How McDonald’s Really Makes Its Money

Chiang Rai, Thailand : February-05-2019 : Woman holding and eating french fries in McDonald's restaurant.

If $7.3 billion and McDonald’s appeared in the same sentence, you might likely think that the connection signified an astronomical number of Big Macs and fries sold.

The $7.3 billion does represent McDonald’s earnings in one category on its balance sheet from 2023. But it is rental income recorded, not food purchased.

More than 63% of the revenue McDonald’s earned from its franchisees in the first three quarters of 2023 came from their monthly rental payments, The Motley Fool reports.

Corporate McDonald’s operates only about 2,100 of the 41,200 restaurants bearing its name. But it does own a large share of the property in which the franchises do business in more than 100 countries.

The property and equipment McDonald’s owns are valued at $42 billion.

In the Real Estate Business

Former McDonald’s CFO Harry Sonneborn once put it this way: “We are not technically in the food business. We are in the real estate business. The only reason we sell 15-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”

The Motley Fool’s Jon Quast points out that no matter the location, “McDonald's must still ensure the success of its franchisees. If they fail, it fails.”

“Menu prices aren't irrelevant for McDonald's,” he says, “but the company itself doesn't make the majority of its profit from food.”

Investopedia suggests that McDonald’s business model advantage “is that the revenue stream (rent and royalty income received from franchisees) is far more stable and predictable. The operating costs, on the other hand, are measurably lower, which allows for an easier path to profitability.”

The Chicago-based company ended 2022 with 13,444 restaurants in the United States, six more than it had at the end of 2021. The company hadn’t done that kind of overall expansion since 2014, according to the publication Restaurant Business.

The Kerwin Frost Box Adult Happy Meal

In December 2023, McDonald’s brought back the Adult Happy Meals for a limited time. It teamed with DJ/entertainer Kerwin Frost to offer a Frost Box that contained either 10-piece Chicken McNuggets or a Big Mac along with fries, a soft drink, and a toy, known as a McNugget Buddy and inspired by Frost’s childhood in New York City’s Harlem section. 

A portion of the merchandise proceeds were donated to the Harlem Arts Alliance.

“Coming up with my own special set of Buddies — each one representing different aspects of self-expression — it's unreal, a dream come true,” Frost said.

“I hope the Kerwin Frost Box will serve as a reminder for people to hone their creativity and not be afraid to show the world who they really are.”

Author: Richard Pretorius