You’re done with the rat race and ready
to start living your dream - owning your very own McDonald’s franchise.
Not only will you be your own boss, dishing out Happy Meals and Big
Macs to all the Mickey D’s fans, but you’ll have all the fries you could want
right within reach. What could go wrong? Well, for one thing, opening a McDonald’s
franchise costs money. A lot of money. McDonald’s is one of the biggest
chains in the world, with over 37,000 stores across a hundred countries
serving a shocking 69 million customers a day. Not only are they the biggest name in fast
food in most countries, but they can be found anywhere people are passing by - in malls, train
stations, airports, and office buildings. They’re even the second biggest private employer
in the world, with over a million and a half people wearing that distinctive uniform.
They have a brand and an image to preserve. And that means joining the
family isn’t going to be easy. From the start, McDonald’s wants to make
sure you’re going to be able to carry the costs of a franchise. With a franchise,
you own the restaurant and can make your own decisions as long as you abide by some
basic regulations for representing the larger corporation. So you won’t be answering to a
boss on the regular - but they want to make sure you’ll represent them well. That means no
one who’s going to go bankrupt in a few months. Which is why the door has a pretty big entry fee. Before McDonald’s will even consider you for a
franchise, they’re going to want to do a deep dive into your personal finances. If you have less
than half a million dollars of personal resources, you probably shouldn’t even apply - although
there are limited opportunities if you have a good argument for an alternative. But there’s
a good reason why McDonalds’ wants to know your resources before you start - they want to
make sure you can afford the down payment. And that’s where your first big choice comes in. Do you want to build a new McDonald’s from
scratch? This will take more resources, including retrofitting an existing building
with all of the usual McDonald’s treats and tricks you love. The costs will vary - turning
a former Burger King into a McDonald’s will take less resources than turning a bank
or shoe store into a fast food restaurant, but the company will generally want 40% of the
total cost paid up front before they break ground. But if resources are a little
tight, there’s another option. Do you have an old McDonald’s in your
neighborhood? Do those old arches haunt your memory, calling back to when you could
get your McNugget fix in a five-minute walk? If you take over an existing restaurant
that’s still functioning or recently closed, you can get a discount on the down payment -
only 25%. Is this a good buy? That depends on why the restaurant closed. If it fell prey
to a recession, go ahead. If it went viral for that iconic Hash Brown Rat video on social
media, it may be more trouble than it’s worth. But the payments don’t stop there. McDonald’s has to get something out of
the deal. So once you sign the contract and open your restaurant, you’ll be paying
them going forward in two ways. You’ll be responsible for a 4.0% service fee based on
your restaurant’s sales performance, as well as rent. Rent is judged as a flat percentage
of your sales, and these two fees usually don’t change over the course of your contract,
so make sure that’s baked into all your plans. At least once that’s taken care of,
you’re cleared for takeoff, right? Not quite. Running a McDonald’s franchise
is a lucrative business - the average gross profit in the United States is around 1.8 million, which means there are a lot of people ready
to get their McMuffin fix every morning. But with great profits come great responsibility
- and running a McDonald’s franchise comes with a whole lot of hidden costs that can take even
the most successful franchise owner by surprise. And it starts before you open your doors. The startup costs of a McDonald’s franchise are
high, averaging just under a million on the low end, and over two million on the high end.
This depends on what kind of facility you’re taking over, what size the restaurant is,
and how much you have to build from scratch. McDonald’s likes things standardized,
so even an already-equipped restaurant will have to make sure everything about
it fits the parent company’s standards. And that includes its franchisees. Do you wish you could go back to school? McDonald’s will make that dream come true - but
you won’t be attending frat parties. Before the Golden Arches will trust you with the keys to
one of their franchises, they’re going to put you through training. All franchisees are required
to complete a formal training program that takes about twelve to eighteen months part-time
before they’re allowed to sign that contract. And you’re not the only thing
they’ll want to whip into shape. Before a new McDonald’s will open, the
company will want to make sure every part of the building is up to par.
That includes the kitchen equipment, which has to be configured specifically for
the company, the signs outside, and even the landscaping! After all, no one is going to want to
go to a McDonald’s that has shabby grass, right? Well, maybe - who looks at grass
when they’re on a McNuggets run? But there’s one area of construction where
McDonald’s is more particular than ever. The kitchen at a McDonald’s is a well-oiled
machine. The company only sells a limited number of items on its tight menu, usually
old favorites. New items come and go, but they don’t always stay - as anyone who loved
those short-lived fish tenders knows all too well. But with a limited roster, the kitchen is designed
to cook them to perfection in short order. That’s why McDonald’s will want to make sure
any franchisee has the proper grill that cooks those burgers at the right temperature, a fryer
that can handle the capacity of all those fries and nuggets, and a drink machine that will
keep pumping out the coke for thirsty diners. But at least there’s one thing we know about
McDonald’s - everything stays the same. Right? Wrong! And that’s where the biggest hidden
costs of owning a McDonald’s franchise come in. Because like any big company, McDonald’s
is constantly experimenting. Sometimes they’re introducing a new sandwich
or flavored nugget. Sometimes they’re completely overhauling their beverage program.
