McDonald's has one of the world's largest real estate holdings. But are you still wondering how much land does McDonald’s own?
The success of the fast-food behemoth isn't based on burgers. McD's has switched to a new business model—real estate. McDonald's serves over 100 million burgers per day, and over 65 million people eat Happy Meals every day. But how did they reach the heights?
McDonald's owns about 70% of the buildings and 45% of the land at their locations worldwide. It owns $28.4 billion worth of land and has a total of 39,198 locations, each with an average land of 1.2 acres. So approximately, McDonald’s owns around 47,037 acres of land.
Out of over 100 billion meals served daily in more than 39,198 locations in 100 countries worldwide, only 15% of McDonald's locations are owned and operated directly by the company, franchisees run the rest.
We studied the most recent Public Financial Statements, and you won't believe it, but things get a little more interesting here. They own the land and buildings for almost every McDonald's restaurant globally. And with over 39,000 locations worldwide, it owns prime real estate. From failures to success and their real estate strategy, we’ll cover everything below. If you don't want to miss some hard-to-believe facts about McDonald's, make sure to be with us till the end.
Table of Contents
What We'll Cover
- McDonald's Journey to Becoming a Real-Estate Baron
- Scene from The Founder—A Fascinating Biopic of Ray Kroc
- A Breakdown of McDonald's Real Estate Strategy
- How McDonald’s Innovated to Survive the COVID-19 Era
- McDonald's 2020 Financial Report
- Some Craziest Facts About McDonald's
Journey to Becoming a Real-Estate Baron
It all happened 65 years ago when Raymond Albert Kroc, an American businessman who purchased McDonald's in 1961, transformed the food chain into a real-estate baron. This would've been a dream if the first president and chief executive of McD's, Harry Sonneborn, didn't help Kroc realize that McDonald's was more about burgers and helped turn a floundering burger chain into a global giant.
Scene from the Founder—A Fascinating Biopic of Ray Kroc
Have you seen The Founder? Directed by John Lee Hancock and written by Robert Siegel, The Founder is based on the true story of Ray Kroc and his journey of building a billion-dollar burger empire with Mac and Dick McDonald. In the movie, the entire situation is summarized as follows.
"You have a minuscule revenue stream, no cash reserves, and an albatross of a contract that requires you to go through a slow approval process to make change if they're approved at all. Which they never are. Am I missing anything?" Sonneborn says,
"That about sums it up," Kroc says.
"Tell me about the land. The land, the buildings...how that whole aspect of it works." Sonneborn says.
And with that one question, things moved for McDonald's.
"Pretty simple. Franchisee finds a piece of land he likes, gets a lease, usually 20 years, takes out a construction loan, throws up a building, and off he goes." Kroc says.
"You don't seem to realize what business you're in. You're not in the burger business. You're in the real estate business." Sonneborn says.
How does this progression support Kroc? It gave him control over franchisees' operations, which he desperately needed. Menu management? Check. Full control over service and quality standards? Yes. The best part? Kroc held the ultimate hammer if a franchisee broke the rules: he could terminate the lease.
Just as Sonneborn says in the movie, "Land, that's where the money is."
Coming back to real life, the traditional food chain entered the real estate market within a few months and has never stopped growing since then.
Sonneborn, who went on to become the CFO of McDonald's for the next ten years, stated, "We aren't in the foodservice industry. We work in the real estate industry. We only sell 15-cent hamburgers because they are the most profitable source of income from which our tenants can pay their rent."
But remember, it's surprisingly tricky. This is a mutually beneficial system. Income generation for tenants to pay the monthly rent solely depends on customer satisfaction. How can that be achieved? Through food, service, and price. McDonald's has a vested interest in the success of each franchise because, without sales, franchisees would be forced to close their doors.
A Breakdown of McDonald's Real Estate Strategy
McDonald’s is all about selling burgers and fries, but when businesspeople look at the golden arches' ledger, they find something more substantial to chew on: the real estate.
As we covered above, The McDonald's Corporation became landlords of their franchisees rather than making money by selling supplies or demanding significant royalties. If we talk about their current strategy, they honestly have two ways to make money. The money game is simple.
Step one: purchase a property and lease it out at a high-profit margin.
Step two: take out a percentage of each shop's gross sales in addition to the regular income.
Out of over 100 billion meals served daily in more than 39,198 locations in 100 countries worldwide, only 15% of McDonald's locations are owned and operated directly by the company. Franchisees run the rest.
During the 2008 slump, McDonald's depended heavily on this aspect of their business, capitalizing on a weak real estate market by purchasing more buildings and lands in the locations where it operates. It's an ingenious strategy. They are protected from the ups and downs of the burger-flipping business by their ability to collect rents.
How McDonald’s innovated to survive the COVID-19 Era
COVID-19 impacted nearly every business in the world. The fast-casual restaurant industry has been hit particularly hard by the pandemic's rapid shift in consumer behavior. A report from Crunchtime revealed that by April 2020, the sales had fallen to 56% of pre-pandemic levels, with social distancing and indoor capacity restrictions particularly hurting fast-casual restaurants.
While many food chains adapted quickly to stay afloat during the worst period of their industry's history, one in particular not only adapted to the pandemic's immediate challenges but also positioned itself to be a winner in the post COVID world. Yes, we're talking about McDonald's.
Now the only question is, how did McDonald's manage to bounce back so quickly? According to CEO Chris Kempczinski, "McDonald's success can be attributed to the company's new 'Accelerating the Arches' growth strategy, which encompasses all aspects of the company."
"It's about leveraging our competitive advantages, providing increased value to current customers, and ensuring their continued loyalty," Kempczinski added.
Tactically, this suggested putting a lot of money and effort into what McDonald's saw as their critical competitive advantages with their core customers: the three D's—Digital, Drive-Thru, and Delivery.
McDonald's rose to the challenge, announcing that it had recovered 99 percent of Q419 global same-store sales in Q420, its best financial performance of the year.
McDonald's 2020 Financial Report
Even if we deduct the 3.5 billion dollars’ worth of equipment from the total $41 billion figure, the company reported 41 billion dollars in property and equipment assets before depreciation in its 2020 Financial Report, making it the world's seventh-largest real estate company. McDonald's real estate assets are the main reason for its phenomenal and long-term success, making it a fascinating business case study.
Some Craziest Facts about McDonald's
McDonald's Salad has more calories than a burger? Definitely not. Back to the beginning, as promised, here are some craziest facts about McDonald's that you shouldn't be missing.
- People who eat a lot of McDonald's food are referred to as "heavy users" by the company.
- Every 15 hours, a new McDonald's restaurant opens.
- What a CEO earns in an hour takes an average McDonald's employee seven months to produce.
- If you still want to try the pizza at a McDonald's, you can do so at one of their two locations.
Whether you're a fast-food fan or not, you can't deny McDonald's overall success over the years. They've stayed true to their brand's positioning, listened to their customers, and persevered despite the COVID restrictions. McD's business model demonstrates valuable lessons for any ambitious entrepreneur aiming to make their company the best it can be. Here's the best part? You can almost taste their success, not just see it.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling