Is McDonald’s a Burger Business? The Real Way It Makes Its Money
How McDonald’s makes money: rent and royalty cash flows, real estate control, and franchising mechanics that turn burgers into a global profit engine.
How McDonald’s Makes Money: Why the Fortune Runs Through Rent, Royalties, and Real Estate
If you believe that McDonald's success hinges on burger margins, you're misguided in your search for power.
The decisive window is 1955–1961: the moment a popular restaurant format became a scalable system, starting with Ray Kroc’s first restaurant in Des Plaines, Illinois (April 1955) and culminating in McDonald’s acquiring the brothers’ rights in 1961.
What the public buys is food. What the corporation increasingly “sells” is a bundle: a brand, an operating system, and (crucially) a controlled site. That bundle turns daily kitchen volatility into stable, contract-driven cash flows that rise and fall with franchisee sales.
The story turns on how burgers became the demand engine for a landlord-and-licensor model.
Key Points
The core contest isn’t burger profit per se; it’s control over sites and standards while pushing day-to-day operating risk outward to local operators.
The starting point is Des Plaines, Illinois (1955), when “one restaurant” becomes a repeatable template that can be copied at scale.
The key turning point is the contract stack: a franchise that typically combines brand rights with a lease relationship, turning locations into a controllable network rather than a loose federation.
In 2024, McDonald’s reported $25.496B total revenue, with $15.715B from franchised revenues and $9.782B from company-operated sales; franchised revenues included $10.017B of rent and $5.606B of royalties, and franchised restaurants were ~95% of restaurants worldwide at year-end.
The biggest constraint is real estate: access to prime corners, long-term leases, and the capital discipline to keep control of sites across cycles.
The hinge decision is keeping option value: franchise terms are typically long (often 20 years) and the company keeps control of the underlying real estate at the end of the term, preserving the ability to renew, reassign, or exit.
What changed most is where the profit concentrates (fees and occupancy economics); what endured is that the entire machine still depends on footfall, convenience, and predictable consumer habits.
Background
Fast food is a thin-margin knife fight if you own the kitchens: food costs swing, labor markets tighten, and a “bad” location can kill you even with a “good” menu.
Pure franchising solves the capital problem, but it creates a governance problem. If the brand owner can’t enforce standards, the logo becomes a liability and the customer experience becomes a lottery.
McDonald’s solved this by treating real estate control as a system lever. In its conventional franchise model, the company generally owns or secures long-term control of the land and building and collects rent and royalties that are tied to sales, while the franchisee runs the restaurant.
That structure sets up the trigger: a shift in incentives that makes scale financially and operationally enforceable.
The Trigger
The trigger was turning the franchise relationship into a property-backed relationship: not just permission to use a brand, but a lease-and-license arrangement where payments (rent and royalties) are linked to sales and protected by minimum rent structures.
That changes the payoff matrix. The corporation can demand consistency because it controls the site, and it can finance growth because long-term property control creates durable cash flow streams.
Once the site is the anchor, expansion becomes a question of repeatable execution rather than culinary genius.
The Timeline
1955–1961: A restaurant evolves into a contract stack.
In 1955, power begins with a single restaurant in Des Plaines, which then shifts to system-building. By 1961, McDonald's has acquired the brothers' rights, consolidating control over the concept and the brand.
The hinge is structural: franchise economics tied to real estate and sales-linked fees. A typical franchise grants the right to operate the system and, in most cases, use the facility over a long term (often 20 years), while the company retains control of the underlying real estate at renewal.
That is how a “store” becomes a replicable unit with enforceable standards.
1961–1975: Standardization turns scale into leverage
Once control is consolidated, the mechanism shifts to operational discipline: training, process, and supply discipline that make customer experience predictable across a growing footprint.
The constraint isn’t imagination; it’s compliance at distance. Real estate control gives the center a practical enforcement tool: if the brand owns the keys, it can enforce the system without running every shift itself.
As the network thickens, the system’s bargaining power rises with each added location.
