What business is McDonalds really in?

mcdDid you know that the golden arches are more recognised than the christian cross?

When Ray Kroc purchased the company in 1955, I’m sure he  didn’t expect the McDonalds symbol to ever be bigger than Jesus..

But what makes McDonals’s so successful? Yes the fries and burgers are pretty tasty, but to understand how it came to be one of the largest global franchises we need to dig a little deeper.

McDonalds stores are everywhere; they pop up in every capital city all over the world and they’re only ever in fantastic property locations.

Screen Shot 2015-05-16 at 14.43.17

The individual store operators (franchisees) only have the ability to generate profits from the food they sell in their resteraunt, while paying rent to McDonalds. McDonalds always builds the buildings and owns the land.

McDonald-Employee-Resource-Website

So what business is McDonalds really in? Most people don’t realize that McDonalds business model isn’t a burger flipping franchise but one of the worlds best real estate portfolios.

The individual stores sell the burgers and McDonalds owns the greatest commercial property.

The former CFO of McDonald’s, Harry J. Sonneborn said

“We are not basically in the food business. The only reason we sell hamburgers is because they are the greatest producer of revenue from which our tenants can pay us rent.”

Today, McDonald’s property portfolio is valued at more than 8 billion dollars. The company has always maintained a successful real estate portfolio. Just like any other investor, McDonald’s will buy properties that it feels are, or will be, hot locations, and sells properties that are under performing or not doing so well.

So are McDonalds stores necessarily in the best locations for selling burgers or just the ‘hottest location’? How important is the location to a business and its performance?


http://www.abovetopsecret.com/forum/thread891326/pg4

http://money.howstuffworks.com/mcdonalds2.htm

http://bookaddict-readersparadise.blogspot.com.au/2009/03/mcdonalds-dont-sell-hamburgers-they.html

http://www.wiley.com/legacy/products/subject/business/forbes/kroc.html

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31 thoughts on “What business is McDonalds really in?

  1. Interesting angle you guys have taken. I’ve always assumed that Maccas have always targeted their store locations to be in areas of low socio-economic backgrounds, not exclusively of course. Tending to suggest that it is these areas where people are more likely to visit a fast-food restaurant for dinner. In saying that, McDonalds have also been located near some of the most prestigious schools, universities, shopping centers and iconic locations around the world – all which I would assume could be seen as hot real-estate. I agree location is definitely important for a business like McDonalds, but would question if it is its primary objective.

    Liked by 1 person

    • Thanks for your reply,

      I agree – I’ve seen the same thing when I’ve been to McDonalds and other fast food restaurants. I don’t think many low-income residents have reliable transportation to get to grocery stores or farmers markets. Also, healthy food is generally more expensive and not as readily available. I think low-income areas dominated by fatty fast-food chains don’t leave the low-income consumers with much of a choice. It’s no wonder that low socioeconomic areas usually have a higher obesity rate. McDonalds is simply exploiting this market, and clearly they’ve done their research!

      Like

  2. Very Interesting… Yes, they have always focused more on the store locations.
    They are situate in spots where they are near to their customers. This permits them to achieve their business sector effectively and to keep transport expenses low.
    They also give a business benefits by reducing its costs and increasing its profits.

    Liked by 1 person

  3. Interesting take on a very successful franchise. I agree with the above comments, that although the real estate portfolio looks good McDonalds is in the business of fast food. It understands it geographic and demographic data locates where it predicts growth but surely locations such as hospitals are about selling burgers.

    Liked by 1 person

    • Thanks for your reply,

      I agree, I think that McDonalds strategy is as much about selling burgers too. I think that the restaurants located in wealthier and more expensive area serve a different purpose to those in low socioeconomic areas.

      I generally notice McDonalds is busier in poorer areas than in rich suburbs and I think that their sales would reflect this – I put this down to people living in richer areas being more health conscious and preferring organic healthier alternatives to greasy fries. This leads me to believe that those ‘wealthy’ stores are more driven by the rent that franchisees will pay the McDonalds Corporation rather than the amount of sales.

      Like

  4. In my opinion, McDonalds stores are not always in the best locations, however they are in good spots easily accessible by customers. These stores mostly started early in growing suburbs and i believe that the famous golden arches brand had helped improving the value of the area of its store locations. In return, these stores received more sales from the population growths in the area. McDonalds understands how important a location is to its business and performance, but these store are there to sell foods and drinks not to generate rent.

    Liked by 1 person

    • Thanks for your reply.

      Very interesting comment with the arches. A study I was looking at the other day found that home values rose when Starbucks opened in some American neighbourhoods. I am convinced that introducing a McDonalds store to a particular area would have similar repercussions as that of a Starbucks store. The walkability element of a property is becoming more important with potential proprietors that don’t want the hassle of constantly having to jump into their car in order to get a quick meal. I know that I’ve been pretty grateful at times that I live in walking distance to a McDonalds for this reason.

