The owner of the Big Mac and Happy Meal is so profitable primarily because McDonald's is, in reality, more of a real estate operator than a hamburger seller.

For a little background, in the 1960s, the ruthless Ray Kroc, known for his evocative sayings and uncompromising business character, bought the brand from its founding brothers, Richard and Maurice McDonald. Faced with the success and novelty of mass-producing burgers, Ray Kroc laid the foundations for what still makes the company so successful today: franchising.

To put it simply, the franchisee uses the name, reputation, and brand image of "McDonald's" in exchange for covering the initial investment (entry fees, personal contribution, training, etc.), rent, and royalties calculated based on the restaurant's level of business. A McDonald's franchisee is usually an independent entrepreneur, even though they operate under a world-famous brand name. They manage their restaurant(s) on their own: they recruit staff, oversee day-to-day operations, pay salaries, monitor financial performance, and assume all the risks associated with the business. In exchange, they benefit from a proven model with a loyal customer base, national marketing campaigns, and ongoing support from the parent company.

In the vast majority of cases, the franchisee does not own the premises - it is McDonald's that owns the premises or land. And that is where the heart of the business model lies: the company is a huge landowner, which receives a share of the revenue generated by franchisees using its brand.

In concrete terms, by the end of 2024, 95.3% of the brand's 43,477 restaurants will be operated as franchises. Only 2,045 are owned and operated directly by the group. The latter generally perform better than franchisees. They are often located in busy, highly visible or strategically important areas and benefit from higher capex. They also serve as operational or technological laboratories, where new offerings and innovations are tested before a potential wider rollout.

For information purposes, all McDonald's franchised restaurants generate $120.9bn in revenue—again in 2024—or approximately $2.9m per restaurant per year. Those owned and operated by the company generate $9.8bn in revenue, or $4.8m per establishment. This confirms what was mentioned above: that restaurants operated by McDonald's have a much higher level of business.

How is revenue distributed?

In 2024, McDonald's generated revenue of $25.9bn. This is broken down as follows:

  • 60.6% ($15.7bn) came from franchised restaurants, with nearly half in the United States, 43% in developed markets and countries, including Australia, Canada, France, Germany, Italy, Poland, Spain, and the UK, and the rest (11.1%) in developing markets, where operations are entrusted to local partners under license, such as in China and Japan.
  • 37.7% ($9.8bn) came from sales in company-owned restaurants. The majority of these are in developed countries outside the United States.
  • 1.6% ($423m) corresponds to other income, including royalties paid by franchisees to finance the technology platforms made available to them (such as apps and ordering systems), as well as brand licenses allowing third parties to sell derivative products (sauces, toys, etc.) under the McDonald's label.

At this point, you may be wondering how 37.7% of revenue can come from company-owned restaurants when more than 95% of the network is franchised. The explanation is simple: depending on whether the restaurant is franchised or owned by the company, it does not generate revenue in the same way for the group. For franchisees, McDonald's only records rent, royalties, and fees, which represent a small portion of total sales. On the other hand, for directly owned restaurants, all sales to customers are recorded as revenue. This difference in accounting treatment explains the apparent paradox: a minority of company-owned restaurants generate nearly 38% of total revenue, not because they are more profitable, but because 100% of their revenue is included in the accounts, unlike franchisees, where only their contributions are taken into account.

Imagine two McDonald's restaurants, each with annual sales of $3m. The first is franchised, the second is owned. For the first, McDonald's will receive approximately $300,000 in rent and royalties, or 10% of sales—this is an estimate. For the second, the company will record the entire $3m in revenue. It's as simple as that.

Until now, hopes had been pinned on margins

Since 2015 – i.e., ten full fiscal years – the group's revenue growth has been virtually zero: it is now at a similar level to that of ten years ago. However, this decade can be divided into two distinct periods.

From 2015 to 2020, McDonald's experienced a sharp decline in revenue, which fell from $25.4bn to $18.9bn. Despite this, the group focused on cost control, and profits still grew.

From 2020 to today, revenue has rebounded to its 2015 level. This recovery may be explained by significant work on the brand image – with a revamped marketing strategy and restaurant renovations, where green has completely replaced the iconic red of the 2000s – but also by the development of a loyalty program designed not to erode margins. The gradual return of customers after a drop in footfall during the Covid years has also supported business.

Thanks to these efforts, McDonald's has posted satisfactory EPS growth over the decade – up 2.4 times – which has been further boosted by large share buybacks: more than 22% of capital since 2015. As a reminder, fewer shares in circulation automatically increases EPS.

However, McDonald's now operates in an ultra-competitive environment with consumers who are more mindful of their spending. The latest quarterly results show an increase in the number of customers - but also a decline in the average basket size, a direct consequence of inflation. In this context, the pace of margin growth now seems more difficult to maintain in the future, especially as the brand is increasing its special offers and low-price offers.

Nevertheless, the share price remains close to its historic highs, with valuation levels in line with those of the past decade, at around 25x earnings. The next few years will probably be challenging, although McDonald's remains undoubtedly the best-equipped group in its sector to weather a tense economic environment. Its brand image, reputation, and cultural roots in the collective imagination make it an asset comparable to Coca-Cola - timeless and iconic.