.

Arcos Dorados will provide additional disclosure regarding the new MFA in line with the requirements of the US Securities and Exchange Commission.

About Arcos Dorados

Arcos Dorados is the world’s largest independent McDonald’s franchisee, operating the largest quick service restaurant chain in Latin America and the Caribbean. It has the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 Latin American and Caribbean countries and territories with more than 2,400 restaurants, operated by the Company or by its sub-franchisees, that together employ more than 100 thousand people (as of 09/30/2024). The Company is also committed to the development of the communities in which it operates, to providing young people their first formal job opportunities and to utilize its Recipe for the Future to achieve a positive environmental impact. Arcos Dorados is listed for trading on the New York Stock Exchange (NYSE: ARCO). To learn more about the Company, please visit the Investors section of our website: www.arcosdorados.com/ir.

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements. The forward-looking statements contained herein include statements about the Company’s business prospects, its market leadership and the renewal of its Master Franchise Agreement with McDonald’s. These statements are subject to the general risks inherent in Arcos Dorados’ business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Arcos Dorados’ business and operations involve numerous risks and uncertainties, many of which are beyond the control of Arcos Dorados, which could result in Arcos Dorados’ expectations not being realized or otherwise materially affect the financial condition, results of operations and cash flows of Arcos Dorados. Additional information relating to the uncertainties affecting Arcos Dorados’ business is contained in its filings with the Securities and Exchange Commission. The forward-looking statements are made only as of the date hereof, and Arcos Dorados does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250102156450/en/

Investor Relations Contact

Dan Schleiniger

VP of Investor Relations

Arcos Dorados

daniel.schleiniger@mcd.com.uy



Media Contact

David Grinberg

VP of Corporate Communications

Arcos Dorados

david.grinberg@mcd.com.uy



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Source: Arcos Dorados Holdings Inc.

FAQ

What are the new royalty fees for Arcos Dorados (ARCO) under the renewed McDonald's franchise agreement?

The new agreement includes a tiered royalty fee structure: 6.0% for the first ten years (2025-2034), 6.25% for the next five years (2035-2039), and 6.5% for the final five years (2040-2044).

How long is ARCO's new Master Franchise Agreement with McDonald's?

The new Master Franchise Agreement is for 20 years, effective from January 1, 2025, with a potential 20-year renewal option starting January 1, 2045.

When does Arcos Dorados' (ARCO) new McDonald's franchise agreement start?

The new Master Franchise Agreement became effective on January 1, 2025.

Does ARCO have the option to extend its McDonald's franchise agreement beyond 2045?

Yes, there is an option for a new 20-year agreement starting January 1, 2045, but this renewal is at McDonald's discretion.