Thought 14: The Inner Workings Of McDonalds 🍔.

For Day 10 of the Student Blogging Challenge, we had the ability to create a blog post about anything we wanted. Because of that, I decided to write about 2 things I am definitely an expert on: Real Estate and Hamburgers. Here is my topic.

Why McDonalds is a Real Estate Company and How Franchising Works.

How is the worlds most famous restaurant, not a restaurant?

McDonalds is many things. It is a fast food restaurant, a real estate company, and the number 1 symbol of Capitalism and the USA. When you think of McDonalds, the first thing you probably think about is how you can find the Golden Arches all across the world. If you go under the surface level, you might think “How does McDonalds manage so many locations?” To answer the question, they simply don’t.

McDonalds, and many other fast food companies implement a policy called Franchising. McDonalds was the first of these major companies to start franchising, back in the 50’s. The way franchising works is simple. Anyone can become a franchisee, provided that they have enough money. First, a potential franchise owner approaches McDonalds and pays an initial franchising fee, usually $1,000,000-$2,000,000. Then, after some basic training, the building is owned by the franchisee. In return, McDonalds takes about 8-15% of the franchises revenue. This business model is why McDonalds is a food empire. About 85% of McDonalds locations are owned by Franchisers. The reason that McDonalds franchisees are willing to pay these expensive fees is due to a concept called Passive Income. Passive Income is when you make money, without having to do almost any work. Real estate is a big generator of Passive Income.

In 2015, the average McDonalds location makes about $2.7 million in revenue.However, they only make about $154,000 in profit. If McDonalds takes 11% of the revenue as a franchising fee, that is about $300,000. McDonalds has 38,000 locations. 300,000 times 38,000 equals $11.4 Billion, just from their food. However, McDonalds property, including stores and corporate offices, are worth nearly $40 Billion, which would make it the 5th largest real estate company. In 2019, McDonalds received 65% of their franchise fees through rent, rather than the royalties mentioned above. A study found that McDonalds franchises pay a bit more than $9,000 in rent.

In Conclusion, McDonalds isn’t really a fast food company, more like a Real Estate company that happens to sell hamburgers. The reason behind this is that their property is almost 4 times more valuable than the money they make from their food. The reason that their property is so valuable is because of franchising.

2 thoughts on “Thought 14: The Inner Workings Of McDonalds 🍔.

  1. Hello, Sepausus.
    This was a very interesting blog post. I think it’s interesting that MCDonalds has so much property.
    Great blog post.

Leave a Reply

Your email address will not be published. Required fields are marked *