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?Franchise – 70% of total 36,000 franchises
Under Conventional franchise, McD’s own? 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.
The costs under conventional model may vary depending upon the location. The figures given have been taken from McDonald’s Australia.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.
