December 10, 2010

Subprime Time at McDonald's?

I recently had a conversation with a McDonald's Operator who also
worked in the McDonald's franchising department in the 1980s. We
were remembering the implementation of the "25% Down" policy for
Operators who open new or buy existing McDonald's stores.

This policy had multiple purposes but the most publicly discussed
was to give the buyer some flexibility if the business took a down -
turn for any reason (impact, road closure, local economy, etc.).

Is that same concern alive today? Store resale values have been
decimated by mandated rebuilding but when Operators are forced
into borrowing million$ to remodel or rebuild McDonald's real
estate ... is it all based on rosy projections or does anyone
worry about possible hard times?

We usually think of this kind of possibility as a threat to smaller
Operators but Operators with a large number of stores are at risk
because of the number of concurrent capital projects.



Anonymous said...

I wish we could get "leadership" to take on this issue. Don't they worry about the value of their stores?

Anonymous said...

Here's the scariest scenario: You buy a store from another operator with only 3 years left on the original license. A year later, the corporation notifies you that they will not renew you for a new 20 year license unless you do a complete remodel or rebuild!! It just happened to an operator in the southwest. By the way, we do not have "leadership" any more. It's "followship"