If you haven’t had the chance to watch The Founder on Neflix (it’s a movie based on the guys who started it all), the story goes a little like this:
A businessman called Ray Kroc joined the company as a franchise agent in 1955 and proceeded to purchase the chain from the McDonald brothers. He helped develop McDonald’s business practices that allows it to sell food for a low-cost with high profits.
How? The chain’s drinks are sold at a 1,150 percent mark up, while coffee is marked up 2,900 percent and egg-based breakfast items cost less than $1 USD to make.
But the most interesting finding in the investigation would have to be that the Kids
Meals provide McDonald’s with its greatest profit margin thanks to smaller portions and fewer ingredients.
So how do they get the food to be so cheap?
As the fast-food chain has so many locations, it can buy its ingredients in bulk from suppliers all over the world for the best price possible. Plus, with the sheer volume of its demands, the chain is offered sizeable discounts from companies that want to become partnered with the business. An example of one is Coca-Cola which benefits from its association with the chain financially and from a marketing outlook.
Pair this with young staff/low wages and upselling, McDonald’s can keep its food cheap which allows it a scale that equals big profits.
It’s also worth adding that as a franchisee you have to pay the company rent (if McDonald’s owns the property - which it does most of the time) as well as an upfront cost of $45,000 USD followed by four percent of gross sales each month.
Watch more in the video below.