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    Mcdonalds Franchise Agreement

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    Dianne Cantiveros
    McDonald's franchise model has grown to include over 93% franchised stores which generate the majority of revenues. Under a standard 20-year agreement, franchisees pay 4% of monthly sales in fees plus rent, along with a 40% down payment to open a new store or 25% for an existing one. Franchisees also bear significant operating risks but benefit from McDonald's established brand and business expertise.

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    Mcdonalds Franchise Agreement

    Uploaded by

    Dianne Cantiveros
    277 views1 page
    McDonald's franchise model has grown to include over 93% franchised stores which generate the majority of revenues. Under a standard 20-year agreement, franchisees pay 4% of monthly sales in fees plus rent, along with a 40% down payment to open a new store or 25% for an existing one. Franchisees also bear significant operating risks but benefit from McDonald's established brand and business expertise.

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    MCDONALDS FRANCHISE AGREEMENT

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    McDonald's franchise model has grown to include over 93% franchised stores which generate the majority of revenues. Under a standard 20-year agreement, franchisees pay 4% of monthly sales in fees plus rent, along with a 40% down payment to open a new store or 25% for an existing one. Franchisees also bear significant operating risks but benefit from McDonald's established brand and business expertise.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    277 views1 page

    Mcdonalds Franchise Agreement

    Uploaded by

    Dianne Cantiveros
    McDonald's franchise model has grown to include over 93% franchised stores which generate the majority of revenues. Under a standard 20-year agreement, franchisees pay 4% of monthly sales in fees plus rent, along with a 40% down payment to open a new store or 25% for an existing one. Franchisees also bear significant operating risks but benefit from McDonald's established brand and business expertise.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Analyzing McDonald’s Franchise Agreement and Structure

    McDonald’s has a mix of franchises and company-owned stores. In this article, we’ll look at
    McDonald’s franchise agreement. We’ll also look at McDonald’s franchising model and compare it with its
    company-owned stores. Notably, the company’s franchising model makes it looks like a real estate company as
    well as a fast-food chain. Gradually, the share of franchised stores in its overall stores has risen. McDonald’s
    intends to increase this share even further. That said, company-owned stores are a key component for
    McDonald’s despite their falling share in its revenue mix.
    McDonald’s franchise agreement
    Like most other fast-food chains, McDonald’s has a mix of company-owned and franchise stores. The
    company enters into an agreement with a franchise that then operates a restaurant or a set of restaurants.
    According to McDonald’s, about 93% of its stores were owned and operated by franchisees at the end of
    2018. The company aims to increase the share of franchises to 95% in the long term. Notably, the contribution
    of franchises to McDonald’s revenues has increased gradually. Franchise agreement tenure
    Each of the company’s franchisees usually has a standard 20-year franchise license agreement. A
    franchise license is an authorization granted by either a company or a government body to an individual or a
    group. This authorization enables them to perform specific commercial activities. For McDonald’s, the
    franchise model has led to years of profitability, growth, and risk mitigation.
    Different franchise agreements
    McDonald’s has the following types of franchise structures
     Conventional franchise: Under this model, McDonald’s either owns the land or leases it for the long
    term. Under the agreement, the franchisee pays for other items such as seating, equipment, and décor.
     Development license or affiliate: Under this type of franchise agreement, the franchisee also provides
    capital for real estate. Typically, under such a franchise agreement, McDonald’s does not invest capital
    and earns a royalty plus an initial fee.
     Costs to open a McDonald’s franchise
    According to McDonald’s guidelines, it requires “a minimum of $500,000 of non-borrowed personal
    resources” to be considered for a US franchise. According to the company, the down payment required to start a
    new McDonald’s franchise is about 40%. The down payment required to purchase an existing franchise is 25%.
    McDonald’s specifies that the down payment must come from non-borrowed personal resources. In addition to
    monetary capital, significant human capital is required in the form of business experience, customer service experience,
    business planning skills, and accounting skills. Also, a significant time investment is required, including formal training in
    company policies and procedures.
    What a franchisee pays under the agreement
    Under the McDonald’s franchise agreement, the franchise also pays:

     A service fee: The company has a service fee of 4.0% of monthly sales.
     Rent: McDonald’s also charges monthly rent. This can be a base rent or based on sales.
     Risks. The risks associated with McDonald’s franchise business model include the counterparty risk, like in any
    other agreement. These include whether its franchisees have the experience and financial resources to be effective
    operators. Plus, the franchisees are expected to remain aligned with the company on operational, promotional, and
    capital-intensive initiatives.

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