The Franchise Revamp Test: Can Your Store Pay for Its Own Refurbishment?

On 6 October 2026, Bloomberg reported that McDonald's franchisees in the United States are pushing back on a store upgrade programme that will cost at least $800,000 per restaurant. That comes on top of scheduled remodels that already cost at least $400,000, which takes the bill to about $1.2 million a store. McDonald's has pledged about $8.5 billion in support through 2036, as a mix of rent relief and capital, and says operators will earn their money back in about four years. The franchisees' worry is more debt.

South African franchisees shouldn't file this under American news. Anyone with a refurbishment clause in their franchise agreement faces the same arithmetic, often on a shorter cycle and with no $8.5 billion cushion.

When I operated a sit-down casual dining franchise, the term was five years and renewal came with a compulsory revamp. Sit-down formats have a far bigger footprint than a takeaway counter, so every cycle there is more floor, seating, ceiling and front-of-house to redo. Some revamps were mostly cosmetic, with new upholstery and a fresh paint scheme. Others followed a step change in the brand and meant ripping out the flooring. Historically the bill ran between R500,000 and R1 million. A high-volume store absorbs that over the term without much strain. For a low-volume store it could come close to what the business cost to buy, and it decided whether the owner ever got out of debt.

My position is this. If a franchise store cannot fund its next contractual revamp out of its own cash flow within the franchise term, it is not a viable business, whatever the monthly P&L says. The owner is funding the franchisor's refurbishment programme and working for the bank.

The numbers

• At least $800,000 per restaurant for McDonald's NEXT upgrades, on top of scheduled remodels of at least $400,000 (Bloomberg, 6 October 2026).
• About $8.5 billion in McDonald's franchisee support through 2036, roughly $5 billion of it by 2030, as a mix of capital support and rent relief (McDonald's NEXT strategy, September 2026).
• About $500,000 average annual cash flow per US McDonald's franchised restaurant (McDonald's CFO Ian Borden, investor day, September 2026, reported by CNBC).
• 10.5% South African prime lending rate, as of July 2026 (South African Reserve Bank).
• R16,700 a month: the amount a franchisee must set aside to self-fund a R1 million revamp on a five-year term (Launchworks calculation).

The revamp is part of the price of the franchise

McDonald's combined upgrade bill of about $1.2 million per restaurant equals roughly 2.4 years of the average US franchisee's annual cash flow, using the company's own figure of about $500,000 a store. And that is the average. The stores under real pressure sit well below it and face the same bill.

Most people evaluating a franchise focus on the upfront costs, mainly the franchise fee and the shopfitting. Those are visible and get negotiated. The revamp clause gets read once and forgotten, because it sits five years away. Yet a mandatory refurbishment on a fixed cycle is a recurring cost, and it belongs in the price of the business as much as rent and royalties do.

In practice, put the revamp into your financial model as a monthly cost from the first month. If the franchisor can't tell you roughly what the last revamp cost, take that as information too.

A well-priced franchise can turn expensive once you add the revamp

A revamp costs about the same whether a store is busy or quiet, because floor area and the brand's specification drive the bill. Sales don't come into it. So the same revamp lands far harder on a low-volume store.

Take two composite stores in the same sit-down brand, each facing a R750,000 revamp. The first turns over R20 million a year, so the revamp is less than 4% of one year's sales. The second turns over R5 million, and the revamp is 15% of a year's sales, from a store whose margin was thin to begin with.

This is where buyers get caught. Existing franchises are usually priced on past earnings, which gives a low-volume store a low asking price that looks like a bargain. If that store is two years from renewal, the buyer also inherits a revamp that may come close to the purchase price. A store advertised at R1.2 million with a R900,000 revamp due inside the term is really a R2.1 million investment, and the seller has every reason not to mention it.

The timing of the sale is often the giveaway. Franchisees regularly put stores on the market a year or two before a revamp because they don't have the cash flow to pay for it. The store you are looking at may be for sale because its current owner has already failed the viability test. I wouldn't rule it out on that basis, but the price should reflect the revamp, and you need to be sure you can fund what the seller couldn't.

Before you make an offer on an existing franchise, find out when the next revamp falls due and what it is likely to cost, then take it off what you are willing to pay. A store that only looks well priced before the revamp is not well priced.

The viability test: can the store pay for its own revamp?

A franchisee who wants to self-fund a R1 million revamp on a five-year term must set aside about R16,700 a month before taking any salary. At the lower end, a R500,000 revamp still needs about R8,300 a month. That is the viability test in its simplest form.

Take a composite casual dining franchise in a Durban suburban centre. On paper it makes R40,000 a month after rent, royalties, marketing levies, wages and stock, and the owner draws that as a salary. Put the revamp provision in and the real surplus drops to about R23,000 a month. That is the honest version of the business, and it looks very different.

If the store can't carry the provision, the owner has two options at renewal. Borrow, or walk away.

Run your own numbers, or the franchisor's projections, with a revamp provision built in. If the business only works without it, the business doesn't work.

Borrowing turns a marginal store into permanent debt

A R1 million loan over 60 months at an assumed 13% costs about R22,750 a month, and the last repayment falls due just as the next revamp does. That is how a marginal franchisee ends up in debt for the life of the business.

Follow it through. The owner signs up, builds the store and spends five years paying off the original shopfit. Renewal brings a revamp, so they borrow R1 million and repay about R1.37 million over the next five years. The loan settles in month 60, just as the agreement comes up for renewal again with another revamp attached. At no point has the store simply made money for its owner.

