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How McDonald's Became a Real Estate Company Disguised as a Burger Chain

Companies and Brands You Know • Beginner Investing • 6 min

What this lesson is about

McDonald's doesn't just sell burgers to customers. It owns the ground under thousands of its restaurants and collects rent from the franchisees who run them.

2 parts · a quick check after each · then the quiz

Part 1 of 2

When, you, buy, a, burger, at, McDonald's,, you’re, not, just, paying, for, the, food., You’re, also, covering, part, of, McDonald's, business, model,, which, includes, owning, or, leasing, the, land, and, buildings, for, many, franchised, restaurants., They, collect, rent, from, the, franchisees, who, run, them., A, typical, McDonald's, franchise, set-up, creates, several, revenue, streams:, an, upfront, franchise, fee,, ongoing, royalties, based, on, sales,, and, often, rent, on, the, real, estate, if, McDonald's, owns, it.

Harry, Sonneborn,, an, early, financial, executive, at, McDonald's,, is, known, for, this, smart, approach., He, saw, that, controlling, the, real, estate, beneath, franchised, locations, could, provide, a, stable,, predictable, revenue, stream., This, is, a, safer, bet, than, relying, solely, on, food, sales, and, royalties,, which, can, fluctuate, with, consumer, spending, and, food, costs.

Quick check

Besides selling food, what significant real estate role does McDonald's Corporation itself play?

Part 2 of 2

Insider, Angle:, This, dual, structure, is, why, analysts, and, investors, look, beyond, just, same-store, sales, growth, when, evaluating, McDonald's., Real, estate, and, rental, income, offer, a, steadier, revenue, stream, on, top, of, the, restaurant, business., This, is, a, big, reason, why, McDonald's, has, remained, strong, through, various, economic, conditions, over, the, years.
Try, This:, Check, out, McDonald's, latest, annual, report., See, if, you, can, find, how, its, revenue, splits, between, company-operated, restaurant, sales, and, franchise-related, income, (fees,, royalties,, and, rent)., What, does, that, tell, you, about, how, the, company, really, makes, money?

Quick check

How does a typical McDonald's franchise arrangement generate revenue for McDonald's Corporation?

Quiz

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