mcdonalds franchise business plan

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McDonald’s Business Model

With close to 40,000 restaurants in more than 100 countries, the McDonald’s business model depends mainly on the sale of McDonald’s products by their franchisees, which usually lease properties owned by McDonald’s. The business model was first adopted by the brothers Richard James and Maurice James McDonald, who sold their business to Ray Kroc, their first franchise agent , at the then heavy sum of US$ 2.7 million, back in 1961.

A brief history of McDonald’s:

Launched in 1948, Speedee Service System was the forerunner of McDonald’s. It was launched by the two McDonald’s brothers, who adopted the drive-in and franchising concept for fast-food delivery. Their first franchise agent was Ray Kroc, who opened the first McDonald’s franchise back in 1955 . He bought the rights to their business for US$ 2.7 million in 1961, after seeing what their business and its business model could become.

Through its business model and insistence on offering quick service and delivery of products of a consistent quality, in 2021 McDonald’s became the most valuable QSR brand with a brand value of US$ 154.9 billion and worldwide revenue of US$ 19.21 billion.

McDonald’s mission statement:

McDonald’s mission statement is “to be our customers’ favorite place and way to eat and drink.”

How McDonald’s makes money

While McDonald’s business model focuses mainly on franchising, they also generate income in other ways . However, under franchising, they operate three different types of it. They are:

Developmental License

Under this type of franchising, the franchisee invests their own capital in setting up their restaurant, which includes operational and real estate costs.

McDonald’s supplies the products and receives a percentage as royalty from the sale. The company also charges a predetermined amount for every franchise that wants its license. 

This type is the exact opposite of conventional franchising and is in use in more than 6.950 restaurants in over 80 countries.

Conventional Franchising

This structure is the most effective in the McDonald’s business model. The company either obtains a long-term lease or owns the land where the restaurant is built, while the franchisee pays a minimum rent for a 20-year period and ongoing royalty to the company.

The franchisee also pays for the signs and interior decor of the restaurant, while getting innovative and operational help from their parent company. This structure ensures that McDonald’s revenue stream is stable and predictable, while maintaining profitability amidst low operational costs.

This structure receives the lowest investment from the company and accounts for equity investments. 

It’s mostly in use in China and Japan, where companies pay a percentage of sales as royalty for McDonald’s products. These products include hamburgers, french fries, milkshakes, soft drinks, salads, coffee, and desserts.

Company-Operated Restaurants

While few, McDonald’s has a number of restaurants that they own and operate, hiring employees and ordering supplies by themselves. However, the company’s goal is to have 5% percent of its restaurants company-owned, while 95% will be owned and operated by franchisees. McDonald’s most profitable business model structure, the conventional franchising, allows them to keep up to 82% of revenue generated by their franchises, unlike the company-operated restaurants that only keep about 16% of their revenue. The success of their strategies in the international market has resulted in the term ‘ McDonaldization ’.

Over the years, McDonald’s has developed and improved upon its marketing strategies with the intent of increasing profits for its franchisees and the parent company. Such strategies include the enhancement of customer experience, by focusing on people, products, price, place, and promotion, which works together with its mission statement.

They have also worked on their growth strategies by working on strategies for retaining existing customers, regaining lost clients, and converting non-customers. This was their 2017 continuous growth plan and was listed as:

In their efforts to carry this out, they made improvements on their digital platform, such as delivery services, while adding an experience of the future (EOTF) by the introduction of new technologies in their restaurants.

To further boost growth, they have also worked on diversity with the proposition of “Diversity IS Inclusion” and the acquisition of other companies, such as Donatos Pizza in 1968, and Boston Market in 2000.

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McDonald’s customer segments

• Buyers: People who want to buy McDonald’s products like hamburgers, french fries, desserts, etc.;
• Franchisees: Restaurants that want to increase their profit, by using the McDonald’s brand name.

McDonald’s value proposition

• Buyers: Cheap and quick food, and service with consistent quality from a trusted brand;
• Franchisees: Become a successful entrepreneur and have more profit through the McDonald’s brand name.

McDonald’s channels

• App for iOS and Android
• Franchisees/Restaurants

Mcdonald’s customer relationships

• Social Media
• Customer Service
• Community Service

McDonald’s revenue streams

• License Fees

McDonald’s key resources

• Supplier Network

McDonald’s key activities

• In-store Product Sale
• Payment Processing
• Innovation Testing and Implementation

McDonald’s key partners

• Delivery Providers: Uber Eats & Door Dash

McDonald’s cost structure

• Administration and Operations

McDonald’s competitors

• Burger King: Available in more than 90 countries and at over 18,000 locations, Burger King is the most direct competitor of McDonald’s and has approximately 90% of its restaurants as franchisees ;
• Subway: In terms of size, the privately-owned Subway has one of the largest QSR chains, and they have a presence in more than 80 countries at over 37,000 restaurants;
• Chipotle: With its slogan as “Food with Integrity”, Chipotle operates more than 2,800 restaurants with none of them franchised. Their fast-foods have higher prices than their competitors, and they also serve fast-foods that are a bit different, like tacos, salads, and burritos;
• Yum brands (KFC, Taco Bell, Pizza Hut): Yum brands operate top fast-food restaurants , such as Taco Bell, Pizza Hut, and KFC. Altogether they make up a worldwide chain of more than 50,000 restaurants, with about 98% of them franchised;
• Wendy’s: With a market cap of US$ 5.1 billion and stock trading at US$ 23 per share in 2021, Wendy’s operates its fast-food restaurant chain in more than 6,800 locations worldwide. Just like McDonald’s and Burger King, they serve burgers, fries, and a few other American foods;
• Starbucks : Operates the largest coffeehouse chain in nearly 90 countries, and at over 32,000 locations. They serve coffee, pastries, espresso, tea, sandwich, cappuccino, etc. And just like Chipotle, their products have higher prices than their competitors.

McDonald’s swot analysis

Below, there is a detailed  swot analysis  of McDonalds:

McDonald’s Strengths

• Suppliers: McDonald’s choice of suppliers have ensured that they and their franchisees always have enough items in stock to satisfy their 25 million daily customers; 
• Brand Recognition: McDonald’s brand name has enabled it to gain and keep its customers and franchisees. Franchisees purchase the company’s license and become affiliated with it to increase their profits through its brand reputation and recognition. On the other hand, customers visit McDonald’s restaurants because of their brand name and their insistence on consistent quality on cheap fast-foods; 
• Balance Sheet: The company’s high revenue generation allows it to test out innovations on some restaurants and implement them efficiently in its other franchisees;
• Quick Service: Their consistent quality and fast service have gained them the trust of customers; 
• Quick Delivery: McDonald’s use of popular delivery services with a strong presence in several countries helps them to ensure a quick delivery; 
• Pricing Strategy: McDonald’s pricing strategy of offering cheap meals allows them to maintain a huge chunk of the QSR market. 

McDonald’s Weaknesses

• Delivery: Their dependence on other companies for delivery puts them at a disadvantage, in case of sour business relationships, shutdown, or poor customer service on the part of the delivery personnel; 
• Customer Demands: Like healthier organic menus with fast-food convenience means other QSR operators are taking a part of unserved customers from McDonald’s. 

McDonald’s has tried to offer healthier options, like the removal of all preservatives, fake colors, and other artificial ingredients from seven of its burger products, adding a Southern Grilled Chicken Salad to its menu, the option to add apple slices to kid’s apple meal, and recently, the introduction of McPlant. However, they are still yet to meet up with other restaurants that offer several fast-casual options. 

McDonald’s Opportunities

• Expansion: Although available in several countries, there are still available international markets for the fast-food giant to enter;
• Diverse Options: More vegan options in its restaurants will pull in vegan customers. Some efforts are already being made in this direction, however, its pace might result in a situation where customers don’t recognize the company as a vegan-friendly restaurant. 

McDonald’s Threats

• Competition: With already fierce competition in the QSR market, an increase in home deliveries caused by the pandemic might result in more companies entering the market with competitive prices and same or better quality products and diversity;
• Economic Conditions: inflation caused by the pandemic will result in changes in customer behaviors, demands, and spending habits, which might affect the company and the QSR market.

-> Read more about Mcdonalds’ SWOT Analysis .

As stable as it may seem, McDonald’s grasp in the QSR industry might — because of changing demands and economic conditions — see a few shoves and push, in the coming years. However, its revenue won’t be impacted as much, because people still need to eat. Also, because of their innovative nature and strategies, they will eventually bounce back in the long run. Their franchising business model will be of help in their recovery and/or growth.

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McDonald’s Franchise Strategy

You’re not here for a history listen but the evolution of the McDonald’s franchise strategy is one of having a vision and being able to execute.

Brief History of McDonald’s

Established Brand

In the 1940s, the McDonald brothers left New England and headed to California to explore new opportunities. After testing a few concepts, they became experts in operating drive-in restaurants and perfected their “Speedee Service System” in the late 1940s. During this same period, they decided to simplify their menu and focus on only nine items. One of these items was the 15-cent hamburger, which became their signature dish. This burger was so popular and affordable that customers could literally “buy ’em by the bag.” Factoring in inflation, the cost of the hamburger would be approximately $2 in 2023 dollars . 

The McDonald’s brothers expanded their burger business using a franchise model and grew to 10 locations. Meanwhile, Ray Kroc was figuring out his career in post-war Chicago. In 1939, he became the distributor of a milkshake mixing machine called the Multimixer. During his travels, he met the McDonald’s brothers and signed a deal to become their franchise agent in 1954. A year later, in April 1955, Ray Kroc opened the first McDonald’s System Inc. location in Des Plaines, Illinois. In 1961, he acquired the rights to the McDonald’s brothers’ company for $2.7 million. In 2023, this would be worth about $28 million!

You can take it from here as within the last 60 years, the company has grown to operate in over 100 countries and 36000 restaurants. 

The McDonald’s Brothers Early Strategy

After experimenting with their business ideas and refining their drive-in restaurant operations, they developed and implemented the Speedee Service System. It is clear that their trial-and-error approach to perfecting the drive-in concept led them to realize that having a replicable system would give them a significant advantage over their competitors.

After mastering the system, they examined their marketing strategy. They concluded that their new operational system, which emphasized speed, service, and accuracy, required them to streamline their offerings as well. After conducting a thoughtful analysis, they decided to offer only nine items on their menu. Including the now-famous hamburger, priced at just 15 cents each.

Their operational system was designed for throughput, and their marketing brought the people to service this need.  Brilliant! 

The Ray Kroc Strategy

Kroc had a vision to take the hamburger chain across the U.S. and build it into a 1000-store operation.  Between 1955 and 1961, he perfected the stores he operated. He decided to scale and grow successfully they needed an operational strategy that tied into his vision – Hamburger University.  A first of its kind. This would be a training ground for franchisees to show them the key to replicating success and how to follow exacting standards.   At the same time, they had a strategy of innovation that would allow them to stay ahead of their competitors.  In the 1960’s they introduced the infamous golden arches, Ronald McDonald, and in 1975 the Big Mac. 

A key part of their then and ongoing success was the expansion strategy to own the real estate and to lease it to franchisees.  Depending on the operating year, these rent payments can be close to 1/5 th of the total system revenue.  By 1965, they had achieved their 1000-store growth by leveraging the franchise model as a key part of their growth strategy.  They focused on finding franchise partners with the capital, work ethic, and passion to build the brand as much as Ray Kroc did.

What is the McDonald’s Business Model?

The company is a franchisor, with around 95% of stores operated by franchisees and 5% either being licensed or operated corporately.  A specific breakdown can be found in their annual report.  They believe in operating corporate locations as a training and testing ground for new concepts and products.  Franchisees operate under a conventional franchise agreement with typical terms being 20 years.  McDonald’s owns the land and building or secures a long-term lease for the restaurant location, and the franchisee pays for equipment, signs, seating, and décor.  Franchisees are also responsible for reinvesting capital in their businesses over time.  To accelerate company initiatives, the company will frequently co-invest with franchisees to fund improvements to restaurants or operating systems. 

