This incident is not disclosed in the McDonalds FDD Franchise Disclosure Document (nor is it required to be disclosed):
In early 2009, authorities reported a 27-year old woman in the State of Florida called 9-1-1 not once, not twice, but three times after McDonalds' employees told her they ran out of Chicken McNuggets. Although the woman was cited for abusing the 911 emergency network, the incident shows just how deeply ingrained the Mighty Mac is in our national psyche. With over 30,000 locations and fifty-plus years in the burger business, the McDonalds brand continues as the most recognized and successful franchise in the world. It is also said to be the world's largest restaurant company.
The McDonalds Franchise Fee & Royalty Fee
Not surprisingly, before considering anything else many would-be owners ask themselves questions like: How much does a McDonalds franchise cost? How can I buy a McDonalds franchise? How much does a McDonalds franchise owner make? What are McDonalds franchise profit margins? They hear McDonalds franchise earnings and profits are substantial and the cost to buy a McDonalds franchise is $45,000 - an investment that's within their franchise affordability range.
As with most things in life, a little information is a dangerous thing. While it's true McDonalds charges a $45,000 franchise fee, this is only the initial fee for licensing rights - the upfront fee charged to join the network and access the McDonalds System. There's a LOT more financial commitment and cost involved to buy a McDonalds franchise after that.
The McDonalds royalty fee (called a "service fee") is currently 4% of gross sales each month. In addition, a monthly base rent or percentage rent that is a percent of gross sales is also payable to McDonalds.
All the need-to-know info is disclosed in precise detail in the mammoth 386-page McDonalds FDD Franchise Disclosure Document issued May 1, 2011 and amended January 15, 2012. This FDD is very difficult to obtain but can be ordered using the first PayPal link below. On top of the investment, there are other franchise qualifications to being a McDonalds franchise owner besides just having the money. If you just have the money but don't fall within these other criteria, your franchise application won't go anywhere.
Different McDonalds Franchise Ownership Options
According to McDonalds, there are two different options to buy a franchise and enter the McDonalds system. McDonalds franchises for sale are apparently available under either option.
The first, and most frequently used method to buy a McDonalds franchise for sale is by buying an existing restaurant. Even here there are different ways to go. One is to buy a McDonalds restaurant that's operated directly by McDonalds corporate and is up for sale - a company-owned restaurant sold as a turnkey franchise. As mentioned below, McDonalds announced plans to sell off twenty-one percent (21%) of its 7,000 company-owned restaurants as franchises over a three-year period. So that's a lot of McDonalds franchises for sale - 1,470 to choose from - all with an established customer base, financial track record, etc.
Still under the most frequently used method to buy a McDonalds franchise (an existing restaurant) the second path is to buy an existing McDonalds for sale that's being sold by a McDonalds franchise owner/operator. Perhaps the owner is retiring, downsizing the number of McDonalds franchises he or she owns, or just wants to cash out and go on a permanent vacation. A list of the McDonalds franchise owners is an exhibit to the FDD. You can buy the entire McDonalds FDD or just the list of franchise owners (sold separately). See below for PayPal details.
Besides buying an existing restaurant, the other, (and according to McDonalds) infrequently used method is by obtaining licensing rights for a brand new McDonalds restaurant.
This is an infrequently used way because (a) most of the prime and secondary locations are already developed; and (b) with a new restaurant, McDonalds usually buys the land, builds the restaurant shell and leases the property to the franchise owner-operator over the twenty-year term of the McDonalds franchise agreement. Given this sizable investment, and the fact that McDonalds is investing in more lucrative, international markets these days, like China and Russia, getting a new U.S. McDonalds franchise doesn't seem very likely.
Let's consider these options in reverse order, since McDonalds provides few financial details on the first, most frequently used method of buying an existing McDonalds restaurant.
Buying A New McDonalds Franchise
For franchise licensing rights to a standard new McDonalds, the company charges its standard $45,000 initial fee.