McDonald's franchisees raised the same concern earlier this year. Their independent association, the National Owners Association, questioned why a full-facility investment was coming so soon after the previous remodel programme, which many operators were still paying off. In South Africa the cycle can be five years where McDonald's is closer to ten, and small-business loans are priced off a 10.5% prime rate.

If your plan for the revamp is to finance it, model the new repayments on top of your existing debt. Then check whether the loan will be settled before the next revamp is due. If it won't, you have your answer.

You can't know the scope in advance, so plan for the expensive one

The real risk in a revamp clause is variance. When you sign, you have no way of knowing whether the next revamp will be a coat of paint or a new floor, because it depends on decisions the franchisor hasn't made yet.

Brands change, and a franchisor that repositions passes much of the cost down the system. A franchisee who saved for a cosmetic refresh and is handed a step change has a funding gap they couldn't have predicted.

South African law does little to close that gap. Regulation 3 of the Consumer Protection Act requires a franchisor to give a prospective franchisee a disclosure document at least 14 days before signing. The prescribed minimum includes the number of outlets, the growth in the franchisor's turnover and profit, an auditor's going-concern certificate and a list of current franchisees. It does not specifically require an estimate of future refurbishment costs. Australia's franchising code does require franchisors to disclose estimated significant capital expenditure, and limits what they can impose beyond that estimate.

So model the expensive revamp rather than the average one. Regulation 3 also entitles you to contact the franchisees on the disclosure list. Phone four or five who have been through a recent renewal and ask what it actually cost and whether sales moved afterwards.

The franchisor's case is fair, and it doesn't change the test

Franchisors have a legitimate reason to enforce revamps. One tired store damages the brand for every other operator, and customers don't distinguish between franchisee and franchisor. McDonald's argues its upgrades will add about $100,000 a year to the average restaurant's cash flow and pay back in four years, and some revamps do lift sales.

None of that answers the franchisee's question. A revamp can be good for the brand and for the average store while still being unaffordable for yours. The franchisor is entitled to set the standard. Your job is to work out early whether your store can meet it.

Ask the franchisor what revamps did to sales in stores comparable to yours. A system-wide average hides exactly the stores you need to know about.

Renewal is your real decision point

When the revamp is tied to renewal, renewal is the one moment a franchisee has both leverage and a genuine way out.

Most franchisees treat renewal as paperwork and the revamp as the unavoidable cost of staying. I think that has it backwards. Renewal is a new investment decision: you are being asked to commit up to another R1 million for another five years, and it deserves the same scrutiny as the original purchase.

Walking away hurts. The goodwill and resale value of the business usually depend on renewal, so leaving feels like writing off everything you've put in. That is a sunk-cost argument, and it is how marginal operators talk themselves into a second and third cycle of debt. Selling before the revamp falls due, while the store still has a renewable term, is often worth more than renewing on borrowed money or walking away at the end. Expect a sharp buyer to price the revamp in, though, which is exactly what the buyer section above tells them to do. Sell early enough that the discount doesn't wipe out the value.

Start the renewal conversation at least 18 months before the term ends. Get the revamp scope in writing early, negotiate phasing or a franchisor contribution if the store's numbers justify it, and decide whether to renew or sell while you still have time to do either properly.

What to check before you sign, and before you renew

• Ask the franchisor for the cost range of the last two revamp cycles, and what made the more expensive one expensive.
• If you are buying an existing store, find out when the next revamp is due and deduct its likely cost from your offer. Ask the seller directly whether the revamp is part of the reason they are selling.
• Ask the franchisor whether a transfer of ownership brings the revamp forward or resets the term.
• Build a monthly revamp provision into your financial model from the first month. For a R1 million revamp on a five-year term, that is about R16,700 a month.
• Test the business against the expensive revamp, not the cosmetic one.
• Phone franchisees from the disclosure document list who have been through a recent renewal.
• Check that any debt you take on for the revamp will be repaid before the next one is due.
• Treat renewal as a fresh investment decision, and consider selling before the revamp if the store can't fund it.

If the store passes this test, the revamp clause is a manageable cost of operating inside a strong brand. If it fails, you are far better off finding out before you sign than five years in.

Frequently asked questions

How much does a franchise revamp cost in South Africa?

It depends on the brand, the format and the scope. In the author's experience operating a sit-down casual dining franchise, five-yearly revamps historically cost between R500,000 and R1 million. Sit-down formats cost more than takeaways because of their larger footprint. Regulation 3 of the Consumer Protection Act does not specifically require franchisors to disclose estimated refurbishment costs.

How much should a franchisee save each month for a revamp?

To self-fund a R1 million revamp on a five-year franchise term, a franchisee needs to set aside about R16,700 a month before drawing a salary, or about R8,300 a month for a R500,000 revamp (Launchworks calculation). Financing R1 million over 60 months at an assumed 13% costs about R22,750 a month, with total repayments of roughly R1.37 million.

Why are McDonald's franchisees unhappy about the 2026 remodel?

Bloomberg reported on 6 October 2026 that McDonald's NEXT upgrades will cost US franchisees at least $800,000 per restaurant, on top of scheduled remodels of at least $400,000. McDonald's has pledged about $8.5 billion in support through 2036, but operators are worried about taking on more debt while customer traffic falls.

Should I buy a franchise that is due for a revamp?

Possibly, but only at a price that reflects the revamp. Franchisees often sell in the year or two before a revamp because they can't fund it. A store priced at R1.2 million with a R900,000 revamp due inside the term is effectively a R2.1 million investment (Launchworks illustration). Confirm the revamp date and likely cost before making an offer.