> ## Content Index
> Fetch the complete content index at: https://www.earningsdriver.com/llms.txt
> Use this file to discover other available public pages before exploring further.

# McDonald's Sells Burgers. It Earns on the Rent Its Franchisees Pay.
- URL: https://www.earningsdriver.com/mcdonalds-earns-on-the-rent-its-franchisees-pay/
- Published: 2026-10-09T13:22:34.000Z
- Updated: 2026-11-04T05:07:50.000Z
- Description: McDonald's earns mostly on the rent and royalties that franchisees pay as a share of their sales. Watch US comparable sales, and whether the number of guests grows.
- Author: Heejung Chang
- Tags: How Companies Make Money

**In one line:** McDonald's earns mostly on the rent and royalties that franchisees pay as a share of their sales. Watch US comparable sales, and whether the number of guests grows.

**At a glance**

- **Latest:** US comparable sales up 0.8% in Q2 2026, against 2.5% in Q2 2025, with fewer guests than a year earlier
- **Biggest risk:** franchisee profits falling far enough that McDonald's has to give more rent relief
- **Reports:** Quarterly. Next results: see [Earnings Dates](https://www.earningsdriver.com/earnings).

Watch the video version of this article.

On August 4, 2026, McDonald's reported that customers spent about $37 billion at its restaurants in the second quarter, up 5% from a year earlier. McDonald's calls that spending **systemwide sales**. Most of that money stayed with the franchisees who run the restaurants. McDonald's own [revenue](https://www.earningsdriver.com/glossary/#revenue) was $7.1 billion, and its [operating income](https://www.earningsdriver.com/glossary/#operating-income) was $3.3 billion. New restaurants and higher average checks explain the growth in systemwide sales. They do not explain how McDonald's keeps **47% of its own revenue as operating income**.

## What it sells vs. what it earns on

McDonald's sells burgers, fries and drinks in more than 100 countries. At the end of June 2026 it had 46,028 restaurants, and franchisees ran 95.6% of them. Systemwide sales were about $139 billion in 2025\. Franchised sales, the sales at restaurants franchisees run, were $129.7 billion of that. The US made up 40% of franchised sales.

**Table 1 — McDonald's revenue, 2025**

| Item                          | Amount     |
| ----------------------------- | ---------- |
| Paid by franchisees           | $16.5B     |
| Company-run restaurant sales  | $9.7B      |
| **Revenue, with other items** | **$26.9B** |

In the US and in several large markets abroad, such as Australia, France, Germany and the UK, McDonald's uses conventional franchises. In those markets, McDonald's provides the land and the building for a typical franchised restaurant. At the end of 2025, McDonald's owned about 56% of the land and 80% of the buildings under its restaurants in those markets, company-run ones included. It leased the rest. The franchisee pays for the kitchen equipment, hires the staff and runs the restaurant, usually under a 20-year agreement. The franchisee pays McDonald's rent and a royalty, both set as a percentage of sales. In other countries, developmental licensees provide the capital, property included, and pay McDonald's a royalty. In China and Japan, affiliates partly owned by McDonald's do the same.

In Q2 2026, after the property cost of its franchised restaurants, McDonald's kept 84.5% of what franchisees paid.

**Table 2 — What franchisees paid McDonald's, Q2 2026**

| Item                | Amount  |
| ------------------- | ------- |
| Rent                | $2.76B  |
| Royalties           | $1.61B  |
| Initial fees        | $0.02B  |
| Paid by franchisees | $4.39B  |
| Property cost       | −$0.68B |
| Franchised margin   | $3.71B  |

McDonald's reports the property cost as franchised occupancy expenses, and calls what is left its **franchised margin**. Company-run restaurants, by contrast, kept 15.3% of their sales after their operating costs in Q2 2026.

In 2025, the franchised margin was about ten times the profit of company-run restaurants. Overhead in Table 3 is what McDonald's reports as [selling, general](https://www.earningsdriver.com/glossary/#selling-general-and-administrative) and administrative expenses.

**Table 3 — From franchised margin to operating income, 2025**

| Item                                   | Amount     |
| -------------------------------------- | ---------- |
| Franchised margin                      | $13.9B     |
| Company-run restaurant profit          | $1.4B      |
| Overhead                               | −$3.0B     |
| **Operating income, with other items** | **$12.4B** |

What McDonald's earns on is a percentage of franchised sales, paid mostly as rent. Much of McDonald's property cost does not rise with franchised sales, because owned land is not depreciated and buildings are depreciated on what they cost to build. The rent and royalty percentages in each franchise agreement stay the same when food and labor costs rise, unless McDonald's gives rent relief.

