McDonalds Business Model: Cooking Up A Franchise Model

The McDonalds business model has led this global fast-food giant to be a globally recognised brand name. But how does McDonalds make money?

Gary Fox

Mcdonalds Business Model Canvas

McDonalds Business Model: Cooking Up A Franchise Model

McDonalds: The Fast-Food Empire That Revolutionized the Industry

The McDonalds business model serves millions of customers daily. With its distinctive golden arches and mouth-watering burgers, McDonalds has transformed the way people eat and has become a symbol of American culture worldwide. In this article, we delve into the fascinating business model behind McDonald’s success, exploring its history, ownership, mission, and the strategies that have made it a household name.

How Does McDonalds Business Work?

McDonalds operates primarily as a franchisor, with the majority of its restaurants owned and operated by independent franchisees. The company’s business model relies on a standardized system that ensures consistency in food quality, service, and branding across all locations. McDonalds generates revenue through a combination of sales from company-owned restaurants, franchise fees, and royalties based on a percentage of franchisees’ sales.

Key Facts About McDonalds

. Company name:

McDonalds

Founders:

Richard and Maurice McDonald

Launch date:

The first McDonald’s was opened on May 15, 1940.

Year founded:

1955

Company CEO:

Chris Kempczinski

Headquarters

Chicago, Illinois, USA

Number of employees

200,000 people directly; 1.9 million if franchise employees are included

Ticker symbol

MCD

Annual revenue

$25.49 billion (2023)

Profit | Net Income

$8.469 billion (2023)

Market Cap

$193.07 billion (April 2024)

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A Brief History

McDonalds was founded in 1940 by brothers Richard and Maurice McDonald in San Bernardino, California. The restaurant initially operated as a drive-in barbecue, but the McDonald brothers later streamlined the menu, focusing on burgers, fries, and milkshakes. In 1954, Ray Kroc, a milkshake machine salesman, visited the restaurant and was impressed by its efficient operation. Kroc saw the potential for a franchise system and partnered with the McDonald brothers to expand the business.

Key milestones in McDonalds history include:

  • 1955: Ray Kroc opens the first McDonalds franchise in Des Plaines, Illinois
  • 1961: Kroc purchases the company from the McDonald brothers for $2.7 million 1965: McDonald’s goes public with its first offering on the stock exchange
  • 1968: The Big Mac is introduced, becoming a signature item on the menu
  • 1975: The first McDonald’s drive-thru opens in Sierra Vista, Arizona
  • 1990: McDonald’s opens in Moscow, marking its entry into the Russian market
  • 2002: The company faces criticism for its role in the obesity epidemic, leading to healthier menu options
  • 2015: McDonald’s introduces all-day breakfast in the United States
  • 2020: McDonald’s adapts to the COVID-19 pandemic with enhanced safety measures and a focus on drive-thru and delivery services

How Many McDonalds Are There?

As of 2021, there are approximately 39,000 McDonalds restaurants in over 100 countries worldwide. In the United States alone, there are more than 13,000 McDonalds locations, making it the largest market for the company.

Who Owns McDonalds?

McDonald’s is a publicly-traded company, with shares listed on the New York Stock Exchange under the ticker symbol MCD. The company’s ownership is diverse, with a mix of institutional investors, mutual funds, and individual shareholders. As of 2021, the largest shareholders include The Vanguard Group, SSgA Funds Management, and BlackRock Fund Advisors. While the McDonald family no longer has a significant stake in the company, the legacy of the McDonald brothers and Ray Kroc continues to shape the brand’s identity and success.

Mission Statement

McDonald’s mission statement is “to be our customers’ favorite place and way to eat and drink.” The company also emphasizes its commitment to “making delicious feel-good moments easy for everyone.”

