How Does McDonald’s Make its Money?
McDonald’s is the world’s largest restaurant chain by revenue with 41,000+ locations in 100+ countries. But McDonald’s is often described as a real estate company that happens to sell hamburgers. Here’s why: ~95% of McDonald’s restaurants are franchised. McDonald’s owns or leases the land and building, then subleases to franchisees at a significant markup. The company earns revenue through franchise royalties (percentage of sales), rent (the real estate markup), and company-operated restaurant sales (the ~5% of locations McDonald’s directly runs).
Revenue Breakdown
| Segment | 2024 | 2023 | YoY Growth |
|---|---|---|---|
| Franchised Restaurants | $15.4B | $15.0B | +2.7% |
| Company-Operated Restaurants | $9.9B | $9.7B | +2.1% |
| Other Revenue | $0.2B | $0.2B | — |
| Total Revenue | $25.5B | $25.0B | +2.0% |
Franchised Restaurants — 60% of Revenue
Revenue from 39,000+ franchised locations:
- Rent Income (~65% of franchised revenue): McDonald’s owns or holds master leases on most franchise locations. Franchisees pay rent (often as a percentage of sales, typically 8.5-12%) on top of base rent. This is the crown jewel — real estate income with food service cashflows.
- Royalties (~35% of franchised revenue): Franchisees pay ~4% of gross sales as a service fee/royalty for the McDonald’s brand, system, and support.
Franchised revenue carries ~82% operating margin — extraordinarily high because McDonald’s bears minimal operating costs (the franchisee covers labor, food, and utilities).
Company-Operated Restaurants — 39% of Revenue
The ~2,000 restaurants McDonald’s directly operates, primarily in key markets (Australia, some U.S. locations). Revenue is total food sales, with associated food/labor costs.
System-Wide Sales (the bigger picture)
| Metric | 2024 | 2023 |
|---|---|---|
| System-Wide Sales | $130B+ | $125B+ |
| Total Restaurants | 41,800+ | 40,300+ |
| Franchised % | ~95% | ~93% |
McDonald’s $25.5B in reported revenue represents only ~20% of total system-wide food sales, because franchisee sales flow through the franchisees’ P&L, not McDonald’s.
Income Statement Overview
| Metric | 2024 | 2023 |
|---|---|---|
| Total Revenue | $25.5B | $25.0B |
| Operating Income | $11.7B | $11.6B |
| Net Income | $8.2B | $8.5B |
Key Financial Metrics
- Operating Margin: 45.9% — Among the highest in the S&P 500. Driven by the franchise model where McDonald’s collects rent and royalties with minimal costs.
- Franchised Margin: ~82% — Nearly pure profit from rent + royalties.
- Return on Invested Capital: 20%+ — Even with massive real estate holdings, McDonald’s generates exceptional returns.
- Free Cash Flow: $7.2B — Enables aggressive share buybacks ($4-5B/yr) and dividend payments.
What to Watch
- Comparable sales recovery — U.S. and international comp sales slowed in 2024 due to consumer spending pressure. The $5 Meal Deal value play aims to recapture traffic.
- Value perception — McDonald’s has faced backlash over price increases. The “value war” with Burger King, Wendy’s, and Chick-fil-A is intensifying.
- Digital & loyalty (MyMcDonald’s Rewards) — 160M+ loyalty members globally. Digital orders (app, kiosk, delivery) now represent 40%+ of system-wide sales and carry higher average checks.
- Unit growth — McDonald’s plans to open 9,000+ net new restaurants by 2027 (from 41K to 50K), representing the fastest expansion in the company’s history.
- Real estate moat — McDonald’s owns $40B+ in real estate (at cost). The combination of prime real estate ownership and franchise cash flows creates a nearly impenetrable competitive moat.