## What moves the profit

> **Operating income ≈ (Franchised sales × Rent and royalty rate) − Property cost + Company-run restaurant profit − Overhead**

- **Franchised sales.** Sales at existing restaurants, which grow with more guests or a higher average check, plus sales at new restaurants. McDonald's moved its goal of reaching 50,000 restaurants worldwide from 2027 to 2028, citing higher building costs and weaker consumer spending.
- **Rent and royalty rate.** What franchisees pay McDonald's, divided by franchised sales. It was about 12.8% in 2025 (about 8.1% in rent, 4.6% in royalties and the rest in initial fees), down from 13.0% in 2024, partly because sales grew faster at licensees and affiliates, which pay a royalty but no rent. Rent relief lowers it further.
- **Property cost.** [Depreciation](https://www.earningsdriver.com/glossary/#depreciation) and lease costs on the land and buildings McDonald's provides to franchisees.
- **Company-run restaurant profit.** Company-run restaurants' sales minus their operating costs: $387 million in Q2 2026\. McDonald's plans to sell more of them to franchisees, so that franchisees run about 98% of its restaurants by the end of 2028.
- **Overhead.** About 2.2% of systemwide sales in 2026, by McDonald's [guidance](https://www.earningsdriver.com/glossary/#guidance).

## Reading the earnings: what to watch, and how

McDonald's [results release](https://www.earningsdriver.com/glossary/#results-release)s, filings and [earnings call](https://www.earningsdriver.com/glossary/#earnings-call)s are all at investor.mcdonalds.com.

- **Comparable sales, and what drove them.** *Read it:* comparable sales cover restaurants open at least 13 months, franchised or company-run. McDonald's says whether growth came from more guests or from a higher average check, which can come from higher prices. *Latest:* global comparable sales rose 1.3% in Q2 2026 and US comparable sales 0.8%, against 3.8% and 2.5% in Q2 2025\. In the US, a higher average check more than offset fewer guests.
- **Franchised margin.** *Read it:* a falling franchised margin, as a percentage of what franchisees paid, means property costs are growing faster than rent and royalties, or that rent relief has begun. *Latest:* 84.5% of what franchisees paid in Q2 2026, the same percentage as a year earlier.
- **Systemwide sales growth.** *Read it:* systemwide sales growth is roughly comparable sales growth, plus sales from net new restaurants (openings minus closings), plus currency effects. McDonald's expects net new restaurants to add about 2.5 percentage points of growth in 2026\. *Latest:* 5% in Q2 2026, or 4% at constant exchange rates.
- **Operating margin, against guidance.** *Read it:* selling company-run restaurants to franchisees raises the [operating margin](https://www.earningsdriver.com/glossary/#operating-margin), because their sales are no longer counted in McDonald's revenue. *Latest:* 47.0% in Q2 2026, against 47.2% a year earlier and McDonald's guidance of the mid-to-high 40% range for 2026.

## Leading indicators (outside McDonald's filings)

- **Restaurant prices against grocery prices.** When restaurant prices rise faster than grocery prices, the number of guests can fall. *(demand)*
  - *When:* monthly. *Where:* the US consumer price index for food away from home and food at home (Bureau of Labor Statistics).
  - *Latest:* in the 12 months to August 2026, food away from home rose 3.4% and food at home 2.2%.
- **Beef prices.** Higher beef costs lower franchisee profits. Lower profits leave franchisees less cash for the restaurant upgrades McDonald's wants. *(cost)*
  - *When:* monthly. *Where:* the consumer price index for beef and veal and the US Department of Agriculture (USDA) Food Price Outlook.
  - *Latest:* beef and veal prices rose 5.9% in the 12 months to August 2026\. The USDA expects average retail beef and veal prices in 2026 to be 9.4% higher than in 2025.
- **Rivals' comparable sales.** Taco Bell reports a few days before McDonald's, so its results show US fast-food demand earlier. Burger King and Wendy's report a few days after. Their results show whether rivals' US sales grew while the number of McDonald's guests fell. *(competition)*
  - *When:* quarterly. *Where:* results releases of Restaurant Brands International (Burger King), Yum Brands (Taco Bell) and Wendy's.
  - *Latest:* in Q2 2026, US comparable sales rose 8.5% at Burger King and 7% at Taco Bell, and fell 7.0% at Wendy's, against a 0.8% rise at McDonald's.

