Out of these, 36,000 (93%) are franchises and 2,600 (7%) are owned & operated by McDonald’s.
The franchise model is further divided into 3 categories.
Category 1:Conventional?The costs under conventional model may vary depending upon the location. The figures given have been taken from McDonald’s Australia.Franchise – 70% of total 36,000 franchises
Under Conventional franchise, McD’s own?The company some times doesn’t purchase the property but secures a long-term lease (20+ years) from the landlord and rents it out to franchise at a higher rent. the real estate (land + building) & then rents out this place to the franchise & charges a monthly rent (base rent and/or % of gross monthly sales).
This is over and above the initial investment which includes one-time license fee of $60,000, staff training costs, setting up costs for kitchen & seating, and on-going advertising expenditure (4% of monthly gross sales)
The franchise also has to pay around 5% of gross monthly sales as license fees.
Category 2: Developmental Franchise – 19% of total 36,000 franchises
Under this model, McD’s doesn’t invest any money, and everything including the real estate has to be arranged by the franchise; all other expenses are the same as the conventional model.
Category 3: Affiliate Franchise – 11% of the total 36,000 franchises
This model is very similar to Development Franchise but McD’s also has a 20% ownership in the entity (e.g. McDonald’s China) that further gives away franchises.
As per Annual Report 2018, the company-owned 2,770 outlets generated a revenue of $10 Billion, while revenue from 35,085 franchise restaurants was $11 Billion.
Considering 2,770 outlets generating revenue almost equivalent to 35,085 franchises’ suggests that company-owned-outlet-model makes more sense but things change when we look at profit.
From company-owned outlets, the company made a profit of $1.7 Billion but from the franchises, the profit was $9 Billion & out of this, $5 Billion was from rental incomes only.
It is no surprise then that through a specially formed corporation McDonalds’ Franchise Realty Corporation, McD’s keeps buying and selling property and today has real estate worth $30 Billion.
The company continues to operate company-owned outlets as these outlets keep it updated with food trends & people’s choices and allow it to get real feedback from its customers.
