If Dick and Mac McDonald had succeeded with their aspiration to work in the movies, it’s possible we’d never know McDonald’s as it is today – the largest burger franchise in the world, with more than 36,000 restaurants in 119 countries. While its brand recognition and sales remain strong more than 70 years later, how well does the venerable burger franchise fare when it comes to the competition? Is a McDonald’s franchise restaurant worth the investment?
While Dick and Mac McDonald may have opened the first burger drive-in in California with the sale of 15-cent hamburgers after failing to land acting roles, it was Ray Kroc’s vision that propelled the company into an international phenomenon. The McDonald brothers franchised their concept, catching the eye of Kroc, who distributed an exclusive milkshake mixing machine called the Multimixer back in 1939. After Kroc visited with the McDonald brothers in 1954, he soon began working as a franchise agent for the restaurant. In 1961, he acquired all the rights to McDonald’s franchises for $2.7 million, according to McDonald’s.
Kroc saw the potential for international expansion and entered Canada in 1967. Although he died in 1984, Kroc’s vision for expansion continued. In 1990, McDonald’s opened in Moscow. The restaurant’s most recent international restaurant opening took place in Kazakhstan in 2016.
The brand continues to innovate, looking at new ways to serve customers more quickly through kiosks and food delivery, and updating its menu to ensure it appeals to a broad palate.
All McDonald’s restaurant businesses in the U.S. are operated under franchise agreements and are owned by franchisees who are independent third parties or by its wholly-owned subsidiaries (“McOpCo companies”). Currently, about 95% of all U.S. restaurants are franchised to independent franchisees and about 5% are franchised to McOpCo companies, according to the franchise disclosure document (FDD).
The cost of a McDonald’s franchise depends on the type of franchise you buy.
The total investment necessary to begin operation of a traditional McDonald’s franchise ranges from $1,263,000 to 2,235,000.
McDonald’s also allows for franchises in retail stores such as Walmart—known as “Satellite” locations. Total initial investment for a satellite store ranges between $448,000 and $770,500.
McDonald’s restaurants located in fuel station/convenience store facilities are called small town oil (“STO”) locations. Total initial investment for STOs range from between 879,000 to $1,525,000.
McDonald’s restaurants that anchor a small retail center in rural communities are called small town retail (“STR”) locations. Total initial investment for STRs range from between 879,000 to $1,525,000.
(2) Applies to STO and STR locations
(3) Applies to Satellites
It’s important to note that these figures do not include percentage rent or service fees. Other fees include the following:
According to Item 19 in its FDD, of the approximately 11,761 domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2018, a large percentage reported more than $2 million in sales.
As McDonald’s sheds its corporate stores with the goal of re-franchising them, each year since 2016 the company has shed more than 200 corporate stores each year, effectively cutting the number of stores it owned in half during a three-year time period. In 2016, there were 1,357 corporate-owned McDonald’s restaurants, whereas by the end of 2018, only 683 restaurants remained under corporate ownership.
Overall, the total number of company owned outlets is declining, while the number of franchisee owned outlets are growing.
According to QSR’s most recent 50 Burger Segment report, published in 2018, McDonald’s continues to take the biggest bite out of all of the burger franchises, enjoying more than $37 million in systemwide sales, far outpacing its nearest competitors, Burger King and Wendy’s. (It’s important to note that McDonald’s also has more locations than its competitors—almost double the number of #2 competitor, Burger King.) McDonald’s compares similarly to the competition in terms of initial investment and royalty.
|Franchise||Franchise Fee||Initial Investment||Royalty|
|McDonalds||$45k||$1.2 to $2.2M||4% gross sales|
|Burger King||$15-50K||$323.1k–$3.3M||4.5% of gross sales|
|Wendy’s||$40k||$2M–$3.7M||4% of gross sales|
|Taco Bell||$25k–$45k||$1.2M–$2.8M||5.5% of gross sales|
|KFC||N/A||$1.4M–$2.8M||4%–5% of gross revenue|
Even though McDonald’s is an older burger brand, it’s still embracing technology and listening to customer preferences when it comes to taste and service.
It’s not exactly simple to own and operate a McDonald’s franchise. It takes significant time, money, and training to raise the Golden Arches. Here are a few things you need to consider.
The burger industry continues to sizzle. A McDonald’s franchise is just one of many exciting franchising opportunities available, but there are many other options that may be more attainable for new franchisees. Before making your final decision, consider looking at some of these award-winning alternatives from our Top Food and Beverage Franchises list to see which franchise would be the best fit for you. Below are a few award-winning burger franchises and to consider.
Because it is difficult to invest in a McDonald’s franchise as a new franchisee, the restaurant may not be the right opportunity for you to build your own golden arches to retirement. Still, the burger business continues to offer exciting and lucrative opportunities to investors willing to roll up their sleeves. As you do your research, consider your options and passion for the job. Investing in a fast food restaurant franchise requires a serious investment of both time and money, and results don’t come quickly.