How McDonalds Works

McDonalds business model is based on the principles of consistency, efficiency, and affordability. The company achieves this through:

  1. Franchising: McDonalds grants franchises to independent operators who adhere to strict standards and guidelines. Franchisees pay an initial fee, ongoing royalties, and advertising fees in exchange for the right to operate under the McDonald’s brand.
  2. Standardization: McDonalds ensures that every restaurant follows a standardized system for food preparation, service, and cleanliness. This consistency is crucial to maintaining the brand’s reputation and customer loyalty.
  3. Supply chain management: McDonalds works closely with suppliers to source high-quality ingredients at competitive prices. The company’s scale allows it to negotiate favorable contracts and maintain a reliable supply chain.
  4. Menu innovation: While maintaining its core offerings, McDonalds continuously introduces new menu items to keep customers engaged and adapt to changing preferences. The company also offers regional variations to cater to local tastes and customs.
  5. Marketing and branding: McDonalds invests heavily in advertising and promotional campaigns to maintain its strong brand presence. The company’s marketing strategies often target families, children, and young adults, using iconic characters like Ronald McDonald and the Hamburglar.
  6. Real estate strategy: McDonalds owns many of the properties on which its restaurants are located. This real estate ownership provides a stable revenue stream and allows the company to control prime locations.
  7. Technological integration: McDonalds has embraced digital technologies to enhance the customer experience, with mobile ordering, self-service kiosks, and delivery partnerships. These innovations help the company streamline operations, reduce wait times, and adapt to changing consumer preferences.

The Revenue Model of McDonalds

McDonalds revenue model generates several streams of money:

  • Sales from company-operated restaurants: Revenue from restaurants directly owned and operated by McDonalds
  • Franchise fees: Initial fees paid by franchisees to open a new McDonald’s restaurant
  • Royalties: Ongoing fees paid by franchisees based on a percentage of their sales
  • Rent: Income from leasing restaurant properties to franchisees
  • Advertising fees: Contributions from franchisees to fund national and regional marketing campaigns

McDonald’s profitability is driven by its ability to leverage its strong brand, achieve economies of scale, and maintain a high volume of sales across its global network of restaurants.

What is McDonalds Business?

McDonalds operates in the fast-food industry, specializing in burgers, fries, and other quick-service menu items. The company differentiates itself from competitors through its strong brand recognition, consistent quality, and global presence. McDonalds competitive advantages include its efficient supply chain, standardized operations, and ability to adapt to local markets while maintaining its core identity.

Key Features of McDonalds Business Model

  • Franchising: Leveraging a network of independent operators to expand globally
  • Standardization: Ensuring consistency in food quality, service, and branding across all restaurants
  • Real estate ownership: Controlling prime locations and generating rental income
  • Continuous innovation: Adapting to changing consumer preferences through menu updates and technological integration

The McDonalds Business Model

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Customer Segments Of The Mcdonalds Business Model Canvas

Customer Segments

The McDonalds business model caters to a wide range of customer segments – from young to old. These segments are crucial for the company’s success and profitability. The following are McDonald’s key customer segments:

  • Families: Parents with children seeking affordable dining options
  • Young adults: Individuals aged 18-34 looking for quick meals
  • Budget-conscious consumers: Those seeking value for money
  • Travelers: People on the go needing fast service
  • Busy professionals: Customers with limited time for meals
  • Value Proposition Of The Mcdonalds Business Model Canvas

    Value Propositions

    McDonalds business model value proposition offers unique benefits to its customer segments that set it apart from competitors. McDonald’s primary value propositions include:

  • Affordability: Offering low-priced, value-focused menu items
  • Convenience: Providing quick service and easy accessibility
  • Consistency: Ensuring uniform taste and quality across locations
  • Familiarity: Offering a recognizable menu and experience worldwide
  • Variety: Serving a range of food and beverage options
  • Channels

    Channels

    McDonalds reaches its customer segments through various channels within its business model. These channels are essential for delivering the company’s value propositions and engaging with customers. The following are McDonald’s main channels:

  • Restaurants: Physical locations for dine-in and take-out
  • Drive-thrus: Convenient option for customers on the go
  • McDelivery: Food delivery service through partner platforms
  • Mobile app: Enabling online ordering and promotions
  • Kiosks: Self-service ordering points in restaurants
  • Key Relationships Of The Business Model Canvas

    Customer Relationships

    McDonalds business model relies on relationships that are designed to ensure customer satisfaction and loyalty while managing a high volume of transactions. McDonalds customer relationships include:

  • Self-service: Allowing customers to order and customize meals
  • Limited personal assistance: Providing quick, friendly service at counters
  • Automated service: Offering ordering through kiosks and mobile apps
  • Co-creation: Engaging customers in creating new menu items
  • Key Activities Of The Business Model Canvas

    Key Activities

    McDonalds performs key activities to create and deliver its value propositions. These activities are essential for the company’s business model and ensure smooth operations. McDonald’s key activities include:

  • Food preparation: Cooking and assembling menu items
  • Order fulfillment: Processing and delivering customer orders
  • Restaurant management: Overseeing daily restaurant operations
  • Marketing and advertising: Promoting products and brand awareness
  • Franchise support: Providing training and assistance to franchisees
  • Key Resources Of The Business Model Canvas

    Key Resources

    The McDonalds revenue model relies on key resources to create and deliver its value propositions. These resources are crucial for the company’s business model and contribute to its competitive advantage. McDonalds key resources include:

  • Brand: Globally recognized and valuable brand
  • Restaurant network: Extensive network of company-owned and franchised locations
  • Supply chain: Efficient and reliable supply chain management
  • Human resources: Well-trained and dedicated workforce
  • Intellectual property: Trademarks, recipes, and operational procedures
  • Key Partners Of The Business Model Canvas

    Key Partners

    McDonalds collaborates with key partners to create and deliver its value propositions. These partnerships are crucial for the company’s business model and contribute to its success. McDonald’s key partners include:

  • Franchisees: Independent operators running McDonald’s restaurants
  • Food suppliers: Companies providing ingredients and food products
  • Beverage partners: Coca-Cola and other beverage suppliers
  • Logistics providers: Companies handling distribution and transportation
  • Technology partners: Providers of ordering and payment systems
  • Marketing agencies: Firms supporting advertising and promotional campaigns
  • Revenue Streams Of The Business Model Canvas

    Revenue Streams

    The McDonalds business model has multiple ways of generating money including:

  • Product sales: Revenue from food and beverage sales
  • Franchise fees: Initial fees paid by franchisees
  • Royalties: Ongoing fees based on franchisees’ sales
  • Rent: Income from leasing restaurant properties to franchisees
  • Advertising fees: Contributions from franchisees for marketing
  • Cost Structure Of The Business Model Canvas

    Cost Structure

    The McDonalds business model consists of a cost structure that includes the following:

  • Food and packaging: Expenses related to ingredients and packaging materials
  • Labor: Wages and benefits for restaurant staff and management
  • Rent and utilities: Costs associated with restaurant properties and operations
  • Marketing and advertising: Expenses for promoting products and brand awareness
  • Franchise support: Costs related to assisting and training franchisees
  • The Future of McDonald’s Business Model

    The McDonalds business model continues to adapt and innovate. The company’s focus on digital transformation, delivery services, and healthier menu options reflects its commitment to staying relevant in a changing market. McDonald’s ongoing emphasis on convenience, value, and customer experience will remain key drivers of its success. The company’s ability to leverage its strong brand, global presence, and efficient operations will be crucial in maintaining its competitive edge. As McDonalds navigates the future, its partnerships with franchisees, suppliers, and technology providers will play a vital role in supporting its growth and profitability. With its proven track record of adaptability and innovation, McDonalds is well-positioned to overcome challenges and capitalize on new opportunities in the fast-food industry.

    McDonalds Business Model Patterns

    The McDonalds business model uses multiple business model patterns including:

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