McDonald's Real Estate: How They Really Make Their Money (2015)
blog.wallstreetsurvivor.com
blog.wallstreetsurvivor.com
Source: McDonald's: Behind The Arches, John F. Love (July 1, 1995)
Edit: changed ie to eg, thanks for the correction all
McD's are masters at standardising 'generally acceptable in a pinch' food.
my local is a franchise and it shows the name of the local franchise owner
http://www.mcdonalds.co.uk/ukhome/whatmakesmcdonalds/questio...
> There are 1,200 McDonald's restaurants in the UK. 65% of which are franchised and 35% company-owned. We take great care in selecting our franchisees and once they're with us, we invest heavily in a comprehensive training programme and providing ongoing support for them.
> We actively encourage our franchisees to expand their business and this is evident in the fact that, on average, a McDonald's franchisee owns five restaurants. Our franchisees commit to operating their restaurants for 20 years so they're also often heavily involved in their local communities – for instance, being involved with local business groups, local environmental initiatives or supporting local grassroots football.
Why have Burger King in particular had this problem?
Stealing from wiktionary: "The three U.S. states on the west coast have mild seasonal variations in temperature (i.e., warm winters and cool summers)."
e.g. -> exempli gratia. Usually translated to English as "For example". Implying that the subject is simply one example of many.
Stealing from wiktionary again: "Continents (e.g., Asia) contain many large bodies of water."
"For example" would be "e.g.", ("exempli gratia" in Latin.)
"E.g." is illustrative, whereas "i.e." is exhaustive.
I hadn't heard "i.e." expanded to "in example" before - that explains one source of misunderstanding (despite being grammatically incorrect in its own right).
Edit: It seems you've since been unfairly downvoted for explaining what you meant. Please folks, don't do that. I asked the question, and @fraserharris answered honestly.
i.e. == in essence
e.g. == example given
I don't think you are really taking a position, just acknowledging McD has power to enforce Franchise Agreements more than others Franchisors because separately they tend to also be landlord. on first reading though I thought your comment was suggesting more nefarious behavior because the dual relationship landlord/franchisor.
Just in case anyone else read your comment that way, I would just say as a lawyer I would feel pretty confident taking a case on behalf of a Franchisee who paid significant franchise fees to McD and was otherwise in full compliance with the Franchise Agreement, but my client's Franchise Agreement was de facto cancelled (and presumably Franchise fees kept by McD) because McD terminated the lease without cause.
Certainly if the Franchisee gave McD cause under either a Franchise or separate lease Agreement (failure to pay rent; using non McD suppliers; etc...) that is a different story, but legally McD couldn't just engage in the collection of Franchise fees only to evict tenants in a scam like fashion. again I don't think you were suggesting it, that was just my initial interpretation.
What impresses me least about McDonald's is their ruthless child-targeted advertising.
EDIT: in sort of a quaint way the incentive structure is reminiscent of the manorial system.
Can't really confirm that assumption, even outside of Canada where there's no regulation in place. Last time I remember McDonald's specifically marketing to children was in the 80's, since then they've changed their marketing approach several times focusing more on how "healthy" the food supposedly is or how it's locally sourced.
https://www.opc.gouv.qc.ca/fileadmin/media/documents/consomm...
Example of prohibited advertising: The Rappido Company is advertising a remote-controlled toy car like one seen in an animated film. The advertisement is broadcast on Saturday morning on a TV channel for children during a cartoon program. The ad is in animated film format and shows a young boy who is thrilled to be operating his high-speed car. This ad would be prohibited.
But there's no mention of product placement. I imagine that would be hard to account for.
The problem is they can not do this at all. Children are extremely easy to manipulate, and that is pretty much what advertising is.
We have regulation on advertisements to children? That's a little surprising.
Kids are better at filtering in some ways.
One crazy belief is not sign of universal insanity. Perhaps though it is a sign of susceptibility, which is what we seem to be talking about.
Gullibility, which is what we were talking and why advertising to children is bad. If we started teaching our kids to do things like try to test for Santa they would be more likely to come to correct answers for the rest of their lives, and in general be less gullible.
