The Landlord's Customer Pays TwiceWide moat

A McDonald's franchisee typically has two payment obligations to the company: a royalty calculated as a percentage of sales, and rent on the property, which McDonald's owns or controls¹. The real-estate model has its own moat pages; the customer-relationship consequence is what concerns us here.

It means the corporation participates in a franchisee's success twice and in its failure once. Rent is commonly structured with a percentage component, so a restaurant selling more pays more on both lines — and a restaurant selling less still owes a base rent that does not fall. From McDonald's perspective that is an exceptionally well-constructed customer contract. From the operator's, it is a fixed cost in a business with thin margins and rising wages.

This is the structural reason franchisee tension recurs at McDonald's more than at chains that do not own their operators' buildings. A licensor can renegotiate a royalty in a bad year; a landlord collecting rent from its own licensee has less room to be generous without visibly repricing the asset.

Watch rent as a component of franchised revenue and any disclosure of franchisee cash flow. The relationship's health is not measured by how much McDonald's collects — it is measured by what the operator keeps, and that figure determines whether the 50,000-restaurant target gets built.