Thread by @wishzen

How McDonalds Actually Makes Money

~THREAD~

McDonalds, the guilty pleasure we know, love & often hate

Whether your on your way to work or at the tail end of a 3am bender

McDonalds is there for you

McDonalds consistent growth is due to an ever-growing menu and 24/7 service, right? Wrong.

Heres how McDonalds makes money

In 2008, while most businesses closed & downsized

McDonalds opened over 600 new locations worldwide with a 29% ROE

How did McDonalds become recession proof?

Real Estate

McDonalds currently owns $39 Billion in Property

By numbers, this makes them the 5th largest Real Estate holder in the world

McDonalds makes the majority of their revenue from Rent, not Big Macs

How do they do this

Franchising

85% of McDonalds locations are not operated by independent owners

McDonalds has been in the BigMac business for 50 years

Through this experience, they know the precise ingredients of a successful store location

What are these ingredients you might ask?

-A corner location between 2 high traffic roads
-50,000 square feet (4,500 of this for the building)

Once a location is secured

1. McDonalds then Buys the property at extremely favorable rates
2. Leases the property to a Franchisee who pays them above market Rent and Royalties on sales

Franchisee Contracts are very favorable toward McDonalds

The franchisee is guaranteed to pay above market in rent regardless of store sales

- The average McDonald’s location makes $2.7m in sales per year
- Out of this, the average Profit is $154k

Real Estate is a better business than burgers for 3 Reasons

1. Tax Law: US tax code gives huge breaks for depreciation.
2. Long Term Property Prices: continual appreciation
3. Outsourcing Risk to Franchisees: contractually obligated to pay rent regardless of economics

McDonalds realized Real Estate was their future and committed to this model.

This commitment to is why McDonalds was 1 of 2 Dow Jones companies to increase in value in 2008 (other was Walmart)

Next time you pull into the drive-through at 2am for “just a Big Mac meal sir”

Give Ronald McDonald a salute for distracting us with ball pits & toys as he became an international real estate mogul 🎩

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