Page 50 - Everything I Know About Business I Learned

Everything I Know About Business I Learned at McDonald’s

Honesty to Navigate the New York Market
One of the toughest issues that I faced in the region was not only
the awarding of a new restaurant to a licensee but also the ensu-
ing arguments over what the sales and rent potentially would be
for the new location. There was always a give and take, and the
operators knew full well that the rent number—which was based
on a formula that included all of the company’s expenses for the
real estate and construction and development costs were amor-
tized over a number of years— was usually a number that they
lived with for the entire 20 years of the agreement. So it was in
their best interests to push for the lowest possible rent number.
In the New York region, we faced some of the toughest cost
structures in the nation, and that challenge only added to the
potential for disagreements. I attempted to alleviate this with a
simple approach: honesty.
At McDonald’s, it was not necessarily common practice to
20
review with licensees the “company’s side” of the profit projec-
tion, just as they, the franchisees, had to make up their own
profit projections as well. But since we encountered many
unusual costs, it forced rent percentages to exceed the national
averages. This made many of these “one-offs” or one-on-one
negotiations. Although our sales were in the top tier of all
regions, escalated real estate costs still gave many of the opera-
tors concern. By the same token, I had to protect the financial
viability of the new development as well. Once again, the issue
of balance and fairness was at play.
Working with my team, we reviewed the estimated numbers,
showing how the rent was established, and how we arrived at
the split for both the operator and the company. We tried to
maintain a two-thirds/one-third split of profit (the larger split
to the operator), showing them that their investment, while
much less, returned them a greater yield. Obviously, that was
predicated on assumptions of sales and expenses, some within