If the franchise is for a McDonalds located in a gas station or convenience store (called a McDonalds STO), the franchise fee is reduced to $22,500.
There are also McDonalds franchises located in retail stores, like Walmart as well as in hospitals, universities, airports, etc. These are called Satellites. For Satellites, the McDonalds franchise fee ranges from $0 to $500.
The other cost categories associated with establishing a new McDonalds franchise include real estate, signage, seats, equipment an decor, opening inventory, training and working capital. These are broken out individually in Item 7 of the McDonalds FDD.
For a Satellite McDonalds, the total is $172,425 to $627,050. For a McDonalds located at a gas station or convenience store, the total is $837,750 to $1.2 million. And the standard, new McDonalds restaurant clocks in with an investment total of $1 million to $1.9 million. Each of these include substantial amounts for working capital.
So, a new McDonalds franchise, depending on the model selected, can range from a low of $172,425 to a high of $1.9 million.
Per McDonalds, the factors impacting new restaurant costs are: size of the McDonalds restaurant facility, area of the country, pre-opening expenses, inventory, selection of kitchen equipment, signage, style of decor and landscaping.
A detailed breakdown of the initial investment costs into different categories (including a working capital component) for each of the three McDonalds franchise models is provided in Item 7 of the 386-Page McDonalds FDD Franchise Disclosure Document for 2011 to 2012.
Buying An Existing McDonalds For Sale
What about the most frequently used method of buying a McDonalds franchise for sale - by purchasing an existing restaurant from a current McDonalds franchise owner or one that's company-owned by McDonalds and sold as a turnkey franchise? Unfortunately, details about how much this McDonalds franchise costs are not specified, other than the following statement:
"The purchase price of an existing restaurant varies and is dependent upon a number of factors including sales volume, profitablity, occupancy costs, reinvestment or improvement needs, competition and location."
To get a better handle on this statement, when "turnkey"(existing, for sale) franchises are sold in any industry (McDonalds included) most of the purchase price reflects the value of the business as a going concern with goodwill, a business generating (in the case of McDonalds) $x Million in sales and $x six-figures in profits or income.
A typical McDonalds restaurant that's been operating for at least one year generated $2.4 million in annual sales in 2010 (up from $2.3 million in 2009), with operating incone in the mid to high six-figure range. Based on my experience, I estimate the sales price of an existing McDonalds franchise (or company-owned restaurants sold as turnkey franchises) to be in the $2 million to $6 million range, plus or minus, depending on their sales, profit margins, historical trend, etc.
For existing turnkey franchises, twenty-five percent (25%) of the purchase price must come from liquid, personal assets and the balance can be financed from traditional lending sources. So, if you are buying an existing McDonalds franchise restaurant for $4 million, for example, you will need $1 million in liquid personal assets and the ability to raise another $3 million to cover the total purchase price.
McDonalds Sales, Profits and Expenses - Item 19 of McDonalds FDD
With all this investment, what does a McDonalds owner earn? What are McDonalds franchise owner profits? The franchise profit-earnings question is something most franchise companies don't answer, and usually for a reason - their earnings picture doesn't look very . . . appetizing. McDonalds, on the the other hand, gives detailed financial information in its 373-page FDD Franchise Disclosure Document because it has a good story to share.
According to the McDonalds FDD Item 19, the average sales volume of traditional restaurants in the U.S. open at least one year was $2.4 million in 2010. The highest sales volume for a U.S. McDonalds in 2010 was $9.8 million (the "star" performer). The lowest performing restaurant clocked in at $387,000.
Item 19 of the McDonalds FDD goes on to list proforma financial results for restaurants that hit three different sales levels - $2 million, $2.2 million and $2.4 million, showing cost of sales, gross profit and operating profit at each level. Operating profits are in the mid to high six figures at each sales level.