What is the current McDonald’s Strategy?

Since 2017, they have rolled out their “ Accelerating the Arches ” strategic plan as referenced in this picture.  Their plan is anchored with their vision, mission, and values.  As with any strategy, these anchors are part of the DNA of the business and will influence the strategy and execution of it. 

The three pillars of their strategy are:

• Brand – feed and foster communities
• Affordability – great value and everyday affordability
• Burger – want to offer the tastiest burgers in the QSR industry
• Chicken – offer great tasting chicken options
• Coffee – build McCafé brand and offer a great experience
• Delivery – want to be the global leader in food delivery
• Digital – build on a digital platform
• Drive-Thru – define the future of drive-thru
• Development – accelerate restaurant openings

They have also added a grounding element to their strategy, which they call foundation:

• Run Great Restaurants
• Empower Our People
• Accelerating the Organization

Visually, their strategy embodies their vision as the message has to resonate with anyone who looks at it. What better way than french fries and ketchup?  Their vision, mission, and values will be their guiding light. Their three pillars will provide the overall areas of the business that will continue to be worked on by each department and individual. Lastly, their foundation will be the outcome they seek.

How Does the Strategy Impact Franchisees?

The company strategy rolls out to all franchise and corporately operated locations globally.  Although there are regional variations to menus, marketing, and management, the 3 pillars of commitment are embraced by all operating units.  To ensure compliance, McDonald’s employs internal scorecards to measure the execution of operational, service, and marketing standards at each of its locations through field operations teams. 

What happens if they don’t execute their strategy?

Their 2022 annual report highlights what will happen if they don’t execute their strategy:

STRATEGY AND BRAND

If we do not successfully evolve and execute against our business strategies, we may not be able to drive business growth.

To drive Systemwide sales, operating income and free cash flow growth, our business strategies must be effective in maintaining and strengthening customer appeal and capturing additional market share. Whether these strategies are successful depends mainly on our System’s continued ability to:

• capitalize on our global scale, iconic brand and local market presence to build upon our historic strengths and competitive advantages, including by maximizing our marketing, committing to our core menu items, and doubling down on digital, delivery, drive thru and restaurant development;
• innovate and differentiate the McDonald’s experience, including by preparing and serving our food in a way that balances value and convenience to our customers with profitability;
• build upon our investments to transform and enhance the customer experience;
• run great restaurants by driving efficiencies and expanding capacities while continuing to prioritize health and safety;
• accelerate our existing strategies, including through growth opportunities ; and
• evolve and adjust our strategies in response to, among other things, changing consumer behavior, and other events impacting our results of operations and liquidity.

If we are delayed or unsuccessful in evolving or executing against our strategies, or if our strategies do not yield the desired results,

our business, financial condition and results of operations may suffer.

How do they measure success?

It has to be assumed, success for franchisees, team members, corporate locations, and corporate staff will be made up of a balanced scorecard that embodies the components of the three pillars.  From the 2022 annual report, they have outlined key financial metrics they are looking to measure against:

Based on current conditions, the following is provided to assist in forecasting the Company’s future results for 2023. The Company expects:

Net restaurant unit expansion will contribute nearly 1.5% to 2023 Systemwide sales growth, in constant currencies.

Full year 2023 selling, general and administrative expenses of about 2.2% to 2.3% of Systemwide sales.

2023 operating margin percent to be about 45%.

Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2023 to increase between 10% and 12%, driven primarily by higher average interest rates.

The Company expects the effective income tax rate for the full year 2023 to be in the 20% to 22% range. Some volatility may result in a quarterly tax rate outside of the annual range.

The Company expects 2023 capital expenditures to be between $2.2 and $2.4 billion, about half of which will be directed towards new restaurant unit expansion across the U.S. and International Operated Markets. Globally, the Company expects to open about 1,900 restaurants. The Company will open more than 400 restaurants in the U.S. and International Operated Markets segments, and developmental licensees and affiliates will contribute capital towards about 1,500 restaurant openings in their respective markets. The Company expects about 1,500 net restaurant additions in 2023.

The Company expects to deliver a free cash flow conversion rate greater than 90%.

How has the company performed over the past 10 years in the U.S. market?

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Step-by-Step: Writing a Business Plan for a McDonald's Franchise

By henry sheykin, get full bundle.

Launching a successful McDonald's franchise requires meticulous planning and preparation. Before diving into the business plan, aspiring franchisees must navigate a comprehensive 9-step checklist to ensure a solid foundation for their venture. From assessing market demand to securing necessary permits and funding, this step-by-step guide outlines the essential groundwork needed to turn your McDonald's franchise dream into a reality.

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Steps Prior To Business Plan Writing

Assess market demand and competition

Before embarking on your journey to open a McDonald's franchise, it's crucial to thoroughly assess the market demand and competition in your target area. This step lays the foundation for a well-informed business plan and ensures that your franchise has the best chance of success.

To assess the market demand, start by analyzing the population demographics and consumer preferences in your desired location. Look at factors such as the size of the local population , average household income , and the prevalence of families with children – all key indicators of potential demand for McDonald's products and services.

• Utilize market research tools and industry reports to gather detailed data on your target market's dining habits, fast-food preferences, and spending patterns.
• Conduct surveys and interviews with local residents to gain first-hand insights into their perceptions of and attitudes towards the McDonald's brand.

Next, assess the competitive landscape by identifying the existing fast-food establishments in your target area. Analyze their market share , pricing strategies , and unique offerings to understand the competitive advantages and challenges you may face. This information will help you develop a differentiated value proposition for your McDonald's franchise.

• Use online tools and directories to map out the locations of competing fast-food chains in your target area.
• Conduct a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to identify your franchise's potential competitive edge.

By thoroughly assessing the market demand and competition, you'll be able to make informed decisions about the viability of a McDonald's franchise in your chosen location. This critical step will give you a clear understanding of the opportunities and challenges you may face, allowing you to develop a robust business plan that sets your franchise up for long-term success.

Determine Franchise Requirements and Costs

Determining the franchise requirements and associated costs is a crucial step in planning for a McDonald's franchise. Aspiring franchisees must carefully evaluate the financial commitments and operational guidelines set forth by the McDonald's Corporation to ensure a successful and sustainable business venture.

The initial franchise fee for a new McDonald's restaurant in the United States is $45,000 . This one-time fee grants the franchisee the right to operate a McDonald's restaurant and utilize the company's brand, systems, and support services. However, the total investment required to open a new McDonald's franchise can range from $1 million to $2.2 million , depending on factors such as the location, size of the restaurant, and necessary infrastructure.

• Carefully review the McDonald's Franchise Disclosure Document (FDD) to understand all financial requirements and ongoing royalty fees.
• Assess the availability of financing options, such as Small Business Administration (SBA) loans or personal investments, to cover the substantial startup costs.
• Factor in additional expenses, such as real estate, construction, equipment, and initial inventory, when calculating the total investment needed.

In addition to the initial franchise fee and startup costs, McDonald's franchisees must also be prepared to pay ongoing royalty and service fees. The royalty fee is 4% of gross sales , which helps support the company's operations, marketing, and research and development efforts. Franchisees also pay a service fee of 0.5% to 0.9% of gross sales , which covers the cost of various support services provided by the McDonald's Corporation.

To meet the franchise requirements, prospective franchisees must demonstrate a minimum of $500,000 in non-borrowed personal resources and a minimum of $3 million in net worth . These financial criteria ensure that franchisees have the necessary capital and liquidity to successfully operate a McDonald's restaurant.

Careful consideration of the franchise requirements and associated costs is essential for aspiring McDonald's franchisees. By thoroughly understanding the financial obligations and operational guidelines, individuals can make an informed decision and develop a realistic business plan to achieve their entrepreneurial goals.

Secure Necessary Permits and Licenses

Before opening a McDonald's franchise, it is crucial to secure the necessary permits and licenses required by local, state, and federal regulations. This process can be complex and time-consuming, but it is essential to ensure compliance and avoid potential legal issues down the line.

The specific permits and licenses needed for a McDonald's franchise will vary depending on the location, but some common requirements include:

• Business License: A general business license is typically required to operate a commercial establishment in a specific jurisdiction.
• Food Service Permit: A permit from the local health department or food safety agency is necessary to operate a food service establishment.
• Sales Tax License: Businesses that sell goods or services must obtain a sales tax license to collect and remit applicable taxes.
• Zoning and Building Permits: Permits may be required for any construction, renovation, or changes to the physical space of the franchise location.
• Liquor License: If the franchise plans to serve alcoholic beverages, a liquor license will be required.
• Start the permit and licensing process as early as possible, as it can take several weeks or even months to obtain all the necessary approvals.
• Consult with local authorities and the McDonald's franchise development team to ensure you are aware of all the specific requirements for your location.
• Factor the costs of permits and licenses into your overall budget for opening the franchise.

In addition to the above, there may be other specialized permits or licenses required, such as those related to environmental regulations, fire safety, or labor laws. It is essential to thoroughly research and comply with all applicable legal requirements to avoid costly delays or penalties.

By securing the necessary permits and licenses early in the process, you can ensure a smooth and compliant opening for your McDonald's franchise, setting the stage for long-term success.

Identify Suitable Business Location

Selecting the right location is crucial for the success of a McDonald's Franchise. The location not only determines the accessibility and visibility of the restaurant but also plays a significant role in attracting customers and generating revenue. When evaluating potential locations, there are several factors to consider:

• Demographics : Analyze the population density, income levels, and age distribution of the target area. A location with a high concentration of potential customers, such as residential areas, commercial hubs, or high-traffic areas, is ideal.
• Foot Traffic : Choose a location with a high volume of foot traffic, such as near shopping malls, office buildings, or tourist attractions. This will ensure a steady flow of customers throughout the day.
• Accessibility : The location should be easily accessible by both pedestrians and vehicles, with ample parking spaces and convenient public transportation options.
• Competition : Assess the competitive landscape in the area, including the presence of other fast-food chains and local eateries. Aim to locate the franchise in a spot that minimizes direct competition and maximizes visibility.
• Local Regulations : Ensure that the chosen location complies with all local zoning laws, building codes, and health and safety regulations. Obtain the necessary permits and licenses before proceeding with the franchise.
• Consider conducting a site visit to get a firsthand understanding of the location and its surrounding environment.
• Seek advice from experienced McDonald's franchisees or real estate professionals to identify the most suitable locations in your target market.
• Analyze foot traffic patterns and customer demographics at different times of the day and week to determine the peak hours of operation.

By carefully evaluating these factors, you can identify a location that aligns with the McDonald's Franchise brand and offers the best potential for long-term success. A well-chosen location can significantly contribute to the overall profitability and growth of your McDonald's Franchise.

Develop Financial Projections and Budgets

Developing comprehensive financial projections and budgets is a crucial step in crafting a robust business plan for a McDonald's franchise. This process involves meticulously estimating the startup costs, operational expenses, and potential revenue streams to ensure the financial viability of the venture.

To begin, it is essential to conduct a thorough market analysis to gauge the demand for a McDonald's franchise in the target location. This includes assessing the local population's demographic characteristics, disposable income levels, and dining preferences. By understanding the market dynamics, you can make informed projections about the potential customer base and anticipated sales volume.

Next, you must calculate the startup costs associated with opening a McDonald's franchise. These costs typically include the initial franchise fee, which can range from $45,000 to $55,000 , as well as the expenses for leasing or purchasing a suitable property, outfitting the restaurant with necessary equipment and furnishings, and obtaining the required permits and licenses. Additionally, you must factor in the costs of hiring and training staff, as well as the initial marketing and advertising expenses.

