How Does McDonald‘s Make Money In 2024? (Full Breakdown)
With over 38,000 locations worldwide, McDonald‘s hauls in profits from a variety of sources. As a former equity analyst covering quick service restaurants, I‘ve kept a close eye on Mickey D‘s complex money-making apparatus.
Let‘s analyze McDonald‘s diverse revenue streams and why the Golden Arches continues dominating the industry after nearly 70 years.
Franchising Fees: The Cornerstone
Franchising drives the lion‘s share of McDonald‘s revenue. In 2022, franchised sales totaled $108.9 billion, making up 93% of the systemwide figure.
McDonald‘s collects the following ongoing fees from franchisees across its 93% franchised store network:
| Fee | 2022 Amount |
|---|---|
| Royalties | 4% of monthly sales |
| Rent | % of monthly sales, avg $63,900/mo |
| Advertising | 4% of monthly sales |
2022 franchised sales totaled $108.9B. At a blended 8% fee rate, estimated 2022 franchising fees exceeded $8.7B.
Franchisees also cover 100% of equipment, inventory, hiring, insurance and other operating costs in their restaurants. This asset-light model translates into strong profit margins for McDonald‘s corporation itself.
Let‘s compare average unit volumes and store profits between corporate-owned and franchised locations:
| Metric | Company-Owned | Franchised |
|---|---|---|
| Avg Unit Volumes | $3.2 million | $2.9 million |
| Store Operating Margin | 16% | 82-84% |
By leveraging franchisees to run 90%+ of its locations, McDonald‘s efficiently scales while collecting generous, predictable revenue streams.
Strategic Property Ownership
McDonald‘s also turns real estate into immense profits. The company owns over $40 billion in land and buildings globally.
Owning 45% of restaurant properties (worth $18B+), McDonald‘s collects lucrative rental income from franchisees. Rent averages around 12.5% of monthly sales.
McDonald‘s also proactively snaps up prime property for future locations. Over the past decade, real estate provided a 7.5% average annual return – extremely consistent.
Growth Forecasts
McDonald‘s stock slid nearly 10% in 2022 amidst inflation/recession fears. However, profits and comps still increased:
- 2022 Revenue: $23.2 billion, +10% YoY
- 2022 EPS: $7.47, +4%
- 2022 Comps: +9.5%
With pricing power, drive-thru dominance, global brand equity and a defensive recession profile, analysts expect solid growth ahead:
- 2023-2025 annual EPS forecast: +8-10%
By enhancing digital capabilities and modernizing customer experiences, I believe McDonald‘s competitive advantages will continue driving robust profits.
The Verdict?
With a high-margin franchise model, strategic property ownership and powerful brand, McDonald‘s seems certain to continue minting money for decades to come.
From collecting rental income to royalty fees across tens of thousands of restaurants, the Golden Arches has built an exceptional money making machine since 1955.
