McDonalds Is Actually A Real Estate Business | BusinessKast
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McDonalds Is Actually A Real Estate Business | BusinessKast

– [Narrator] As you guys
have probably noticed by now, I am super interested in the stories behind fast food restaurants. I mean the entire concept of fast food has always interested me. So why not talk about
the places that started this multi billion dollar
sector of the food industry? While there are many of them, none of the original chains are as notable and recognizable as McDonald’s. I mean, the term McDonald’s
is actually searched more in most of America
than the word Jesus is so obviously it is a bit popular
but you already know this. The one thing that you
may not know however, is the fact that McDonald’s isn’t just a chain of restaurants. They don’t only make their money by selling hamburgers and fries. Oh no, they’re actually
a real estate company and a big portion, if not
a majority of their money, is made because of this real
estate aspect of the company. So what exactly do I mean by
this and how does that work? The full story may surprise you
so be sure to pay attention. The origin of McDonald’s
begins with two people, Richard and Maurice McDonald,
they had seen the success from the popular drive-up restaurants that were around at the time but they were tired of how complicated going to one of these restaurants were. Back then you had to pull up in your car and wait a long time for your food, plus disposable forks and
plates weren’t popular back then so you had to eat in your car
with normal forks and plates and then wait to return the
dishes when you were done. It was basically the same process as eating in a restaurant but in your car and it really didn’t save any
time or anything like that, it was pretty much just
like a novelty type of thing or a place to go hang out at. So these two brothers
decided that something needed to change and that
there were better ways to serve food more efficiently. They opened a burger stand
in San Bernardino, California and used a new assembly line method to assemble their food faster and in bulk. Everything in this restaurant
worked like clockwork and they could just spit out tons of burgers every few minutes. The silverware was ditched as well and people saw a new method of eating food directly out of the wrapper, which you simply threw away
when you were finished. Today this is everywhere
and it’s looked at as normal but in the 1940s this was a new thing and people thought it
was absolutely insane. One of these people was a
milkshake machine salesman who ventured out to the
original McDonald’s restaurant to sell them some milkshake machines. This guy was known as Ray Kroc
and he took a lot of notice with how unique this new concept was and he ended up convincing
the McDonald’s brothers to allow him to join their
company as a franchising agent, helping them expand their
idea around the country. And while they did allow him to do it, the brothers were skeptical
and didn’t wanna ruin the family aspect of their business. Ray Kroc said that he would
take full responsibility for these new locations
and while the brothers still own the company,
Kroc would make nearly all of the profit from these new locations and the brothers would
only be an authority figure and receive 1/2 of 1% of all the sales. They agreed and Kroc
now had the rights to do what he wanted in order to
franchise McDonald’s locations. And Ray Kroc did just that and expanded McDonald’s rapidly
around the United States. But these new restaurants
weren’t actually making enough money and it was a problem for him. Plus there weren’t as many
new restaurants opening as he wanted because many
of the business people who wanted to open them couldn’t come up with the initial
investment for the property and the construction of the building. This is when a man named Harry
Sonneborn came into play. He gave Ray Kroc an
idea that would make him a lot more money than restaurants and would go on to expand McDonald’s around the entire world with the business still being profitable. Sonneborn convinced Ray Kroc that the real money in his business was in the real estate aspect,
not in burgers and fries. His idea was for McDonald’s themselves to lease the building and
property for the new locations. Then the company would
sublease the same property and building to the people who would buy and run the restaurant. So McDonald’s would own
the land and make money off the land and building by leasing it to their franchisees. But if the location was super successful, McDonald’s would take a
percentage of their sales instead of making them pay the rent. They would do the math and find out if the rent or sales
would make them more money and they would decide on the one that did. So they had every aspect of
the operation under control and they found a way to
make money from all of it. But the real estate aspect has always been the number one moneymaker
but it wasn’t this simple. When they first started
this subleasing operation, McDonald’s would charge an extra 20% to the people leasing the restaurant. So if McDonald’s paid
let’s say, $1,000 a month for their property, they would charge the restaurant owner 1,200. Eventually, this upcharge
rate would go even higher up to 40% which made the
McDonald’s Corporation even more money. So like many other big companies, they went from a family-owned
and operated business to one that tried to make
money at every opportunity. A lot of people will call
practices like this shady or even greedy but in all honesty, it was just smart business and that’s how businesses
like this get ahead. Over time the restaurant
owners would have to pay their own insurance and taxes
to the McDonald’s Corporation which they also put an upcharge on and they would charge even
more rent to locations that were doing better than others. It was an entire monopoly and they made tons and tons of money from it. And with it being structured like this, it’s no surprise that
most of McDonald’s money is made from this part of the company. So you’re probably wondering, what happened to the McDonald’s brothers and why is Ray Kroc the one
making the business grow? Well like I said earlier,
Ray signed a deal with the McDonald’s brothers and while Ray was out
making quite a bit of money from all of this, the
brothers were still getting a percentage of all of his money and they were basically
making a bunch of money while hardly doing anything. It was a win-win for them. Their company was expanding
and they were banking in money without even having to lift their fingers but at the same time, Ray was
also making a ton of money and he used this money to found the Franchise Realty
Corporation which was a business that was separated from McDonald’s but was making money from the
sale of franchise locations. So basically, this Realty
company would buy the property and then sell it to McDonald’s. This crazy growth scheme
continued for years to come, all fueled by Ray Kroc and his ambition. In 1961, he had saved up enough money to buy out the original McDonald’s
brothers for $2.7 million and he considered himself
the founder of McDonald’s because of how he helped it to grow. So how does this work today? While things have changed a little bit, the main concept from
back then is still around. The money is made from
McDonald’s real estate today in two different ways. The business makes its money by buying and selling properties that are in demand and also by collecting the
rents of the properties that they already own. This strategy once again is why McDonald’s is so successful today. When the economy begins
to go into a recession and less people go out to buy burgers, the company still makes
the same amount of money as in a good economy by collecting these same rents from store owners. But when the economy
is doing extremely well they make even more
money by collecting based on the sales of a location. They flip and flop these two methods depending on what’s
going on in the economy and they always come out on top. In fact, revenues earned by food sales, the stuff you probably buy
are not doing very well. Sales levels have been super inconsistent, going from highs to lows
and back again all the time. Because of this, the
investors are actually pushing for McDonald’s to separate
the real estate business and the restaurant business
where if one fails, the other still stands. As stated in an article by
The Wall Street Survivor, this could be an amazing company if they did in fact separate. This article states that
the real estate aspect would be a company worth over $40 billion and they would make over nine
billion in annual revenue and four billion in profit. It would be a complete power house and would draw in
investors from everywhere. But the question is will the business that we are familiar
with continue to be good? Well yes, obviously. They’ll still make money
and serve billions of people in almost every country around the world. Things are in fact changing. People are beginning to switch
to other types of places such as Chipotle and other
casual and fast restaurants. McDonald’s will need to
adapt, become faster, and make better food if
they want to stay on top. They may either need to
embrace the real estate aspect and create a real estate empire or change what is happening
with the restaurants themselves. But one of the two. I personally think that they will prevail. Upon the introduction
of all-day breakfast, sales spiked drastically
and stocks soared overall. It’ll take improvements like this to keep them where they are economically and I’m sure that such a legendary company knows exactly what they’re doing. Anyways guys, that is gonna
be it for today’s video so I hope you guys enjoyed. If you have any topics that you want me to make videos on, feel
free to let me know in the comments below. Thank you guys so much for watching, I will see you guys next time and peace.


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