By Lesley Green-Rennis
- Black McDonald’s franchisees net $68K less a month than their compared to their counterparts
- In 2008 there were 304 black McDonald’s franchisees, in 2017 there were 222
Owning a McDonald’s (MCD -0.44%) franchise can be lucrative, as the average restaurant generates nearly $2.7 million in annual sales, but black owners aren’t reaping these rewards. Black McDonald’s franchise owners are at a disadvantage, because on average they own stores that net $68,000 less a month than its overall franchisee average. Even though the big mac maker claims diversity among its top priorities, the trajectory of African American owners is steadily moving backwards.
Why This Matters: Herein lies the problem, Black owned McDonald’s franchises are much more likely to be located in places where sales are lower and costs like security are higher. The company has notoriously strict criteria for its fast food restaurants and requires potential franchisees to have liquid assets of at least $500,000. Startup costs average between $1 million and $2.2 million, 40% of which must be paid with cash and other non-borrowed resources. McDonald’s charges a $45,000 franchise fee in addition to an ongoing monthly service fee. Franchisees must also pay rent to the company.
Black owned McDonald’s franchises are much more likely to be located in places where sales are lower and costs like security are higher
More than 90% of McDonald’s restaurants are owned by franchisees and the company benefits from the steady, predictable revenue provided by franchisee rent and royalty income. They own about 38,000 restaurants with a market value of nearly $147 billion, however, getting a piece of this pie as one of its Black franchise owners is hard to come by. The unfortunate disparity in the amount of Black franchisees has more than doubled in recent years, as this demographic leaves the golden arches behind. In 2008, there were about 304 black franchisees at the chain, by 2017 that number had fallen down to 222.
Situational Awareness: McDonald’s has consistently led its market segment in overall sales and number of restaurants worldwide. Start-up and ongoing operating and rental costs are significant compared to other chains like Subway. Since the average cash flow of Black McDonald’s franchises is much less than all of the chain’s other locations, perhaps it makes more sense to be investing our coins in other restaurants.
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