When you think of McDonald’s, the first thing that comes to mind is ‘Fast Food’. And you’d be right for thinking that, as they are a pioneer of that very concept. Being one of the largest fast-food chains in the world, you’d also think that they would be earning most of their money from their fast food business. You would be surprised. McDonald’s is one of the largest real estate companies in the world. Now, you may ask how. This is exactly what we’re going to answer in today’s article. Let’s unearth the Mcdonald’s real estate empire and look at how it all began!
Pioneers Of Fast Food
McDonald’s started off as a hot dog stand in Pasadena, California founded by brothers Richard and Maurice McDonald. It was a successful venture, but they hit the jackpot in 1953 when they created a new system for making burgers that was based on how factory assembly lines work. This speeded up the process rapidly, ensuring fast service for the customers, who and they started to flock the restaurant. This caught the attention of a humble traveling salesman Ray Kroc, who came to the restaurant to sell milkshake machines. He became enamored with the restaurant and wanted to spread this concept throughout the nation. But for that, he had to convince the brothers to franchise the restaurant.
Franchising And Expansion
After a deal was struck by Ray Kroc and the brothers, the expansion of McDonald’s started. This expansion was mostly overseen by Ray Kroc, with the brothers more focused on their own restaurant. The salesman was successful in franchising and the iconic golden arches started popping up all throughout the nation. But even after all this success, Ray Kroc was almost bankrupted as he and his corporation couldn’t break even. He hired a financial advisor to solve this problem.
The advisor realized that the corporation’s main source of income was from selling the ingredients, and this wasn’t cutting it. Most other fast-food chains also have a similar business model. But the main expense for the franchisees wasn’t on food. It was the payment of leases on the land that the franchisee is operating on. This is when the corporation decided to buy the land that future franchisees would be built on and then earn from the lease payment. And this is how the McDonald’s real estate empire started!
The McDonald’s Real Estate Empire
As of 2016, 85% of all McDonald’s outlets worldwide operate on land or space that is owned by McDonald’s. The franchisees have to pay McDonald’s a huge portion of their profits from rent and lease payment, and this has become their major source of income. McDonald’s Corporation’s real estate assets amount to more than 30 billion USD. This business model has allowed McDonald’s to weather itself from swings in the fast-food industry. Plus, the value of their property is always increasing.
McDonald’s real estate expansion has also allowed the company to pick out many iconic locations beforehand. Most of the world’s most iconic tourist attractions are sure to have a McDonald’s in its vicinity. This includes London’s Big Ben, Moscow’s Red Square, and Times Square in Manhattan. Owning the land has also allowed McDonald’s numerous tax benefits. For more information on how McDonald’s real estate functions, here’s a brilliant article from Quartz.
To most of us, McDonald’s is iconic for the golden arches, its burgers and fries, and the iconic mascot Ronald McDonald. But who would’ve thought that McDonald’s is in essence one of the world’s largest real estate companies? Do let us know how you liked today’s article in the comments below.