This Is Why McDonald's Is So Cheap

An interesting investigation of the global fast-food chain’s business practices.

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Food & Beverage
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Founded back in 1940, McDonald’s is now known as the largest fast-food chain in the world, but just how did the quick service restaurant develop to serve 69 million customers daily in over 100 countries worldwide. The modern success of the Golden Arches is attributed to Ray Kroc, a businessman that joined the company as a franchise agent in 1955 and proceeded to purchase the chain from the McDonald brothers. Kroc helped develop McDonald’s business practices that allows it to sell food for a low-cost and still make over $20 billion USD annually.

Despite selling affordable food, McDonald’s is still able to make money because of its focus on profitable food items. The chain’s soda is sold at a 1,150 percent mark up, while coffee is marked up 2,900 percent and egg-based breakfast items cost less than $1 USD to make. It is also interesting to note that Kids Meals’ smaller portions and fewer ingredients also provides McDonald’s with a great profit margin.

With more than 37,855 locations all over the world, McDonald’s can buy its ingredients in bulk from suppliers all over the world for the best price possible. Additionally, with the sheer volume of its demands, the chain is offered sizeable discounts from companies that want to become partnered with the business. The most notable example is Coca-Cola which benefits from its association with the chain financially and from a marketing outlook.

Keeping its wages low, McDonald’s is able to maintain a workforce that allows its food to be cheap which allows it a scale that equals big profits. Coupled with upselling, the chain covers its low-cost food by selling it in massive volumes.

Aside from knowing how to make money while selling its food for cheap, McDonald’s knows how to keep its profits and make its income grow. Differing from other restaurant chains, McDonald’s requires franchisees to pay as the company owns the physical property of most of its locations. Aside from rent, franchisees all pay an upfront cost of $45,000 USD followed by four percent of gross sales each month.

Watch the video breakdown of why McDonald’s is so cheap above.

For more food and beverage news, McDonald’s Spicy Chicken McNuggets are coming back.

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Justin Sullivan/Getty Images
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