McDonalds $14 Million Land Grab

McDonalds have just paid $14 Million for 17,000sqm of B2 (Zoned) land along Maroondah Hwy in Ringwood, right beside Eastlink. (The old Holden/Honda car dealership).

It is meant to be the most expensive property purchase for land by McDonalds to date.

I'm sure they will not need the whole 17,000sqm so will be interesting to see what occurs with the leftover.
 
Take a portion of the site for their restaurant, then sell the rest off for the same $14M (or more?) because it's now situated next to a McDonalds restaurant increasing the commercial value? ;)
 
People traffic

Take a portion of the site for their restaurant, then sell the rest off for the same $14M (or more?) because it's now situated next to a McDonalds restaurant increasing the commercial value? ;)

Yep.......increase people traffic.

In years gone by it was the entrepreneur medico, Dr, Geoffrey Edelston that used to open up his super-clinics adjacent or across the road from Maccas. Not a bad idea, I also know of other medico's and allied health who did the same.

Great exposure of a business for those walking by or even driving thru or exiting the McDonalds store.

That's a nice bit of dirt.....maybe they'll set up a "normal Mcdonalds" downstairs and an a la carte :p with table service up stairs :rolleyes:
 
That's a nice bit of dirt.....maybe they'll set up a "normal Mcdonalds" downstairs and an a la carte :p with table service up stairs :rolleyes:

Ha, you joke but I remember seeing that on one of those travel shows 10+yrs ago. It was in a very exclusive and wealthy small skiing town in the Swiss Alps (or somewhere similar) and to keep the presitge of the area, McDonalds were allowed in but it was a full on restaurant with knifes and forks, plates etc.

Don't know if it still exists, quick google search didn't yield me any results.
 
Someone once told me that Mcdonalds is not in the fast-food industry, but actually in the real estate industry. (I think someone who has read the book about the company might be able to explain it more specifically.) But anyway, I'd always thought it was just a Scottish family restaurant.

While in France, I noticed they served beer and wine in Maccas, so it was a little harder to turn down the kids' requests to stop in.
 
hi all
interesting post
where did you read or hear its the most expensive land purchase for macs.
I don't think it is.
also macs has in its group already a chain of sit down restaurants with knive and forks
they have 980 of them when I last looked.
and yes they do serve alcohol in europe as it does not have the same rules as here they have post mix and beer on tap
just for those that want to know they also have a hotel in germany and yes its in the mac name.
mr rosso the person that head k mart I think at the moment was the person at the helm before the heart attack the boss in the us and he was a very big land buyer and acquired alot of site
they have been sold off in piece meal.
I for one love to work within these groups as they have a lot of money sat in accounts and when they make a move, they make a move and banks or lending lvrs are not even on the page its not even discussed.
the deals there lets get it done.
14 mil is nothing to some of these groups
its simply an investment.
and remember that those frys that they ask do you want fry's with that and that 50cent cone that people buy is one of the highest profit margins that I have seen.
the burger is to get you in the add are where the money is.
and its no secret not like yums spices.
and to all those macs out there good on you
they are one of the best training groups in the country so keep that fat guy in the red boots running around.
 
Someone once told me that Mcdonalds is not in the fast-food industry, but actually in the real estate industry. (I think someone who has read the book about the company might be able to explain it more specifically.) But anyway, I'd always thought it was just a Scottish family restaurant.

While in France, I noticed they served beer and wine in Maccas, so it was a little harder to turn down the kids' requests to stop in.

As a brand they're in the customer satisfaction game, not the burger game like most think. Kroc once said something along the lines of "I don't know what we'll be selling in 30yrs time, but I know we'll be selling more of it than anybody else."

But yes, as a corporation MCD is in the real estate game for a lot of their profits. Obviously because it works, but the strategy also dates back to the 60's with the original franchise agreements that were negotiated which were not high enough for MCD corporation to make a profit. Something like only 2-3% (don't quote me on the figure, been a while since I read the book).

So to get around this problem, Kroc and his team developed the realestate strategy to both increase MCD income, and give them greater control over their franchisees as at the time, many were not following procedures and standards expected. When push came to shove and MCD tried to force them out, the franchisees just said "screw you" and changed the name on the door when their franchise was taken off them and continued to operate.

So MCD decided by owning the property and only giving tenants leases over the building for 10-20yrs terms at a time (again don't quote me on actual numbers) - they always had the threat of kicking the franchisee out if he didn't meet MCD standards. Owning the property also allowed them to add an extra % to the base royalty as rent for the property on top of a set lease as well, which helped the corporation survive and become profitable (during the late 60's, Kroc and MCD were barely breaking even due to the low fees, which is one of the reasons he had to buy out the McDonalds brothers - and don't believe all the hype, he didn't screw them, in fact they screwed him repeatedly over the years). From memory even to this day technically the royalty is split ie. 3% for the business and 6% as lease for the property. This is also part of the reason the plan to split the McDonalds business and it's properties into a seperate trust was abandoned back in the early 2000's when the company was stagnating - the turnaround helped too, but the property is very intertwined with the business in regards to fees etc so was considered not ideal.

McDonalds back in the 70's in the US found it relatively easy to secure realestate as this was the same time as so many of the service stations were closing down, and their prime properties - on corner blocks, on busy roads and highways in the middle of suburbia where the young families were - suited MCD perfectly. They also found over time, unlike many other businesses - their resteraunts could withstand locations in much closer proximity to each other than their rivals (BKC, Wendy's etc). This was due to the superiority and innovation of their business and attention to detail. But again - the by product was much more realestate accumulation.

It's a fascinating story and I'd highly recommend the book to anyone.
 
Seen the news today?
Mc D's 3 stores in Iceland are closing down because its too expensive to operate. Franchisees claim that because their licence agreements require them to import food, it makes their food too expensive for locals since the GFC.
 
I'm assuming their license agreement forces them to import food to ensure the standard of the product, and I'm just guessing, but also perhaps because not all of the required product is available from local suppliers or at least not at the standards required?

I say this as McDonalds from the beginning have been staunch supporters of using local suppliers wherever possible and trying to create win/win outcomes for both parties ie. not screwing them for every cent to the point the supplier isn't making money (a la Brambles and Walmart in the US currently). They developed a very loyal supplier base, in many cases operating to this day without official supply contract terms in place ie. McDonalds could walk away from a supplier any time they like, but they don't because they're loyal and there is mutual trust and respect on both sides. Some of the same suppliers they use today have been with MCD from the beginning - again without any term contracts in place.
 
it's probably the most expensive purchase in australia - not EVER.

one site in inner London would be over $7mil GBP - so i fail to see how $14mil AUD is anything to baulk at internationally.
 
Incredible marketing machine. Food makes me puke but you must respect their simple business model thats still working 40 years on.
 
it's probably the most expensive purchase in australia - not EVER.

one site in inner London would be over $7mil GBP - so i fail to see how $14mil AUD is anything to baulk at internationally.

I don't give a rats a*** about any McDonalds overseas.

From the Age last week

McDONALD'S has bought a 16,380 square metre site in Ringwood near the Eastland shopping centre. Industry sources said the fast-food chain paid $15 million for the site, its most expensive land purchase in Australia.

McDonald's Victorian manager Stephen Shillington said Ringwood was an ideal spot for a new restaurant and a development application would be prepared for Maroondah Council, but declined to say when. He said its restaurant at Eastland would remain.

The land zoned business-two on Maroondah Highway was formerly owned by the Patterson Cheney car dealership, which has moved to two sites.

Colliers International agent Barry Marks said he believed the existing offices, showroom, workshop and warehousing areas would be demolished to make way for a major redevelopment, including the new McDonald's restaurant.


Regardless of price of I'm just glad something is finally happening to that particular property as it looks like a dogs breakfast at the moment. But I throw caution to the wind in saying this because I can just see every "P" plater and his VK Commodore sitting in the car park causing amenity issues to the area.

Can't have it all....besides I do enjoy the odd McFlurry and hate driving 10 mins to get one!!
 
Rickardo, it's 'McDonald's: Behind The Arches'. I bought it on Amazon, but I do recall seeing it in book stores here on occasion, though it may be out of print now. Brilliant read and would highly recommend it to anyone interested in business, systems or just the interesting story behind McDonald's.
 
