What business McDonald’s do?

  • There are more than 25,000 McDonald’s in operation worldwide today.

  • 1 in 8 Americans has worked for McDonald’s

  • According to a recent survey, the McDonald’s golden arches are now more recognizable around the world than the Christian cross.

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You’ve got to admit, lot of people think those burgers and fries are damn good. Everyone who has eaten at McDonald’s knows that it is a fast food chain spread worldwide. Most of the people don’t realize it, but McDonald’s is not a burger-flipping restaurant chain, it is one of the world’s best real estate portfolios. Franchisees flip the burgers. McDonald’s simply owns the best commercial property all over the world. A fact hard to digest but it is true.

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But to understand what made McDonald’s so successful. You have to look at this more than the food or to Ray Kroc’s (Founder of McDonald’s) dedication. Although McDonald’s first opened its doors in 1954, Kroc was struggling to make the business profitable. He wasn’t bringing in enough revenue from his franchised restaurants. Part of his trouble was in getting the funds to pay for the land and the building for the restaurant. In order to maintain control over operations, Kroc needed to franchise one store at a time, rather than a whole slew of stores over a particular geographic zone, which is what other food chains did. Although other chains could attract big investors, the franchisee Kroc attracted didn’t have the funds to pay for the land and the building.

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It wasn’t until 1956 after courting many an investor did Ray Kroc consider and implement an idea put forth by Sonneborn (one of his employees), to tap into the real estate market. Shortly after Sonnenborn made his pitch to the investors, the Franchise Realty Corporation, McDonald’s Real Estate subsidiary was born.

In simplified terms, McDonald’s makes money on real estate via two methods. First, it buys and sells properties, as one might suspect. Often these are restaurant lots, but such is not necessarily always the case. McDonald’s will buy properties that it feels are, or will be, hot locations, and it of course sells properties that are under performing or otherwise not doing so well. Again all of this seems pretty normal.

Secondly, on top of the franchise fees (usually 8%) which McDonald’s charges its franchisees to use the ” McDonald’s ” name, it charges rent to the franchisees to use the corporately-owned properties.

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But that’s not all: The rent due to McDonald’s could be even more if the restaurant was doing well. The franchisee had to pay either the stipulated lease mark-up or 5 percent of the sales — whichever was higher. Kroc and Sonneborn also requested up-front security deposits from the franchisees. This capital would fund the opening of more restaurants. Overall, this created a symbiotic relationship between the franchisee and the company. McDonald’s Corp. had a vested interest in the ongoing success of its individual restaurants.

How’s that for a “Happy Meal”?

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Harsh

Harsh is a curious writer who loves to explore his surroundings. There are many websites who provide answer to people queries but no single website alone resolves the curiosity of people. Curious Mind Box is an initiative to resolve the curiosities and answer every What, How and Why question that comes into your mind.

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