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FDD Talk 2017: What You Need to Know About the McDonald’s Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

by Franchise Chatter on July 9, 2017

in FDD Talk 2017: Food Franchises, Franchise Earnings, Hamburger Franchise

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In this FDD Talk 2017 post, you’ll learn the following:

  • Section I – Background information on the McDonald’s franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a McDonald’s franchise, based on Item 7 of the company’s 2017 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a McDonald’s franchise, based on Items 5 and 6 of the company’s 2017 FDD
  • Section IV – Presentation and analysis of McDonald’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
  • 2016 average, median, high, and low annual sales volume for the 12,686 domestic traditional McDonald’s restaurants; 11,659 domestic traditional franchised McDonald’s restaurants; and 1,027 domestic traditional McOpCo McDonald’s restaurants opened at least 1 year as of December 31, 2016 (separately stated)
  • percentage of domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2016 with 2016 annual sales in excess of $2,200,000, $2,400,000, and $2,600,000, respectively
  • 2016 total cost of sales, gross profit, other operating expenses, and operating income before occupancy costs for 10,511 independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2016 annual sales of $2,200,000, $2,400,000, and $2,600,000, respectively
  • percentage of independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2016 annual operating income before occupancy costs greater than $602,000, $677,000, and $753,000, respectively

Section I – Background Information

19 Things You Need to Know About the McDonald’s Franchise

Hiring Millennials Through Snapchat

1.  In early June, McDonald’s announced that the company plans to hire 250,000 restaurant employees over the summer and is using popular social media app Snapchat to appeal to younger applicants.

2.  Since June 13, Snapchat users have been able to view 10-second video ads featuring McDonald’s employees talking about their experiences with the company. Users could then swipe up to visit the McDonald’s career page within the Snapchat app and could apply for jobs at their local restaurant.

3.  According to Jez Langhorn, senior director of HR for McDonald’s, the company is always looking for new and innovative ways to find job seekers and sees “snaplications” as a great way to connect with young job seekers who typically spend a lot of time on their phones.

4.  McDonald’s first tested out Snapchat applications in Australia in April.

Getting Rid of Artificial Flavors, Preservatives, and Colors in Vanilla Ice Cream Treats

5.  In May, McDonald’s said that the company has nearly phased out all artificial flavors, preservatives, and colors from its vanilla ice cream treats. McDonald’s began getting rid of artificial preservatives and colors from its shakes, McFlurries, and cones over the fall of 2016 and has nearly completed its transition in over 14,000 restaurants nationwide.

Released “Frok” with New Signature Crafted Recipes Sandwiches

6.  At the end of April, McDonald’s unveiled the “Frok,” a silicone fork-shaped utensil topped with an opening for customers to insert three to four fries that can then be used to scoop up the toppings that fall out of one of the new Signature Crafted Recipes sandwiches.

7.  The new sandwiches feature premium ingredients and can be topped with Pico Guacamole, Sweet BBQ Bacon, or Maple Bacon Dijon. According to the company, the Frok comes in handy for any toppings that fall out while customers eat their sandwich.

8.  To launch the Frok, McDonald’s produced its first ever infomercial featuring legendary pitchman Anthony Sullivan. McDonald’s Chef Michael Haracz said that the Frok is “supremely superfluous” yet shows that McDonald’s is willing to do whatever it takes to help customers enjoy every last bite of their food.

9.  On May 5, Froks were given away at select McDonald’s locations nationwide with the purchase of a Signature Crafted Recipes sandwich, while supplies lasted.

Promise to Use Fresh Beef in All Quarter Pounder Burgers by Mid-2018

10.  In late March, McDonald’s announced that it will serve made-to-order, fresh beef in all Quarter Pounder burgers in the majority of its restaurants by mid-2018. The fresh beef Quarter Pounder is the latest step McDonald’s has taken to meet customers’ changing expectations.

11.  According to McDonald’s President and CEO Steve Easterbrook, McDonald’s is committed to making more positive changes to the food it serves.

12.  McDonald’s initially tested Quarter Pounder burgers using fresh beef, cooked right when ordered, in 325 restaurants in the Dallas/Fort Worth, Texas area and 77 restaurants in Tulsa, Oklahoma. Joe Jasper, a McDonald’s franchisee in Dallas/Fort Worth, says that the response to the revamped Quarter Pounders has been “overwhelmingly positive.”

Updating McFlurry Machines

13.  After receiving numerous customer complaints over the years about its McFlurry machines always being down, McDonald’s announced in early March that it was getting rid of the old machines and replacing them with new technology.

14.  According to McDonald’s, the old machines always seemed to be down because the cleaning process for them is long and complicated. An Italian company called Carpigiani will be manufacturing the new machines which are said to be much easier to clean and might even have more flavor options than before.

15.  McDonald’s will be replacing the outdated McFlurry machines at its European and American locations.

Company History

16.  McDonald’s began in 1940 when brothers Richard and Maurice McDonald opened a restaurant in San Bernardino, California. In 1954, Ray Kroc, a milkshake mixer salesman, traveled to the McDonald’s hamburger stand after hearing that the brothers were running eight mixers at once.

17.  Kroc was impressed by what he saw and in 1955 he was awarded the first McDonald’s franchise in Des Plaines, Illinois, which the present McDonald’s corporation dates as its official founding. Kroc later purchased the McDonald brothers’ equity in the company and led its worldwide expansion.

18.  Today, there are nearly 37,000 McDonald’s restaurants around the world.

Entrepreneur’s Franchise 500

19.  McDonald’s has ranked on Entrepreneur’s annual Franchise 500 list every year in the past decade. The company’s highest rank was No. 2 in 2009, 2010, and 2017, while its lowest rank was No. 16 in 2014.

Section II – Estimated Costs

  • Please click here for detailed estimates of McDonald’s franchise costs, based on Item 7 of the company’s 2017 FDD (updated).

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on McDonald’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

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