McDonald’s is probably an unusual subject to see on Publish0x given our little community of crypto enthusiasts here, but looking at the latest quarterly financial documents which McDonald’s has filed with the US Government, it turns out that the company has a massive business very few people seem to know about, McDonalds is one of the biggest landlords in the world with many thousands of properties steadily earning them rent. To understand this though, we need to have a look at the history of McDonalds.
A food business like McDonalds seems very simple to understand at a glance, the company opens restaurants which sell food to customers at a higher price than it costs to make. But when McDonalds started in the 1950’s and first began becoming popular, they decided that they would do things a little differently than other businesses at the time.
Opening restaurants can very expensive and complicated. It can be very hard to even pick where you should open one, let alone spending all the money needed to build it and buying all the equipment, and once you do that you’ll still need to find the staff to operate it. So back when it was a young company, McDonalds decided that the best way to expand was to partner with a local business in a place where they wanted to open a new restaurant. That way they’d have somebody with knowledge of the area. The local business would sign a franchise contract where they’d agree to pay McDonald’s a commission from each sale and follow strict rules for how the restaurant would be run, and in exchange McDonalds would mark out an area for these franchise owners (also called franchisee’s) on a map as a “territory” where they were the only business allowed to run a McDonalds restaurant.
This was a very quick way of opening lots of new McDonalds across America, because in most cases the franchisee was the one who paid for and arranged the building of the new restaurant. While after several years lots of McDonalds locations had been opened, the company noticed that some of them were struggling to actually stay open for long after being built, so they started investigating why. This turned out to be the start of the McDonald’s real estate empire.
When McDonalds sent people to figure out why some restaurants weren’t doing well, they were expecting to find managers doing something wrong like not using the correct recipes. While they did find some cases where the local franchise business wasn’t following the correct procedures, most of the restaurants were found to be running as they should. Many of them in fact were very popular and selling lots of food. The problem for most of these restaurants wasn’t that they didn’t have plenty of money coming in from food sales, but they had too much money going out to pay all their bills.
The problem with getting the franchisee’s to build the restaurants from nothing was that many of them had never built a restaurant before so didn’t know the best and cheapest ways to arrange the process. On top of this, McDonalds required them to only use certain brands of kitchen equipment, if they couldn’t find these appliances in their local area, they had to spend a lot of money getting it delivered. Often the franchisee would have to borrow money to pay for all this, and the banks frequently weren’t giving them very good deals on the loans. Many of the restaurants which were struggling to stay open wouldn’t have been in that position if they didn’t have the huge loan repayments going to the bank each month.
So McDonalds decided that instead of getting the franchisee’s to build their new restaurants, McDonalds would build the new restaurants and then rent them to the franchisee’s. McDonald’s created a team whose job it was to find a good place to start a new restaurant, buy the property and then get the restaurant built. This team quickly learned the best and cheapest ways to get things done, and when it came to negotiating with real estate agents, builders and building material suppliers they found way that they were able to get really good prices. For example, if a company gave them a really good price on building materials in a city, they would start asking them to supply the materials for all of their new restaurants in that city. It wasn’t long before word got around that if this McDonalds team liked your business that they’d keep buying from you, so building and materials companies started offering them good deals just to get their business. Soon McDonalds was able to get new restaurants built far cheaper and faster than their local business partners were able to.
While McDonalds was able to build new restaurants really well, they knew that many of their franchisee’s would need convincing to sign up to these new rent agreements. One way they did this was by coming up with an idea called “variable rent” (also called contingent rent). Instead of charging a certain amount of rent each month, the rent for each restaurant would go up or down each month based on how much money that restaurant had made from sales. In really good months a restaurant’s rent would go up and in really bad months a restaurant’s rent would go down. Some of the rental agreements even said that for days where a restaurant couldn’t open for some reason (like if there was an electrical outage caused by bad weather) no rent at all would be charged. The potential of rent only having to be paid when they had the money to pay it was very popular among the franchisee’s.
Many franchisee’s started calling McDonalds headquarters to sell the real estate of their existing restaurants just so they could immediately start renting them using the variable rent. Many of them had gotten business loans & mortgages to build their restaurants and were having to make big payments to their banks every month whether or not their sales had been good, so the idea of only having to pay rent when they were making money sounded very good to them. McDonalds was usually happy to buy their properties too.
Today most of the 40,000 McDonalds restaurants around the world are owned by McDonalds and rented to franchisees. We don’t know how much the normal rent for a McDonalds restaurant is, the company and the franchisee’s consider this very private information and they make sure people sign legal contracts agreeing that they won’t tell anybody this information without getting permission from McDonalds. The rumours are that each restaurant has a different rent rate because the actual property might be worth more or less depending on where it is, but nearly all restaurants are thought on some type of variable rent agreement. People who have worked on these sorts of deals with McDonalds before have given hints that for most franchisees the cost of renting their restaurant from McDonalds is probably more expensive in a normal month than what the usual rent for a business in the same area would be, but since the variable rent means the rent gets cheaper if their sales go down most franchisees don’t seem to mind. In this way both McDonalds and the franchisee’s benefit from the scheme.
McDonalds doesn’t say how much of the money they make each year comes in as rent, but many estimates from business analysts actually show that the rental properties might in fact be the most important part of McDonalds business. What we do know about McDonalds real estate empire though is that it is huge. The corporate filings from September 2022 show over $38 billion USD in real estate. That’s so much property that it makes McDonalds one of the biggest real estate owners on planet earth. Even most of the big real estate companies can only dream of owning that much land.
I think the crypto space can learn a lot from McDonalds here. The big lesson is probably that McDonalds wasn’t trying to make more money when it began the real estate business. At the very beginning it was just supposed to help some of its franchisees with their business. In the crypto space we never really know what the future will look like and which projects take off. However we can learn from McDonalds that perhaps the best way to find the next big crypto isn’t to look for a way to make money, but a way to help people solve problems. If we solve problems using crypto technology, it may just be the case that the money starts to flow naturally, just like it has for McDonalds.
Thankyou for reading my article! This is an exclusive article for Publish0x, if you are reading it anywhere else it may have been illegally stolen. Please head over to Publish0x.com to support the original creators of content like this.