• Utilize industry benchmarks and financial data from existing McDonald's franchises to refine your cost estimates.
• Consult with the McDonald's corporate team to understand the latest franchise requirements and associated costs.

Once you have a clear understanding of the startup costs, you can develop detailed financial projections for the first few years of operation. This includes estimating the monthly or annual revenue based on projected customer traffic, average ticket size, and any seasonal fluctuations. Additionally, you must account for ongoing operational expenses, such as food and supply costs, utilities, labor, and maintenance.

To ensure the long-term sustainability of your McDonald's franchise, it is essential to create a comprehensive budget that aligns with your financial projections. This budget should outline the allocation of funds for various business functions, such as marketing, inventory management, and human resources. By monitoring and adjusting the budget regularly, you can optimize the financial performance of your franchise and make informed decisions about future investments or cost-cutting measures.

By meticulously developing financial projections and budgets, you can demonstrate the financial viability of your McDonald's franchise to potential investors, lenders, and the McDonald's corporate team. This strategic approach will not only increase your chances of securing the necessary funding but also provide a roadmap for the successful operation and growth of your franchise.

Obtain Funding Sources and Investment

Securing adequate funding is a critical step in the process of starting a McDonald's franchise. The initial investment required to open a new McDonald's restaurant can range from $1 million to $2.2 million , according to the company's current franchise disclosure document. This significant capital outlay covers the costs of real estate, construction, equipment, initial inventory, and other start-up expenses.

To obtain the necessary funding, prospective McDonald's franchisees have several options to consider. The first and most common approach is to seek financing from traditional lenders, such as banks or credit unions. These institutions may offer business loans or commercial mortgages to cover the initial investment. Franchisees typically need to provide a personal guarantee and collateral, such as real estate or other assets, to secure the loan.

• Maintain a strong personal credit score and financial history to increase the chances of securing favorable loan terms.
• Explore Small Business Administration (SBA) loan programs, which can provide government-backed financing with more flexible requirements.
• Consider partnering with investors or seeking private equity funding to supplement the initial investment.

Another funding option is to leverage the McDonald's Franchise Financing Program, which provides access to a network of approved lenders. This program can simplify the financing process and potentially offer more favorable terms for qualified applicants. Franchisees may also be able to use their personal savings, retirement accounts, or home equity to fund a portion of the investment.

Regardless of the funding source, it is essential to develop a comprehensive financial plan that includes detailed projections for revenue, expenses, and cash flow. This plan will be crucial in securing financing and demonstrating the viability of the McDonald's franchise to potential lenders or investors. By carefully managing the financial aspects of the venture, franchisees can increase their chances of long-term success.

Assemble a Qualified Management Team

Assembling a qualified management team is a crucial step in the process of starting a McDonald's franchise. The success of your franchise operation will depend heavily on the expertise, experience, and leadership of your management team. When building your team, it's important to focus on finding individuals who possess the necessary skills and qualifications to effectively oversee the various aspects of your franchise.

One of the key roles to fill is the franchise manager, who will be responsible for the day-to-day operations of the franchise. This individual should have a strong background in the food service industry, with experience in managing a fast-food restaurant or similar establishment. They should also possess excellent leadership, communication, and problem-solving skills to ensure the smooth and efficient running of the franchise.

In addition to the franchise manager, you'll need to assemble a team of experienced professionals to handle various functions, such as finance, marketing, human resources, and supply chain management. These individuals should have a proven track record of success in their respective fields and a deep understanding of the McDonald's brand and its operations.

• Aim to build a team that reflects the diversity of your target customer base, as this can help you better understand and cater to their needs.
• Consider hiring individuals with prior experience in the McDonald's franchise system, as they will already be familiar with the company's policies, procedures, and best practices.
• Invest in ongoing training and development for your management team to ensure they stay up-to-date with the latest industry trends and best practices.

When it comes to the financial requirements for assembling your management team, the costs can vary significantly depending on the qualifications and experience of the individuals you hire. According to the 2022 Franchise Disclosure Document (FDD) for McDonald's, the estimated initial investment for a new franchise ranges from $2.9 million to $3.6 million , with a significant portion of this cost allocated to hiring and training the management team.

By carefully selecting and investing in a qualified management team, you can position your McDonald's franchise for long-term success and ensure that your operation runs smoothly and efficiently from the outset.

Establish Operational Procedures and Policies

Establishing comprehensive operational procedures and policies is a critical step in launching a successful McDonald's Franchise. These guidelines will ensure the efficient and consistent delivery of services, maintaining the brand's reputation for quality and customer satisfaction.

One of the key operational considerations for a McDonald's Franchise is adherence to the company's rigorous food safety and preparation standards. This includes implementing strict protocols for ingredient handling, storage, cooking temperatures, and sanitation. Franchisees must also ensure that all employees are thoroughly trained in these procedures and that regular audits and inspections are conducted to maintain compliance.

• Develop a detailed operations manual that covers all aspects of running the franchise, from food preparation to customer service.
• Invest in state-of-the-art kitchen equipment and technology to streamline operations and ensure consistency.
• Establish clear policies for employee hiring, training, and performance management to maintain a high-quality workforce.

Effective inventory management is another critical component of a successful McDonald's Franchise. Franchisees must closely monitor ingredient levels, order supplies in a timely manner, and maintain strict control over waste and spoilage. This requires robust inventory tracking systems and close coordination with suppliers to ensure a consistent flow of materials.

Additionally, franchisees must develop comprehensive policies and procedures for customer service, including handling complaints, managing reservations, and processing payments. These policies should be aligned with McDonald's brand standards and designed to provide a seamless and enjoyable experience for every customer.

By establishing well-defined operational procedures and policies, McDonald's Franchisees can ensure the smooth and efficient running of their business, while upholding the company's reputation for quality and consistency. This attention to detail will be a key factor in driving customer loyalty and long-term success.

Create a Comprehensive Marketing Strategy for Your McDonald's Franchise

Developing a comprehensive marketing strategy is crucial for the success of your McDonald's franchise. As a well-established global brand, McDonald's has a strong reputation and customer base, but you'll need to tailor your marketing efforts to your local market to effectively attract and retain customers.

One of the key elements of your marketing strategy should be leveraging the McDonald's brand recognition and reputation. Utilize the company's branding, logos, and marketing materials to create a consistent and recognizable presence in your local market. This can include signage, advertising, and social media presence.

In addition to promoting the McDonald's brand, you'll need to develop a localized marketing approach to cater to the specific needs and preferences of your target audience. Conduct market research to understand the demographics, purchasing habits, and preferences of your local customers. Use this information to create targeted marketing campaigns and promotions that resonate with your community.

• Leverage the McDonald's brand recognition and reputation to create a consistent and recognizable presence in your local market.
• Conduct market research to understand the demographics, purchasing habits, and preferences of your local customers.
• Develop targeted marketing campaigns and promotions that cater to the specific needs and preferences of your local audience.

Another important aspect of your marketing strategy should be the utilization of digital and social media platforms. In today's digital landscape, a strong online presence is essential for reaching and engaging with your target audience. Develop a comprehensive social media strategy, including platforms like Facebook, Instagram, and Twitter, to connect with customers, share updates, and promote your offerings.

Additionally, consider implementing a robust email marketing campaign to stay in touch with your customers and promote special offers, menu updates, and other relevant information. Collect customer email addresses through your in-store transactions and online ordering platform, and use this data to create personalized and targeted email communications.

• Develop a comprehensive social media strategy to connect with customers and promote your offerings.
• Implement a robust email marketing campaign to stay in touch with your customers and promote special offers and updates.
• Collect customer email addresses through in-store transactions and online ordering to build your email marketing list.

Finally, don't forget to measure the effectiveness of your marketing efforts and continuously optimize your strategy based on the data. Utilize analytics tools to track key performance indicators (KPIs) such as website traffic, social media engagement, and sales conversions. Use these insights to refine your marketing campaigns and ensure that you're efficiently reaching and engaging your target audience.

By creating a comprehensive marketing strategy that leverages the McDonald's brand, tailors to your local market, and effectively utilizes digital and traditional marketing channels, you can position your franchise for long-term success.

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FDD Talk: McDonald’s Franchise Costs, Fees, Average Revenues and/or Profits (2022 Review)

Last updated on September 24, 2022 by Franchise Chatter Leave a Comment in FDD Talk: Food Franchises , Franchise Earnings , Hamburger Franchise

In this FDD Talk post, you’ll learn the following:

Section I – Estimated initial investment (franchise costs) for a McDonald’s franchise, based on Item 7 of the company’s 2022 FDD

Section II – Initial franchise fee, royalty fee, and marketing fee for a McDonald’s franchise, based on Items 5 and 6 of the company’s 2022 FDD

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Section III – Number of franchised and company-owned McDonald’s outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD

Section IV – News updates on the McDonald’s franchise opportunity

Section V – Presentation and analysis of McDonald’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:

• percentage of domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2021 with 2021 annual sales in excess of $2,600,000, $2,800,000, and $3,000,000 , respectively
• 2021 total cost of sales, gross profit, other operating expenses, and operating income before occupancy costs for 10,269 independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2021 annual sales of $2,600,000, $2,800,000, and $3,000,000 , respectively
• percentage of independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2021 annual operating income before occupancy costs greater than $757,000, $837,000, and $914,000 , respectively

Section VI – Key ratios, comparables, computations, and analyses for the McDonald’s franchise opportunity ( exclusive content for Platinum subscribers )

Section I – McDonald’s Franchise Costs

• McDonald’s franchise costs , based on Item 7 of the company’s 2022 FDD:
• Initial Franchise Fee:  $45,000
• Real Estate and Building – 3 Months’ Base Rent:  $0 to $313,000
• Real Estate and Building – 3 Months’ Percentage Rent:  0% to 31.75%
• Signs, Seating, Equipment, and Decor:  $1,000,000 to $1,600,000
• Opening Inventory:  $20,000 to $39,000
• Miscellaneous Opening Expenses:  $48,000 to $60,000
• Travel and Living Expenses While Traveling:  $3,000 to $38,000
• Additional Funds – 3 Months:  $250,000 to $355,000
• Total Estimated McDonald’s Franchise Costs:  $1,366,000 to $2,450,000

Section II – McDonald’s Initial Franchise Fee, Royalty Fee, and Marketing Fee

• McDonald’s initial franchise fee, royalty fee, and marketing fee , based on Items 5 and 6 of the company’s 2022 FDD:
• Service Fee:  4% of Gross Sales
• Advertising and Promotion:  not less than 4% of Gross Sales

Section III – Number of Franchised and Company-Owned McDonald’s Outlets

• Outlets at the Start of the Year:  13,229
• Outlets at the End of the Year:  13,185
• Net Change:  -44
• Outlets at the Start of the Year:  13,185
• Outlets at the End of the Year:  13,022
• Net Change:  -163
• Outlets at the Start of the Year:  13,022
• Outlets at the End of the Year:  12,775
• Net Change:  -247

Company-Owned

• Outlets at the Start of the Year:  683
• Outlets at the End of the Year:  659
• Net Change:  -24
• Outlets at the Start of the Year:  659
• Outlets at the End of the Year:  657
• Net Change:  -2

• Outlets at the Start of the Year:  657
• Outlets at the End of the Year:  661
• Net Change:  +4

Section IV – News Updates on the McDonald’s Franchise

• McDonald’s Is Changing Its Approach to the Value Menu
• McDonald’s Beats Profit Estimates But Warns of Weakening Consumer
• McDonald’s to Test Run Chicken Big Mac in the US After Popular UK Trial
• McDonald’s Simplifies Franchising Policies to Attract More Diverse Candidates
• McDonald’s Ranks No. 14 on Entrepreneur’s 2022 Franchise 500 List

Section V – Financial Performance Representations (Average Revenues and/or Profits) for the McDonald’s Franchise (Item 19, 2022 FDD)

Part 1 – average gross sales for domestic traditional restaurants.

