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.