Minecraft, Pokemon Go, Star Wars...
This wasn't the case with other things, though. I remember really liking Care Bears back in the 80's. My father was appalled when he took me to a movie - he said it was basically an add to get kids to buy the new line of toys. My brother, 11 years younger than I, had the same sort of thing with Power Rangers and then Pokemon. I don't have children and am not quite sure what the current modern version of this is, but I'm sure it is there. Adult versions abound. These aren't the things we can spot so easily, especially as children with little world experience.
The parents need to spend a lot of time to counteract those evil forces and you cannot teach a kid to not like the amazing toy he/she is watching on TV. You can teach them that they can receive presents on specific date though.
On the other hand, I do teach my kids about advertising. They are quite skeptical about it.
> Research has shown that young children—younger than 8 years—are cognitively and psychologically defenseless against advertising. They do not understand the notion of intent to sell and frequently accept advertising claims at face value. In fact, in the late 1970s, the Federal Trade Commission (FTC) held hearings, reviewed the existing research, and came to the conclusion that it was unfair and deceptive to advertise to children younger than 6 years. What kept the FTC from banning such ads was that it was thought to be impractical to implement such a ban.
About 10 or 15 years ago, there was a McDonalds ad that had parents dressing up. The kids exclaimed "The black suit! You know what that means!" "McDonalds for breakfast!" Cut to the kids smiling and happy while eating at McDonalds.
Positive associations are simple to create, particularly in those unaware of what you are doing.
https://www.goodreads.com/author_blog_posts/2484147-lessons-...
from Ed Weissman (who's #6 in overall karma on HN)
You have to be a special kind of asshole to throw away meat and food instead of just saying the food is cold.
2. Much food is never harvested. A large portion of it is also never taken to market due to blemishes. http://californiawatch.org/health-and-welfare/food-waste-rem...
3. Supermarkets discard about 1/3 of their food due to spoilage, blemishes, and overripeness. http://www.npr.org/sections/thesalt/2014/09/25/351495274/sup...
Is that really true? Whoa if so.
Oddly enough, it kind of makes me feel better about food security.
Spoiler: I eat meat
The hacker looks at your parent and says woah -- grocers throw away 30% of food? There's a startup opportunity. And when they succeed they accomplish more than all the hand wringing in the world about someone else not doing their part.
1. Whether or not I eat the food is irrelevant to the poor.
2. The amount of food I order is completely up to me. I usually order, and eat, more than I need to survive (because I'm stoned). I revel in the decadence and my ability to buy and eat so much food I'm disgustingly full. I could argue that I do this to "flaunt" my wealth and privilege.
(really, I do it because I grew up dirt poor and hungry, so I gain inordinate pleasure from excess. Probably unhealthy, but it's my birthday and I'll cry if I want to)
There might be people starving in Africa, but I still want my lunch.
It's like throwing your pants away because you spilled ketchup on them, or throwing your car away because it ran out of gas--trivial issue, easily remedied.
Besides that, McDonald's corporate considers the service temperature of their food to be deadly serious. Complaining to the management with cold food and receipt in hand would almost certainly generate an overly obsequious response sufficient to satisfy even the grumpiest of customers. If not, going to management above the restaurant would probably get everyone at the restaurant re-trained right quick.
Leaving aside the rest of the discussion, and not even addressing if throwing it out was good/fine, this line stood out to me.
I often feel that temperature changes the taste. More obvious in ranges > 5 degrees, but still noticeable at that range. Given how subjective taste is, it's hard to prove, though I'm sure some neurologist has hooked a pig or chimp up to try and measure the "taste" reaction. My two questions for you are:
* Do you feel temperature has no real (direct) effect on taste, or only in larger swings than 5 degrees
* Do you have any reason for your above statement than your own experiences? (not a criticism, curiousity)
But, I think his comment was changing the temperature is easy, and having food get cold does not change the taste after reheating. However, there is a large food safety issue with how long food stays between 40f and 140f, which is probably the root cause of this policy.
Also, maybe I'm the only one, but I think (some) food tastes entirely different after a trip through the microwave.
Off-topic: How can HuffPo not know the difference between effect and affect?