1975–1995: Global expansion through local proxies
Crossing borders introduces legal, regulatory, and capital constraints that complicate a uniform ownership model. McDonald’s expands with structures where local partners provide capital (often including the real estate interest) while the corporation takes a royalty tied to sales and avoids direct restaurant capital in many markets.
The spillover is geopolitical in the quiet way: local coalitions, supply chains, and regulatory adaptation become as important as marketing. A global brand starts to behave like a distributed governance system.
The export isn’t a burger; it’s a playbook that can survive different laws and different politics.
1995–2014: Lease terms and option value harden the machine
With scale, the constraint becomes the portfolio: how to control thousands of sites while managing lease risk and reinvestment cycles. The company operates as a major lessee through ground leases and improved leases, often with long terms, escalation clauses, and renewal options typically at the company’s discretion.
That turns real estate from “a cost” into a capacity shift: an instrument that captures the best corners, internalizes long-run option value, and keeps the system coherent.
The economics begin to resemble infrastructure: boring, repeatable, and extremely hard to dislodge.
2015–Present: Burgers drive demand; fees drive resilience
By this stage, the model reads like a platform: franchise fees and occupancy economics matter more to corporate margins than the day-to-day cost stack of each kitchen. Franchised restaurant margins are explicitly framed around franchised revenues minus occupancy costs because the company generally owns or controls the site via long-term leases.
The spillover is that McDonald’s can scale technology, brand licensing, and system upgrades across a mostly franchised footprint without taking on proportional restaurant operating risk.
Once the model is set, the strategic fight shifts to where the next constraint bites hardest: property, politics, or the consumer.
Consequences
The immediate outcome is a cash-flow structure that is designed to be stable and predictable because it rides on franchisee sales rather than corporate-run kitchen economics.
The longer-run effect is bargaining power. When franchise terms end, the company maintains control of the underlying real estate and can renew with the same operator, switch operators, or close the restaurant, which quietly disciplines the network.
The second-order consequence is perpetual temptation for outsiders to “financial-engineer” the model (like REIT spin-off arguments) and the persistent reality that real estate control is also a governance tool that McDonald’s is structurally disinclined to surrender.
This is why the real debate is less about burgers and more about who holds the leverage when costs and politics shift.
What Most People Miss
Rent isn’t only a revenue line; it’s the enforcement mechanism. McDonald’s franchised revenues are built from rent and royalties tied to a percentage of sales, with minimum rent payments baked in, which makes the relationship both scalable and disciplinable.
That structure also manufactures option value. At the end of a typical long franchise term, the company keeps control of the real estate and can decide whether the operator stays, changes, or disappears.
So the business isn’t “food vs real estate.” It’s food as the demand generator for a contract-and-location system.
What Endured
Geography stayed boss. Prime corners, traffic flows, and convenience still determine whether the machine prints cash or leaks it.
Standardization stayed non-negotiable. A global brand survives because the customer experience feels predictable, even when the city is not.
Property rights and lease law stayed the hard substrate. A franchising empire works best where the paperwork is enforceable and the timeline is long.
Local politics stayed relevant. Zoning fights, labor rules, and community resistance can slow expansion even for a giant with deep pockets.
Those enduring constraints keep the model powerful, but never frictionless.
Disputed and Uncertain Points
Is “it’s a real estate company” a helpful description or a misleading simplification? The filings show rent and royalties are central, but the system still depends on consumer traffic and franchisee sales staying healthy.
How exposed is McDonald’s to real estate cycles? The company both owns and leases a significant portfolio, and shifts in lease costs, interest rates, and market rents can change the economics at the margin.
How much pressure can franchisee economics absorb before resistance rises? The model concentrates leverage at the center, but store-level economics still decide whether operators reinvest or revolt.
Will financial activists ever force a structural change (like real estate spin-offs)? The argument returns regularly, but the governance value of site control is a major counterweight.
The next chapter is less about “selling burgers” and more about whether this contract-and-location architecture stays politically and economically durable.
Legacy
McDonald’s built something bigger than a menu: a system where the corporation can compound power by controlling sites and monetizing sales through rent and royalties.
That template is now a global business pattern: a brand at the center, operators at the edge, and long-term property control as the glue that keeps standards enforceable.
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