What Does McDonalds Sell

Considering McDonald’s is a burger restaurant, it doesn’t actually make a great deal of money on burgers. A Big Mac might generate about 55% margin at best, which sounds fine, but it’s nothing compared to some of the other aspects of the business. Their fries deliver margins between 75 to 90%. Drinks, particularly Coke, have very similar margins. And the franchise segment of the business delivers 82 to 84% operating margins versus just 15% of company-owned restaurants. In fact, 40% of McDonald’s total revenue comes from real estate alone.

They’re not on their own here. Costco lose 30 to 40 million dollars per year on a 4.99 rotisserie chicken. Amazon significantly subsidised content for Amazon Prime members versus those who are non-members. And Gillette subsidised the razor handles for their customers.

Considering these are all huge businesses, there’s probably something to the fact that they do this. Costco have their rotisserie chicken because it drives 93% annual renewal. Amazon Prime know that Prime members spend $1,400 per year versus $600 for non-members. Gillette subsidise the razor handles so that their customers continuously make high margin blade repurchases. And McDonald’s make a smaller margin on their burgers because that will drive traffic which will allow them to sell a greater quantity of things that have a larger margin.

Not only do businesses subsidise some items, 11 Madison Park showed that you can actively spend money on your customers and still use that to drive revenue.

The lesson is not every touch point needs to extract maximum profit. Some exist to create trust, signal value, or simply get enough people through the door. The key is knowing which is which.