In my mouth, flavor is the dominant component. Temperature only matters if the food has fats or volatiles with a phase transition temperature between 25 and 40 degC. If food is too hot, I taste burning heat instead of flavor, and when it's too cold, the ice crystals numb my taste buds. But in between, my perception of the flavor is more affected by chemical composition than temperature. Room-temperature french fries are fine. You can chew them up without burning your mouth. Refrigerated fries aren't quite as good, because the fats solidify and the flavoring volatiles don't vaporize as readily. So pop them in the microwave, and they're good again.
This is as untrue as saying temperature doesn't affect flavor; cooling/reheating cycles affect flavor and texture of food.
You ever eaten a microwaved hamburger? :)
Also, the quicker you eat it, the less you have to think about it; and most of McD's food items do not bear much thinking about.
Personally, in my local McDonald's I can put an order without talking to a human, pick it up and buy some weed on the way out.
Is that representative of every McD? No.
On a similar note, I hate the "exploit" of "Ask for fries with no salt to get them to make you a fresh batch of fries" when you can just ask them to make you a fresh batch of fries. Potatoes are about $6 per hundred pounds; they could not care less about making you a fresh batch if it means chucking the old fries out.
That said, we produce more food than we ever have. Is there a difference to starving people whether a grain of wheat went ungrown or was wasted?
What was the author meant to do, walk the hamburger and fries (with bites missing) to his closest homeless shelter?
I was pretty amazed the first time I went - for McDonalds specifically, the US's medium size for drinks and fries is bigger than our large size in Australia! And we have no super-size or drink refills. (Our Burger King equivalent is about the only fast food chain I can think of that does free refills. It's very rare for restaurants in general here).
I wonder how it is today, but at the time it was on the order of half a billion tons a year.
Spent the rest of my childhood trying to be hyper-conscientious about the waste I produced.
Got to high school, got a job at a local restaurant, eventually moved onto large-scale corporate catering, and then went to live and work on a farm.
As I moved up the scale of food production I only saw more and more waste. It was sickening but at the same time completely understandable when you realize that there are diminishing returns. The larger your business is, the more waste becomes "not worth our time".
I just can't feel bad about throwing away half a pizza here and there anymore.
After I left the farm I took one more job in food service before moving to tech, and that was at a small-scale startup that produces healthy, fresh, TV dinner style foodstuff, and distributes them at retail locations.
I was blown away at how efficient the whole process was. One of the chief philosophies of my boss was conservation. With a business model that revolved around maintaining a supply of each meal reflective of its demand, and making dishes that could be built upon common base ingredients, we were able to exactly calculate the amount of food we needed to make each day. If for some reason there was a piece or two of chicken left, or some rice, an employee would just take it home. I just wish every place could be that committed to not wasting food, by creating a business model that incentivizes such behavior with a better profit margin.
Part of the issue with scale is that this extra profit margin becomes more and more marginal. Supporting local farms, co-ops, and cooks is probably the best thing we can do to enable less food waste across the industry.
Food is a renewable yet spoilable resource. Easy to create, hard to store long term. Having more food then we need means the system has the capacity to absorb disruptions. If we consumed 100% of the food created, any disruption such as a cold spell in Florida would cause people to go hungry.
This perhaps relies on non-capitalist management of food production however.
tl;dr I don't agree with your conclusion.
The reality is most of the food McDonald's serves nowadays is served cold. It's an unfortunate side effect of moving away from actually grilling meat to just warming it in trays.
That's because, when doing a big mac for example, it's almost as easy to make one or five on a tray. So better make 5 if you're in a rush, they will likely be fulfilled.
In cool periods we would only produce on command. So no waste. Fresh burgers.
Everyone used to say that Franchise didn't care too much about these rules (where they should), and the director didn't like getting employees from Franchise McDonalds because they had to re-learn all the hygiene standards. Since that day I avoid franchise restaurants and go only to the official ones.
Our stores were generally earning 4s in inspections, because Joan Kroc lived about 4 miles away from our best/highest volume store and frequently stopped in. Our worst store was probably closer to McOpCo stores, despite our efforts to improve it over time.
