Hi!
I’ve heard (maybe from “The Founder” movie) that McDonald’s is actually making money from lending lands to local McDonald’s business owners. But I’m not sure.
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Is (Was) it true? If so, is it STILL true?
Is the reality a little bit more “nuanced”?
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Thanks!
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It was and is still true. McDonald’s was able to build a business empire by franchising businesses.
It’s called franchising. McDonald’s has its corporate run stores, but a lot of stores are owned by someone outside McDonald’s. The owner pays a franchise fee to use their menu and branding as well as adhering to McDonald’s standards so as to not tarnish their brand.
McDonalds Corporation is a significant owner of real estate. That said, real estate is paid for by the sales of food.
Sears was actually a huge release owner, but their stores were unable to pay for the real estate and the business collapsed. (There is a lot more to that story, but that is a simple version.)
This article explains what happened and why
https://thestrategystory.com/2020/09/24/mcdonalds-real-estate/
On p. 11 of this [2022 annual report](https://corporate.mcdonalds.com/content/dam/sites/corp/nfl/pdf/MCD_2023_Annual_Report.pdf), McDonald’s summarizes its revenues into three categories.
Revenues | Amount
—|—
Sales by Company-operated restaurants | $8,748
Revenues from franchised restaurants | $14,106
Other revenues | 329
(Amounts are in millions.)
The report explains on p. 13 that these “revenues from franchisees include rent and royalties based on a percent of sales with minimum rent payments, and initial fees.”
So, around 60% of their revenues are from rent and royalties based on sales in those rental units.
McDonalds makes their money by selling food. If the food isn’t sold then they don’t make any money. That’s first and foremost.
The business model though is different from simply opening a restaurant and selling food. The company itself has to do a lot of work in keeping things going well – the food, the menu, the distribution, the marketing, etc.
An individual store though is owned by a franchisee who pays a lot of money to McDonald’s to run a McDonald’s restaurant, often on land owned by McDonald’s and pays rent to McDonald’s for the land in addition to the franchise fees. So McDonald’s makes money hand over fist from the franchises, AND sees appreciation in the land value, some of which is extremely prime real estate.
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