Sometimes they’re experimenting with faster, digital-era ways to order. And when
they hit upon an invention they like, they want it to be reflected across the line
so when people go into a McDonald’s anywhere, they can expect the newest and best. And that
means it’s time to upgrade across the board. And guess who pays those upgrade fees? This has happened many times over the years,
with one of the most significant upgrades being the introduction of the McCafe espresso
machines. This was McDonald’s attempt to compete with high-end coffee shops like Starbucks.
Suddenly you didn’t have to settle for a standard hot cup of McDonald’s coffee with
your McMuffin. You could have a refreshing iced coffee or a frothy sweet drink. And
all it cost was...a whopping $13,000 for each franchise owner to bring in one of the
most advanced coffee-making machines around. Even smaller changes can add up. Remember when McDonald’s introduced those
tasty little muffins? Those required their own equipment, which cost each franchise over $4,000.
But even changes that don’t seem to require new equipment can add up. Every McDonald’s fan around
celebrated when all-day breakfast was announced. Finally, those dreams of having a sandwich made
of McNuggets between hash brown patties could come true. But while all the equipment for
both breakfast and lunch was already there, having them coexist meant some changes.
All-Day breakfast meant more capacity was needed to prepare both at the same time,
and that took some retrofitting of existing kitchens. Lucky franchisees only put in about
$500 into these changes, but some older and smaller McDonalds’ wound up shelling out up
to $5000. Those were some costly hash browns. But the biggest costs come upgrade
time are when things get digital. Remember walking into your local McDonald’s
and thinking it suddenly looked futuristic? The old paper menu boards were replaced with
fancy digital menus that changed automatically, and would even switch over the second
it turned from breakfast to lunch. Well, those didn’t come cheap - and usually came as
part of a larger interior makeover to make the restaurant look more modern. That fancy new
menu came with a massive price tag of over half a million dollars - a major investment for
even the most successful McDonald’s franchise. And then there’s those
notorious ice cream machines. You know how you can never seem to get McDonald’s
ice cream when you walk in? The machine’s always broken! The machines require a nightly cleaning
cycle, and if they break down, they can only be repaired by a technician sent by corporate - so
the costs of these machines can add up quickly. And recent events have made some
of these upgrades more urgent. With the pandemic of 2020 making many people
minimize physical contact and prefer contactless payment methods, many McDonald’s introduced the
Create Your Taste kiosks. These digital tools not only let people order and customize their
food independently, they meant you could get your food without ever having to interact with
a worker until your bag came out. The kiosks got rave reviews except for those who had to
have their grandkids order for them, but these high-tech devices didn’t come with a light price
tag - costing a whopping $130,000 per franchise. Which raises the question - is this
still a sustainable business model? The costs can add up quickly for franchises,
and while restaurants are technically not required to make upgrades when the company
offers them, that’s a double-edged sword. Older restaurants usually find upgrades are
more expensive, but their restaurants are also the most likely to be deemed no longer up
to par by the parent company. And if McDonald’s feels the store isn’t representing them well,
they can decline to renew their franchise and essentially force them out of business -
often handing it over to a new franchisee. But for many, the hefty price of
getting in the door is worth it. McDonald’s has a reputation for
being an expensive franchise to open, but studies indicate it’s not out of line
with some of the other top fast food joints. Taco Bell and KFC all have similar high rates
and require similar specialty equipment. The outlier? Subway, but the famous sandwich shop
often works out of smaller spaces and doesn’t offer as big a variety of food as McDonald’s.
No deep-fryer needed to make subs - yet. And despite the high price tag, it’s
not impossible to make a profit. So how much of McDonald’s franchisees’ gross
profits winds up going right back to the company? The average franchisee pays between 8.5 and
12 percent in rent and other fees every month, but that doesn’t account for upgrades - which
are unpredictable and can show up at any time. But most McDonald’s around the country are
franchises, and the company shows no sign of slowing down. That means that if you have
the resources and open a franchise, some savvy business sense is likely to leave you with a lot
of pocket money for all the McNuggets you want. For more on the secrets of the fast food world, check out “This Fast Food Item Has Over 1,500
Calories! Worst Fast Food Items You Can Order”, or watch “What Will We Eat in
the Future” or a look ahead.