Just re-reading the book again and remember now making a few mistakes in this old post:

As a brand they're in the customer satisfaction game, not the burger game like most think. Kroc once said something along the lines of "I don't know what we'll be selling in 30yrs time, but I know we'll be selling more of it than anybody else."

But yes, as a corporation MCD is in the real estate game for a lot of their profits. Obviously because it works, but the strategy also dates back to the 60's with the original franchise agreements that were negotiated which were not high enough for MCD corporation to make a profit. Something like only 2-3% (don't quote me on the figure, been a while since I read the book).

Actually the royalty Kroc started with in his initial deal with the McDonald's brothers was only 1.9% of system sales, of which the McDonald brothers received a 0.5% share. Leaving Kroc with only 1.4% to run the system, which was unachievable.

So to get around this problem, Kroc and his team developed the realestate strategy to both increase MCD income, and give them greater control over their franchisees as at the time, many were not following procedures and standards expected. When push came to shove and MCD tried to force them out, the franchisees just said "screw you" and changed the name on the door when their franchise was taken off them and continued to operate.

So MCD decided by owning the property and only giving tenants leases over the building for 10-20yrs terms at a time (again don't quote me on actual numbers) yup, 20yrs, but lease could be terminated at any time if McDonald's QSR standards aren't met - they always had the threat of kicking the franchisee out if he didn't meet MCD standards. Owning the property also allowed them to add an extra % to the base royalty as rent for the property on top of a set lease as well, which helped the corporation survive and become profitable (during the late 60's, Kroc and MCD were barely breaking even due to the low fees, which is one of the reasons he had to buy out the McDonalds brothers - and don't believe all the hype, he didn't screw them, in fact they screwed him repeatedly over the years). From memory even to this day technically the royalty is split ie. 3% for the business and 6% as lease for the property. This is also part of the reason the plan to split the McDonalds business and it's properties into a seperate trust was abandoned back in the early 2000's when the company was stagnating - the turnaround helped too, but the property is very intertwined with the business in regards to fees etc so was considered not ideal.

It was such a profitable venture because McDonald's would negotiate for the land owner to build the store for them, for a 20yr lease term of a set $700pm, with no escalation clause. On the other hand, McD's would charge the franchisee $800pm or 8.5% of store sales (whichever is the greater). This worked especially well for them during the high inflation of the 70's when the rent McD's paid stayed the same, but their rents charged skyrocketed.


McDonalds back in the 70's in the US found it relatively easy to secure realestate as this was the same time as so many of the service stations were closing down, and their prime properties - on corner blocks, on busy roads and highways in the middle of suburbia where the young families were - suited MCD perfectly.

This part I remembered completely wrong. :eek: Service stations were a big part, but they were the competition for the sites - not the sellers. But they were pretty much the only competition as commercial businesses hadn't really hit the suburbs yet. McDonald's often won out with land owners over the oil co's because they were willing to pay higher return on the land. Oil co's were safe and secure businesses so were offering land owners 7% of the land value for rent, McDonald's came in and offered 10%.

They also found over time, unlike many other businesses - their resteraunts could withstand locations in much closer proximity to each other than their rivals (BKC, Wendy's etc). This was due to the superiority and innovation of their business and attention to detail. But again - the by product was much more real estate accumulation.

They were also extremely highly leveraged in their real estate plays, more so than any other restaurant chain (White Castle was a very similar restaurant with similar strict standards, but their owner didn't like a cent of debt - end result, in the mid 80's WC didn't have any long term debt, but only had 230 stores.

At the point McD's decided to start owning properties instead of leasing, it worked like this:
- They charged a new franchisee a $7,500 security deposit (50% refundable in yrs 15 & 20).
- McD's used these funds as a down payment on the land which they usually negotiated to buy on a 10yr instalment contract.
- Taking out a bank mortgage to construct the building with a down payment from the above funds.

In this way McDonald's started accumulating a vast property portfolio using none of their own money.



It's a fascinating story and I'd highly recommend the book to anyone.

The above strategy was the brain child of Harry Sonneborn. Smart man.
 
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