FDD Talk: McDonald's Franchise Costs, Fees, Average Revenues and/or Profits (2022 Review) (2024)

In this FDD Talk post, you’ll learn the following:

Section I – Estimated initial investment (franchise costs) for a McDonald’s franchise, based on Item 7 of the company’s 2022 FDD

Section II – Initial franchise fee, royalty fee, and marketing fee for a McDonald’s franchise, based on Items 5 and 6 of the company’s 2022 FDD

Section III – Number of franchised and company-owned McDonald’s outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD

Section IV – News updates on the McDonald’s franchise opportunity

Section V – Presentation and analysis of McDonald’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:

• percentage of domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2021 with 2021 annual sales in excess of $2,600,000, $2,800,000, and $3,000,000, respectively

• 2021 total cost of sales, gross profit, other operating expenses, and operating income before occupancy costs for 10,269 independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2021 annual sales of $2,600,000, $2,800,000, and $3,000,000, respectively

• percentage ofindependent franchisee traditional restaurants open and operated by a franchisee for at least 1 year, with 2021 annual operating income before occupancy costs greater than $757,000, $837,000, and $914,000, respectively

Section VI – Key ratios, comparables, computations, and analyses for the McDonald’s franchise opportunity (exclusive content for Platinum subscribers)

Section I – McDonald’s Franchise Costs

• McDonald’s franchise costs, based on Item 7 of the company’s 2022 FDD:

• Initial Franchise Fee: $45,000
• Real Estate and Building – 3 Months’ Base Rent: $0 to $313,000
• Real Estate and Building – 3 Months’ Percentage Rent: 0% to 31.75%
• Signs, Seating, Equipment, and Decor: $1,000,000 to $1,600,000
• Opening Inventory: $20,000 to $39,000
• Miscellaneous Opening Expenses: $48,000 to $60,000
• Travel and Living Expenses While Traveling: $3,000 to $38,000
• Additional Funds – 3 Months: $250,000 to $355,000
• Total Estimated McDonald’s Franchise Costs: $1,366,000 to $2,450,000

Section II – McDonald’s Initial Franchise Fee, Royalty Fee, and Marketing Fee

• McDonald’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2022 FDD:

• Initial Franchise Fee: $45,000
• Service Fee: 4% of Gross Sales
• Advertising and Promotion: not less than 4% of Gross Sales

Section III – Number of Franchised and Company-Owned McDonald’s Outlets

Franchised

2019

• Outlets at the Start of the Year: 13,229
• Outlets at the End of the Year: 13,185
• Net Change: -44

2020

• Outlets at the Start of the Year: 13,185
• Outlets at the End of the Year: 13,022
• Net Change: -163

2021

• Outlets at the Start of the Year: 13,022
• Outlets at the End of the Year: 12,775
• Net Change: -247

Company-Owned

2019

• Outlets at the Start of the Year: 683
• Outlets at the End of the Year: 659
• Net Change: -24

2020

• Outlets at the Start of the Year: 659
• Outlets at the End of the Year: 657
• Net Change: -2

2021

• Outlets at the Start of the Year: 657
• Outlets at the End of the Year: 661
• Net Change: +4

Section IV – News Updates on the McDonald’s Franchise

• McDonald’s Is Changing Its Approach to the Value Menu

• McDonald’s Beats Profit Estimates But Warns of Weakening Consumer

• McDonald’s to Test Run Chicken Big Mac in the US After Popular UK Trial

• McDonald’s Simplifies Franchising Policies to Attract More Diverse Candidates

• McDonald’s Ranks No. 14 on Entrepreneur’s 2022 Franchise 500 List

Section V – Financial Performance Representations (Average Revenues and/or Profits) for the McDonald’s Franchise (Item 19, 2022 FDD)

Part 1 – Average Gross Sales for Domestic Traditional Restaurants

Domestic Traditional (Franchised and McOpCo) Restaurants

• Of the approximately 12,377 domestic traditional McDonald’s restaurants opened at least 1 year as of December 31, 2021:

• approximately 79% had annual sales volumes in excess of $2,600,000;
• approximately 72% had annual sales volumes in excess of $2,800,000; and
• approximately 64% had annual sales volumes in excess of $3,000,000.

• The average annual sales volume of domestic traditional McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,487,000 during 2021.

• The highest and lowest annual sales volume in 2021 for these domestic traditional McDonald’s restaurants was $13,625,000 and $680,000, respectively.

• The median annual sales volume of domestic traditional McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,366,000 during 2021.

Domestic Traditional (Franchised Only) Restaurants

• Of the approximately 11,746 domestic traditional franchised McDonald’s restaurants opened at least 1 year as of December 31, 2021:

• approximately 78% had annual sales volumes in excess of $2,600,000;
• approximately 71% had annual sales volumes in excess of $2,800,000; and
• approximately 63% had annual sales volumes in excess of $3,000,000.

• The average annual sales volume of domestic traditional franchised McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,347,000 during 2021.

• The highest and lowest annual sales volume in 2021 for these domestic traditional franchised McDonald’s restaurants was $13,625,000 and $680,000, respectively.

• The median annual sales volume of domestic traditional McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,328,000 during 2021.