Domestic Traditional (Franchised and McOpCo) Restaurants

• Of the approximately 12,377 domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2021:
• approximately 79% had annual sales volumes in excess of $2,600,000;
• approximately 72% had annual sales volumes in excess of $2,800,000; and
• approximately 64% had annual sales volumes in excess of $3,000,000.
• The average annual sales volume of domestic traditional McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,487,000 during 2021.
• The highest and lowest annual sales volume in 2021 for these domestic traditional McDonald’s restaurants was $13,625,000 and $680,000, respectively.
• The median annual sales volume of domestic traditional McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,366,000 during 2021.

Domestic Traditional (Franchised Only) Restaurants

• Of the approximately 11,746 domestic traditional franchised McDonald’s restaurants opened at least 1 year as of December 31, 2021:
• approximately 78% had annual sales volumes in excess of $2,600,000;
• approximately 71% had annual sales volumes in excess of $2,800,000; and
• approximately 63% had annual sales volumes in excess of $3,000,000.
• The average annual sales volume of domestic traditional franchised McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,347,000 during 2021.
• The highest and lowest annual sales volume in 2021 for these domestic traditional franchised McDonald’s restaurants was $13,625,000 and $680,000, respectively.
• The median annual sales volume of domestic traditional McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,328,000 during 2021.

Domestic Traditional (McOpCo Only) Restaurants

• Of the approximately 631 domestic traditional McOpCo McDonald’s restaurants opened at least 1 year as of December 31, 2021:
• approximately 97% had annual sales volumes in excess of $2,600,000;
• approximately 94% had annual sales volumes in excess of $2,800,000; and
• approximately 88% had annual sales volumes in excess of $3,000,000.
• The average annual sales volume of domestic traditional McOpCo McDonald’s restaurants open at least 1 year as of December 31, 2021 was $4,046,000 during 2021.
• The highest and lowest annual sales volume in 2021 for these domestic traditional McOpCo McDonald’s restaurants was $8,639,000 and $2,063,000, respectively.
• The median annual sales volume of domestic traditional McOpCo McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,902,000 during 2021.

Part 2 – Pro Forma Statements for Franchised Traditional Restaurants

• The pro forma statements included below show annual sales volumes of $2,600,000, $2,800,000, and $3,000,000. These pro forma statements have been derived from independent franchisee traditional restaurant financial statements to provide information relevant to a prospective franchisee.
• Specific assumptions used in the presentation of these pro forma statements are indicated below the statements.
• The pro forma statements are based upon a total of 10,269 independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year and do not include restaurants operated by McOpCo companies, Satellites, or the domestic traditional franchised restaurants that changed owners in 2021 and for which McDonald’s had complete financial statements.

Annual Sales Volume:  $2,600,000

Product Sales:  $2,600,000 (100.0%)

Total Cost of Sales:  $691,000 (26.6%)

Gross Profit:  $1,909,000 (73.4%)

Other Operating Expenses:  $1,152,000 (44.3%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

Operating Income Before Occupancy Costs:  $757,000 (29.1%)

Annual Sales Volume:  $2,800,000

Product Sales:  $2,800,000 (100.0%)

Total Cost of Sales:  $741,000 (26.5%)

Gross Profit:  $2,058,000 (73.5%)

Other Operating Expenses:  $1,221,000 (43.6%)

Operating Income Before Occupancy Costs:  $837,000 (29.9%)

Annual Sales Volume:  $3,000,000

Product Sales:  $3,000,000 (100.0%)

Total Cost of Sales:  $795,000 (26.5%)

Gross Profit:  $2,204,000 (73.5%)

Other Operating Expenses:  $1,290,000 (43.0%)

Operating Income Before Occupancy Costs:  $914,000 (30.5%)

• Of the 12,377 independent franchisee traditional restaurants included in the pro forma statements above:
• approximately 76% had operating income before occupancy costs greater than $757,000;
• approximately 69% had operating income before occupancy costs greater than $837,000; and
• approximately 61% had operating income before occupancy costs greater than $914,000.
• Other Operating Expenses – includes, but is not limited to, the following costs: labor, franchisee’s salary as manager, payroll taxes, advertising fee, promotion, outside services, linen, operating supplies, small equipment, maintenance and repair, utilities, office supplies, legal and accounting fees, insurance, real estate and personal property taxes, business operating licenses, and non-product income or expense. This is a combination of the Total Controllable Expenses and Other Operating Expenses excluding rent, service fees, depreciation and amortization, and interest included in the typical store’s financial statements.
• Operating Income Before Occupancy Costs – represents Operating Income excluding rent, service fees, depreciation and amortization, interest, and income taxes. The rent paid to McDonald’s will vary based upon sales and McDonald’s investment in land, site improvements, and building costs.
• Additionally, organization overhead costs, such as salaries and benefits of non-restaurant personnel (if any), cost of an automobile used in the business (if any), and other discretionary expenditures may significantly affect profits realized in any given operation. The nature of these variables makes it difficult to estimate the performance for any particular restaurant with sales of any given volume.
• Note 1 – Data for McOpCo company restaurants is not included in the pro forma statements because of certain expenses that are typically incurred by a McOpCo-operated restaurant that are not incurred by restaurants franchised to individuals.
• If data for McOpCo-operated restaurants open for at least 1 year were included along with franchised restaurants, the percent of total restaurants in each category would not be statistically different and the range of Operating Income Before Occupancy Costs would be $633,000 to $790,000.
• Note 2 – The description of this line, “Product Sales,” is to clarify that only product sales are included. Non-product sales and associated costs are included in Other Operating Expenses.
• The Operating Income Before Occupancy Costs numbers were determined using restaurants with product sales between $2,500,000 to $2,700,000; $2,700,000 to $2,900,000; and $2,900,000 to $3,100,000, respectively.
• Note 3 – McDonald’s is not presenting average occupancy costs in the above calculation because a wide variety of rent charts and ownership options exist. In addition, the effective rent paid by a franchisee may be more in any particular month than the stated percent rent indicated in the franchisee’s lease because a portion of the rent may be fixed regardless of the sales level for a given month.
• The range of effective rent percentages in 2021 for franchised restaurants was 0.00% to 30.4%.

Section VI – McDonald’s Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers ) ⬇️

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McDonald's Franchise

Talk about a safe bet! A McDonald's® franchise is one of the most identifiable brands in the entire world. The McDonald's® Golden Arches logo has become one of the most ubiquitous marketing symbols ever. Happy Meals, McDonald's® French fries, chicken McNuggets, the Big Mac. McDonald's® has led the way in the innovation of fast-food trends one after another. Since 1940, when McDonald's® Corporation first opened as a barbecue restaurant, then a hamburger stand, it has grown into the largest chain of fast-food franchise restaurants on the planet, serving some 68 million customers every day in 119 countries. More about the cost of owning a McDonald's® franchise below.

Facts & Figures

More than 80 percent of McDonald's® restaurants worldwide are owned and operated by franchisees. The company lists consistently in the Top 10 Franchises in the world in Entrepreneur Magazine, and Franchise Times Magazine ranks McDonald's® Franchises Number 1 among the top 200 franchises.

By now, the McDonald's® story is legend. The first McDonald's® restaurant was an unassuming hamburger stand owned by Richard and Maurice McDonald in California, opened in 1940. But in 1954, a man named Ray Kroc, who had sold the McDonalds his Multimixer milk-shake makers, paid the restaurant a visit, then offered to open several more McDonald's® restaurants. Kroc eventually bought the company from Dick and Mac McDonald and oversaw McDonald's® worldwide growth to more than 30,000 franchises today with more than $22 billion in annual revenues. McDonald's® is one of the great American success stories.

How Much Does A McDonald's® Franchise Cost?*

Most McDonald’s franchise owner/operators have entered the corporation by purchasing an existing restaurant. To open a McDonald’s franchise, however, requires a total investment of $1-$2.2 million, with liquid capital available of $750,000. The franchise fee is $45,000.

McDonald's® Franchise Business Opportunities*

Owning a McDonald's® franchise is an easy sell. Once up and running, the company’s international marketing model does the heavy lifting, and provides training support and materials to help its franchisees succeed. The company wants successful restaurants and seeks individuals with significant business experience, who have owned or managed businesses before. A McDonald's® franchise is a golden (arches) opportunity for the serious, energetic, business-focused entrepreneur.

*Franchise details do not apply to prospective owners in India.

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Franchise Business Plan – McDonald’s

When writing a business plan for a McDonald’s franchise it is important to demonstrate the in-depth understanding of the franchise agreement as all McDonald’s restaurants must operate in line with the “McDonald’s System”, a concept of restaurant operations that includes, among others, rights in trademarks, manuals, and other confidential business information, and operational, real estate, and marketing information. According to IBISWorld , McDonald’s has 37,000 restaurants in over 100 countries, out of which more than 90% are operated by franchisees, the remainder being company-operated stores.

When drafting a business plan for a McDonald’s restaurant, there are several issues to address.

Initial Investment

Generally, no financing arrangements are offered by McDonald’s. The company allows franchisees to open a new restaurant or purchase an existing one. The cost of opening a new restaurant generally includes a $45,000 fee, a down payment of 40% of the total costs of a new restaurant, and the average equipment and pre-opening costs of $1,611,040. The cost of purchasing an existing restaurant includes the price of an existing restaurant which varies on a wide range of factors such as sales volume and profitability and a minimum of 25% cash down payment. Joorney Business Plans has experience in creating long-term financial projections for McDonald’s restaurants and understands the specifics pertaining to the initial investment requirements.

The company selects the site for the location of a restaurant and negotiates the location’s purchase or lease. The choice of location is based on a variety of factors such as population density, traffic patterns, and competition. However, as McDonald’s cannot guarantee that the economic and demographic factors at a specific restaurant location will remain constant, Joorney Business Plans develops in-depth local market analyses with the expected local economic and demographic trends.

Regulations

A McDonald’s restaurant is required to comply with various local, state, and federal laws, including health and sanitation laws and menu-labeling requirements. Joorney Business Plan Writers have experience helping McDonald’s franchisees create a timeline of activities, including obtaining licenses, with a particular focus on the initial year, as per requirements of the investors and immigration services.

All McDonald’s franchisees must complete a training program successfully before signing the franchise agreement. McDonald’s bears the cost of maintaining the Hamburger University and other training centers and provides instruction for the operation of a franchise restaurant. However, a franchisee must cover all traveling, living, and compensation expenses related to employee training. Joorney Business Plans has experience describing and developing employee plans and linking the proposed individuals’ knowledge and training to their designated roles.

If you are lucky enough to be selected as a McDonald’s franchisee, it is the opportunity of a lifetime. You get guaranteed return on investment due to their gigantic historical performance numbers and internationally recognized brand and not many franchises can compete with that.

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McDonald’s Business Model Analyzed and Explained

Editorial Team

Fast food is one of the easily available, cheap, and fulfilling options, attracting thousands towards itself owing to its flavorfulness. It is by far the major reason for McDonald’s popularity, making it the largest fast-food chain globally. Such large-scale businesses are hugely responsible for globalization and a tyrant in the business market. So, let’s analyze this oldest fast-food restaurant to comprehend what makes it successful among its competitors with its revenues and future plans.

The Making Of Mcdonald’s

First opened by the McDonald brothers in San Bernardino, California, in 1940, Ray Kroc now owns McDonald’s. The startup McDonald’s was a drive-in restaurant that offered a wide selection of food items. However, in 1948 the founding members decided to create a newly envisioned version of McDonald’s by limiting the menu but increasing the quality. However, the catch was that the food would get prepared in bulk at an extensive scale. This way, it would be affordable. The initial menu consisted of hamburgers, French fries, drinks, and pies. Later, their menu items also added shakes, chicken burgers, and seafood. The fast-food chain has continued to expand at such a level over time that it has more than 34,000 outlets today operating in over 115 countries worldwide. The growth is so swift that the reports estimate that every five hours marks the opening of a new McDonald’s somewhere in the world.

