Owning a business is already difficult enough, especially in an environment where costs are rising, consumer preferences are changing and competition is increasing, all against the backdrop of an uncertain economy.
For franchise systems, the stakes are even higher. They rely on independent operators to uphold brand standards, so when things go wrong, the repercussions can be more damaging.
Many fast food chains adopt the franchise model to expand quickly, allowing them to build brand recognition and reach new markets more efficiently than they could on their own.
A franchisee is a business owner who purchases the rights to open and operate a company’s brand location, benefiting from its reputation and established customer base.
While this model can be very profitable, it comes with significant risks. The more franchisees a company has, the harder it becomes to maintain consistent quality, and if not handled properly, a single mistake can tarnish a company’s reputation forever.
A McDonald’s ( MCD ) franchise at 1330 Jackson St., the only location in downtown Oakland, Calif., will close for good on Nov. 30, affecting about 40 workers just before the winter holidays, according to abc7 News.
Employees claim they were notified of the closing just days before Thanksgiving and said they would not be allowed to transfer to nearby locations. The sudden announcement sparked a workers’ strike on Nov. 25, with many longtime employees expressing shock and frustration.
“These workers were given ten days’ notice that the location was going to close,” Maria Maldonado, an organizer with the California Fast Food Workers Union, told abc7 News. “There’s not enough time to find a new job. A lot of these people were crying when they heard the location was closing and now they’re going to have to struggle through this holiday.”
Despite the workers’ claims, the WARN notice was filed on October 30, 2025.
The closure follows a health controversy at a downtown Oakland McDonald’s location in May 2024, where the Alameda County Department of Environmental Health temporarily closed the restaurant after live and dead rats were found on the premises.
A leaked video obtained by KRON4 News showed rats crawling around the restaurant, and employees claimed they were threatened with firing if they documented the problem.
More closed restaurants:
In response, workers went on strike, as captured in a video posted on X (formerly Twitter) by the California Fast Food Workers Union.
“It is very important to me as a small business owner in Oakland that my employees have a safe place to work. When we became aware of the issue, we immediately contacted pest control and continued to work with them to resolve the issue,” McDonald’s franchise owner Joseph Wong told KRON 4.
This is not the first time that McDonald’s has faced problems with franchisees. In April 2025, the Massachusetts Attorney General’s Office filed subpoenas against franchisees McDonald’s, Dunkin’ Donuts, and Subway for violating child labor laws.
These charges were filed because the franchisees, Cafua Management Company, The Brewster Company and Knight Food Service, Inc., failed to obtain the necessary permits to employ minors and scheduled 16- and 17-year-olds beyond the state’s nine-hour daily limit.
A McDonald’s franchisee has been fined $63,930 for allowing minors to work during prohibited hours and booking longer shifts than the maximum allowed at eight Massachusetts locations between May 2021 and May 2024.
Data from the U.S. Bureau of Labor Statistics shows that about 17 percent of new restaurants close in the first year. Long-term restaurant survival is even more difficult, with around half of restaurants closing within five years and only 34.6% surviving beyond 10 years, according to Oysterlink.
In 2024, the US had 33.2 million businesses, with 821,589 being franchised units, according to Statista. Veterans own one in seven franchises in the U.S., about 14 percent, contributing $41 billion annually to the economy.
However, franchising comes with risks.
“Labor experts say franchised chains have higher rates of violations than corporate-run chains because they are less invested in preserving a brand’s reputation,” Lauren Kaori Gurley and Emmanuel Martinez wrote for The Washington Post.
“They are also under pressure to keep labor costs low to offset high operating costs, particularly franchise fees.”
McDonald’s is one of the largest and most successful franchises in the world. In the third quarter of fiscal 2025, global comparable sales rose 3.6% year-over-year, with US sales up 2.4%. This increase was primarily driven by franchise restaurant revenue, which increased 7% to $4.2 billion in the quarter.
However, the food industry is a tough business. Food service traffic fell by 1% in the quarter ending in June 2025, according to Circana.
Restaurant Data reports that 13,265 independent establishments and 2,712 chain locations closed in the first half of 2024.
“Consumers are saying, ‘We’re struggling, or starting to struggle, or thinking more carefully about what we’re spending,'” said Harvard Business School Restaurant Consultant and Lecturer Michael S. Kaufman. “I don’t know that the ability to maintain large fleets of traditional casual dining restaurants can continue.”
Despite the improvements, McDonald’s remains cautious.
“We continue to remain cautious about the health of the consumer in the U.S. and our top international markets, and we believe pressures will continue through 2026,” McDonald’s Chief Executive Officer Christopher J. Kempczinski said in an earnings call.
“It’s a fundamental expectation of our brand to bring consumers through our doors and keep them coming back. And especially in today’s challenging macro environment, it’s more important than ever.”
Related: McDonald’s Drops More Than a Grinch Christmas Meal in 2025
This story was originally published by TheStreet on December 1, 2025, where it first appeared in the Restaurants section. Add TheStreet as a favorite source by clicking here.