MCDONALD'S IS A REAL ESTATE COMPANY

MCDONALD'S IS A REAL ESTATE COMPANY

If we ask you a question, what do you think McDonald's is famous for?Your answer will be, "obviously for its burgers and fast-food restaurants." But you're mistaken.Real estate is McDonald's true business.The full story and strategy may surprise you, so pay close attention and enjoy this amazing blog on McDonald's.

ORIGIN OF MCDONALD'S

MCDonald was founded by two brothers, Richard and Maurice MacDonald. They had witnessed the success of the popular drive-up restaurants that were popular at that time, but they were tired of how difficult it was to visit one of these restaurants, wait in the long queue, and get food. The restaurants were inadequate, and the food was of poor quality. And there was no such thing as fast food. 

As a result, they both agreed that this needed to be changed. They brought a revolution to the food chain restaurant industry, by introducing fast food concept. Previously, there were no disposable plates and forks in restaurants, so you had to wait for hours and eat in the restaurant itself, but these two brothers introduced the new concept of wrapping or serving food in a tissue or paper that can be thrown away when you are finished with your food.

HOW MCDONALD'S BECAME A REAL ESTATE COMPANY

Ray Kroc was the person behind the idea of turning McDonald's into a real estate company. You may be wondering who Ray Kroc is.

Raymond Albert Kroc was a businessman from the United States. He bought the fast-food company McDonald's in 1961 and was its CEO from 1967 to 1973. McDonald's global expansion is credited to Kroc, who transformed the company into the world's most successful fast-food corporation.Ray had spent his entire life selling giant milkshake machines to restaurants across America. He used to tell his customers that no one wants to wait 20 minutes for a milkshake and then show them his machine, which could make 8 milkshakes in one go. He went from one sales call to the next, all of which were rejected. People simply did not see the point in purchasing such a machine. They never thought the food was a time game.

Ray was waiting for this big idea in the food business, and then he got a call from a guy asking him to send 4 of his milkshake machines over. Ray was confused. He wondered who is this guy who needs to make 32 milkshakes at one go, how is he even doing these kinds of sales. He took his car and set out to drive hundreds of kilometres to see this restaurant called McDonald’s for real.When he arrived, he saw something he would never forget for the rest of his life. He noticed a long line of people outside a McDonald's, which had an average wait time of less than 5 minutes. He waited in line, ordered a burger, and devoured it. It was fantastic!

Then he met, the McDonald brothers. They walked him through their super-fast burger supply chain, which was nothing but a modified kitchen that churned out delicious hamburgers in less than 30 seconds per burger. Each burger had the same taste, same flavor because the process was so efficient and standardized. This was revolutionary for Ray.

RAY KROCK'S MOTIVE BEHIND THIS

Ray convinced the McDonald brothers to sell their revolutionary McDonald’s outlet concept and expand it as a franchise model. He would do the selling and get new partners, and they will lend him their brand name and get a 0.5 % cut of all sales. This is how MacDonald gets into the real estate business. They started by leasing out to franchisees, charging a 20% markup, but increased it to 40%. They were minting a lot of money. The brand also arranged the lease agreement that if the outlet was doing well, then the markup would go up.

The chain kept expanding, and McDonald’s real estate business kept growing.  With only Ray's help, McDonald's got popular and became a billion dollar franchise. The person who wishes to purchase a McDonald's franchise must lease their land to the McDonald's company on which they want to establish their franchise.

HOW MCDONALD MAKES MONEY

Essentially, McDonald's gives the franchise on one condition: that they will take the lease of the land on which the franchise is going to be set up. 

This method gave McDonald's an immense advantage, as its revenue stream is more stable and its operating costs are much lower as compared to other fast-food chains. McDonald's is very good at negotiating deals because it controls the land and has long-term leases that allow it to leverage its market positions.

WHY MCDONALD'S FRANCHISES ARE IN DEMAND ?

McDonald's has notoriously strict criteria for its franchisees (net worth, liquidity, etc.). Additionally, the franchisees are also responsible for paying salaries, ordering supplies, and paying rent/owning the premises. So, why become a franchisee? 

The reason why McDonald's is in demand is that the food is much cheaper and easy to prepare than one might think. The profit margin is very high.And ofcourse the Brand Name. That's also a strong reason why McDonald's franchises are in high demand. 

The most interesting fact about McDonald's is that 93% of McDonald's are franchised. 35,085 of the 37,855 restaurants were franchised, with McDonald's operating the remaining 2,770 restaurants.

OUR FINAL CONCLUSION

In conclusion,even if people stop eating burgers tomorrow, McDonald’s is not going down, supported by its massive real estate empire. That’s how a sustainable business model is built. If this is not a story to learn lessons from, then what is ! Tell us what you think in the comments.

Movie Recommendation : The Founder

Happy Learning

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