McDonald’s Business Model

Since its founding in 1948, McDonald’s has opened 34,000 outlets worldwide in 115 countries. They serve up to 68 million customers daily, making up about 1% of the world’s population. We can’t deny it as it is popular among both children and adults. Plus, the company has over 1.7 employees, which makes it the second-largest private employer in the whole world. Concerning the Business model, the brothers brought forward and applied the franchise and drive-thru model to run their fast-food restaurant.

McDonald’s Earned Revenues

The US is the leading market for McDonald’s and accounts for most of its revenue, with the 14,000 restaurants generating $7.4 billion across the last calendar year. UK, Canada, Australia, France, Germany, Russia, and Hong Kong are other leading international markets, with the company amassing over $11.4 billion in revenue. The company is one of the most valuable businesses in the world, valued at over $130 billion, and this figure is constantly rising. Global sales increase by over 30% yearly, signifying that McDonald’s is an everlasting franchise.

How does McDonald’s make Money?

McDonald’s generates most of its revenue by leveraging its facilities to franchisees who must lease the franchises owned by McDonald’s at hefty markups. They also charge a considerable amount from the franchise longing for its license with loyalty.

Note that, out of its 34,000 outlets, 93% are leased by private owners, while the rest are self-owned by McDonald’s. Through this, McDonald’s receives a substantial advantage as the revenue earned is notably steady.

The additional benefit is it contributed to the low operating cost because the franchisee pays for the interior design. It, in turn, suggests more earned profit. This leasing system can be seen as a subscription by the franchisee. It also benefits the franchisees as they have the surety of the brand name.

McDonald’s 4 Ps Marketing Mix

The 4 Marketing Ps highlight the business strategies that the company employs to ladder up in the long run. McDonald’s mix and match these 4 Ps accordingly to attract the target audience, displaying the marketing techniques. These 4 Ps are:

McDonald’s rose to fame from their beef burgers. Yet, over time they started selling chicken and fish products with a wide array of desserts and drinks. The company has introduced a series of products to cater to all kinds of cuisines. We can consider an example from the Middle Eastern region, where the introduction of mcArabia was an instant hit, as the people living in that region felt represented on the international stage.

With more than 36,000 restaurants spread across the globe, McDonald’s strategic placement of their restaurants is phenomenal, with outlets always within the customer’s reach. They have outlets inside malls, kiosks at events, and restaurants in every nook and cranny of the earth. Dining at McDonald’s has become people’s hobby, as the restaurants and taste calls for it. Children especially love visiting the play areas, so it’s more likely a family restaurant partnered with a fun and clean play area.

The company intelligently uses psychological pricing strategy by rounding off all prices to .99 to make their products look more appealing and affordable. In addition to this, they also use the bundle pricing strategy, which offers discounted food bundles. It includes the make-it-a-meal option, where customers would buy a meal instead of a burger as it seemed a better choice while paying more. For good measure, McDonald’s successfully employed a cost leadership marketing strategy by hiring inexperienced employees. The trained managers train them and earn loyalty in return. It reduces the cost of hiring experienced professionals, ultimately generating more profit.

4. Promotion

McDonald’s advertising strategy is the most notable among its promotion strategies. Its unique and attractive promotions online and through TV and radio have amassed a huge viewership, bringing in more customers. It offers discount coupons and freebies. It also promotes its brand by partnering with other brands, ensuring benefits for both.

The primary target audience of McDonald’s comprises both young people and adults alike. However, the marketing towards the youth is the most evident. Ronald McDonald was introduced in 1963, and children loved the clown.

McDonald’s had taken a smart move by adding a breakfast menu and McCafe to attract business people, who could get food without waiting too long or conducting business meetings over a cup of coffee.

Another intelligent promotion strategy by McDonald’s was collaborating with major artists and other famed personalities over the years. The most recent was their collaboration with Travis Scott, where they introduced the Travis Scott Burger loved by customers, especially the youth.

Reasons Contributing To The Huge Success Of Mcdonald’s

1. consistency.

Consistency is the eminence of success, and McDonald’s has demonstrated it multiple times. Regardless of the McDonald’s outlet, the food will always taste similar. The rationale is similar to recipes and ingredients imported from the same place. Consistency helps build trust , as customers know what to expect every time they visit; hence become regular.

2. Innovation

The innovation laboratory of McDonald’s is one of the reasons why the company has achieved the position it holds in the fast food chain industry. McDonald’s has kept the grounds consistent while innovating food on the same bases. In 1975, it started the first drive-thru restaurant near a military base in Arizona to assist soldiers in getting food conveniently. The introduction of a separate breakfast menu was an instant hit among customers. Other innovations like the introduction of Fillet-o-Fish and fried chicken were fan favorites. In addition to this, food suited to the cuisine of the local culture attracts a lot of local customers. This uniqueness substantially contributed to McDonald’s success in the global food market.

Competition In The International Market

After observing the massive success of McDonald’s, many such fast-food restaurants started opening up all across the world. This spread of globalization was beneficial for spreading culture all over. The rise of such restaurants has threatened the sale of McDonald’s from time to time, which promotes healthy competition in the international market.

KFC is McDonald’s greatest competitor in the international market. This 1930-founded franchise has over 20,000 branches spread in over 120 countries. However, the crucial difference is that KFC is known for its fried chicken and constituent food products, while McDonald’s main selling point is beef. Its revenue is around $3 billion, and its sales rose for the first time last year after a gap of 17 years.

Subway is one of the world’s fastest-growing food chains. Founded in 1965, the company owns over 45,000 stores in more than 110 countries. Although Subway has a limited menu, its simplicity is one of its reasons for success. The unique feature is you can watch your food while cooking in front of you, let it cook how you like, and get it in your hands within less than five minutes. It is also seen as a healthier alternative to other fast-food joints, providing another reason for its growing success. This cleanliness, customized order, and hygiene make it popular among people.

3. Burger King

Owned by Restaurant Brands International, Burger King stands as one of the largest fast-food restaurants in the world. As the name suggests, it is one of the most sought-after food joints in the world. This 1953-founded restaurant was originally located in the US, but the locals loved it to such an extent that it now has 15,000 outlets in more than 100 countries. It makes a revenue of $4 billion while holding assets amounting to $16 billion.

4. Pizza Hut

Pizzas and burgers are the fast food most people turn to, and Pizza Hut is the pioneer of pizzas under Yum brands, likely KFC. Founded in 1958, the company has expanded to over 16,000 locations worldwide. Its vast and diverse menu, which includes different kinds of pizzas, is the reason for its massive success. The company’s monetary net worth, as of 2022, stands at $810 billion.

5. Starbucks

Founded in 1971, Starbucks is probably the most popular coffee house in the world. Its massive rise is that they have almost 24,000 locations scattered around the world where Starbucks sells its famous coffee. Its revenue sits at a whopping $19 billion while employing nearly 250,000 employees from different areas of the globe.

In addition to the aforementioned global franchises, several local franchises stand strong against giving McDonald’s sturdy competition. These franchises cater to the needs of the locals, while global franchises have a more generalized taste. All in all, we can conclude that the food industry is an ever-growing industry, and one has to be always transforming to succeed in the market.

Challenges Faced and How McDonald’s Tackles Them

Being such a large global organization brings its pros and cons. Likewise, McDonald’s has faced prime criticism over the years and has been in the spotlight multiple times. However, the organization has always been very responsive to all the criticism through their actions. Let’s discuss the challenges McDonald’s has achieved to come to its present position.

• Over the years, McDonald’s has faced many challenges related to health issues, especially in children. In response to this, they worked with experts to form a menu that would be nutritious and in accord with the guidelines. In addition to this, it started providing nutrition facts on the packaging. Since 2015, the company has stopped using animals being treated with artificial growth hormones and used only those that are free of antibiotics.
• Activists started raising concerns over McDonald’s policies affecting the environment. In response, it founded the Global Environment Committee in 1990, which suggested ways to reduce solid waste and conserve natural resources. Recently, the company switched to renewable materials for 80% of its packaging, which helps preserve the environment.
• Customers complained a lot about the costly prices of the menu items. These negative reviews also jeopardized the restaurant’s revenue as consumers turned toward other newly opened food joints. So, McDonald’s started offering discounts and loyalty rewards to win back customers. To boot, they also introduced the dollar menu to sell exclusive items up to a range of $5.
• Harassment faced by McDonald’s employees and customers was a major occurrence in the past. The authorities passed several Lawsuits, but the results only suppressed the voices over the years. To counter harassment at the workplace, McDonald’s has been very responsive those years as they took strict action against such employees. They educated the staff on how to behave in the office and defend themselves in such scenarios. They have also launched several policies against discrimination. However, after all of this, harassment at the workplace still exists. The company should work harder to eradicate this evil.

What Has McDonald’s Planned For Its Future?

McDonald’s unveiled a new growth plan in November 2020. They did so intending to invest in the 3 Ds: Digital, Delivery, and Drive Thru. This shift has been done primarily due to the coronavirus pandemic. Lifestyle has grown faster, and hence demands have to be fulfilled rapidly. Therefore, the company decided to increase the number of drive-thru restaurants, even though almost 65% of their restaurants have one.

For good measure, McDonald’s has taken adequate steps to enhance the digital capabilities of restaurants. They provide their customers to place their orders through kiosks, implying they can skip the long order placement lines. Their food will be brought right to them, at their table, and customers will not have to go through the hassles of waiting long for their food. Moreover, Mcdonald’s also plans to introduce mobile ordering. It means when you place an order through your mobile online, you can also skip the drive-thru line, as the staff delivers the ordered food to your curbside.

They also make their already extensive system larger so that people can access McDonald’s franchises near them. It is to be available to all McDonald’s lovers within a 3km radius. They also aim to partner with other delivery services to speed up the process.

Considering this, the company has designed numerous plans to strengthen its interpersonal relationships with customers by catering to family occasions and serving food-led breakfasts. They also plan to invest heavily in their McCafe service as it has been a customer favorite over the past few years. This way, they tend to convert casual customers to regular customers. In addition, they have decided to revamp restaurants and create a more convenient and enjoyable ambiance.

Another step the company is taking is introducing plant burgers, concerning the veg population. It will also contribute to the environment, so double the benefits. Yet, McDonald’s is presently testing different versions of the Plant burger in its laboratory.

One of McDonald’s aims is to give back to the environment. They aim to source their food from quality ingredients, drive climate action campaigns to protect the planet, connect with communities in times of need, and provide employment opportunities. In this regard, they aim to convert 100% of their packaging to ensure it is environmentally friendly and biodegradable. They also donate millions of pounds of food each year to help families in need by employing over 2 million people worldwide.

In the business arena, the company has decided to franchise restaurants and upgrade their number to meet consumer demand. They aim to increase the total savings by at least 5% annually. Moreover, shareholders are going to get greater cash returns. It would build a stronger bond between the shareholders and the company itself.

McDonald’s is the most famous fast-food restaurant globally, and with around 40,000 franchises, it is one of the most successful businesses in the world. Their innovative ideas are hugely responsible for the multitudes of success the company has earned. Due to being such a tycoon, it shares its fair trade of problems. Yet, it has been quite triumphant in facing them. The rationale is its stable growth plan combined with the franchise business model that aids it in successfully handling several challenges, like economic and consumer demands, as everyone still craves it. It makes us think it will rule the fast-food industry for many forthcoming years.

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McDonald’s Heavy Franchised Business Model In A Nutshell

McDonald’s is a heavily franchised business model . In 2023, 61% of the total revenues came from franchised restaurants. The company’s long-term goal is to transition toward 95% of franchised restaurants (by 2023, franchised restaurants were 94.9% of the total restaurants). The company generated over $25 billion in revenues in 2023, of which $9.74 billion was from owned restaurants and $15.43 billion from franchised restaurants.