      Like

  5. Insightful blog, Matthew Gomes. I believe McDonald’s restaurants are located to sell products. This is shown in their strict requirements for their franchise locations. Some key location factors include:

    • A corner location is preferred, with signage visible from two major streets.
    • Location near a major intersection with traffic lights to ensure exposure to the brand is maximised. (Thompson, n.d.)

    Like many chains, they assess customer demographics, competitor presence and attributes and logistical requirements (i.e. supply chain and distribution channel considerations) when determining the best location for a store. By analysing these environmental factors, they then determine the product range and quantity for each store. E.g. generally, a store located in a lower socio-economic area many focus less on organic, healthier options and more on cheaper, tastier offerings.

    Reference:
    Thompson, n.d., McDonald’s Franchise Location Requirements. Available from: http://smallbusiness.chron.com/mcdonalds-franchise-location-requirements-40457.html [17 May 2015].

    Liked by 1 person

    • Thanks for the reply.

      I agree, I think that having a location at a busy corner/intersection is vital since these areas have tens of thousands of commuters drive past each day.

      Without even realizing, commuters’ attention will be drawn to the big flashy signage while stuck at traffic lights. That ensures maximum exposure to the respective brand. When I’ve been pulled up at traffic lights, I sometimes find myself reading specials boards and thinking to myself that I should swing past that place on the way home.

      Like

  6. It would be interesting to see what their site location model looks like, Wealthier areas have fewer McDonalds I find. Is that is due to higher property prices or are the people live their more concerned with health and less likely to visit McDonalds? Probably both. Location is very important to McDonalds, it goes along with their image of being quick and easy.

    Liked by 1 person

  7. I was always under the impression that McDonald’s were located in convenient locations such as busy highways and shopping centres. Because of these locations, they can generate increased traffic flow because of the amount of consumers passing it everyday.

    Liked by 2 people

  8. What a great post! I especially liked the point that selling burger is not McDonald’s main business. Because that’s always what I think when thinking about the fast food giant. I think one of its main success strategies is that you are going to have a similar experience wherever you are. That’s why a location not really matters for brands such as McDonald’s I think. The funny thing is that for me and my friends McDonald’s is always a meeting point or orientation point when we meet in a bigger city. Because as you said- everybody knows it 🙂 But in general i think the location to a business and its performance is definitely very important. Especially for smaller or unknown brands.

    Liked by 1 person

    • thanks for your reply!

      I think that McDonalds is easy to find with its large ‘Golden Arches’ and everyone knows where it is. I’ve found myself doing the same thing when meeting in the CBD. Maccas is perfect for a meeting spot. I’m always able to sit inside quite comfortably, taking advantage of the free Wi-Fi while getting stuck into a cheeseburger 🙂

      Like

      • haha then both of us are taking same advantages of maccas.:) I think this shows how important a central location for such a company is. I also think in every station or airport is a maccas!

        Like

  9. I am not sure you can separate the burgers and fries from the bricks and mortar. The food gets sold where there is the best demand and that location generates the best rent from the tenant because of how much food gets sold. I am pretty sure McDonalds don’t undertake a retail estate play to then sale burgers from. if that was the case they would be so relevant in lower socio- economic areas or in developing suburbs where the property values would be quite low with limited capital growth potential. I can imagine locations that maximize sales would be sought to then maximize rental returns. I assume a store’s turnover impacts how much rent the franchisee pays. Thanks for the post.

    Liked by 1 person

    • Thanks for your reply,

      I agree, I think that McDonalds strategy is as much about selling burgers too. I think that the restaurants located in wealthier/iconic areas serve a different purpose to those in low socioeconomic areas.

      I generally notice McDonalds is busier in poorer areas than in rich suburbs and I think that their sales would reflect this. Why not close the stores in these areas if they’re under performing then? I believe that those ‘wealthy’ stores are more driven by the rent that franchisees will pay the McDonalds Corporation rather than the amount of sales.

      Like

  10. Very good topic to discuss about. I agree with your statement “Most people don’t realize that McDonalds business model isn’t a burger flipping franchise but one of the world’s best real estate portfolios.” Most of McDonalds store is located in a very convenient area where it is accessible for everyone to buy the foods and these areas are generally expensive area too. Well, I have never seen any McDonalds store got closed down because they didn’t perform well. I think they will still keep the store and just limiting the opening hours to minimise the cost. McDonalds near my house was opened for 24 hours and they are now only opened from 6am to 11pm. Maybe this store is not selling well because it is not in a good area? Location is very important when you are going to open a business and it will affect your business performance. You may need to consider your competitors too in the area where you’re going to open your business.
    I found an interesting article about maccas.
    http://www.franchisedirect.com/information/markettrendsfactsaboutfranchising/thesuccessofmcdonalds/8/1111/

    Liked by 1 person

  11. If you go to McDonald’s website, you can see that it stresses the importance of location as following:

    ‘McDonald’s looks for the best locations within the marketplace to provide our customers with convenience. We build quality restaurants in neighborhoods as well as airports, malls, tollways, and colleges at a value to our customers.’