## What Wall Street is asking

Across McDonald's last four earnings calls, from November 2025 to August 2026, analysts kept returning to a few questions.

1. **"Why did the new value menu not bring in more guests?"** In August, chief executive Chris Kempczinski said "60% to 65% of our system" used the recommended prices for the under-$3 US menu launched in late April. He called launching the menu while pulling back some app offers "a bad trade." Kempczinski also cited low awareness of the menu. Chief financial officer Ian Borden said these value-menu problems "accounted for about 2/3 of the customer traffic underperformance relative to our expectations." He attributed most of the rest to a June World Cup campaign.
2. **"When will US comparable sales recover?"** In August, Borden said US comparable sales were "slightly negative in July." Kempczinski said McDonald's was looking at marketing changes for the fourth quarter. He said marketing should be "fully back to where we need to be in 2027." At the September 23 investor day, which was not an earnings call, Borden said he expected the US business to be "slightly negative for Q3."
3. **"Is the number of lower-income guests still falling?"** In May, Kempczinski said "the low income is absolutely still declining," though less steeply than 6 to 12 months earlier. He said higher-income customers showed "very resilient spending." He expected high gas prices to "disproportionately impact low-income consumers." At the September investor day, Skye Anderson, head of McDonald's USA, said details of an entry-level value offering would come "in the new year."
4. **"Can franchisees pay for remodels while their profits fall?"** In August, Kempczinski said, "Our franchisees every 10 years need to be remodeling the restaurants." He said their balance sheets have "a lot of borrowing capacity still." In May, he cited "concern around franchisee profitability" in 2026, after stable US cash flow in 2025\. At the September investor day, McDonald's said it would provide $8.5 billion of rent relief and capital support through 2036 to help franchisees pay for its Restaurant > NEXT upgrades.
5. **"Will McDonald's improve its US company-run restaurants or sell them?"** In May, Borden said, "our U.S. McOpCo performance is not acceptable." McOpCo is McDonald's name for its company-run restaurants. Kempczinski said those restaurants had added staff while "probably being even more restrained around pricing." Borden said restaurants below McDonald's return threshold would be reviewed, and franchisees could take them over.

## A note on valuation

On October 8, 2026, McDonald's shares closed around $237, valuing the company at roughly $168 billion. The share price was about 19 times McDonald's earnings over the previous four quarters, against about 25 times at the end of 2025\. Most of those earnings come from the franchised margin.

## The bottom line

Most of what McDonald's earns comes from franchisees, as rent and royalties tied to their sales. In the US, fewer guests came in April–June 2026 than a year earlier, and McDonald's has promised franchisees rent relief. How far that relief lowers what franchisees pay is not yet known. *(See:* [*Costco Sells Groceries Near Cost. It Earns on Members Who Renew.*](https://www.earningsdriver.com/costco-earns-at-the-door/)*)*

**Want to see McDonald's read step by step?** The book's appendix follows McDonald's from systemwide sales to operating income. It also sets McDonald's royalties beside Marriott's fees and its rent beside the leases of a real estate investment trust (REIT): [**Earnings Driver**](https://www.earningsdriver.com/book).

---

*Sources: McDonald's Q2 2026 results release (August 4, 2026), Form 10-Q for the quarter ended June 30, 2026; McDonald's earnings calls of November 5, 2025, and February 11, May 7 and August 4, 2026; McDonald's 2025 Form 10-K and fourth-quarter 2025 results (February 11, 2026); McDonald's Q1 2026 results (May 7, 2026); McDonald's Investor Day release, presentation and webcast (September 23, 2026); leading indicators: BLS consumer price index (September 11, 2026), USDA Economic Research Service Food Price Outlook (September 25, 2026), Restaurant Brands International, Yum Brands and Wendy's Q2 2026 results; share price and price-to-earnings history as of October 8, 2026 (StockAnalysis, YCharts, CompaniesMarketCap).*

**For sources that work for any company — filings, earnings calendars, consensus estimates — see** [**Where to find the numbers**](https://www.earningsdriver.com/numbers)**.**

*Educational only, not investment advice. Figures as of the periods noted.*