Unlike other franchise companies with similar investment levels, McDonalds steps up to the plate and provides detailed franchise earnings information in Item 19 of its FDD. Other franchise companies, in comparison, "elect" to say nothing in Item 19, reminiscent of the famous line in "The Treasure of the Sierra Madre," John Huston's 1948 classic movie: "Where are our badges? We don't need no badges. . . We don't have to show you no stinking badges."
A word to the wise: insist on seeing their stinking badges. Jumping into a big, black financial hole never makes any sense, except to unscrupulous companies that are not as forthcoming as McDonalds when it comes to providing detailed franchise earnings information.
Does McDonalds Allow Investors?
Per McDonalds, it franchises restaurants to individuals who personally operate their restaurants and are involved in day to day operations. McDonalds does not franchise to partnerships and does not allow investors.
McDonalds On The Move
In late 2007, McDonalds announced plans to sell off 21% of its 7,000 company-owned restaurants as turnkey franchises over a three-year period.
The announcement begins a strategic plan of reducing its restaurant ownership so McDonalds can funnel more resources into fast-growing markets such as China, Russia and India. McDonalds CFO said on a per-restaurant basis, Russia is the company's most profitable market.
This means there are a lot more existing McDonalds franchises for sale - both by McDonalds corporate as part of its diversification strategy well as by existing McDonalds franchise owners.
Ready to get out your checkbook? Even if you are, there's a lot more franchise qualifications for obtaining a McDonalds than just having the investment capital.
3 Steps To Apply For A McDonalds Franchise - Tips From A Franchise Expert
Before applying for a McDonalds franchise, I recommend you proceed with the following three steps:
Step One - learn as much about the franchise program as you possibly can, as this will help you complete their application from a position of knowledge, and impress McDonalds - definite advantages. The best way to do this is by a careful review of the entire 386-page McDonalds FDD Franchise Disclosure Document issued by McDonalds on May 1, 2011 and amended January 15, 2012, which you can obtain at best pricing on the net only through our firm (see PayPal link below).
Step Two - using what you learned from the McDonalds FDD, print out (but don't send to McDonalds yet) the McDonalds Franchise Application form. Don't file the 60-second, online application form with McDonalds. If you do, you'll be missing an important opportunity (see step 3). Next, proceed to step three, below.
IMPORTANT UPDATE - McDonalds has recently eliminated their PDF long-form franchise application. But a lot of these are still circulating, and undoubtedly will be accepted for quite a while, which means you have a unique opportunity that most applicants don't. If you use Mr. Franchise's application review-fine tuning service, we will send you the PDF long form application and help you complete and submit it. The long form gives you a significant opportunity to present your qualifications and background in much greater detail. This, coupled with Mr. Franchise's input in how to structure your application and attachments, gives you an opportunity that others don't have and won't last long. So we strongly advise you to act on this right away.
If you are looking for the McDonalds franchise application for a specific country, contact us for details using our Franchise Attorney contact page or the email link in the next paragraph.
Step Three - before submitting your franchise application, send your draft to me by email so I can review your application and help fine-tune the information and narratives, based on my three decades of franchise industry experience dealing with franchise companies including McDonalds. I may also recommend you include a couple other items in addition to the application information. That way, your franchise application will be submitted in the very best possible way. Only this strategic approach will give you the best chance of standing out and competing favorably against the many thousands of other McDonalds franchise applications.
You only get one chance to make a good first impression. A review and fine-tuning of your McDonalds franchise application by an internationally-recognized franchise expert like me can go a long way towards making the best possible first impression so that you move forward in the process and get to that critical first interview. A charge applies for this franchise application review - fine tuning service.
Some potential clients say "Why should I pay you to help me with my application - McDonalds will surely approve me?" They go ahead and file the application on their own - and never hear from McDonalds or get a "thanks for your interest, but no thanks" response. Other more astute clients use my application assistance service, with much different results. In the latest example, I helped a client review and fine-tune the application. Two weeks after the application was submitted, he was invited by McDonalds for the initial franchise interview. That's not to say he is guaranteed to get a McDonalds franchise. But he's made the cut - something 95% of applicants fail to do. Think of McDonalds as the Harvard-Yale-Stanford of franchise companies: they are very selective and one misstep or misstatement is all it takes to get eliminated. I've been helping people for 30-plus years now, so I know a thing or two about McDonalds as well as how to make a franchise application really stand out.
