Do you know the Business Model of McDonald’s? McDonald’s is the story of Ray Kroc who build a billion-dollar business from scratch. You must know about Fast food and McDonald’s but most of you don’t know – How McDonald Makes Money? What is the Business Model of McDonald’s?
A few days back when I was speaking to a group of my mentees online. I asked them do you know – How McDonand’s makes money? One of them says of course they sell hamburgers and fries and it means they make money via the hamburger business. Another person from the same batch tells me that no they are in the real estate business.
That’s partially true, that’s what most people know. I’m gonna give you something more advanced.
Business Model – McDonald’s – How McDonald build Multiple Sources of Income?
McDonald’s Makes money in 3 ways or even more ways. Here are multiple sources of income that McDonald’s Make.
#1 Selling Business
Yes, McDonald’s is in the business of selling readymade business. They offer franchises with a readymade system that never fails. This is called a business in a box business.
Some people call it the franchise business. I call it the business in a box business.
So people buy McDonald’s franchises, they’re buying a business in the box.
It’s turn-key. Walk in, ready to go. Why do they need to sell the fries and the burgers and all that?
Because it is cheap. Mass appeal because the franchisee needs to be able to make a decent income to pay McDonald’s the rental income.
#2 Rental Income
McDonald’s goes in and buys this piece of property, builds it with a proven system they have, and gives it as a franchisee. They build tens of thousands of these, right? Franchisee comes in and pays them money to, which is well now $1 million to buy McDonald’s franchise.
They would guess what, leverage that to get the financing to build this thing so there’s no money out for them, but they own the piece of real estate that you’re leasing now. You are a built-in tenant.
So they sell you the business, and they make money upfront. They own the piece of real estate, they make money monthly.
But that’s not the biggest business.
The third business is not even the royalty. They get the royalty income too, yeah, multiple streams of income, right? But the biggest business they have, McDonald’s right now is the largest supplier to this, your straw, your napkin, that burger meat.
That’s where the business is. They’re not in the retail business anymore.
They’re in the wholesaling business.
#3 Wholesaling Business
Just think about the volume that goes through McDonald’s.
Because if you only have a retail business, they don’t touch the retail.
Retail is expensive, so they minimize the risk by having the franchisee pay for it because they’ve developed this phenomenal business in a box and then you have the real estate which builds a massive amount of wealth.
They can refinance, get another location, and do all kinds of stuff they can do.
And third, wholesaling just all day. How many fries do they supply every day to the world? How many burger meats, how many nuggets, how many, millions or billions like this is why McDonald’s is very strict.
You never ever, you cannot. Let’s say I’m a franchisee and I could find someone, I can find somewhere I can buy napkins cheaper, can I buy that? Nope.
Every single thing you gotta buy from McDonald’s. From the napkin, from the straw, from everything. From the paper that wraps a damn burger, you have to buy from McDonald’s. Everything.
I don’t know, I’m not so sure if they even, I’m not sure, I haven’t done my research, that’s why I don’t know. I’m just guessing they might own some shares in Coca-Cola. I wouldn’t be surprised, because they don’t have Pepsi, they only have Coca-Cola.
Vica-versa, maybe Coca-Cola owns some shares of McDonald’s. I haven’t done my research, I’m just guessing.
That’s what I would’ve done, right? because if I’m the JV partner, Coca-Cola owns McDonald’s, I might as well own the shares and get some dividend income and it’s a strategic alliance anyway.
The more money they make, the more money I make. So you see it’s not very obvious a lot of these things.
You think oh they make money selling hamburgers. It’s a very low-level, way of viewing a business.
They make multiple streams of income. And they’ve got a real estate play in it which is brilliant.
So, that’s what the business model of McDonald’s is. They build multiple streams of income smartly.