Cashflow from renting to a franchisee must be fantastic. You pick the locations and the decor. If the business does well you prosper, but if the business does poorly you're insulated from the downside, the rent is due either way! If the franchisee can't hack it you repossess the building and rent it to some other suc^H^H^Hfranchisee.
replyMcDonald's is invested in franchisee's success, it wouldn't be a great business otherwise.
replyIt's actually hilarious sometimes. The business models that generate most scorn and incredulity on HN are the straightforward ones. They convert labor pretty much directly to a very basic product with a clear demand by society, that can't possibly be profitable, are we sure it's not actually a front for Real Estate or AI or Tax Evasion?
replyI'm sure real estate is the primary business model of McDonald's but franchisees wouldn't be paying the rent and fees if the restaurant model itself wasn't very profitable.
replyMost restaurants in Europe generate an average of 250k in net cash flow per average restaurant, that's few years of work before ROI.
They don't have to ever sell the properties. Property can be assessed by a third party and then function as collateral against a low-interest loan, which is real money.
replyNot that I think McDonald's will ever really find themselves in a pinch, but if they did, they would additionally be able to liquidate selected properties for cash. When you are rich enough, the promise of having money in the future is just as good as actually having money. It doesn't work like that for most of us, but that's the nature of risk assessment in finance.
Rent is the realization of value appreciation - value is just the NPV of future rents
replyStill looks good enough on financial statements if you’re ig enough to care about them, and it makes for great collateral in the process of buying the next one.
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