Published on 23 Jul 2020 Time 7 min read Last update by 29 May 2024

Who Owns McDonald’s? Can You Afford the McDonald’s Franchise Cost? (2024)

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This article is based on its 2022 FDD

McDonald’s is the quintessential American fast-food chain restaurant. It was founded in 1940 as a restaurant operated by Richard and Maurice McDonald in San Bernardino, California, United States. Since then, they have served hamburgers, chicken nuggets, french fries, milkshakes, and ice cream. In the present day, it has over 36,000 locations in over 100 countries around the world.

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Mc Donald’s: Franchising Company

McDonald’s has been a franchising company since 1955 and has relied on its franchisees to play a major role in the system’s success. Currently, about 95% of all U.S. restaurants are franchised to independent franchisees and about 5% are company-owned.

Chris Kempczinski is the current President and Chief Executive Officer of McDonald’s Corporation. He joined the company in 2015 overseeing global business strategy, business development, and innovation. In addition to this, he previously served as the President of McDonald’s USA and was responsible for the business operations of approximately 14,000 McDonald’s franchises in the US.

While we expect that 2022 will be a year of
continued progress, we also anticipate that many
of the challenges we experienced in 2021 will endure.

McDonald’s 2021 Annual Report


CTA FDD 2

How Is McDonald’s Positioned in the Fast Food Industry?

McDonald’s is the leader in the fast-food industry with its large presence around the world stage. Naturally, it faces competition from other fast-food chains such as Burger King, Wendy’s, and Five Guys.

How Much Do the Franchises Cost?

The total investment to begin the operation of a traditional McDonald’s franchise ranges from $1,366,000 to $2,450,000, which includes an initial franchise fee of $45,000- that must be paid to the franchisor.

 Below is a breakdown of the total initial investment:

Your Estimated Initial Investment

Type of Expenditure Amount To Whom Payment Is to Be Made
Initial Franchise Fee $45,000; McDonald’s
$22,500;
$0 to $500
Real Estate and Building — 3 Months’ rent Base Rent $0 to $313,000; McDonald’s
$0 to $60,000;
$0 to $60,000;
Percentage Rent 0.00% to 0.31.75%;
0.00% to 0.15%;
0.00% to 15.75%
Signs, Seating, Equipment, and Decor $1.000,000 to $1,600,000; Vendors
$670,000 to $1,210,000;
$340,000 to $520,000
Open Inventory $20,000 to $39,000; Vendors
$13,500 to $25,000;
$10,000 to $32,000
Miscellaneous Opening Expenses $48,000 to $60,000 Vendors Utilities
Travel and Living expenses While Traveling $3,000 to $38,000 Airlines Hotels Restaurants
Additional Funds — 3 months $250,000 to $355,000; Employee Suppliers Utilities
$185,000 to $225,000;
$80,000 to $110,000
TOTAL $1,366,000 to $2,450,000;
$942,000 to $1,640,500;
$481,000 to $820,500

Requirements to Open a McDonald’s Franchise

They require significant Business Experience, as well as other requisites such as:

  • Business plan
  • Good Credit History
  • Manage finances well

Franchised restaurants generated the highest revenue averaging about $6.09 billion annually.

Franchises On-going Fees

Service Fee: A monthly fee of 4% of gross sales (4.5% of Gross Sales in Alaska, Hawaii, Guam, and the Northern Mariana Islands)

Advertising and Promotion take more than 4% of gross sales

How Much Do the Franchises Owners Make?

The median annual sales volume of franchised McDonald’s restaurants open at least 1 year as of December 31, 2021, was $3,366,000 during 2021 —a $458,000 increase compared with the amount recorded in the previous FDD regarding 2020 numbers.

Using the median annual sales and the midpoint investment of $1,813,897, we calculated the time it would take you to recoup your investment and below are the results of our analysis.

Initial investment (midpoint) %Profit margin of median franchise sales Estimated Profits Time to recoup the investment (including 2 years for scaling up)
$1,813,897 10% $290,800 8.5 years
15% $436,200 6.5 years
20% $581,600 5.5 years

With a profit margin of 10% or more, it would take about 8.5 years or less to recoup your initial investment.

Are McDonald’s Franchises Profit Worth the Franchise Cost?

When you go to sell a McDonald’s franchise based on the median multiple of 0.34 and net sales of $2,908,000 in 2020, it would sell for $988,720. This is lower than the midpoint initial investment of $1,813,897 by about $800k. Your business would therefore sell for less than your initial total investment.

However, with net sales over $5 million, the median multiple increases to 0.86. In consequence, owning several franchises whose average net sales are over $5 million would yield a bigger income. For example, if you own 10 outlets, the estimated net sales would be about $29,080,000. With a sell median multiple of 0.86, the resale value of this multi-system business would be $25,008,000 which is higher than the estimated initial investment of $18,138,970. Therefore, the business will be worth over $6 million more than your initial investment.