Getting The 2011-2012 McDonalds FDD - Franchise Disclosure Document - - - - - a 386-page Treasure Trove of Information
The McDonalds FDD - a 386-page Treasure Trove of Information
The 2011-2012 McDonalds Franchise Disclosure Document (issued May 1, 2011 and amended January 15, 2012) is a treasure trove of detailed information and is very difficult to obtain. Weighing in at 386-pages, it provides precise detail and answers to questions about the McDonalds franchise program you won't find anywhere else. To order your copy of the entire McDonalds FDD click on the PayPal link below for best pricing on the net. We are a verified and long-standing, sterling member of PayPal and your purchase is safe and protected.
After payment is received, we email you a link to the entire FDD on YouSendIt as a PDF files. Sending the McDonalds FDD is not automatic after you pay with PayPal. We have to receive notice of your payment from PayPal, then send you the download link. Your order is usually sent to your email within 24-hours.
The 386-page McDonalds FDD is a treasure trove of information about the franchise program - the three different investment models (regular McDonalds, McDonalds Satellites and McDonalds STO), the franhise relationship, the McDonalds investment and working capital needs for each of three investment models, the intensive franchise training program, cost of sales, gross profit and operating profit of McDonalds franchises, etc. The FDD also contains 3 years of audited financial statements on the franchise entity offering McDonalds franchises, so you can see how much money McDonalds makes.
We also offer a 161-page list containing over 11,000 listings of U.S. McDonalds franchise owners (that can be purchased separately) - their names, store addresses and phone numbers - as provided by McDonalds. And we have another list (by name, address, phone number and email address) of the McDonalds franchisee organizations the virtually all franchise owners belong to.
Want to buy just the McDonalds franchise agreement? The McDonalds franchise contract can be purchased separately and is a true work of art - significantly smaller (and fairer) than most other franchise agreements used in the franchise fast food industry.
Our $180 price for the entire 386-page McDonalds FDD is also reasonable - less than fifty-cents a page and $40 to $50 less than what you will pay for the FDD using anyone else, if you can find it.
Want to purchase just the 161-page, 11,000-plus list of McDonalds franchise owners? Click the PayPal link below for best pricing on the net. The list is compiled by state, then city by McDonalds. We email it to you as a downloadable PDF file.
Want to order just particular Items of the FDD? Like Item 19 Financial Performance Representations or Item 7 Estimated Initial Investment or one of the exhibits to the FDD - like the actual 16-page McDonalds franchise agreement (makes one wonder why other franchise companies require 50-page or 100-page franchise agreements when McDonalds gets by with only a 15-page franchise agreement), click on the PayPal link below to order individual items of the McDonalds FDD.
Order The McDonalds FDD Here - Click On The PayPal Link
Order just the List of McDonalds Franchise Owners - Click on the PayPal Link Below
Order just the List of McDonalds Franchisee Organizations - Click on the PayPal Link Below
Order just Item 19 of the McDonalds FDD - Click on the PayPal Link Below
McDonalds Franchise Agreement - click the PayPal Link below
They Prayed and God Answered - With A McDonalds Franchise
Parishioners at Brentwood Baptist Church in Houston, Texas are singing the Lord's praises right along with various McDonald's slogans. The church is the first in the nation to have a McDonalds hamburger franchise on its grounds.
The Rev. Joe Ratliff, Brentwood's Pastor, came up with the idea for the McDonalds at Brentwood. He took his brainstorm to Ernest Redmond, a Deacon at the church and owner of four McDonalds restaurants.
