McDonald's a burger company or a real estate empire



Is McDonald's a burger company or a real estate empire?

McDonald's operates a Franchise model. Back in the '50s, a Franchisee (any willing entrepreneur) would select a piece of land in a prime location, lease it, & then construct a McDonald's outlet on here. McDonald's, on the other hand, provides the brand, recipe, tools and other operational know-how.

For its efforts, McDonald's gets a % commission on the sales.

The franchise model helped McDonald's scale rapidly. But profitability took a hit. There's not a lot of money you can make from a 2% commission on burgers.

Until a finance executive forced Ray Kroc (the eventual owner of McDonald's) to notice the bigger picture. His contention was that the one thing more important than the burgers was the land on which these burgers were made.

He convinced Ray Kroc to buy plots of land & lease it to Franchisees instead of letting them pick it on their own. This helped the company extract an upfront payment that in turn could fuel further expansion- More land, more franchisees, more revenues, & the cycle continues.

Today McDonald's owns over $37bn in real estate assets & it contributes to over 35% of global revenues.

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