In this FDD Talk 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 2019 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 2019 FDD
- Section IV – Number of franchised and company-owned McDonald’s outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
- Section V – Presentation and analysis of McDonald’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- percentage of domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2018 with 2018 annual sales in excess of $2,200,000, $2,400,000, and $2,600,000, respectively
- 2018 total cost of sales, gross profit, other operating expenses, and operating income before occupancy costs for 9,886 independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2018 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 2018 annual operating income before occupancy costs greater than $546,000, $617,000, and $686,000, respectively
Section I – Background Information
29 Things You Need to Know About the McDonald’s Franchise
Acquires Startup Dynamic Yield for $300M
1. Near the end of March 2019, McDonald’s announced that it had acquired personalization and decision-logic leader Dynamic Yield Ltd. for more than $300 million. Dynamic Yield helps companies provide personalized digital promotions to customers using streams of guest data. Its customers include IKEA and Fendi.
2. The move will enable McDonald’s to provide a more personalized customer experience by varying outdoor digital drive-thru menu displays to show food based on time of day, weather, current restaurant traffic, and trending menu items. The technology can also instantly suggest and display additional items to a customer’s order based on their current selections.
3. McDonald’s said the acquisition would allow it to become one of the first companies to integrate decision technology into the customer point-of-sale at a brick-and-mortar location. It tested the technology in several U.S. units in 2018.
4. McDonald’s first target in this new rollout is the drive-thru. The brand said the new tech would hit U.S. locations this year before expanding to other top international markets. McDonald’s plans to also integrate the technology into all of its digital customer experience touch points in time, including self-order kiosks and its global mobile app.
5. McDonald’s said, following its fourth quarter review in January, that speeding up the drive-thru was a key initiative in 2019 and beyond. Drive-thru service times have increased, year-on-year, for the last five at McDonald’s. At 273.29 seconds, on average, McDonald’s was actually the slowest brand featured in QSR’s 2018 Drive-Thru Study.
6. But beyond just taking down operational complexity and improving staffing levels, Kevin Ozan, McDonald’s CFO, said McDonald’s would focus on “what we call just running better restaurants” this year. McDonald’s CEO Steve Easterbrook also noted that the chain was installing “zoom boards,” or little digital screens at the drive-thru that provide real-time service times within the restaurant. It identifies where the bottlenecks are – from cash-handling, payment, and perhaps if guests are being asked to park and wait because the food isn’t ready. (Update: Steve Easterbrook was fired as McDonald’s CEO in early November 2019 after his relationship with an employee was found to violate company policy.)
7. The chain said Dynamic Yield’s ability to meet McDonald’s customer needs, coupled with the company’s commitment to growth capabilities around “ever-changing trends and evolving marketing technologies,” allows for “the continued advancement and elevation of the McDonald’s customer experience with technology and innovation.”
8. Easterbrook added, “Technology is a critical element of our Velocity Growth Plan, enhancing the experience for our customers by providing greater convenience on their terms. With this acquisition, we’re expanding both our ability to increase the role technology and data will play in our future and the speed with which we’ll be able to implement our vision of creating more personalized experiences for our customers.”
9. McDonald’s has made a series of tech-forward changes in its Velocity Growth Plan. Some include the development of its mobile app, mobile order and pay, delivery via UberEATs, indoor and outdoor digital menu boards, and the self-order kiosks that define the Experience of the Future design. The brand rolled out the Experience of the Future design to about 4,500 locations, at a cost of nearly $1.5 billion in 2018, or more than 10 new restaurants each day throughout the year. McDonald’s plans to invest close to $1 billion of capital to complete another 2,000 projects.
10. Also in March, McDonald’s revealed a partnership with Textio, an augmented writing platform, to help with the recruitment and hiring process. The software can craft gender-neutral job posts using McDonald’s brand language and even write recruitment emails. This will allow McDonald’s to “not only recruit and hire faster, but also to ensure they reach top-quality applicants in an inclusive manner,” the company said.
11. With the Dynamic Yield deal, McDonald’s will become the sole owner and will continue to invest in Dynamic Yield’s core personalization product. The Tel Aviv, Israel, and New York-based company will remain a stand-alone organization.
Debuts New Line of Fashion in Celebration of Its Third Annual McDelivery Event
12. In mid-September 2019, McDonald’s celebrated the fact that it now delivers to more than one million customers around the world every day. To honor this milestone, on September 19, McDonald’s and Uber Eats encouraged customers to enjoy a “Global McDelivery Night In” – one night dedicated to enjoying their craveable and delicious McDelivery favorites where they order it most: at home.
13. With 60% of McDelivery orders being placed at night, and a growing culture of coziness and relaxation emerging around the world, McDonald’s created a line of apparel and accessories designed to take quiet nights in to the next level, whether it’s curling up on the couch for a night of relaxation or spending time with loved ones – with McDelivery. Items offered in the “McDelivery Night In” line, a unique collection of comfortable, on-trend items to enjoy at home, include plush loungewear, socks, slippers, games, and more.
14. According to Steve Easterbrook, McDonald’s CEO, “With McDelivery we’re meeting our customers on their terms, and providing more ways to get their McDonald’s favorites than ever before. In fact, globally there are more than 10 McDelivery orders placed every second. With our third annual McDelivery celebration, we’re calling on our customers around the world to take a break and join us for a well-deserved night in.”
