I was recently introduced to the McDonald’s real estate story by a successful investor and builder in QLD.
While having a beer he asked in passing if I’d heard about the McDonald’s real estate story.
Intrigued I dug a little deeper and decided the story is one worth sharing.
The McDonald’s real estate story
We all know that McDonald’s have a great product, but it was their real estate policies, instilled over a ten year period by an employee named Harry Sonneborn, that turned the company into the international powerhouse it is today.
One of the major challenges McDonald’s faced in its early days was in getting the funds to pay for the land and building the restaurant.
That all changed in 1956 when Kroc hired Sonneborn, who convinced him that the real money was in real estate. Sonneborn’s idea was to have the McDonald’s company lease a plot of land and the building for each restaurant. The company would then sublease to the franchisee who would run the restaurant. Sonneborn further developed the plan to eventually take out mortgages to own both the building and the land. Kroc soon established the Franchise Realty Corp. to find willing landowners (Source How Stuff Works).
In it’s early days McDonald’s charged it’s franchisees a markup of 20 percent of lease costs.
Over time this fees was increased to 40 percent, with each franchisees responsible for their own insurance and taxes, ensuring a steady profit for the company as long as the restaurant stayed in business.
Over time, this created a symbiotic relationship between the franchisee and the company — McDonald’s Corp. had a vested interest in the ongoing success of its individual restaurants (Source How Stuff Works).
What can you learn as an investor from the McDonald’s real estate story?
As you can see McDonald’s is as deep in the business of real estate as it is in food.
Back in the day Kroc’s looked for land near schools and churches, while today McDonald’s look for locations such as malls, universities and airports.
The key driver of McDonald’s real estate success was to build in a great location where people congregate.
The McDonald’s team also know how to:
2. Structure a deal
3. Focus on strict investment criteria
To read more about the McDonald’s story take a look here…
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I am not a lawyer, accountant or financial planner. Any legal or financial advice that I give is my opinion based on my own experience. You should always seek the advice of a professional before acting on something that I have published or recommended.