    I agree with most of the people who have commented above, that McDonald’s restaurants are located not necessarily at the best locations, but certainly the most convenient ones, and customers can easily find the big golden arch. Location is extremely important for business to be successful. And I’m sure that most customers will notice that where one fast food chain pops up, it’s likely the other chain will follow. For example, McDonald’s always has neighbors such as Burger King and KFC. I think it is also interesting to analyse McDonald’s strategy when choosing locations in relating to their competitors.

    Liked by 1 person

  12. Your blog is very interesting.
    I think the location is very important for McDonald’s, as we know, we can see that McDonald’s anywhere. McDonald’s growing rapidly is undoubted and there are no children do not know Ronald McDonald in China.
    First, McDonald find their own market positioning as a policy shop, and then follow the appropriate adjustments to local conditions. They spend more time on the site. However, they generally do not spend huge amounts of money to open up new markets, but find their own market fit for them. With an image example, they are not tailored to each person, they need to do is looking for ways to put on their clothes.
    McDonald’s three successful business growth premise of choice is “location, location, location”.

    Liked by 1 person

  13. nice article- another take on the importance/ selection of the location of a macdonalds store is the announcement of the closure of 350 stores in early 2015. that was on top of another 350 stores already scheduled for closure this year. these stores are all in Japan/ USA and China- It would be interesting to see exactly where these poor performing stores are located, and what is done with the sites. Will Macdonalds hold on to these sites for real estate growth? If that is their main business then one would think so.
    http://fortune.com/2015/04/22/mcdonalds-restaurants-closing/
    http://time.com/3832101/mcdonalds-closing-stores-2015/

    Liked by 2 people

  14. A very thought provoking blog. I think that the Macca’s business model is about franchising, they earn from royalties (5% gross sales), rent, licence fees (60,000 plus GST one time payment). Placement-location is a fundamental element of the 4P’s but is complimentary of the others. Location should be highly accessible and visible to customers but other elements such as a trusted product (product and brand) fast service (business model) and good value (price perception) also contribute to sales. I find that their locations are sometimes not ideal but would have to be strategic (near schools/universities, lower income area), and I gather that when a location is underperforming they would have move, creating further expenses for franchisees which would be unhealthy for their reputation, hence locations are selected carefully. As for every element of the 4P’s is important but no element can stand alone, they must be well integrated to produce true customer value.

    https://mcdonalds.com.au/sites/mcdonalds.com.au/files/mcdonalds_australia_franchising_overview.pdf

    Liked by 1 person

  15. The business model is genius. They own prime real estate which increases in value over time while making money through selling fast food. They are getting the best of both worlds and dominating in two industries. Although, I believe some of their location choices are questionable. My home town is roughly 200kms north of Melbourne and has a population of roughly 40-50,000 people. In the area, there are four McDonald locations which I believe is far too many. Interestingly, however is the fact that until recently there was only one McDonalds but three have popped up in the space of 5 or so years. I can definitely tell you that the property value in this town is definitely not skyrocketing with the town recently being named the Ice (drug) capital of Australia. It also was named the third fattest town in Australia….. coincidence? Perhaps not…. Thanks McDonalds

    Liked by 1 person

  16. McDonald is a successful business in the world; your blog bring out an interesting point that McDonald always select their location which is close to the lower level income area; and they always located everywhere. There is McDonald in most of the suburb in Australia.

    Liked by 1 person

    • Thanks for your reply,

      It’s no wonder that low income areas usually have a higher obesity rate. I find it frightening that it’s more important to this Maccas to make money selling fatty foods as oppose to the health, safety and wellbeing of its customers.

      Like

  17. Nice blog. Came to know McDonalds does two businesses at the same time. The location of the business is the primary issue that must be decided when starting a business especially in the businesses which deals with food. I liked the business strategy of McDonalds by owning the lands where the restaurants are located. Thanks for the blog.

    Liked by 1 person

  18. Living in a new developing area it is always interesting how McDonald’s always buys the best real estate. The best location usually means a large population of people will drive past it everyday. It provides convienance to people which creates trust which turns into sales.

    Liked by 1 person

    • Thanks for the reply.

      I agree, I think that having a location at a busy corner/intersection is vital since these areas have tens of thousands of commuters drive past each day.That ensures maximum exposure to the respective brand.

      Like

  19. McDonald is an effective business ; your blog draw out a fascinating point that McDonald constantly select their area which is near to the lower level pay zone; and they generally found all around. There is McDonald in the greater part of the suburb in Australia.

    Like

  20. Hi,

    Wow, that is interesting article! Came to know McDonald to investment many real estate property more and they sell fast food just for tenants can pay the rent. “We are not basically in the food business. The only reason we sell hamburgers is because they are the greatest producer of revenue from which our tenants can pay us rent.”

    Cheers

    Like

  21. Unique Post.i had never really given it a thought until now but Macdonalds has a trend of investing huge amounts in properties. Your blog raises a very intriguing topic about the business that is carried on by Macdonalds. They possess prime land which increments in quality over the long run while profiting through offering fast food. They are bamboozling both universes and overwhelming in two businesses. Despite the fact that, I trust some of their area decisions are faulty.
    Thank You for the Blog.

    Like

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