How well do you know McDonalds?
Our Macro News Analyst Aaradhya Gupta takes us through something surprising about their revenue model in the first of our blog post series.
McDonalds is one of the world's most well-known fast food corporations. The company owns approximately 38,000 restaurants worldwide and serves over 70 million people each day.
However, did you know that their signature burgers and fries are not their main source of revenue?
Real Estate is their real "hot item." McDonalds makes money by leveraging it's own product (fast food) to franchise owners who then lease McDonald's-owned properties. This way, the revenue (rent and royalties from franchisees) is far more stable and predictable. The operating costs, on the other hand, are substantially lower, enabling for a more simple path to profitability.
McDonald's owns 93% of all franchise locations, and since it owns the land on which its sites are located, it uses the property value to leverage deals in the financial markets. Former McDonald’s CFO, Harry J. Sonneborn has even said that “we are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”
So, next time you look at a firm, ask yourself whether you really know how they make money - you’d be shocked.