Table of Contents

McDonald’s origin story: from the  McDonald Brothers to Mr. Ray Kroc

As explained on McDonald’s website “ Dick and Mac McDonald moved to California to seek opportunities they felt unavailable in New England. ” In 1948 they launched Speedee Service System featuring 15 cent hamburgers. As the restaurants gained traction that led the brothers to begin franchising their concept until they reached nine operating restaurants.

A native Chicagoan, Ray Kroc, in 1939 was the exclusive distributor of a milkshake mixing machine, called Multimixer. In short, he was a salesman.

He visited the McDonald brothers in 1954 and was impressed to their business model which led to him becoming their franchise agent. He opened up the first restaurant for McDonald’s System, Inc., until in 1961 he acquired McDonald’s rights to the brother’s company for $2.7 million.

Ray Kroc, died on January 1,4 1984, all the rest is a legend.

Is McDonald’s a franchising? You bet, and a heavy one!

Approximately 93% of the restaurants at year-end 2020 were franchised, including 95% in the U.S., 84% in International Operated Markets, and 98% in the International Developmental Licensed Markets.

This makes the heavily franchised model run at 93% total capacity, compared to McDonald’s long-term goal of 95%.

As specified in its annual reports “ McDonald’s is primarily a franchisor and believes franchising is paramount to delivering great-tasting food, locally-relevant customer experiences and driving profitability. Franchising enables an individual to be his or her own employer and maintain control over all employment-related matters, marketing , and pricing decisions, while also benefiting from the financial strength and global experience of McDonald’s. However, directly operating restaurants is important to being a credible franchisor and provides Company personnel with restaurant operations experience.”

To further understand the main features of McDonald’s business model , it’s worth looking into the three main categories of business models that revolve around franchising and one that moves beyond it. 

In the spectrum of franchising business models , the FourWeekMBA research has identified three main categories of franchising:  

Heavy-franchised

McDonald’s is the classic example of heavy-franchised. In fact, McDonald’s has found a balance, which made it able to have a large percentage of restaurants franchised, thanks to the fact McDonald’s secures the land or the rental contract of the land, therefore the franchisee, even if an “independent restaurateur” is locked into McDonald’s   growth   plan.

On the other hand, McDonald’s keeps a small percentage of owned restaurants primarily for product development, for the development of new workflows, and for experimentation. When things work out at these stores, these same strategies might be applied back to the other franchised restaurants. 

Hybrid or franchained

Coca-Cola is the classic example of franchained , as the company uses a hybrid strategy , where it first keeps tight control over newly established operations (especially in foreign countries). Once those operations have been successfully established, Coca-Cola transforms them into franchises.

Yet it keeps a stake in the franchising business afterward, so that, even if the franchisee is independent, it’s still tied to the mother company. 

Heavy-chained

The classic example of a heavy-chained company is Starbucks. While Starbucks still leverages on franchise stores (what the company calls “licensed stores”) in reality, it operates the majority of its stores. 

And in the long run, Starbucks’ vision is to chain them all. This is what the FourWeekMBA research has labeled as heavy-chained. 

How do McDonald’s partnerships work?

As specified in its annual report “ under McDonald’s conventional franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating, and décor of their restaurant business, and by reinvesting in the business over time. The Company generally owns the land and building or secures long-term leases for both Company-operated and conventional franchised restaurant sites. This maintains long-term occupancy rights, helps control related costs and assists in alignment with franchisees enabling restaurant performance levels that are among the highest in the industry. “

In short, the model is pretty smart. McDonald’s keeps control over the land and or long-term leases to leverage its market position to negotiate deals. At the same time, this kind of deal serves as an alignment between the company and its franchisees.

What are McDonald’s segments?

At the qualitative level the segments can be organized into four main ones:

• The U.S. , as of 2018 represents still the most significant market.
• International Lead Markets include Australia, Canada, France, Germany, the U.K., and related markets.
• High Growth Markets that comprise markets with high growth potential include China, Italy, Korea, the Netherlands, Poland, Russia, Spain, Switzerland, and related markets.
• Foundational Markets & Corporate , the remaining markets in the McDonald’s system, most of which operate under a primarily franchised model .

As of 2017, the U.S., International Lead Markets, and High Growth Markets accounted for 35%, 32%, and 24% of total revenues, respectively.

Who are McDonald’s key partners?

McDonald’s business model is based on three key players. Franchisees, suppliers, and employees are the piece of the puzzle of McDonald’s successful business model .

• Franchisees are entrepreneurs that at a local level allow McDonald’s to expand rapidly while keeping a global focus
• Suppliers across the globe guarantee McDonald’s ability to operate at a high level
• The continuous training of employees across the over thirty-six thousand restaurants around the world allows McDonald’s to perform at full speed

What management metrics McDonald’s uses to assess its growth?

Any organization has a set of management ratios and metrics  to understand and assess the growth of the business.

McDonald’s looks at the following metrics:

• Comparable sales and comparable guest counts: the percent change in sales and transactions, respectively, from the same period in the prior year for all restaurants, whether operated by the Company or franchisees, in operation at least thirteen months, including those temporarily closed
• ROIIC : calculated by dividing the change in operating income plus depreciation and amortization (numerator) by the cash used for investing activities (denominator), primarily capital expenditures
• Free cash flow: defined as cash provided by operations minus the capital expenditures 
• Free cash flow conversion rate: defined as free cash flow divided by net income , are measures reviewed by management to evaluate the Company’s ability to convert net profits into cash resources

McDonald’s velocity growth plan in action

McDonald’s has launched and developed a velocity growth plan based on three pillars:

• Retain  the customers they have
• Regain the customers lost by improving the taste and quality of food, enhancing the convenience, and offering strong value
• Convert casual customers to more committed customers with coffee and snacks

They also identified three accelerators, intended to drive growth :

• Digital by re-shaping interactions with customers
• Delivery by bringing the McDonald’s experience to their homes
• Experience of the Future in the U.S. which consists of a set of new technologies within the restaurants to enhance efficiency and improve the experience

Why is McDonald’s’ transitioning to a heavy franchised business model?

The transition to a more heavily franchised business model is part of the long-term company’s strategy . In fact, the rent and royalty income received from franchisees provides a more predictable and stable revenue stream with significantly lower operating costs and risks.

In a way, it is almost like McDonald’s is introducing a subscription business model , where franchisees pay a fixed amount each month. That makes McDonald’s income more stable over time.

Also, the operating and net income coming from franchising operations makes it easier for the company to grow its profitability .

Understanding the company-operated business model vs the franchised-based business model

McDonald’s business model has a double soul. On the one hand, when it comes to its operated restaurants, we can still call McDonald’s a restaurant business when it comes to franchised restaurants McDonald’s looks way more like a commercial real estate company.

Understanding the function of company-operated restaurants

Directly operating McDonald’s restaurants contributes significantly to our ability to act as a credible franchisor. One of the strengths of the franchising model is that the expertise from operating Company-owned restaurants allows McDonald’s to improve the operations and success of all restaurants while innovations from franchisees can be tested and, when viable, efficiently implemented across relevant restaurants. Having Company-owned and operated restaurants provides Company personnel with a venue for restaurant operations training experience. In addition, in our Company-owned and operated restaurants, and in collaboration with franchisees, we are able to further develop and refine operating standards, marketing concepts and product and pricing strategies that will ultimately benefit McDonald’s restaurants.

As highlighted in the 2018 financial reports, company-owned restaurants are important for a series of reasons:

• Credibility as a franchisor: how can you teach others how to run a restaurant if you don’t run it yourself?
• Experimentation: company-owned restaurants enable McDonald’s to test things quickly, and roll out only when they have proven to work on the company’s owned restaurants to the franchised restaurants.
• Training: company-owned restaurants also act as training venues for franchised restaurants.
• Innovation: as McDonald’s has full control of its owned restaurants it can freely innovate, and bring these processes to other franchised restaurants. So that processes can be reviewed and improved periodically
• Control: the company-owned restaurants guarantee complete control of processes, innovation , and standards that can be applied elsewhere.

Understanding the economics of the franchised business model: a $41 billion-dollar commercial real estate company

As reported on McDonald’s financial statements:

Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments, and initial fees. Revenues from developmental licensees and affiliate restaurants include a royalty based on a percent of sales, and generally include initial fees upon the opening of a new restaurant or grant of a new license. Fees vary by type of site, amount of Company investment, if any, and local business conditions. These fees, along with occupancy and operating rights, are stipulated in franchise/license agreements that generally have 20-year terms.

Therefore, a good chunk of the revenues coming from McDonald’s franchisees comes from rent and royalties.

As further explained in McDonald’s financial statements:

Under McDonald’s conventional franchise arrangement, the Company generally owns the land and building or secures a long-term lease for the restaurant location and the franchisee pays for equipment, signs, seating and décor. The Company believes that ownership of real estate, combined with the co-investment by franchisees, enables us to achieve restaurant performance levels that are among the highest in the industry.

Source: McDonald’s financial statements 2021

To have an idea of how big is McDonald’s real estate business, as of 2021 the company reported over $41 billion in property and equipment (without counting accumulated depreciation and amortization), which makes it a mammoth commercial real estate owner.

This commercial real estate portfolio, well places McDonald’s among the largest real estate companies in the world!

Key highlights from McDonald’s business model

• McDonald’s uses a heavy franchised business model . As of 2018, the company had 93% of total restaurants as franchising.
• Its long-term target is 95% of franchised restaurants worldwide.
• Even though revenues have decreased since 2013, it’s important to understand this is part of the transition to a heavy-franchised business model .
• Indeed, according to McDonald’s financial reports in 2018 Franchised margin dollars represented about 85% of the combined restaurant margins in 2018, about 80% in 2017, and about 75% in 2016.
• Therefore as McDonald’s business model primarily shift toward a heavy-franchised model we might expect this effect of reduced revenues and increased margins.
• That is also due to how revenues are reported for each segment
• Although company-operated restaurants have higher revenues compared to franchised restaurants, they contribute less to the company’s gross margins and net income.
• It’s important to understand the key difference between McDonald’s company-owned restaurant business model vs the McDonald’s franchised restaurant business model .
• McDonald’s can be considered a restaurant business in the McDonald’s company-owned side of the business.
• However, it can be considered a mammoth commercial real estate company on the franchising restaurant side of the business. Indeed, in 2018, McDonald’s reported a cost of over $37 billion in property and equipment, which makes it one of the largest commercial real estate companies on earth.

Summary of the McDonald’s business model

• McDonald’s operates a heavy-franchised business model , where most stores are franchisees. 
• This strategy enables McDonald’s to amplify at maximum its distribution .
• McDonald’s keeps control over the land leases on top of which new restaurants are built. In this way, it can keep control (without having a take in it) of the standards for franchised restaurants. 
• Keep small numbers of operated stores for product development, workflow development, experimentation, and testing, before rolling things up at scale 
• McDonald’s combines the Speedy System (operational efficiency), which today is amplified through the use of automation, combined with franchising operations for larger distribution , and a small set of operated stores for product development and innovation . All the while, controlling the lands on which McDonald’s are built so that while franchisees are independent, they have still to adhere to McDonald’s standards. 

Other resources: 

• Successful Types of Business Models You Need to Know
• Business Strategy: Definition, Examples, And Case Studies
• What Is a Business Model Canvas? Business Model Canvas Explained
• Blitzscaling Business Model Innovation Canvas In A Nutshell
• What Is a Value Proposition? Value Proposition Canvas Explained
• What Is a Lean Startup Canvas? Lean Startup Canvas Explained
• What Is Market Segmentation? the Ultimate Guide to Market Segmentation
• Marketing Strategy: Definition, Types, And Examples
• Marketing vs. Sales: How to Use Sales Processes to Grow Your Business

More Resources

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How does McDonald’s make money from the franchise business model?