Domestic Traditional (McOpCo Only) Restaurants

• Of the approximately 631 domestic traditional McOpCo McDonald’s restaurants opened at least 1 year as of December 31, 2021:

• approximately 97% had annual sales volumes in excess of $2,600,000;
• approximately 94% had annual sales volumes in excess of $2,800,000; and
• approximately 88% had annual sales volumes in excess of $3,000,000.

• The average annual sales volume of domestic traditional McOpCo McDonald’s restaurants open at least 1 year as of December 31, 2021 was $4,046,000 during 2021.

• The highest and lowest annual sales volume in 2021 for these domestic traditional McOpCo McDonald’s restaurants was $8,639,000 and $2,063,000, respectively.

• The median annual sales volume of domestic traditional McOpCo McDonald’s restaurants open at least 1 year as of December 31, 2021 was $3,902,000 during 2021.

Part 2 – Pro Forma Statements for Franchised Traditional Restaurants

• The pro forma statements included below show annual sales volumes of $2,600,000, $2,800,000, and $3,000,000. These pro forma statements have been derived from independent franchisee traditional restaurant financial statements to provide information relevant to a prospective franchisee.

• Specific assumptions used in the presentation of these pro forma statements are indicated below the statements.

• The pro forma statements are based upon a total of 10,269 independent franchisee traditional restaurants open and operated by a franchisee for at least 1 year and do not include restaurants operated by McOpCo companies, Satellites, or the domestic traditional franchised restaurants that changed owners in 2021 and for which McDonald’s had complete financial statements.

Annual Sales Volume: $2,600,000

Product Sales: $2,600,000 (100.0%)

Total Cost of Sales: $691,000 (26.6%)

Gross Profit: $1,909,000 (73.4%)

Other Operating Expenses: $1,152,000 (44.3%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

Operating Income Before Occupancy Costs: $757,000 (29.1%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

Annual Sales Volume: $2,800,000

Product Sales: $2,800,000 (100.0%)

Total Cost of Sales: $741,000 (26.5%)

Gross Profit: $2,058,000 (73.5%)

Other Operating Expenses: $1,221,000 (43.6%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

Operating Income Before Occupancy Costs: $837,000 (29.9%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

Annual Sales Volume: $3,000,000

Product Sales: $3,000,000 (100.0%)

Total Cost of Sales: $795,000 (26.5%)

Gross Profit: $2,204,000 (73.5%)

Other Operating Expenses: $1,290,000 (43.0%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

Operating Income Before Occupancy Costs: $914,000 (30.5%)

• excluding rent, service fees, depreciation and amortization, interest, and income taxes

• Of the 12,377 independent franchisee traditional restaurants included in the pro forma statements above:

• approximately 76% had operating income before occupancy costs greater than $757,000;
• approximately 69% had operating income before occupancy costs greater than $837,000; and
• approximately 61% had operating income before occupancy costs greater than $914,000.

• Other Operating Expenses – includes, but is not limited to, the following costs: labor, franchisee’s salary as manager, payroll taxes, advertising fee, promotion, outside services, linen, operating supplies, small equipment, maintenance and repair, utilities, office supplies, legal and accounting fees, insurance, real estate and personal property taxes, business operating licenses, and non-product income or expense. This is a combination of the Total Controllable Expenses and Other Operating Expenses excluding rent, service fees, depreciation and amortization, and interest included in the typical store’s financial statements.

• Operating Income Before Occupancy Costs – represents Operating Income excluding rent, service fees, depreciation and amortization, interest, and income taxes. The rent paid to McDonald’s will vary based upon sales and McDonald’s investment in land, site improvements, and building costs.

• Additionally, organization overhead costs, such as salaries and benefits of non-restaurant personnel (if any), cost of an automobile used in the business (if any), and other discretionary expenditures may significantly affect profits realized in any given operation. The nature of these variables makes it difficult to estimate the performance for any particular restaurant with sales of any given volume.

• Note 1 – Data for McOpCo company restaurants is not included in the pro forma statements because of certain expenses that are typically incurred by a McOpCo-operated restaurant that are not incurred by restaurants franchised to individuals.

• If data for McOpCo-operated restaurants open for at least 1 year were included along with franchised restaurants, the percent of total restaurants in each category would not be statistically different and the range of Operating Income Before Occupancy Costs would be $633,000 to $790,000.

• Note 2 – The description of this line, “Product Sales,” is to clarify that only product sales are included. Non-product sales and associated costs are included in Other Operating Expenses.

• The Operating Income Before Occupancy Costs numbers were determined using restaurants with product sales between $2,500,000 to $2,700,000; $2,700,000 to $2,900,000; and $2,900,000 to $3,100,000, respectively.

• Note 3 – McDonald’s is not presenting average occupancy costs in the above calculation because a wide variety of rent charts and ownership options exist. In addition, the effective rent paid by a franchisee may be more in any particular month than the stated percent rent indicated in the franchisee’s lease because a portion of the rent may be fixed regardless of the sales level for a given month.

• The range of effective rent percentages in 2021 for franchised restaurants was 0.00% to 30.4%.

Section VI – McDonald’s Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️