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Real Estate + Franchise

McDonald's operates as a real estate company that sells burgers, representing one of the most successful examples of a hybrid business model that combines real estate investment with franchising.

This strategy was pioneered by businessman Harry J. Sonneborn, who famously stated: "We are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent"

Real Estate Strategy​

The core of McDonald's business model involves:

  • Property Acquisition and Ownership: McDonald's purchases prime real estate in high-traffic locations, typically at intersections between busy thoroughfares with traffic lights and sufficient parking (ideally 50,000 square feet with 4,500 square feet for building space)4.
  • Leasing to Franchisees: The company leases these properties to franchisees at a markup, typically 20% above McDonald's own costs2. Franchisees pay either a monthly rent or a percentage of sales, whichever is higher2.
  • Dual Revenue Streams: This creates two reliable income sources - franchise fees/royalties and real estate income. In 2023, McDonald's collected over $7.5 billion in rent from franchisees, representing approximately one-third of corporate revenue3.

Strategic Advantages​

This real estate-centred approach provides McDonald's with several key advantages:

  • Financial Stability: The rental income creates a buffer against economic downturns and fluctuations in the fast-food industry1.
  • Risk Insulation: "If a McDonald's franchisee experiences a dip in sales, that franchisee still owes rent to McDonald's. If that franchisee's location fails, McDonald's can try to line up a new tenant for that location, or simply sell or lease the land to someone else for a different use."3
  • Asset Appreciation: As property values increase over time, so does the company's overall worth, creating substantial long-term value18.
  • Control Over Operations: Ownership of the property gives McDonald's significant leverage over franchisees, ensuring consistent brand standards7.

Scale​

The scale of McDonald's real estate holdings is immense:

  • Approximately 95% of McDonald's 39,000+ restaurants worldwide are franchised, meaning McDonald's collects rent from the vast majority of its locations57.
  • The value of McDonald's real estate holdings is estimated to be over $30 billion, making it one of the largest real estate owners in the world7.

This model represents a unique entry in your business models framework - a "Real Estate + Franchise" hybrid that leverages physical assets to create stable, long-term value while using a popular consumer product as the mechanism to generate that value.