How McDonald’s Became a Real Estate Giant: A Look at Their Innovative Business Model

McDonald’s is one of the most famous brands globally, known for its iconic logo, and the world-famous Golden Arches. Most people know McDonald’s as the go-to spot for a quick burger and fries. But did you know that McDonald’s is actually a real estate business? Let’s take a closer look at the world’s second-largest restaurant chain, its origins, and how it evolved into a fast food empire.

Table of Contents

The History of McDonald’s

The story of McDonald’s begins with the two brothers, Richard and Maurice McDonald, who started a movie theater and a hotdog stand in the 1920s in California. Their first significant success came in 1940 when they opened a barbecue joint in San Bernardino. However, they realized that most of their income was coming from just three products: hamburgers, French fries, and coke, so they made a radical change. They dropped most of their menu to focus on their best sellers and redesigned the entire kitchen around that. The cooking process started to look like an assembly line, which allowed the brothers to fill customer orders in as little as 30 seconds. They abandoned the drive-in concept in favor of a walk-up counter, and they stopped using cutlery and dishes entirely, replacing them with disposable paper packaging.

Their restaurant became a sensation overnight, drawing attention from across the country. One of the people they attracted was Ray Kroc, who was a natural-born hustler, having worked dozens of jobs, including jazz pianist, radio DJ, and paper cup salesman. In the early 1950s, he was traveling cross-country trying to sell expensive milkshake machines, but he wasn’t really doing a good job at it. One day in 1954, he got an order for eight of them, and it was from none other than the McDonald brothers. When Ray made his way to San Bernardino, he fell in love with their restaurant and immediately offered to franchise it.

Building the McDonald’s Empire

By that point, the McDonald brothers had already opened over 20 franchise locations, but none of them were doing as well as the original restaurant, and the lack of oversight made maintaining quality impossible. The brothers decided to give Ray a shot, and boy did he deliver. He handpicked only the best franchisees and ran his operations like an army drill. In the span of just six years, Ray built 100 McDonald’s restaurants, while the McDonald brothers were managing their own joint.

To cut the brothers out, Ray figured out a brilliant strategy. He’d buy the land all future restaurants would be built upon, and then he’d lease it to his franchisees. This way, Ray got to keep almost all of the profits from the business, while leaving the McDonald brothers empty-handed. Of course, the brothers weren’t very happy about that, but there wasn’t anything they could do, and in 1961 they finally agreed to sell their franchise to Ray for $2.7 million.

With the brothers out of the way, Ray implemented all the changes he had wanted, like redoing the logo and creating a mascot. He also expanded the menu, adding the Filet-O-Fish in 1965 and the Big Mac in 1968. That same year Ray celebrated opening store #1000 and adopted the modern iteration of the golden arches logo.

Expanding Globally

Throughout the past few decades, McDonald’s has kept expanding, not just in the US but globally as well. In fact, they were the pioneers of breakfast fast food with the introduction of the Egg McMuffin in 1972. They also added items like Chicken McNuggets to their menu. Today, McDonald’s is the second largest fast food chain, with over 38,000 locations worldwide. Interestingly enough, Subway holds the top spot, with over 40,000 locations globally.

Real Estate Model

But as we mentioned earlier, McDonald’s is more than just a fast food chain. In fact, it’s more accurate to say that McDonald’s is a real estate company that happens to sell burgers and fries. This is because McDonald’s owns a large percentage of the land on which their restaurants are built, and they lease it out to franchisees. In 2020, the company reported total revenues of $19.2 billion, with $3.7 billion of that coming from rental income.

In-House Real Estate Division

McDonald’s real estate holdings are so vast that they even have their own in-house real estate division, which handles everything from site selection to construction to property management. This allows McDonald’s to have complete control over the development of their restaurants, ensuring that they are built to the company’s exact specifications.

Innovation

Another key aspect of McDonald’s success is their commitment to innovation. The company has introduced a number of new products and initiatives over the years. They have introduced new products such as the McRib sandwich, the McCafé coffee line, and the McPlant plant-based burger.

But perhaps the most innovative thing about McDonald’s is their use of data and technology. The company has invested heavily in digital platforms, such as their mobile app and self-order kiosks. This allows customers to order and pay for their food without interacting with a cashier, which improves the customer experience, increases efficiency, and reduces labor costs.

Sustainability

McDonald’s has also made significant strides in sustainability. They have committed to sourcing 100% of their coffee, palm oil, and fish from sustainable sources. They have also set a goal of sourcing 100% of their beef, poultry, and eggs from sustainable sources by 2025.

Conclusion

In conclusion, McDonald’s success is due to a combination of factors, from their iconic menu items to their real estate model to their commitment to innovation and sustainability. While it’s hard to deny the impact that McDonald’s has had on the fast food industry and on popular culture as a whole, it’s important to note that the company is more than just a fast food chain. They are a real estate company, an innovator, and a leader in sustainability.

TL;DR

McDonald’s is a famous global brand known for burgers and fries, but it’s actually a real estate business that owns a large percentage of the land on which its restaurants are built, leasing it to franchisees. The company started with two brothers who opened a barbecue joint in California and later created an assembly-line cooking process for hamburgers, fries, and coke. Ray Kroc, a travelling salesman for expensive milkshake machines, franchised the business and eventually bought out the brothers, building 100 McDonald’s restaurants in six years. McDonald’s expanded globally, introducing breakfast food and other items, but its in-house real estate division remains a key component of the business. Innovation and technology such as the mobile app and self-order kiosks have improved the customer experience and reduced labour costs, while McDonald’s has also made significant strides in sustainability.

McDonald’s is a real estate business that owns a large percentage of the land on which its restaurants are built.
The company was founded by two brothers who opened a barbecue joint in California and later created an assembly-line cooking process.
Ray Kroc franchised the business and eventually bought out the brothers, building 100 McDonald’s restaurants in six years.
McDonald’s expanded globally, introducing breakfast food and other items.
McDonald’s in-house real estate division handles site selection to construction to property management.
The company invests heavily in digital platforms, such as its mobile app and self-order kiosks.
The McPlant plant-based burger is one of the new products introduced by McDonald’s.
McDonald’s has made significant strides in sustainability.
Subway holds the top spot in the fast food chain, with over 40,000 locations globally.
McDonald’s reported total revenues of $19.2 billion in 2020, with $3.7 billion of that coming from rental income.