McDonald’s generated $25.5 billion in revenues in 2023 . McDonald’s makes money primarily from three revenue streams: sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental licensees, and affiliates.

McDonald’s is primarily a franchisor and believes franchising is paramount to delivering great-tasting food, locally relevant customer experiences, and driving profitability. Franchising enables an individual to be their employer and maintain control over all employment-related matters, marketing, and pricing decisions. It also benefits from the strength of McDonald’s global brand, operating system, and financial resources.

In this strategy story, we will understand the types of franchise business model of McDonald’s, how does McDonald’s make money under each franchise model, and what is the supply chain of McDonald’s.

Franchise Business Model of McDonald’s

One of the strengths of the franchise business model is that the expertise from operating Company-owned restaurants allows McDonald’s to improve the operations and success of all restaurants. At the same time, innovations from franchisees can be tested and, when viable, efficiently implemented across relevant restaurants. 

Having Company-owned and operated restaurants provides McDonald’s personnel with a venue for restaurant operations training experience. In addition, in Company-owned and operated restaurants and in collaboration with franchisees, Mcdonald’s is able to develop further and refine operating standards, marketing concepts, and product and pricing strategies.

McDonald’s franchises and operates McDonald’s restaurants, which serve a locally relevant menu of quality food and beverages in communities across 119 countries. Of the 41,822 McDonald’s restaurants at year-end 2023, 95%, were franchised.

McDonald’s has long-term revenue and cash flow streams related to its franchise arrangements. Minimum rent payments under franchise arrangements are based on Mcdonald’s underlying investment in owned sites and parallel Mcdonald’s underlying lease obligations and escalations on leased properties. Mcdonald’s believes that control over the real estate enables it to achieve restaurant performance levels among the highest in the industry.

How McDonald’s became a Real Estate Company?

McDonald’s revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental licensees, and affiliates. McDonald’s franchised restaurants are owned and operated under one of the following structures – conventional franchise, developmental license, or affiliate.

Conventional Franchise

Under a conventional franchise arrangement, Mcdonald’s generally owns or secures a long-term lease on the land and building for the restaurant location, and the franchisee pays for equipment, signs, seating, and décor. Mcdonald’s believes that ownership of the real estate, combined with the co-investment by franchisees, enables it to achieve restaurant performance levels among the highest in the industry. 

Franchisees are responsible for reinvesting capital in their businesses over time. In addition, to accelerate the implementation of certain initiatives, McDonald’s may co-invest with franchisees to fund improvements to their restaurants or operating systems.

These investments, developed in collaboration with franchisees, are designed to cater to consumer preferences, improve local business performance and increase the value of the Mcdonald’s brand by developing modernized, more attractive, and higher revenue-generating restaurants. 

Under the franchise arrangement, franchisees are granted the right to operate a restaurant using the McDonald’s System and, in most cases, the use of a restaurant facility, generally for a period of 20 years.

At the end of the 20-year franchise arrangement, Mcdonald’s maintains control of the underlying real estate and building and can either enter into a new 20-year franchise arrangement with the existing franchisee or a different franchisee or close the restaurant. Franchisees generally pay related occupancy costs, including property taxes, insurance, and site maintenance.

McDonald’s makes money from conventional franchises through the payment of rent and royalties based upon a percent of sales, with specified minimum rent payments, along with initial fees paid upon opening a new restaurant or grant of a new franchise. Mcdonald’s heavily franchised business model is designed to generate stable and predictable revenue, primarily a function of franchisee sales and resulting cash flow streams.

Marketing Strategy of McDonald’s that makes you “loving it”

Developmental License or Affiliate 

Under a developmental license or affiliate arrangement, licensees are responsible for operating and managing their businesses, providing capital (including the real estate interest), and developing and opening new restaurants. 

Mcdonald’s generally does not invest any capital under a developmental license or affiliate arrangement, receives a royalty based on a percent of sales, and typically receives initial fees upon opening a new restaurant or grant of a new license. 

Revenues from restaurants licensed to developmental licensees and affiliates include a royalty based on a percentage of sales, generally including initial fees.

Mcdonald’s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by Mcdonald’s for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the McDonald’s brand, and third-party revenues for the Dynamic Yield business.

Supply Chain of McDonald’s

Mcdonald’s and its franchisees purchase food, packaging, equipment, and other goods from numerous independent suppliers. Mcdonald’s has established and enforced high food safety and quality standards and maintains quality centers around the world designed to promote consistency of these high standards.

McDonald’s SWOT Analysis

The quality management systems and processes involve ongoing product reviews, virtual supplier visits, and third-party verifications. A Food Safety Advisory Council, comprised of Mcdonald’s internal food safety experts, suppliers, and outside academics, provides strategic global leadership for all aspects of food safety and quality. 

Mcdonald’s also has ongoing programs to educate employees about food safety practices, including proper storage, handling, and food preparation for customers. It also conducts training for its suppliers and restaurant operators to share best practices on food safety and quality.

Mcdonald’s works closely with suppliers to encourage innovation and drive continuous improvement across its global supply chain. Leveraging its scale, supply chain infrastructure, and risk management strategies, Mcdonald’s collaborates with suppliers on contingency planning to achieve continuous supply and competitive, predictable costs over the long term. 

Mcdonald’s also works closely with suppliers and other third-party experts to drive sustainable sourcing initiatives, including environmental matters and improving the health and welfare of the animals within its supply chain. Mcdonald’s has developed and implemented a comprehensive strategy that its global supply chain organization leverages to identify, assess and manage risk in its supply chain. 

To reinforce the importance of its values, McDonald’s maintains a  Supplier Code of Conduct  that applies to all of its suppliers around the world. McDonald’s expects all of its suppliers to meet the rigorous standards outlined in the Code, which cover areas including human rights, workplace environment, business integrity, and environmental management. 

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Business Model of McDonald’s and How it Makes Money

June 9, 2023 | By Hitesh Bhasin | Filed Under: Business

Being the world’s largest restaurant chain by revenues, the business model of McDonald’s works as an American fast food company channelized via an efficient franchise business model worldwide.

McDonald’s serves more than 69 million customers daily in over 100 countries, and they all love the wide variety of products incorporated by McDonald’s business model such as-

• Chicken products
• French fries
• Soft drinks
• Wraps, etc.

This post will take you deep into the business model of McDonald’s and help you understand how it has reached the zenith of success by being the second-largest private employer in the world with 1.7 million employees (behind Walmart with 2.3 million employees). So, let us get started straight away-

Table of Contents

Introduction to McDonald’s Business Model

Richard and Maurice McDonald moved to California from New England in search of opportunities. In 1948, these brothers launched a Speed Service System with burgers that would cost 15 cents each. As they gained more popularity with time, they took to franchising their concept.

Ray Kroc was a native Chicagoan and a salesman who visited the McDonald brothers in 1954. He was highly impressed by the business model that they followed. Hence, he became the first franchise agent of McDonald’s.

He opened the first restaurant for McDonald’s System Inc. In 1961, with $2.7 million, he purchased the rights from McDonald brothers.

McDonald’s is presently one of the most leading companies in the Fast Food Restaurant genre in the world. A considerable percent of the world population consumes its fast food. No doubt, the world has witnessed a wave of ‘McDonaldization.’

McDonald’s follows a Franchised Business Model.

The company franchises restaurants that serve beverages and fast food across 100 countries.

It has reached over 37,000 restaurants globally, which serve more than 70 million people, or more than 1% of the total population of the world. In 2019, it re-franchised several of its restaurants. It aims to reach 95% of restaurants as its franchisees.

Franchise Business Model of McDonald’s

McDonald’s follows a three-structured franchise model.

These are popular franchises, developmental licensees, and affiliates. A shared agreement bounds its franchisees. The feature that makes McDonald’s the second-largest food brand in the world is its ability to focus on quality and innovation, customer relationships , and relationships with its franchisees.

Honestly, McDonald’s can be mostly referred to as a franchisor.

90% of its restaurants are run by its franchisees, which they own and operate. The company supports all its franchisees, whereas they act as their employer and exercise significant control over the pricing , the sale, and the operation of their restaurants.

The independent franchisees majorly benefit from the brand name that the company has all over the world.

The company, on the other hand, supports its franchisees so that they can be successful in their business. The most significant aspect of it is that it tests the innovation of its franchisees.

With good outcomes, it also implements those on all of its operational restaurants across the world. Hence, the franchisees enjoy both independence and support from their parent group !

Contemporary Global Presence of McDonald’s Business Model

By the end of 2017, the company had 34,108 franchised restaurants all over the world. It also had 3,133 operating restaurants in its company. The total number of restaurants in 2017 amounted to 37,241, which spread over 120 countries.

The US is the leading market for McDonald’s and accounts for most of its revenues. The company gained an income of $7.483 billion from the US in 2019. In 2017, the number of McDonald’s operated and franchises restaurants in the US was 14,036.

UK, Canada, China, Australia, France, Germany, Netherlands, Italy, Russia, Spain, and HongKong are the leading international operated markets. In 2019, the company gained $11.398 billion in revenue from these countries.

In 2019, McDonald’s became the most valuable QSR chain. By then, it had total assets of 47.5 billion USD and brand value of almost 130.36 billion USD. It saw a 36% rise in revenue as compared to 2018. It’s global comparable sales increased by 45.9% in 2019, and it witnessed a free cash flow of $5.7 billion.

Deciphering the Business Model of McDonald’s

The company focuses on and deals with three types of franchises .

1. Conventional Franchising

The company obtains a lease or own the land and the building where the restaurant is situated. The franchisees pay for decor, equipment, seating, and signs. This type of agreement is the best of its kind, and it accounts for the highest standards of operational performance in the QSR industry.

The franchisees also reinvest their capitals, with time. The company provides them with all the support that they need to be successful. These range from the implementation of innovative ideas to operational help. Through this, the company increases its overall value as its functional restaurants bring in more revenues.

A 20-year term is set for the franchised agreement. During this period, the franchisee is required to pay a minimum rent to the company, with the royalties forming a particular percentage of its sales.

A franchisee is also expected to deposit a certain amount while the agreement is signed, and they open a new restaurant. It allows the company to increase its cash flow significantly.

2. Developmental License

Unlike conventional franchising, the company does not make any investment when it comes to developmental license. The licensed franchisee invests in the entire capital. They also pay for both the operational cost as well as the real estate charges.

However, the company receives a royalty from the percentage of sales. The company also gets a certain amount for every license provided to a new franchisee.

McDonald’s uses this structure in more than 80 countries. Around 6,900 restaurants operate under this structure.

3. Affiliates

This type of agreement accounts for equity investments. McDonald’s receives a percentage of the sales as a royalty.

China and Japan are the largest affiliated markets of McDonald’s, with each having 2,600 and 2,900 affiliated restaurants, respectively. The company has around 5,800 affiliated markets!

Marketing Strategies of McDonald’s

1. Brand Mission

McDonald’s follows the mission statement of “Quality, Service, Cleanliness, and Value.” It enhances the customer experience by focusing on 5 Ps. These 5 Ps include people, products, place, price, and promotion.

The company majorly focuses on providing high-quality food at affordable prices. The sales increase as it focuses on customer satisfaction .

2. Growth Strategy

McDonald’s has launched and developed a velocity growth plan in 2017. It is based on three pillars, namely:

• Retain: The Company seeks to retain its existing customers.
• Regain: It seeks to regain the customers that it has lost. It is done by increasing the quality of food and decreasing the prices charged for the same (often, providing the customers with discounted offers). It also strives towards enhancing its convenience.
• Convert: It seeks to convert its casual customers to regular customers by offering refreshments and snacks at low prices.Presently, it has identified the three accelerators of growth, namely:
• Digital Platform: They connect with their customers, mostly their target audience, on digital and social media platforms.
• Delivery: They seek to deliver their experiences at the homes of their customers.
• Enhancement of its future in the US: The Company has also invested in the introduction of new technologies in its operated restaurants in the US so that they provide efficient services and high-quality food.

