Linsey Kitts CTF, Mikla 5/11/12 McDonald’s Restaurant All information can be found on the McDonalds website. McDonald’s History Dick and Mac McDonald opened first opened McDonalds in 1940 as a Bar-BQue restaurant in San Bernardino, California. They then shut it down in 1948, made alterations, and re-opened it as a self serving restaurant. When did it become a franchise? McDonald’s became a franchise in 1955. The first franchise restaurant was opened in Des Plaines, Illinois by Ray Kroc, a multi-mixer salesman. McDonalds has existed as a franchise for 57 years. Ten years after McDonalds first became a franchise in 1955, there was over 700 McDonald’s restaurants throughout the United States. Currently, there are over 31,000 McDonald’s restaurants worldwide. About Buying a Franchise Acquiring a Franchise Most Owner/Operators enter the System by purchasing an existing restaurant, either from McDonald’s or from a McDonald's Owner/Operator. A small number of new operators enter the System by purchasing a new restaurant. The financial requirements vary depending on the method of acquisition. Financial Requirements/Down Payment An initial down payment is required when you purchase a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost). The down payment must come from non-borrowed personal resources, which include cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity, exclusive of your personal residence. Since the total cost varies from restaurant to restaurant, the minimum amount for a down payment will vary. Generally, we require a minimum of $500,000 of nonborrowed personal resources to consider you for a franchise. Individuals with additional funds may be better prepared for additional or multi-restaurant opportunities. Financing We require that the buyer pay a minimum of 25% cash as a down payment toward the purchase of a restaurant. The remaining balance of the purchase price may be financed for a period of no more than seven years. While McDonald’s does not offer financing, McDonald’s Owner/Operators enjoy the benefits of our established relationships with many national lending institutions. We believe our Owner/Operators enjoy the lowest lending rates in the industry. Buying a Franchise The cost of buying a McDonald’s restaurant varies. McDonalds requires a minimal of $500,000 non-borrowed, to consider allowing some one buy a McDonald’s franchise. Terms, and Conditions Below are the terms and conditions of buying a McDonalds franchise. Term of Agreement and Renewal: Traditional term is generally 20 years. The Satellite term varies, STO term length is generally 10 years, and the BFL term length is generally three years. The franchisee is given no right to renew or extend the franchise after the term of the contract. Obligations and Restrictions: The franchisee is required to provide full time and best efforts to and personal on-premises supervision of, the day-to-day operation of the McDonald’s restaurant business. Territory: McDonald’s franchises contain a limited grant of authority to use the McDonald’s System in the operation of the specific restaurant developed by McDonald’s at that address. Franchisees will not receive an exclusive territory. Franchisees may face competition from other franchisees, from outlets that McDonald’s owns, or from other channels of distribution or competitive brands that McDonald’s controls. The Franchise Agreement does not contain any exclusive grant, exclusive area, exclusive territorial rights, protected territory, or any right to exclude, control, or impose conditions on the location or development of future McDonald's restaurants at any time. Terms, and Conditions continued Training and Assistance: McDonald's operates Hamburger University, the international training center for the McDonald's System. The content and duration of all operations courses, which are offered at various local sites, are revised and reconsidered from time to time to meet the needs of the franchisees. All courses and learning events are offered at frequent intervals and are designed to give franchisees specific skill sets in the various facets of the conduct of a McDonald's restaurant. Training also occurs at a McDonald's restaurant, including hands-on and self-directed learning, and is monitored by a McDonald's business consultant (or other assigned person). Typically, the training takes place on a part-time basis and spans 9 to 24 months, but a 36-month training time is not uncommon. There are no further mandatory training requirements for franchisees beyond the initial training. However, annual meetings, conventions, various workshops, and other training sessions may be conducted on an ongoing basis within each region, and McDonald’s may require franchisees to pay for the costs associated with that ongoing training. Additionally, optional courses may be offered to franchisees or their employees for a fee. Financial Assistance: Typically, no financing arrangements are offered by McDonald's. McDonald's issues an Operator's Lease for each site owned or leased by McDonald's. The Operator's Lease is a standard commercial lease under which the franchisee pays rent to McDonald's for use of the premises. The Operator's Lease does not contain any financing terms. Loans to certain franchisees for the purchase of restaurant businesses sold by the McOpCo companies and for other reasons are made by a third party lender, Lake Forest Bank and Trust Company. Initial Investment Fees Name of Fee Low $45,000 Initial Franchise Fee $22,500 - STO $0 - Satellite Base Rent $450 $750 - STO Real Estate and Building – 3 $1,425 - Satellite months rent Percentage Rent 0% 4% - STO 4.25% - Satellite $791,000 Signs, Seating, Equipment, $602,000 - STO and Décor $50,000 - Satellite $11,400 Opening Inventory $12,000 - STO $8,000 - Satellite Miscellaneous Opening $53,000 Expenses Travel and Living Expenses $3,000 while training $165,000 Additional Funds – 3 months $144,000 - STO $57,000 - Satellite $1,068,850 ESTIMATED TOTALS $837,250 - STO $172,425 - Satellite High $45,000 $22,500 - STO $500 - Satellite Base Rent $310,500 $30,600 - STO $46,650 - Satellite Percentage Rent 42.5% 17.3% - STO 23% - Satellite $1,129,500 $849,000 - STO $396,000 - Satellite $27,000 $25,000 - STO $15,000 - Satellite $57,400 $20,000 $303,000 $221,000 - STO $91,500 - Satellite $1,892,400 $1,225,500 - STO $627,050 - Satellite Ongoing Fees Service Fee 4% of Gross Sales Rent Varies Advertising and Promotion Not less than 4% Gross Sales Audit/ Inspection Fee Cost of Audit Satellite Annual Fee $500 to $2,500 Satellite Rent Varies STO Rent Varies BFL Rent Varies New POS Integration Fee $1,000 integration fee (one-time fee); $200 annual integration fee Restaurant File Maintenance (RFM) Fee $150 R2 D2 Software Maintenance Fee $125 New POS Software Fee Next Gen Cashless Fee $1,600 license fee (one-time fee); $400 annual software maintenance fee $216 license fee (one-time fee); $154 annual maintenance fee Help Desk Support Fee $2,040 Microsoft Subscription License $449 Restaurant System Management (RSM) $250 Restaurant Integrated Data Movement (RIDM) $75 What McDonalds has to offer Why McDonald's? McDonald’s has always been a franchising company and has relied on its Owner/Operators to play a major role in the System’s success. McDonald’s remains committed to franchising as a predominant way of doing business. Listen as four McDonald's Owner/Operators share their perspective in these areas: Training, McFamily, Customer Satisfaction, Social Responsibility and Support. World Class Training McDonald’s continues to be recognized as a premier franchising company around the world. We believe a major component of this is the world class training you receive prior to becoming an Owner/Operator. McDonald’s provides hands on training and the materials you need to be a success in your restaurant business. World Class Service McDonald's offers World Class Service What they are looking for? McDonald’s restaurants are looking for educated people that are trying to make a business become even more great. To qualify for a McDonald’s franchise you also have to be financially stable. Great business skills are also a plus when trying to open up a McDonald’s franchise. Profits( 1 year ) Annual sales $1.3 million Franchise fees due $45,000 + 12.5%, 4% of royalties Expected profits after the cost of goods $916,000 McDonald’s Popularity McDonald’s restaurants are very popular for the menu choose. Their classic Big Mac is an all American favorite. Aside from the Big Mac, McDonald’s chicken nuggets, fries, milkshakes, etc. also help gain McDonalds gain popularity. There great customer service, and family friendly environments also help to make them popular.