And what you say doesn't really make sense to me, of course my personal experience and what I was hearing at McDonalds is very subjective. But the official restaurants are here to show off what McDonalds is, they are supposed to hold the bar way higher than any other McDonalds restaurants.
McOpCo stores have to follow all the rules and policies that Oak Brook dictates to the franchisees, but they also have to be profitable. Oak Brook was often out of touch with how life was for franchisees, and would make requirements that just didn't jibe with making a buck. A franchisee would make the decision to either emphasize or de-emphasize a new policy/procedure, and deal with the consequences from their regional manager if it became an issue.
McOpCo stores weren't immune to business pressures either; having to follow (in theory) all the policies and regulations imposes a cost on their business. And one of the keys to a well run franchise was a stable management team and stable staff under that team. With McOpCo stores being a stepping stone for managers to climb the ranks, it was harder to develop the team cohesion that a good franchisee could.
The sandwich wrappers had the numbers 1 to 12 printed on them, and you were supposed to mark the pre-made sandwiches to show when to throw them away. For example, if you assembled the sandwich at 12:15, mark the 5 to show that it should be thrown away when the clock's big hand is on the 5. Literacy not really required.
Plus, see other remarks here about how 40% of food goes to waste for various reasons.
"Eat your peas, there are starving children in Africa" only makes sense if there's a ready means to get your peas to the starving children. If the choices are eating food you don't want or throwing it away, it's wasted either way. Eating it isn't the superior moral option; it doesn't accomplish anything but making you fat.
Right, because it's nothing like that now.
It's probably bad to guess Ed's personality from just one article, but most of what he says is said by the bullies in software dev who push their own tasks to "Done" on the cost of the whole team, to then say how much more efficient they are since they have closed more tasks than anybody else.
Also the goal is not to beat Mozart, but to provide regular, recurring quality background music for tv show episodes every day, if you want to earn your bread and butter with it, and not just win a price. That's done best by a cooperating team, not by a rockstar. So if he was part of the "top 5 of 60" employees it may have been an improvement to overall results if there were just the other 55 employees. The general success of today's McD is that they are open nearly 24/7 and that they are nearly everywhere you go. I bet McD makes more money now than back in his "glorious" days.
I don't have any of the kid-centric television channels, so from the radio and television spots that I've experienced, I would have to say that McDonald's advertising appears to be heavily marketed towards the black community.
For instance, this one has been on heavy rotation in the past few months: https://www.youtube.com/watch?v=ASqC809WaHs
http://www.imdb.com/title/tt4276820/
for an entertaining and educational dramatization of the McDonald's story, including the franchising and real estate leasing aspects.
The same goes for any restaurant, it's why they ply you for drinks.
It's also where the now much-mocked "super sizing" comes from. They can up the revenue per meal while upping the cost by almost nothing.
While yes, what you describe is true - part of this has to do with the film rights pricing which is mandated by the studios/distributors, so even if a theater wanted to structure things differently, they could not..
Of course many of the major theatre chains are also related to the studios, so it gets a bit hard to see which end is up..
but I digress
But yes, the accounting in the entire movie industry needs to be taken with a pinch of salt, and perhaps some mind-altering chemicals.
As far as I can tell, not in the US. Open Road Films is a joint venture of AMC and Regal, but Open Road only has about 1% of the film market. National Amusements has a controlling interest in Viacom, which owns Paramount Pictures, but National Amusements only has about 1% of North American movie theaters. None of the big US studios own any of the big 3 US theater chains.
No, at least not in the US. In one of the key anti-trust decisions, the Supreme Court declared in 1948 that it was prohibited monopolistic behavior for a major studio to own a theater chain.[0]
https://en.m.wikipedia.org/wiki/United_States_v._Paramount_P....
I don't think it was like that in the beginning. Running a cinema (movie theater) was a normal business until Hollywood milked it to the extreme. They created their own chains of multiplexes in many countries to push their idea of how the business should work.
These days modern cinemas are built like tourist traps with customers having to either walk through/past chain restaurants or having to find some weird side door to enter directly. It's quite a difference to even the 80s or 90s when cinemas had impressive/glamorous lobbies.
