During his outstanding presentation on the December '24 NOA webcast, Attorney Robert Zarco reminded us that McDonald's is essentially a real estate company that sells hamburgers. He made many recommendations that assume McDonald's Owner/Operators thoroughly know the real estate status of each of their restaurants.
Is that the case, or are Owner/Operators just relying on verbal representations from McDonald's corporate employees?
A little history: When Ray Kroc founded McDonald's, the Owner/Operator was usually responsible for providing the land and building.
As the company grew, the corporation provided facilities, and the real estate became a part of the franchise relationship.
When McDonald's selected a site, one of the criteria was that there would be a McDonald's at that location in perpetuity.
A purchase was always best; if a lease, there would be substantial options.
This long term mentality enhanced McDonald's portfolio and also allowed Owner/Operators to build equity.
But despite its reputation, perpetuity isn't forever. Under the new corporate management, real estate thinking might have changed. But, since everyone of the 14,000 USA locations are different, it would be difficult to identify any trends.
Is this an issue that Owner/Opertors should be discussing?
Or is it no big deal?
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9 comments:
The Corporate policy today is to build McDonalds equity at all costs, and destroy , to a large degree, operator equity. In fact, Chris K has even remarked that they want to "drive down" Operator cash flow per store to a "more reasonable" $300,000 per store. Partners? I think not!
McD owns the land and the building, yet the operator pays all taxes, improvements, insurance and M&R etc, And Corp gets all the depreciation, tax benefits and equity.
and yet that's the deal we signed up for
Where did the word "partners" in the McDonald's system come from? There's nothing in the agrements or FDD about a partnership. Was it just some unfortunate term used when setting up the first E-mail system for Ower/Operators? Do the corporate people use that term to cajole an Operator into bad decisions?
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I've got some fairly original internal docs from senior management in which Fred remarked, "I'll buy the building and land the first time, the operator will pay for improvements or remodels" (paraphrased...I'd have to dig it out.
The difference is that he and his bunch never dreamed that there would be so many wallets to be filled between us and what we buy and he was thinking that we'd re-laminate tabletops, recover seats, put up wallpaper or paint, MAYBE tile floors and make it nice, new, look good.
He would have NEVER expected a "remodel" to cost $500,000 or more, never expected it to cost 25% of the cost of a new store.
I was taught to remodel every 10yrs and to do what is described above, not because it was required but because it's the right thing to do- we need to remain nice, relevant, etc. I clearly remember two times when we remolded restaurants and we were NOT asked to, not suggested, not forced. We just did it and that's because as my dad said, "it's the right thing to do for our customers."
Of course he was "old school," he was of the Kroc era in which few O/O's were in this measuring EBIDA or working out what this investment's ROI is vs. that one. They came out of the stores, the company side often worked right beside them and their focus was clear- quality, service, cleanliness. It's just what they did, guys who otherwise would have possibly been mid management (some higher) or even blue collar but one thing was central. Most would say, "I've got ketchup in my veins" and mean it because the company knew and provided support for owners, owners worked hard to deliver and did everything they knew or could imagine to do to drive sales, we hosted birthday parties and lead parades, we jumped behind the counter and helped if we stopped at another McDonald's on the road and they seemed to need help- maybe got a bus.
It was a different time. It was a time in which those on two sides of the "stool" were largely rowing in the same direction, it was a time that those in charge wanted their franchisees to be the richest franchisees in the world, it was a time in which service fees paid for service and rent provided returns to investors.
Now it's more like pirates have taken the ship and are looting it before they burn it to the hull, after escaping with lifeboats full of money earned by others while barking orders at the little people to keep it afloat at all costs.
I certainly hear them use the word "partners" in a lot of situations, often to as you said cajole "operators" (never is the word owner thrown in there) to "investing in the future"- lately it's mostly incredibly stupid free stuff on the app.
By the way, raise your hand if you believe that a 20% discount is a good idea under any circumstances? What happened to the "ground rules" or the "barriers" or whatever they called agreed upon limitations of discounts- limiting it to 20% or something?
A case for profitability is just impossible to make at 20%, it's asinine and anyone who believes this is either mistaken, mislead or has other reasons for going along with it.
I don't know what these people say to our operator "leadership" but I've seen operator leadership immediately after receiving a one-on-one call from one of them and they most certainly toe the line, they do so with authority and certainty. They're terrified. I don't know if it's threats or hints or what, but whatever they're told works.
I wish I could get more specific- names, dates, places and specific promotions where this 100% happened, but I cannot. I can say that those people in Chicago have absolutely no boundaries, nothing is off limits in terms of ways to get what the want and what is always best for them and usually to our direct detriment.
"Investing in growth" has been a one sided street for years, they've milked our trust dry and if nothing else, at least those who doubted, who still believed that they had good intentions for us cannot defend, cannot make what "they" are doing make a bit of sense on our side of the ledger anymore but those who cling on- those who are still true believers won't even consider joining the NOA or listening to facts, they've often got so many stores and make so much money that $100,000/store just doesn't matter in their world, it doesn't alter their lifestyles one bit.
And maybe that's part of the plan- more likely it's an unanticipated benefit of fewer owning more. If you've got one, that $25,000 thing matters, a lot. If you've got 35 stores, that $25,000 thing is a rounding error and won't stop the new Porsche or helicopter or private jet from running.
Get the results CK is shooting for- $300,000 cash flow/store and maybe they'll wake up but it'll be too late by then.
Unfortunately those guys who think McDonald's is working for their benefit too are not only not NOA but they aren't reading this either, so I don't know how to get to them, to wake them up and make the case for alarm, for resistance, for unity. We still run this thing, now more than ever and we have all of the power we could ask for if we can simply do what is best for ourselves and stick together.
Who knows? Maybe all of them believe it or maybe I'm missing something. Call me crazy but a half century in this business puts a lot of miles, memories, experiences and knowledge upstairs.
It's time to go home. Have a great weekend.
Thank you corporate employee
AMEN. ABSOLUTELY SPOT ON
PARTNERS?????
What a JOKE!!!
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