McDonald’s is the franchisor’s franchisor. With more than 40,000 stores around the world—most of them privately owned and operated—McDonald’s remains the most prolific franchisor on the planet, boasting nearly $90 billion in global sales. Indeed, one would have to venture as far as Iran and Nigeria to find a community without America’s most iconic fast-food restaurant. McDonald’s serves nearly 70 million customers daily. At last count, the hamburger giant was bigger than KFC and Burger King combined—with enough room to add Subway to that total too.
Despite the ubiquity of the golden arches, McDonald’s is always looking for new partners to open locations in those still-untapped markets and, more often, to purchase existing stores. Last year, the corporation announced a global initiative to help members of underrepresented communities become franchisees, committing $250 million to assist those who face economic barriers but still want to join the McDonald’s corporate family.
Financial commitment is significant
Becoming a McDonald’s franchisee is not inexpensive. Generally speaking, the home of the Big Mac requires all applicants to show about $500,000 in assets, not counting loans. Most who make the grade enter McDonaldland by buying an existing restaurant, the price of which will depend largely on the profitability and costs associated with that location. The franchise fee can be as much as $45,000, with a total initial investment often reaching into the $2.3-million range when costs like inventory, signs, seating, and equipment are considered. Factors such as geography, market, restaurant size, and landscaping are all factors in the financial variance.
Purchasing an existing McDonald’s is considerably less costly than starting from scratch. Owners of a new store must pay 40% of startup costs in cash but are permitted to take out loans to cover the rest. For those who buy an existing store, that startup threshold is only 25%. The costs are similar to those charged by KFC, Wendy’s, Taco Bell and Pizza Hut.
All potential McDonald’s franchisees are subject to rigorous financial screening, and the ability to make the initial investment is just the beginning. Like any entrepreneur, a successful McDonald’s franchisee must commit to a range of real estate costs, license fees, permits, uniforms, insurance, and more.
Corporate leads the way
McDonald’s corporate office is more hands-on than most. The franchisor takes the lead on real estate transactions for new stores and will even run day-to-day construction on behalf of a franchisee. In either case, McDonald’s acts as the franchisee’s landlord, charging rent that amounts to a percentage of monthly sales. A monthly 4% service fee is also levied.
While becoming a McDonald’s franchisee is anything but cheap, the rewards for hard work can be lucrative. A typical McDonald’s restaurant may generate as much as $2.7 million in annual sales. The corporation has long claimed its burger sales in the billions, after all.
To be accepted into the franchisee training program, an applicant must be ready to accept all of the financial obligations without the benefit of partners or investors. Additionally, he or she must commit to a detailed training program and be willing to devote full-time hours to his or her restaurant. A potential franchisee must also be amenable to picking up stakes and relocating if all of the currently viable sites are in other markets. For existing stores, a new franchisee must negotiate terms with the current owner. The corporate office must still approve the final transfer when the haggling is over.
What makes a successful franchisee?
Nothing guarantees success, of course. According to the McDonald’s corporate website, the chain’s most prosperous franchisees possess impeccable interpersonal skills and a strong desire to learn. They are expected to adhere to a long-proven operating system, focus on top-tier customer experience, give back to their communities, and adapt to diverse cultures and values. Successful franchise owners will already have significant business experience in both ownership and management, as well as the ability to develop and abide by a successful business plan and understand financial statements.
The McDonald’s franchisee process begins, simply enough, with an online application. The next steps, however, include both a background check and a credit review, a panel interview with various corporate stakeholders, a financial-asset verification process, and a review of legal documents. When all is clear, the would-be franchisee enters a rigorous 12-to-18-month training program.
After onboarding, it can take months—potentially even years—for an existing McDonald’s store to become available. Flexibility and patience are key, even when the food is fast.