McDonald’s is the world’s largest fast food chain, but they also happen to be one of the biggest real estate companies. In fact, some argue McDonald’s is more of a real estate business than a restaurant. But why does McDonald’s have this dual identity? This guide examines McDonald’s extensive property holdings and how real estate factors into their franchising strategy and wealth.
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McDonald’s Real Estate Holdings
McDonald’s owns over $40 billion in real estate globally through company-owned restaurant properties and land. Some estimates place their holdings at over $100 billion. Key real estate stats:
- McDonald’s is one of the largest holders of real estate in the world
- They are the single largest owner of retail property in the world
- McDonald’s owns around 70-90% of U.S. restaurant locations and 40% worldwide
- Over 3,000 McDonald’s properties are located on Walmart premises as “stores within a store”
McDonald’s extensive property portfolio generates major revenues through rent, appreciation, and negotiating leverage.
Why McDonald’s Owns So Much Property
Here are some of the key reasons behind McDonald’s massive real estate holdings:
- Prime locations – McDonald’s seeks prominent, high-traffic corner lots on major intersections and retail centers. This drives customer visits.
- Company growth – Owning land enables McDonald’s to quickly construct new company-owned stores as opportunities arise.
- Franchise control – McDonald’s maintains leverage over franchisees by owning store property and collecting rent payments.
- Revenue – Rent generates stable income. Appreciation of owned land also grows McDonald’s asset base over decades.
- Negotiating power – McDonald’s bargaining power earns prime spots inside retailers like Walmart due to the foot traffic generated.
McDonald’s real estate strategy fuels growth while giving them financial power over franchisees.
McDonald’s Franchise Model
Unlike some franchises that only license their brand, McDonald’s uses a three-tiered franchise ownership structure:
- Company-owned stores – Around 25% of McDonald’s locations are owned directly by the corporation. This gives McDonald’s complete control over prime assets while providing company revenue.
- Franchisee-owned stores – Roughly 70% of locations are owned and operated by independent franchisees who pay rent, royalties, and fees to McDonald’s. This generates cash flow for minimal corporate overhead.
- Affiliates – Local businesspeople who partner as McDonald’s affiliates to own and operate multiple franchised restaurants in a region. Affiliates have incentives to expand aggressively.
By maintaining company stores, franchising most locations, and partnering with affiliates, McDonald’s enjoys tremendous cash flow, growth, and control. The real estate fuels this hybrid franchise model.
McDonald’s Real Estate Strategy
McDonald’s pursues some key real estate strategies:
- Site selection – They use market data and analytics to identify ideal future store locations based on demographics, traffic, visibility, and competition.
- Purchase options – McDonald’s proactively acquires and banks land options in prime target zones for future construction.
- Company-owned stores – McDonald’s constructs new company-owned restaurants in top markets to control premium assets.
- Franchise rent – Franchisees pay monthly rent on restaurant locations to McDonald’s. Rates vary based on sales volume.
- Appreciation over decades – McDonald’s aims to hold properties for long-term value appreciation. Their early cheap land buys became extremely valuable.
- Leverage – McDonald’s leverages their vast property portfolio to negotiate prime spots within leading retailers worldwide.
Thanks to prescient, aggressive real estate investing since the 1960s, McDonald’s retains incredible financial power and growth potential.
Benefits to McDonald’s
Here is why real estate delivers major advantages:
- Revenue – McDonald’s earned $9.5 billion in rental income last year from franchisees, its second largest revenue stream after sales.
- Store security – McDonald’s owns store locations permanently. Franchisees cannot sell without approval.
- Growth control – McDonald’s decides when and where to build new stores since they control the land.
- Cost savings – Developing successive generations of stores on already-owned land keeps costs low.
- Bargaining power – McDonald’s vast land holdings provide leverage to keep franchise costs and rent favorable to corporate.
- Asset appreciation – McDonald’s land continues gaining value over decades, especially in urban cores.
McDonald’s real estate strategy has fueled their rapid expansion while generating massive profits.
FAQ About McDonald’s and Real Estate
Here are some frequently asked questions:
Does McDonald’s sell properties to franchisees?
Rarely. McDonald’s wishes to retain ownership of as much prime real estate as possible. It may sell older, lower-potential locations.
Where does McDonald’s get land for new stores?
McDonald’s has dedicated market research teams identifying and acquiring future high-potential locations years in advance based on growth projections.
How much rent do McDonald’s franchisees pay?
Franchisees pay a monthly base rent of 10.7% of gross sales, one of the highest in the industry. McDonald’s collects over $9 billion in rent annually.
Do franchisees get equity in locations?
No, franchisees do not gain any equity stake in store locations. McDonald’s retains full ownership.
Could McDonald’s ever divest real estate holdings?
It’s unlikely McDonald’s would spin-off or sell any significant real estate, since location ownership enables their business model. But they may continue to franchise more stores.
McDonald’s: World’s Largest Restaurant and Real Estate Company
Thanks to visionary leadership, McDonald’s prescient real estate investing provides them unmatched financial power while fueling fast food dominance. McDonald’s is truly a real estate juggernaut masquerading as a restaurant chain. Their real estate drives profits while keeping franchisees on a leash. By thinking long-term about locations, McDonald’s has the whole system “their way.”