Having lived in NYC & LA, I've not had to walk through some weird side door to enter movie theaters. Theaters are straightforward: a lobby for tickets, a station where a person checks your ticket, the concession stand (overpriced food & drinks), and the theater doors.
Oftentimes theaters are located in crowded shopping areas with dining options, but you don't get lost since the theater physically takes up so much space and has signage everywhere directing you to the prominent entrance.
In extreme cases you have to walk from the entrance to the back of the complex (passing by maybe a dozen bars and restaurants), get to the end, hop on an escalator to the next floor and walk all the way back past more outlets. It's only then you reach the cinema.
Personally, I find it very convenient - you can eat before/after the movie, and sometimes do a bit of light shopping. I like having more options. I certainly wouldn't consider it a bad thing, and I feel perfectly free to not shop if I don't need to.
Of course they go for like $1.50 so no matter how it breaks down, it's a nice ROI.
In addition to being a very well-done movie, it does a superb job of describing the relationship between the visionary founders of a startup, and the sales guys and bean counters who turn it into a successful business. It doesn't matter that the McDonald brothers were revolutionizing burgers, the telling of this part of the story captures perfectly the same sort of activity that goes on at any startup with a new idea, (emphasis on new). It also captures very well how the suits recognize a good thing when they see it, buy into the vision (but for very different reasons from the founders), and finally take over and render the founders obsolete.
Really great movie for anyone involved with startups.
Kroc was just as visionary, if also greedy and manipulative and ready to succeed at all costs. He's clearly not afraid to steal a business or wife. He's also somehow easy to relate to (thanks Keaton).
You can see him lying to himself and justifying his actions. Got the feeling that Kroc wasn't all that different from many SV founders. You don't go to SV to make a burger stand, you go there to make an empire. There's a reason Kroc is discussed in business schools.
On a side note, reading about the founding of Twitter there's a lot this kind of back and forth.
"Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal"
https://www.amazon.com/dp/B00CDUVSQ0/
As you can tell, it's the kind of thing meant for the best seller list and isn't a scholarly work or anything, but the preface stresses it's based on lots of interviews.
If nothing else, it's a fun read and the background of the founders is pretty interesting.
Would love to chat with you about the dollar store industry, if you'd be so inclined. I'm particularly curious about Dollarama in Canada, if you're at all familiar with them. My email is in my profile.
The basic question: why is Dollarama so much more profitable than everyone else?
When people talk about McDonald's "selling burgers", what they mean is McDonald's and its franchisees.
That is not true of the franchisees. That's a pretty big difference.
I don't think it is trying to mislead (or doing it by being sloppy), it's examining how McDonald's is structured (both the branded operations overall and the corporation).
A good startup movie, by the way.
Traits of a good founder.
Plus one on it being a good startup movie.
So I think it's a bit misleading and hyperbole to say 'how they really make money'. The only reason the can make that money is because of the product and the customer base that patronizes the McDonalds. So in the end it is because of the product. "How they really make their money" is because of that product.
Breweries (and "PubCo's") typically own the premises, which is leased to a tenant (publican) who is required to purchase the brewery's products.
In franchise you have to stick to the branding and menu offers and in practice you have to follow the prices (legally they can't force independent franchise companies to sell a burger for the same price, but there are ways) giving very little freedom.
- percent franchised vs owned https://www.fool.com/investing/general/2016/04/03/what-perce...
- quote from article that is misleading"Of that $18.2 billion generated by company-operated stores in 2014, the corporation keeps just $2.9 billion. Of the $9.2 billion coming from franchisees, the corporation keeps $7.6 billion."
Well, if one thinks of how many of these burger joints..
And yes the burgers also make some good money ;)
It's almost like saying that grocery stores are not really in the grocery business, they are in the business of accepting cash and credit card payments. True, that's where they "make their money", but that business would dry up pretty quick if they didn't stock groceries.
As an aside, back when oil was >$100/barrel Exxon/Mobile had numerous boarded up properties around Phoenix with For Sale/Lease signs that were neither for sale or lease, as the losses/write downs were valued to dilute the windfall profits they were raking in at that time(my source was an agent for CBRE).