McDonald’s Franchise Income Statement

Consolidated Statement of Income for McDonald’s USA, LLC

(in millions) Years ended in December 31,
2021 2020 2019
REVENUES
Sales by Company-operated restaurants $2,616.5 $2,394.7 $2,489.7
Revenues from franchised restaurants 6,093.9 5,261.0 5,353.0
Other revenues 154.6 173.0 160.1
Total Revenues 8,865.0 7,828.5 8,002.8
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses
Food & paper 719.6 676.6 724.2
Payroll & employee benefits 822.4 765.3 828.5
Occupancy & other operating expenses 564.0 547.6 548.9
Franchised restaurants — occupancy expenses 1,188.2 1,164.3 1,125.7
Selling, general & administrative expenses 695.6 625.1 586.8
Other operating (income) expense, net 13.3 133.4 0.5
Other Restaurant Expense 107.3 127.1 119.5
Total operating costs and expenses 4,110.4 4,039.4 3,934.1
Operating income before royalty to parent 4,754.6 3,789.1 4,068.7
Royalty expense to parent 923.2 813.5 811.6
Operating income 3,831.4 2,975.6 3,257.1
Interest expense — net of capitalized interest of $3.3, $2.7 and $3.5 45.8 79.3 97.5
Non-operating (income) expense, net (1.7) (2.5) (4.1)
Income before provision for income taxes 3,787.3 2,898.8 3,163.7
Provision for income taxes 934.2 391.9 782.7
Net income $2,853.1 $2,206.9 $2,381.0

Income Statement Key Insights

To the franchisor, McDonald’s is a very profitable business with an average annual net income of over 2 billion dollars. The average net income of 2021, 2020, and 2019 was $2.480 billion. Franchised restaurants generated the highest revenue averaging about $5.5 billion annually. High net incomes are a testament to the success of the McDonald’s franchise business.

Stock Growth

McDonald’s Franchise Cash Flow Statement

Consolidated Statement of Cash Flows for McDonald’s USA, LLC

(in millions) Years ended in December 31,
2021 2020 2019
Operating activities
Net income $2,853.1 $2,206.9 $2,381.0
Adjustments to reconcile to cash provided by operations
Charges and credits:
Depreciation and amortization 840.7 813.9 726.7
Deferred income taxes 11.7 139.3 151.2
Other 17.2 (4.0) (137.8)
Changes in working capital items:
Accounts receivable 66.8 189.9 121.7
Inventories, prepaid expenses and other current assets (14.4) 3.4 25.7
Accounts payable 14.9 (11.9) (26.3)
Income taxes, state 77.9 (31.8) 2.8
Other accrued liabilities 117.3 (44.4) 14.2
Due (to) from parent, net 52.2 (146.0) (279.9)
Cash provided by operations 4,037.4 3,115.3 2,979.3
Investing activities
Property and equipment expeditures (940.7) (890.4) (1,480.5)
Purchases of restaurant businesses (255.5) (1.6) (6.7)
Sales of restaurant businesses and property 104.3 9.6 126.7
Other, Net (92.4) (12.4) (333.5)
Cash used for investing activities (1,184.3) (894.8) (1,694.0)
Financing activities
1. Long-term financing issuances 0.1 0.1 0.1
2. Long-term financing repayments (0.2) (0.4) (0.4)
Other financing (18.7) (13.9)
Dividends to parent (2,853.1) (2,212.9) (1,280.6)
1. Cash used for financing activities (2,871.9) (2,213.2) (1,294.8)
2. Cash and equivalents increase (decrease) $(18.8) $7.3 $(9.5)
3. Cash and equivalents at beginning of year $49.3 $42.0 $51.5
4. Cash and equivalents at end of year $30.5 $49.3 $42.0
Supplemental cash flow disclosures
Interest paid (excluding amounts paid to parent) $— $0.3 $0.3
State income taxes paid (excluding amounts paid to parent) $121.0 $70.7 $64.8

McDonald’s Franchise Cash Flow Statement Key Insights

McDonald’s reported positive cash and equivalents at the end of 2021, 2020, and 2019, averaging about $40.6 million. Therefore, its cash flow statement indicates that the business manages their investing and financing activities appropriately, which is a sign of healthy financials.

The company has a long history of franchising dating back to 1955 which has played a big role in its success over time.

buying-a-mcdonalds-franchise

How Many Units Have Opened and Closed?

System-wide Outlet Summary for Years 2019 to 2021

Outlet type Year Outlets at the Start of the Year Outlets at the End of the Year Net Change
Franchised 2019 13,229 13,185 -44
2020 13,185 13,022 -163
2021 13,022 12,775 -247
Company-Owned 2019 683 559 -24
2020 659 657 -2
2021 657 661 +4
Total Outlets 2019 13,912 13,844 -68
2020 13,844 13,679 -165
2021 13,679 13,436 -243

 

At the end of 2021, there were 12,775 franchised outlets. A total of 247 outlets closed down in 2021 and 163 had closed down in 2020. The 2020 closures could be attributed to the negative economic effects of the Covid19 pandemic, which led to most franchisees not renewing or extending the franchise at the end of the specified term. Furthermore, the closures could be a result of a mutual agreement during the franchise term.

Is It Worth Investing in a McDonald’s Franchise?

There are over 36,000 McDonald’s franchises around the world with about 13,000 of them in the United States. The company has a long history of franchising dating back to 1955 which has played a big role in its success over time.

With an average initial investment of about $1.8 million, it would take you 8.5 years or less to recoup your investment with a 10% or more profit margin. These figures are calculated from the 2020 average median net sales from a McDonald’s franchise in the US which is about $2.9 million. The number of franchised outlets has continued to increase in the US apart from 2019 and 2020 when 207 outlets closed down. This could be attributed to the negative economic effects of the Covid19 pandemic which saw a lot of small businesses around the country shut down. To the franchisor, McDonald’s is a very profitable business with net incomes averaging over $2 billion annually.

woman eating french fries in a fast food

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