Is McDonald's a Low-Risk Franchise Investment?

Opening a McDonald’s franchise represents a relatively low-risk investment compared to the rest of the franchising and restaurant industry world, in part because it’s a strong brand name that entrepreneurs can usually sell if they get into trouble.

But owning a McDonald’s franchise means owning a business, and that always includes risk.

McDonald’s has credibly limited the risks of owning one of its stores by having successfully franchised in dozens of countries around the world with thousands of different franchisees. These franchisees give input, insight and even some promotional ideas to the corporate leaders, who use those ideas to make the investment a safer bet. Compared to a new franchise or independent restaurant, McDonald’s has significantly de-risked its proposition.

Also, many restaurant management companies already operate several McDonald’s locations, so they could easily buy a McDonald’s restaurant in a resale from a distressed franchisee.

McDonald’s corporate operation has insulated itself from fluctuations in the restaurant industry by essentially becoming a real estate company. McDonald’s franchisees pay the corporate office a royalty on all sales, but a much greater share of McDonald’s corporate revenue comes from rent payments, as the brand owns 100% of its system’s real estate. For this reason, McDonald’s corporate operations can be expected to endure even during recessions.

For entrepreneurs, the key risk in running a McDonald’s is failing to do the work. Running a McDonald’s takes patience, dedication and tolerance. Additionally, with more than 35,000 franchised locations, McDonald’s has seen it all. Franchisees who try to fudge the numbers or take shortcuts on regulations can expect to see Ronald McDonald’s unhappy face.