McDonald’s has a new strategy: Make its stores “easier to run”
Franchised and affiliated locations already make up over 95% of McDonald’s store count and 62% of its sales.
On Monday, McDonald’s unveiled the new global growth strategy it shared with franchisees, with a renewed focus on improving customer service, making better-tasting food and drinks, redesigning restaurants, and letting consumers lead innovation.
Having successfully pivoted to value offerings of late, the new approach, which is dubbed “McDonald’s > NEXT” and aims to make its restaurants “easier to run and more enjoyable to visit,” is built around “improving quality and consistency at scale,” the company’s chief restaurant experience officer wrote in an emailed statement.
It makes sense for the burger chain to put the experience of franchisees as well as customers at the center of the strategy, given its previous push for cheap eats created tensions with some independent store operators — a group that accounts for over 95% of the chain’s global footprint.
McDonald’s... the real estate company?
When Ray Kroc started franchising McDonald’s branches back in 1955, the revenue-sharing model that dominates the concept of franchising more widely was just lifting off in earnest. With most of Kroc’s turnover initially absorbed by his own McD’s expansion efforts, Kroc essentially pivoted to turning the company into a real estate business, first buying the land and buildings for potential new restaurant locations and then leasing them to franchisees.
That dual-income model continues today, though things have obviously changed a little. Franchisees are expected to initially invest some $1.5 million to $2.8 million (depending on the location of the store), plus royalties and marketing fees that amount to at least 8% of sales for a typical McDonald’s restaurant, as the company divulged in its Franchise Disclosure Document.
As it owns much of the land its restaurants sit on, McDonald’s benefits from another reliable source of revenue many of its peers don’t: rent. Franchisees typically pay 6% to 23% of their gross sales as rent and, if applicable, a monthly fee to reimburse land purchase and development fees to the Golden Arches.
We’re all lovin’ it
Of course, franchised spots bring less money per location for their parent company versus company-owned counterparts — McDonald’s raked in only $0.4 million for every franchised store compared to $4.8 million from each of its company-operated ones — but the franchise model’s scale and perks, namely securing a consistent source of sales, have made it a glimmering part of the Golden Arches business.