The two developed a business plan showing the closest McDonalds was three to five miles from the church, the traffic patterns in the community as well as the foot traffic at church. Every Sunday thousands of people flock to the church's three services. During the week, 700 to 1,000 people are present each night for Bible study, Boy Scout meetings, choir rehearsals, and other church functions. There is also a high school and an elementary school elementary school just two blocks from the church.
The business plan was presented to McDonalds corporate, and in May 1999, the church was given the go-ahead to build the franchise. The new restaurant and drive-through window was then allotted 3,000 square feet on the Church’s Learning Center's grounds.
A limited partnership between Redmond and the church was created. Redmond eased the approval process by using his existing McDonalds franchise license, and agreed to oversee management of the business. Men of the cloth and McDonalds – the Lord does provide.
McDonalds In China
Not impacted by the current recession, McDonalds sales and profits continue to rise in the U.S. and in international markets. While other companies are laying off employees in droves, in April, 2009 McDonalds announced hiring 10,000 new employees. The bad news is all the hiring is taking place in China, an international market McDonalds targeted in the 1980's as yet another component of its strategic franchise vision.
McDonalds Entry Into China
The first McDonalds restaurant opened in Shenzhen, China in 1990. With it, China became the 53rd country to have a McDonalds outlet within its borders. Buoyed by the success of its Shenzhen restaurant, the second - a Mega-McDonalds with 28,000 square feet - opened in Beijing in April, 1992. It attracted 40,000 customers on opening day. McDonalds growth in China continued steadily and pervasively.
In 2004, the Mighty Mac launched McKids in China, selling clothes, toys, games, DVD's and books throughout it's chain that had grown to 600 restaurants serving loyal Chinese residents. In 2008 that number mushroomed to 960 McDonalds restaurants and over 60,000 employees, making China the largest growth market for McDonalds. By December, 2010 there were 1,100 restaurants in China, (compared to 3,200 KFC's) and the McDonalds training center was relocated from Hong Kong to Shanghai. The McDonalds strategic vision in China continues to focus on core menu extensions, convenience and value.
McDonalds formed a strategic partnership with Sinopec, gaining access to China's national gas stations network. Sinopec operates 300,000 gas station locations. While McDonalds won't establish restaurants at all of these, they will pick the best strategic locations.
McDonalds in China Updates. China continues to be a big numbers game and is the fastest-growing market globally for McDonalds which operates 8,482 restaurants in the entire Asia Pac region. With a record 200 new stores in China in 2011, the goal is to grow its current number (1,400 restaurants) to more than 1,600 in the world's third-largest economy by 2013.
Cost of McDonalds in China. McDonalds has almost exclusively operated company-owned restaurants since entering China two decades ago. The Mighty Mac expanded it's franchise program in April, 2010 by posting information on its China website inviting new franchise applications. Interested parties must have at least 2 million yuan (US $293,000) to cover franchise fees, equipment and other expenses. New McDonalds franchises are being granted in East China's Jiangsu Province.
A New McDonalds A day in China. The Mighty Mac plans to open a new restaurant in China every day in the next three to four years, the company's president for Asia announced at the end of July, 2011. McDonalds now opens a new restaurant there every other day, directly challenging leader Yum! Brands for the number one spot in Asia's largest economy. Yum has about 4,500 restaurants operating there as of 2012 under KFC, Pizza Hut, etc. brands, and China is Yum's biggest earnings driver. Worldwide more than 75% of McDonalds are operated by franchise owners, but so far only 36 in China are franchised. The mix of franchised stores in China is expected to change significantly in 2012 and beyond. Franchising can enable the Mighty Mac to significantly accelerate its expansion in China and is seen as a very effective way to grow. In contrast, most of the 800-plus McDonalds restaurants in the Middle East are franchised.
McDonalds In Other Parts of Asia
McDonalds in Malaysia. In early 2010, McDonalds announced plans to open 30 more restaurants in Malaysia within three years. As of 2010, the Mighty Mac had 194 restaurants there, with 21 managed by 10 franchise owners.
