Investors want McDonald’s out of real estate

Nancy Marshall-Genzer Aug 25, 2015
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Investors want McDonald’s out of real estate

Nancy Marshall-Genzer Aug 25, 2015
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If you think things are tough for McDonald’s now, imagine what it was like when the company was starting out.  

Banks didn’t want to loan McDonald’s money. So the Golden Arches transformed itself into a business the banks would lend to.  

Sort of a real estate company. Buying land and building restaurants, then renting them to franchisees. The sales pitch became:

“It’s not a burger company, it’s a real estate company that sells burgers,” says Sam Oches, editor of QSR, a trade magazine for the fast food industry.  

Oches says this is a unique business model that gives McDonald’s a lot of control over its franchisees.

“If they own that restaurant, they’ll be able to dictate a lot more about the upkeep of the restaurant,” he says.

For example, McDonald’s can give franchisees a break on the rent if they upgrade their stores. John Gordon, a restaurant analyst at Pacific Management Consulting Group, says rent accounted for about a fifth of McDonald’s worldwide revenue last year. But McDonald’s is coming under pressure from some of its investors who want the chain to start selling off its real estate.

“It’s some activist investors looking for ways to juice the stock higher,” Gordon says.

But others think the investors are right — McDonald’s should sell.

“It would be good for McDonald’s, because McDonald’s would have to focus on the food service business and not on real estate,” says Don Sniegowski, editor of Blue Maumau, a news site for franchise owners.

McDonald’s refused an interview request, but a spokeswoman said McDonald’s will provide an update on “financial areas of opportunity” at its November investor meeting.

 

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