McDonald’s has been consistently included in the top franchisors in the listing of Entrepreneur Magazine, Franchise Times Magazine, USA Today and Black Enterprise Magazine. Owning a McDonald’s franchise offers a good business opportunity for entrepreneurs because of the reputation of McDonald’s in the fast food industry and the support that they offer to their franchisees. As of 2013, McDonald’s has 12,628 franchise units in the U.S., 1,135 in Canada and 14,344 in other countries. On the other hand, it has 6,627 company-owned stores. These figures show that McDonald’s is indeed committed to franchising as a predominant way of doing business.
McDonald’s offers four types of franchises:
- Traditional restaurant – franchise offered is located in freestanding buildings, store fronts, food courts, and other locations. The franchisee operates a full-menu restaurant, offering the public a high standard of quality and uniformity in food and service. The term of a traditional restaurant is generally 20 years.
- Satellite locations – The franchises operate in a retail store, strip center, airport, universities, hospitals, and other varied locations. These restaurants serve a scaled-down menu of a traditional McDonald’s Restaurant and in some cases may also serve non-McDonald’s trademarked products. The term of the franchise will depend on the area where the store is situated.
- STO and STR locations – ‘Small Town Oil’ locations are situated in gas stations or convenience stores, and operate a full-menu McDonald’s restaurant within the shared space. ‘Small Town Retail’ are found in small stores in the rural areas.
- BFL franchises – ‘Business Facilities Lease’ franchises include the business facilities. Under a BFL, the franchisee may opt to purchase some restaurant assets after the first year and continue the franchise for up to 20 years after the beginning of the term.
Aside from the initial investment, the franchise agreement also requires the franchisee to pay certain ongoing fees as shown in Table 2 below.
In addition to the above financial requirements, to be considered as a candidate for a franchisee, McDonald’s generally requires a minimum of $750,000 non-borrowed personal resources. Moreover, when purchasing a new restaurant, an initial down payment of 40% of the total cost is required and for an existing restaurant, 25% of the total cost.
Complying with the financial requirements is just one aspect of owning a McDonald’s franchise. Other vital requirements must be met by the franchise applicant such as having a significant business experience and having good management skills. Effective management skills must be exemplified in the areas of finance, customer service and business planning. McDonald’s only allows franchisees who are owner operators. The possible franchisee must also be willing to undertake a comprehensive world class training program which will familiarize him with all the aspects of the McDonald’s business operations.
McDonald’s is one of the top franchisors globally because of its commitment to its franchisees. The support system that McDonald’s offers to its franchisees covers all areas of the business operations.
Typically, no financing arrangements are offered by McDonald's. McDonald's issues an Operator's Lease for each site owned or leased by McDonald's. The Operator's Lease is a standard commercial lease under which the franchisee pays rent to McDonald's for use of the premises. The Operator's Lease does not contain any financing terms. Loans to certain franchisees for the purchase of restaurant businesses sold by the McOpCo companies and for other reasons are made by a third party lender, Lake Forest Bank and Trust Company.
Another support provided by McDonald’s to its franchisees is the training program. The training program covers the areas of systems management, restaurant management, business management and preparing for ownership (McDonald's). The highlights of the training program include 9 – 18 months training in a restaurant close to one’s residence; self directed, part time – 20 hours per week; seminars, conferences, one-on-one training sessions; and operator training classes conducted by local training professionals - two advanced five- day courses at the Fred L. Turner Training Center at Hamburger University, Oak Brook IL.
A vital support given by McDonald’s is in the marketing aspect. The franchisee enjoys the benefits of co-op advertising, ad slicks, national media and regional advertising. Other ongoing support of McDonald’s are newsletters, meetings, toll-free phone line, grand opening support, internet, security/safety procedures, field operations/evaluations, purchasing cooperatives, and lease negotiation support.
There are several benefits of owning a McDonald’s franchise. Foremost among these is the franchisee becomes part of a well-established brand that is known all over the world; thus, they are assured of brand loyalty and a huge customer base. A McDonald’s franchisee benefits from the national advertising without having to spend a large sum of money. Another benefit from owning a McDonald’s franchise is that the possibility of business failure is very small because the business formula of McDonald’s is already tried and tested.
All McDonald’s franchisees are expected to follow the QSC system, that is, to put emphasis on Quality, Service and Cleanliness. Franchisees are expected to work with McDonald’s in delivering a balanced array of food choices and providing its customers with nutrition information. They should also be one with McDonald’s in promoting energy conservation, sustainable packaging, waste management and in maximizing the customer’s McDonald’s experience. Owning a McDonald’s franchise offers great benefits and opportunities; however, it is expected that total commitment to the McDonald’s mission and values is adhered upon by its franchisees.
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