McDonalds in Korea. McDonalds plans to boost investment in Asia by at least 20% in 2010, moving into big beef eating markets such as South Korea as consumer spending recovers. McDonalds operates 227 restaurants in South Korea currently. With 48 million people who love to eat beef and have an average household income of $30,000, the Big Mac plans to invest $15 million there and double that in 2011.
Other McDonalds Info
McDonalds in the Recession
The Mighty Mac continues to grab market share. McDonalds corporate as well as franchise owners are making enough money to invest in remodeling restaurants, while competitors scramble and play catch up.
Healthier Happy Meals Translate to Healthier Sales
Another smart strategy recently adopted is a fine-tuning of Happy Meals. When kids order the new Happy Meal it automatically comes with 50% less french fries and a quarter-cup of apple slices. There's also an option to hold the fries and get twice as many apple slices.
This is undoubtedly in response to the Happy Meal's current 30th place in a list of healthy meals. It's also a dual-prong strategy: more Happy Meal orders translates to more Big Mac orders from parents. Happy Meals are said to account for about 10% of sales, or $3.2 billion. That's a big number in anyone's book - especially for the lucky apple supplier out there that is suddenly handling orders for 14,000 U.S. McDonalds stores.
McDonalds Plays the Chicken Card
In May, 2012, Don Thompson, CEO of the world’s largest restaurant chain, announced some menu changes. The company's 160-item recipe book includes cashew chicken teriyaki salads, a large chicken wrap, Spicy Chicken McBites and others.
Thompson said “Our customers have given us permission to stretch our brand, so we are entering new categories with new products.” The business reality is chicken items can be priced lower than other proteins, and will appeal to budget-minded consumers. And chicken is generally viewed as a healthier alternative to beef. Overall, Thompson announcement is a logical extension of a strategy adopted five years ago that introduced oatmeal, snack wraps and McCafe fruit smoothies to draw more traffic and satisfy health-conscious patrons.
The Mighty Mac uses Geotargeted Mobile Ads
Another strategy recently adopted in winter, 2011 is McDonalds use of a new mobile ad campaign to promote its hot beverages and bolster hot McCafe sales. Mobile ads within Pandora's iPhone also recognize the user's location and show how far away the nearest McDonalds is. When a consumer taps on the "learn more" mobile ad button they go to a mobile-optimized landing page showing a selection of nearby McDonalds' and the distance to each. In early December, 2011 the conpany used mobile ads to promote its breakfast selection through an interactive memory game and most recently to promote Big Macs.
For an informative franchise article about the rise of the McDonalds franchise chain, go to our franchising articles page - History of Franchising - McDonalds, KFC etc. It includes details about the original owners, the McDonald brothers, and how they applied Henry Ford's assembly line production techniques to the burger business. Just by chance, they happened to meet Ray Kroc, a multimixer milkshake salesman, who provided the strategic vision to grow the business via franchising, something the McDonald brothers were not interested in considering or pursuing. Trusted with this responsibility, Kroc went on to build the McDonalds franchise empire to what it is today. There's also information about another McDonalds franchise strategic vision - the McDonalds McCafe concept. Started and refined overseas, the McCafe concept is now storming the U.S. market. McDonalds is successfully slugging it out with Starbucks, landing body blows and capturing critical market share. McDonalds sales and profits grow, while Starbucks closes many hundreds of U.S. locations.
Check back for moe franchise updates and other details about a McDonalds franchise investment.
Locating A McDonalds Franchise
The McDonalds Franchise Training Program
Copyright 2012, Franchise Foundations, a San Francisco professional law corporation. The information you obtain at this franchise website is not, nor is it intended to be, franchise legal advice. You should always consult a franchise attorney - franchise lawyer for individual advice regarding your own situation and franchise disclosure documents. Use experienced FranchiseLawyers and FranchiseAttorneys for advice with your franchise legal documents and needs. Use an experienced MBA Franchise Expert for help with franchise consulting issues.
Last Franchise Website Update: September 15, 2012
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