How does McDonald's make profits from real estate?

Amal Ali 06 Apr 2023

There is no doubt that McDonald's is a huge and impressive success story. McDonald's restaurants were able to occupy a position that no one can compete with, not only in America but in all countries of the world. McDonald's success story is a story full of important details and milestones.

Many people think that McDonald's profits come from being a fast food restaurant. The opposite is true, as McDonald's relies on profit by investing in real estate. This is what we will discuss with you in today's article, how McDonald's was able to turn into profits through real estate investment.

The story of McDonald's shows how can any sector change its business model and achieve impressive profits. This story also confirms the value and success of real estate investment and its ability to generate unparalleled financial returns.

Follow the article to learn more. And don't miss the rest of the weekly articles on the Inland website.

How did McDonald's success story begin?

Like any story of success, McDonald's started from a small idea and began to evolve until it reached its current empire. McDonald's journey began when the phenomenon of drive-thru service flourished in the United States, and at this time Mac & Dick the McDonald's brothers were running their own restaurant, which focused on providing a specific menu of foods, including burgers, fries, and drinks, and this selection enabled them to focus on quality and fast service.

The McDonald's brothers are not the only players in this story, as there is a very important player who completely transformed the story. This person is Ray Kroc, who was working at the time as a sales representative for a mixer company to prepare juices.

The McDonald's brothers hired Ray Kroc to buy several machines to prepare juices, and Ray Kroc was impressed by the success of the two brothers' restaurants and the full skill with which they provide their service.

One of the most important points of development presented by McDonald's is the speed of the time of service, as the McDonald's brothers developed a system that ensures that the entire meal preparation time and until delivery to the customer does not exceed five minutes.

After that, Ray Kroc suggested expanding and opening more branches in the rest of the states, through the franchise system, which is that a group of individuals take advantage of your brand name in exchange for paying sums of money.

Cooperation between the McDonald's brothers and Ray Kroc continued until the latter bought the McDonald's brand, and from here a new era began in the history of McDonald's.

Why is McDonald's considered a real estate company?

Ray Kroc faced a set of problems with the franchise owners: their non-compliance with McDonald's standards, quality of service, and meals, and this threatened the brand's entire reputation. From this point on, a complete shift occurred in McDonald's business model.

Ray Kroc found that most of the problems come from the fact that the franchise owners own their shops, so he searched for a way to enable him to have more control over the management of the branches and allow him to impose fines or even withdraw the license of the branch.

The solution that appeared before Ray Kroc is for McDonald's to own the land on which the branches are established and then lease it to the franchisees. In this way, if any tenant violates the quality standards of McDonald's, the company has the right to terminate the contract.

This shift in McDonald's work system has achieved many gains, not only the ability to control the quality of service but also much higher profits by renting land and real estate than the company's profits from selling burgers.

What is McDonald's real estate investment model?

McDonald's currently relies on the franchise business model. In 2022, the number of branches reached approximately 39,000 restaurants in 119 countries, while the branches of McDonald's-owned restaurants were about 2,106 restaurants. It is worth noting that the company's goal is to move about 95% of franchised restaurants. By 2022, the percentage of franchised restaurants would be 94.7 of the total number of branches.

McDonald's also owns a subsidiary under its management, McDonald's Real Estate, and this company are responsible for searching for and purchasing suitable plots of land or real estate, and then renting them out to concessionaires.

McDonald's is always looking for distinct areas that serve customers better. He is keen to ensure that all McDonald's branches are spread out and located comfortably so that everyone can easily access and obtain the service. Therefore, you will always find a McDonald's branch next to you in residential areas, shopping malls, airports, gas stations, and many other places.

In Inland, we offer everything related to real estate, whether news, projects or important topics. If you are looking for real estate advice, you can always contact us at this number 01003366453, and the Inland team will answer you directly.