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Are you thinking that a McDonald's pays a fixed rent? While every McDonald's (USA) has a minimum rent payment (base) once they get to a certain sales level they begin pay a percentage rent. There are very few McDonald's in the USA paying base rent. Most pay a percentage that depends on age but the average appears to be 12% to 13% of sales plus a 4% royalty.
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McDonald’s is rather slowly rolling out a change to service called Dual-Point. The customer orders at one end of the counter and picks up their food at the other end when their number flashes on a display.
It's not a panacea but a much needed step towards improving the customer experience and reducing frustrations on both sides of the counter.
McDonald’s Watchers who want same store sales increases at McDonald's USA should encourage and “pressure” management to make Dual-Point happen ASAP. If every McDonald’s restaurant in the country has Dual-Point by year's end there will surely be a positive impact on sales in 2014.
Morale is important and uncooperative franchisees can really bog down growth in a publicly held company. The franchise contract can only accomplish so much.
You are correct that McDonald's franchise agreements do not include territories. However, there are limits to how McDonald's can build new locations. Cannibalizing the franchised restaurants creates severe conflicts with the franchisees and a demoralized or angry franchisee community resulting in depressed sales, lack of reinvestment, a reduction in advertising funds, lack of participation in promotions, etc. etc. And there is still the risk of increased litigation.
We've been there before. In the mid-1990s McDonald's ramped up development with something called the "Convenience Strategy". In the U.S. they went from opening 300 locations a year to over 1,000 a year. Same store sales plunged and hundreds of franchisees were bankrupted. The company didn't get it's act back together until 2003.
McDonald's does not own all the real estate under the restaurants. That's an urban myth. The majority of the sites are leased. McDonald's does appear to own a majority of the buildings. The 4% royalty you mention is not the only income from food sales. The company makes far more income from the mark up on the rent they charge franchisees who pay anywhere from 9% to 20% back to the company on every dollar of sales, in addition to that 4%.
McDonald's same store sales in the U.S. have been stronger than most realize because the winter of 2011/2012 was unusually warm producing great sales at quick service restaurants and tough comparables this winter. This will also impact February as the U.S. had a fairly normal winter last month.
The reason McDonald's told investors sales would be negatively impacted by 3% in February is that last February was a leap year. It has nothing to do with actual sales trends.
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It really doesn't matter how many stores the biggest MCD franchisee owns because those larger operators are grandfathered in and likely the business has been in the family for generations. The real number is that, in the USA, the average franchisee owns between six and seven locations depending on how one counts the interwoven family ownerships.
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Craig - You are correct about Ray Kroc's focus on Q.S.C. & V. and to mention his "simple" model. The single biggest challenge the McDonald's system faces is that there is nothing "simple" about the operation of a McDonald's restaurant, for the franchisees or the customer. The menu has become so broad and so complicated that the speed of service becomes slower every year. This comes down to the "capacity" of the restaurant to serve larger numbers of customers quickly and accurately. These capacity limitations will make it difficult to increase traffic in the future, especially if the company continues to add complexity to the menu.
By the way, McDonald's does not own "virtually all of its franchised locations". The majority are leased from third parties and then sub-let to franchisees. It would be accurate to say McDonald's "controls" all of the real estate they lease to franchisees.
McDonald's executives have desperately wanted to be a competitor to Starbucks but have never sold enough espresso based drinks to dent Starbucks or turn a profit for the franchisees.
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The focus on value has diminishing returns. With a fixed "Dollar Menu" in place franchisees cannot adjust properly for food inflation and if franchisees raise prices on the core menu more customers turn to the Dollar Menu. Raising prices can actually lower the average ticket.
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If management thinks January is going to be negative then February will also be a problem. We all know there's one less day in February 2013 But February 2012 also benefited from the same warm winter weather as January 2012.
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While the service should be faster inside at McDonald's the idea that McCafe could be a stand-alone business is misguided. McDonald's now lumps almost all of their drinks under the McCafe brand so sales are substantial but fancy coffee drinks are a pathetic part of that business. Franchisees tell us they don't sell enough espresso drinks to pay for the electricity to run the espresso machine. And that's after wasting a billion or two in advertising espresso drinks. Let's not pretend McCafe is the next Starbucks.
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Why McDonald's Growth And Momentum Is Set To Stall [View article]
http://bit.ly/17PhQXD
Why McDonald's Growth And Momentum Is Set To Stall [View article]
It's not a panacea but a much needed step towards improving the customer experience and reducing frustrations on both sides of the counter.
McDonald’s Watchers who want same store sales increases at McDonald's USA should encourage and “pressure” management to make Dual-Point happen ASAP. If every McDonald’s restaurant in the country has Dual-Point by year's end there will surely be a positive impact on sales in 2014.
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to support a restaurant.
McDonald's: More Room To Grow? [View article]
McDonald's: More Room To Grow? [View article]
We've been there before. In the mid-1990s McDonald's ramped up development with something called the "Convenience Strategy". In the U.S. they went from opening 300 locations a year to over 1,000 a year. Same store sales plunged and hundreds of franchisees were bankrupted. The company didn't get it's act back together until 2003.
McDonald's: More Room To Grow? [View article]
The 4% royalty you mention is not the only income from food sales. The company makes far more income from the mark up on the rent they charge franchisees who pay anywhere from 9% to 20% back to the company on every dollar of sales, in addition to that 4%.
McDonald's: More Room To Grow? [View article]
The reason McDonald's told investors sales would be negatively impacted by 3% in February is that last February was a leap year.
It has nothing to do with actual sales trends.
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McDonald's: Today's Price Will Look Cheap 5 Years From Now [View article]
customers quickly and accurately. These capacity limitations will make it difficult to increase traffic in the future, especially if the company continues to add complexity to the menu.
By the way, McDonald's does not own "virtually all of its franchised locations". The majority are leased from third parties and then sub-let to franchisees. It would be accurate to say McDonald's "controls" all of the real estate they lease to franchisees.
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