How McDonald's Really Makes Money

Summary

This video explores how McDonald's thrives during economic recessions due to its unique business model. While known for fast food, McDonald's is primarily a real estate company, earning most of its profits through renting properties to franchisees. This strategy, combined with its strict franchise requirements, ensures stable revenue even during downturns. The video highlights how this real estate focus helps McDonald's stay 'recession-proof' and why its franchisees consider it a safe investment. Viewers are encouraged to learn more with Skillshare courses, including lessons on investing and building a YouTube business.

Takeaways

• 🎓 McDonald's is a real estate company at its core, making most of its profits from rent rather than food sales.
• 🏠 McDonald's owns $39 billion worth of property, making it one of the world's largest real estate holders.
• 📈 During economic downturns, McDonald's performs exceptionally well due to its real estate model and consistent consumer demand for cheaper food options.
• 🍔 Despite being a fast-food chain, 64% of McDonald's franchise revenue in 2019 came from rent.
• 🤝 Franchisees must lease McDonald's locations and follow strict operational guidelines, making it a low-risk, high-cost investment.
• 💼 McDonald's scouts prime real estate locations, ensuring its franchises are placed in high-traffic areas for maximum profitability.
• 📊 The company benefits from tax breaks on property depreciation, despite increasing property values over time.
• 💡 McDonald's has been suggested to split its real estate business into a separate company, but it declined, valuing the synergy between real estate and fast food.
• 🏦 McDonald's franchisees typically pay 8.5-15% of their sales in rent, which is higher than other fast-food chains.
• 🎓 Skillshare sponsors the video, offering a free trial to the first 1000 viewers to access a wide range of educational courses.

Q & A

What is the main sponsor of the video and what offer is presented?

The main sponsor of the video is Skillshare. The first 1000 people to use the link in the description can watch the creator's course and thousands of others with a free trial of Skillshare Premium.

How do recessions typically affect consumer behavior?

During recessions, consumers tend to prioritize essential goods and services, opting for cheaper alternatives. Industries like travel, tourism, leisure, and hospitality are hardest hit, while others like fast food may benefit as consumers look for more affordable options.

How did fast food chains like Subway and KFC perform during the 2008 recession?

From 2008 to 2010, Subway added nearly 6,000 new locations, while KFC added around 300. These fast food chains performed well because they provided cheaper food options during the economic downturn.

Why is McDonald’s considered ‘recession-proof’?

McDonald’s is considered ‘recession-proof’ due to its unique business model, which prioritizes real estate over food sales. It owns a vast amount of property and makes a significant portion of its revenue from rent paid by franchisees.

How does McDonald’s make most of its franchise revenue?

Unlike other fast food giants, McDonald’s earns the majority of its franchise revenue from rents, not food sales. In 2019, 64% of its $11.6 billion franchise revenue came in the form of rent.

What role does real estate play in McDonald’s business model?

Real estate plays a central role in McDonald’s business model. The company buys valuable properties and leases them to franchisees at above-market rates, ensuring a steady revenue stream from rents even during economic downturns.

Why do McDonald’s franchisees agree to pay higher rents than other franchises?

McDonald’s franchisees agree to pay higher rents because it is seen as a safe investment. McDonald’s stringent requirements reduce risk, ensuring franchisees have good locations, high standards, and strong business support, which results in more stable returns.

What training does McDonald’s provide to its franchisees?

McDonald’s provides its franchisees with comprehensive training at its ‘Hamburger University,’ where they learn all the necessary business skills and operational knowledge to run a McDonald’s franchise.

Why hasn’t McDonald’s split off its real estate holdings into a separate company?

In 2015, some investors suggested McDonald’s split its real estate holdings into a separate company. However, McDonald’s decided not to, believing that the efficiency of its business model comes from managing both real estate and food services together.

How does McDonald’s benefit from real estate during economic downturns?

During economic downturns, McDonald’s benefits from owning real estate as property prices tend to remain stable, and franchisees are still contractually obligated to pay rent regardless of their sales, ensuring continued income for McDonald’s.