3. “Diversity IS Inclusion”

McDonald’s proposition of “Diversity IS Inclusion” has led it to become the second-largest food brand in the world. The company seeks to provide equal respect, recognition, and admiration to individuals from different communities of the world.

The members of the company actively engage in all sorts of exchange programs. The company primarily focuses on the diversification of culture .

4. Acquisition of Companies

The number of companies acquired by McDonald’s since its inception is indeed surprising. It is also one of the essential reasons why it rules the food industry. The McDonald’s Corporation Mergers and Acquisition (M&A) has profoundly engaged in careful acquisitions.

In May 1968, the company acquired McDonald’s acquired Donato’s Pizza, which was a mid-western chain of 143 restaurants. Yes, 143 restaurants! In May 2000, the company acquired the Boston Market.

Boston Market is primarily known for its fast-food restaurant chain with a touch of home-style food.

5. McDonaldization

It is one of the very few companies which have successfully incorporated international marketing strategy . The success of McDonald’s in the global forum is often referred to as the ‘McDonaldization’ of the world. Its organizational structure is the reason behind its success in more than 120 countries.

The centralized organizational structure focuses on localization.

The mass appeal in the foreign localities is what revamps its influence. It uses its strategic business model and orients it with timely intervention to build up an international network.

6. Community Engagement

McDonald’s actively engages in and contributes to community services. They made an impactful presence in diverse communities through these efforts. It also seeks to provide education for all.

Its Hamburger University prepares its members in running the multi-million dollar business through global leadership and skill development initiatives.

7. Employee Relationship

McDonald’s supports its employees like no other company does. Career opportunities, positive work environment, and relationships are promoted to achieve business growth .

Role-models, mentors , and sponsors are always there to guide their employees on career strategies, effective leadership, and business growth prospects.

8. The Facade of Price

You do not mind paying $5 for a cup of coffee because if costs much less than its competing brands like Starbucks ! Have you ever thought about why you would spend $5 on a cup of coffee that was prepared with some coffee beans, water, a bit of milk, and chocolate syrup?

Well, you need to think twice! Also, this is precisely how they make money!

Revenue Generations by the Business Model of McDonald’s

Money making by McDonald’s Business Model is based upon franchising.

The working of this Franchising Model depends upon the using money of small investors by the fast-food eatery chains, whose primary reason for existing is fast and productive development and global expansion.

For such incredible use of the franchising model, Ray Kroc can appropriately be named as the father of the means through which McDonald’s makes money, as he masterly channelized the franchising business model of McDonald’s.

He came up with the idea of expanding the size of McDonald’s business without compromising the quality of its products. Money making of McDonald’s gets channelized by turning into the landowner of all the franchisees.

All in all, the Revenue model of McDonald’s is an adoption of a three-legged stool strategy- McDonald’s, Franchisees, and Suppliers.

Let us have a look upon some of the revenue related statistics of McDonald’s Business Model-

Revenue Statistics of McDonald’s

As per a 2017 study, the income was around 22.82 billion US dollars.

The brand estimation of the McDonald’s is 88+ billion US dollars; outperforming Starbucks with a brand estimation of 43 billion US dollars.

The overall gain of McDonald’s in 2017 was $5.2 billion; this worth saw an increase of about 11% from the preceding year.

As per a study in the year 2018, McDonald’s developed as the most valuable fast-food chain with a brand value approaching 126.04 billion US dollars.

In 2018, the total assets of McDonald’s were about 33.8 billion US dollars.

As the faster growing fast-food chain, McDonald’s divides its market into four segments :

1. United States

In the year 2017, the US market generated the most significant amount ROI of $8 billion.

2. International Lead Markets

It includes Australia, France, Canada, UK, Germany, etc., plus it generated $7.3 billion in the year 2017.

3. High Growth Markets

It is comprised of Italy, China, Russia, Poland, Spain, Netherlands, Switzerland, and so for that brought around $5.5 billion in the year 2017.

4. Foundational Markets and Corporate

It includes all the remaining market and corporate activities of McDonald’s Business Model. It was responsible for generating $1.9 billion ROI in the year 2017.

Wrapping it up

The fast-food industry often faces challenges related to the matters of a proper nutritional and healthy diet. However, McDonald’s has survived all these challenges.

Even if it does not sell much in a year, it still somehow manages to make profits out of its company’s business models.

If you are someone who is taking their first step in the world of entrepreneurship and business, you got something to learn from McDonald’s business models and their marketing strategies.

On the lighter note, do tell us about your favorite McDonald’s item?

How inspiring do you find this franchising business model of McDonald’s? Share your views with us in the comment section below.

Liked this post? Check out the complete series on Business Models

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About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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Mcdonald's franchise costs, fees & fdd.

• Traditional Restaurant: franchise offered is located in freestanding buildings, storefronts, food courts, and other locations. The franchisee operates a full-menu restaurant, offering the public a high standard of quality and uniformity in food and service.
• Satellite Locations: The franchisee is granted the right to operate the franchise in a retail store, strip center, airport, universities, hospitals, and other diverse locations. These restaurants serve a scaled-down menu of a traditional McDonald’s restaurant and, in some cases, may also serve non-McDonald’s trademarked products.
• STO and STR Locations: “Small Town Oil” locations are situated in fuel stations/convenience stores and operate a full-menu McDonald’s restaurant within the shared space. “Small Town Retail” locations that anchor a small retail center in rural communities.
• BFL Franchises: For “Business Facilities Lease” franchises, the franchisor grants franchises with leases that include the business facilities. These are limited cases.

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Don’t forget to visit  McDonald's US Franchising Website  to learn more about McDonald’s Franchisee opportunities! Please fill out the following form and we will be in touch regarding next steps. *Indicates a required field Please complete $ required fields Please complete all required fields By selecting Submit, any information you provide to McDonald's will be used in accordance with McDonald's Privacy Policy . McDonald’s USA, LLC, 110 N. Carpenter St., Chicago, Illinois 60607. Minnesota File No. 10. This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for informational purposes only. U.S. residents: Please note that the states of California, Florida, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin regulate the offer and sale of franchises. If you are a resident of one of these states, or seeking a franchise in one of these states, we will not offer you a franchise unless and until we have qualified for an exemption, or have complied with applicable pre-sale registration and disclosure requirements in your state. New York residents: This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law. Are you sure you want to reset? If you click on 'Yes', all of your filled data will be lost Earn points on delivery or pickup via the app 218 COMMENTS Our Business Model and Growth Strategy Business Model. The power of our franchisees, suppliers and employees working together toward a common goal is what makes McDonald's the world's leading quick-service restaurant brand. Franchisees bring the spirit of entrepreneurship and commitment to communities. Suppliers are dedicated to highest levels of quality and safety. Franchising Overview Welcome to McDonald's Franchising. McDonald's is the world's leading global foodservice retailer with over 38,000 locations in over 100 countries. Approximately 93% Of McDonald's restaurants worldwide are owned and operated by independent local business owners. The status of franchising in the markets where we currently do business is ... McDonald's Business Model A brief history of McDonald's: Launched in 1948, Speedee Service System was the forerunner of McDonald's. It was launched by the two McDonald's brothers, who adopted the drive-in and franchising concept for fast-food delivery. Their first franchise agent was Ray Kroc, who opened the first McDonald's franchise back in 1955.He bought the rights to their business for US$ 2.7 million in ... PDF Your Future. Made at McDonald's Through our growth plan, customers are seeing a more modern McDonald's, and we are ... Running a McDonald's franchise is a once-in-a-lifetime experience. Think of the people you'll meet … in the restaurant, across our organization and in the neighborhood. ... your business, purchasing a McDonald's restaurant(s), and running a multi ... McDonald's U.S. Franchising: Fast Food Franchise Opportunity Start the application process. 2. Complete the application process. Let's get to know each other! We're excited to learn what makes you the perfect fit for a McDonald's franchise opportunity. The process starts with filling out the application and, upon approval, is followed by two rounds of interviews. 3. McDonald's Franchise Strategy In the 1960's they introduced the infamous golden arches, Ronald McDonald, and in 1975 the Big Mac. A key part of their then and ongoing success was the expansion strategy to own the real estate and to lease it to franchisees. Depending on the operating year, these rent payments can be close to 1/5 th of the total system revenue. 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The company generated over $23 billion in revenues in 2022, of which $8.75 billion was from owned restaurants and $14.1 billion ... How does McDonald's make money from the franchise business model? McDonald's makes money from conventional franchises through the payment of rent and royalties based upon a percent of sales, with specified minimum rent payments, along with initial fees paid upon opening a new restaurant or grant of a new franchise. Mcdonald's heavily franchised business model is designed to generate stable and predictable ... Business Model of McDonald's and How it Makes Money In 2019, McDonald's became the most valuable QSR chain. By then, it had total assets of 47.5 billion USD and brand value of almost 130.36 billion USD. It saw a 36% rise in revenue as compared to 2018. It's global comparable sales increased by 45.9% in 2019, and it witnessed a free cash flow of $5.7 billion. McDonald's Franchise (Costs + Fees + FDD) Independent legal and professional advice should be sought before undertaking any investment in a franchise.Year Business Began: 1955 Franchising Since: 1955 Headquarters: Chicago, Illinois Estimated Number of Units: 41,825 Franchise Description: McDonald's USA, LLC is the franchisor. Business & McDonald's Franchising FAQ McDonald's manages all the site evaluation, acquires the property and constructs the building. After making the decision to develop a site, McDonald's awards the franchise to the most qualified candidate. If you have a piece of property that you are interested in selling, please contact us by visiting McDonald's U.S. Real Estate. PDF 2023-2024 Our Purpose & Impact Report McDonald's Corporation Impact Report McDonald's is a leading global foodservice retailer, with more than 41,000 restaurants in over 100 countries helping feed millions of customers every day. Our System works as one to feed and foster the communities we serve. Whether we are helping deliver more sustainable food systems or building an inclusive workplace, we Welcome to Ulyanovsk Culture life of Ulyanovsk - is a part of biography of whole Russia, its achievements in the fields of art, literature, philosophy. Among our countrymen are thousands of famous people: poets and writers, politicians and actors, sportsmen and art workers. Historical facts and present-day fulfillments once more prove how rich and unique our land is. Ulyanovsk Forum, Travel Discussion for Ulyanovsk, Russia Travel forums for Ulyanovsk. Discuss Ulyanovsk travel with Tripadvisor travelers Category:Maps of Ulyanovsk city Media in category "Maps of Ulyanovsk city" The following 19 files are in this category, out of 19 total. McDonald's Franchise FAQ's No. McDonald's does not allow franchise partnerships, including sibling partnerships. McDonald's franchises are granted to an individual who has completed our training. Exceptions may be made on a case-by-case basis, in McDonald's sole discretion, by the Franchising Officer. Your family members may, however, be employed by you in the business. Zasviyazhsky District, Ulyanovsk human settlement in Ulyanovsk, Ulyanovsk Oblast, Russia. This page was last edited on 30 October 2023, at 13:58. All structured data from the main, Property, Lexeme, and EntitySchema namespaces is available under the Creative Commons CC0 License; text in the other namespaces is available under the Creative Commons Attribution-ShareAlike License; additional terms may apply. Start a McDonald's Franchise McDonald's USA, LLC, 110 N. Carpenter St., Chicago, Illinois 60607. Minnesota File No. 10. This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. ... If you are a resident of one of these states, or seeking a franchise in one of these states, we will not offer you a franchise unless and ... essay homework paper phd project resume review study thesis