15. Around the world, countries across six continents participated in McDelivery Night In on September 19. In the U.S., customers were able to order McDelivery with Uber Eats from a participating McDonald’s to receive a limited-edition item from the McDelivery Night In line with $10 minimum purchase beginning at 5 p.m. local time, while supplies lasted.
16. With over two decades of delivery experience in Asia and the Middle East, McDonald’s is already one of the largest global delivery players, offering the service in its restaurants across more than 80 countries. McDelivery is expected to be a $4 billion business globally in 2019, and leverages several different models, including partnering with various third parties for ordering and delivery fulfillment.
17. McDelivery launched in the U.S. in 2017 with partners including Uber Eats, and by the end of 2019 will be available in 10,000 restaurants, more than 70% of the U.S. system.
Tests Plant-Based Burgers in Canada
18. At the end of September 2019, McDonald’s announced that it would be conducting a 12-week test of a new plant-based burger called the P.L.T, which stands for Plant. Lettuce. Tomato. McDonald’s has selected Southwestern Ontario as the exclusive market for its global test, which will take place in 28 restaurants, starting September 30. The P.L.T. is made with a Beyond Meat plant-based patty that has been crafted exclusively for McDonald’s.
19. Jeff Anderson, McDonald’s Canada chef, said, “McDonald’s Canada has a proud legacy of innovating across our menu and we’re excited that Canadians will be the first in the world to try the P.L.T. We’re eager to hear what our customers love about the P.L.T. to help McDonald’s around the world better understand how a plant-based burger works in our restaurants.”
20. The McDonald’s P.L.T. is a juicy, dressed, plant-based burger on a warm, soft, sesame seed bun with the McDonald’s taste customers have come to expect from McDonald’s. Featuring a plant-based patty with no artificial colors, artificial flavors, or artificial preservatives, it’s an “open wide and sink your teeth into it” sandwich, the company said. The P.L.T. will be priced at $6.49 CAD plus tax.
21. McDonald’s was founded in 1940 by brothers Richard and Maurice McDonald in San Bernardino, California. The McDonald brothers took the food stand that their father had started in 1937 and moved the entire building 40 miles east. They renamed the restaurant “McDonald’s Bar-B-Que” and had 25 menu items, mostly barbecue.
22. While the restaurant was doing well, by 1948, the McDonalds realized that most of their profits came from hamburgers and they decided to establish a streamlined system with a simple menu which consisted of only hamburgers, cheeseburgers, potato chips, coffee, soft drinks, and apple pie. They also shortened the restaurant’s name to just McDonald’s.
23. A year later, the chips and pie were swapped out for french fries and milkshakes. Additionally, the carhops were eliminated, making the new restaurant a self-service operation. The McDonald brothers also set up the kitchen like an assembly line to ensure maximum efficiency.
24. A few years later, in 1952, the McDonalds decided to move the restaurant to a brand-new building to further efficiency improvements, and develop a more eye-catching appearance. The McDonalds chose Stanley Clark Meston, an architect practicing in nearby Fontana, California, to help them design the new restaurant. It was at this time that McDonald’s famous “golden arches” was born.
25. In late 1953, with only a rendering of Meston’s design in hand, the brothers began seeking franchisees. After selling a few franchises, Ray Kroc, a seller of Prince Castle brand Multimixer milkshake machines, entered the picture in 1954. After Kroc learned that the McDonalds were using his machines in their San Bernardino restaurant, he became interested in their business. At this point, the McDonald brothers had six franchise locations in operation.
26. Although the McDonald brothers were initially skeptical, Kroc convinced them to start national franchising. Kroc offered to take the major responsibility for setting up the new franchises elsewhere and the brothers were to receive one-half of one percent of gross sales.
27. Kroc’s first franchise opened in 1955 – which McDonald’s considers its founding date – and continued to push franchising around the country. Although Kroc’s growth strategy was successful, he clashed with the McDonald brothers over leading the company. Eventually, Kroc won the fight and bought the company from the brothers. Kroc is largely credited with turning McDonald’s into the massive international brand that it is today.
28. McDonald’s now has locations all around the world, and according to two reports published in 2018, McDonald’s is the world’s second-largest private employer with 1.7 million employees.
Entrepreneur’s Franchise 500
29. McDonald’s ranked No. 1 on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of McDonald’s franchise costs, based on Item 7 of the company’s 2019 FDD.
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 2019 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 12,894
- Outlets at the End of the Year: 13,047
- Net Change: +153
- Outlets at the Start of the Year: 13,047
- Outlets at the End of the Year: 13,145
- Net Change: +98
- Outlets at the Start of the Year: 13,145
- Outlets at the End of the Year: 13,229
- Net Change: +84
- Outlets at the Start of the Year: 1,357
- Outlets at the End of the Year: 1,106
- Net Change: -251
- Outlets at the Start of the Year: 1,106
- Outlets at the End of the Year: 884
- Net Change: -222
- Outlets at the Start of the Year: 884
- Outlets at the End of the Year: 683
- Net Change: -201
Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis
Part 1 – Average Gross Sales for Domestic Traditional Restaurants
Domestic Traditional (Franchised and McOpCo) Restaurants
- Of the approximately 11,761 domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2018: