Arthur online investigates McDonald’s long term success and illustrates how you can learn from it.
If an executive were to evaluate McDonald’s restaurant business model, you might receive a detailed report on the sales of Big Macs and chips. But what we see is a vast property market.
Apart from its well-known fast-food chain that results to an annual profit of over £3 billion, McDonald’s is also a brilliant £25 billion real-estate company. Part of its long-term success comes from a simple formula that goes beyond serving consistent products across thousands of restaurants around the world. A big part of its profitability comes from the fact that it owns the land and buildings at most of its locations – and its franchisees pay McDonald’s rent; making them the landlord of its franchise.
Former McDonald’s CFO, Harry J. Sonneborn, is even quoted as saying, “we are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”
McDonalds only 15% of the stores are directly run by the corporation, the rest are franchisee-operated. To their advantage, the number of franchisee McDonald’s locations has been steadily growing, as the company-owned number has dropped in the last decade. This means that they are decreasing overheads, whilst increasing recurring revenue.
The average rent per store amounts to about 22% of average gross profits each year for franchisees. Keeping that in mind, the company has more than 36,000 locations across more than 100 countries.
Being one of the most recognisable brands on the planet, McDonald’s generates revenue by owning their commercial properties that are rented to their franchise. Entrepreneurs from all sectors can follow their lead and use commercial ownership as a pathway to build their wealth and secure a better retirement.
We have listed a couple of strategies on how small business owners can grow their wealth with property ownership.
Don’t Pay Rent – Pay a Mortgage Instead
Buying a commercial property means that you no longer pay rent. Once you own the property, you will be responsible for monthly mortgage payments, with the benefit of this money going towards building your wealth. Many businesses end up realising that their monthly mortgage payments are less than what they used to pay in rent; and now they are moving towards owning a space.
Earning Probable “Annuity”
By retaining ownership of the building/store in which your business operates after selling your business, you completely “turn the tables” and become a landlord yourself. Whoever buys your business ends up not only paying you for the value of the business but also pays rent to you as the business continues to operate. Buying a property now can create an income stream that lasts into and beyond your retirement.
Entrepreneurs pour everything they have into their business; often failing to properly plan for their retirement. Yes, they think about selling their business one day, but what other strategies can small business owners employ now that don’t rely on exiting through a sale or buyout? The answer will be owning real estate for their business. – a strategy which can save a business money and help the owner generate wealth. Here at Arthur, we think that It is safe to say that we can all learn from the real estate wisdom of McDonald’s to better plan our future.
Now that you own your property, how will you manage it with complete ease of mind? This is where we can help. Manage your properties with our effective and efficient property management software, designed to work in any property sector.
Commercial property management is different from the process of managing other types of property. There are usually different contractual obligations, service agreements, tenancy notification agreements etc., which come with their own set of regulations you need to follow.
Arthur’s software enables you to keep everything up to date and all in one place – so you can always have the stakeholders fully updated, each of them having their own different level of access to the system. Saving you time – and money – and keeping everyone happy. Which obviously leads to a better relationship all round and thus longer contracts with your tenants.