Also, real estate investments don't actually have a direct impact on profits when reporting on accrual basis (as all larger companies are required to). Those costs can only be deducted over time (something like 10 years for buildings).
edit: rewording & added last point.
If all you need is a basic drink, they get it more or less right for several hundreds of a percent lower.
Also the new self service kiosks make ordering a bit less grim http://burgerlad.com/2015/02/mcdonalds-touch-screen-ordering...
But it was of necessity. It was very difficult to get a good cup of coffee from other UK fast food outlets. Has coffee caught on in the UK? At the time, coffee seemed to be mostly an after dinner drink.
The takeaway: Don't dismiss a useful service that you can't directly monetize. It's possible that you can gain high-quality information which can be monetized indirectly. It's all about getting better information about a particular market than everyone else.
Yes, but often much of this can happen largely as a consequence of your doing something else, and you may not realize it.
convince a market that it is good information
Which is just basic Marketing.
and then prevent your competitors and your clients from simply replicating your process
Which is also a common issue with startups in general. Good word of mouth can keep you ahead of competitors, and you can make it cheaper for clients to just pay you than it would be to do it themselves. All basic things.
Sounds like they are deeply in the red because they were chasing something else? What if they realized this much sooner and didn't get so deeply into the red? Then they'd just have a solid and profitable business. I wouldn't discount this kind of business model. That kind of "sorta ok" is only a disappointment if you were hoping to be the next Facebook. Isn't that just greed clouding people's vision? A goose that lays copper eggs is still pretty darn nifty.
Nobody goes there anymore. It's too crowded.
I know it's a serious worry, but seems like one of those good problems to have.
The problem is that if those customers continue on their downward trajectory, it's going to hit McDonalds too ...
Then why is it crowded?
I found that rather depressing. All those people struggling to improve their business are merely struggling to increase the income of the property owner. (I guess if I had the money and inspiration to become a property owner it would be less depressing).
I think a lot of why real estate works for them is that the business is not affected by recessions - they may even sell more burgers if people can't afford fancy places. So they can buy real estate cheap when others can't.
Also - when people choose to eat less burgers, or there is less innovation in the menu, the stock price dips.
https://www.bostonglobe.com/magazine/2014/09/17/the-secret-w...
I've been to multiple understaffed McDonald's and man does the quality suck. When they have staff things are decent but now I can predict when a McDonald's will be bad.
Starbucks roasts all their coffee to relatively exorbitant degrees to cover up the inconsistency brought about by their very-multi-origin sourcing.
Some Starbucks locations sell "single origin" coffee which tastes quite a bit better, if only because they don't have to hide the variance in taste and can afford not to roast it to hell.
So it takes some effort to make it taste that bad. Keep up the good work SB!
I can grab a coffee and sit down with my laptop in Portland, Boston, or Yuma, and I will have the exact same mediocre experience. I don't care about having a transcendent coffee journey; I care about getting a predictable cup of coffee, a kinda-comfortable space, and wifi to check my email. That's it.
I can hunt for some coffeeshop that might be great or might be awful, or I can head into the local Starbucks and know exactly what I'm going to get.
I'm not actually poking fun of you, one of my friends has the same attitude - something that I just can't understand. I'd rather try and find something that was decent than something that's not.
Having to choose a coffee show, see if they have wifi, charging, not to noisy etc. is an inconvenience if you want to just get started on something quickly. You might only have an hour before a meeting if you are travelling for example.
Franchisees = OEMs
Franchisees not doing their best = laptop filled with crapware
Hacker News story placement can be confusing at times. I would understand if they have some tech centric metric somehow, but this isn't even tech?
> On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups. If you had to reduce it to a sentence, the answer might be: anything that gratifies one's intellectual curiosity.
Personally, anything that is counterintuitive or surprising gratifies my intellectual curiosity. "You thought that X was important for this business, but you've been bamboozled this whole time! It's actually Y!"
The discussion has introduced a couple of great documentaries as well as anecdotes from people who have worked in similar circumstances in retail, (i.e. the business is important, but the valuable real estate that they're sitting on is even more important) so I don't have a problem with this sort of submission.