Case study — Food & beverage — Original · 10 min read · 5 questions
Why fast food can't make a good burger
The thesis
McDonald's core business is not burgers, it is rent. Income from leasing property to its own franchisees runs at close to double what it collects in food royalties — $10.0 billion against $5.6 billion — because the company started buying land in the 1950s before anyone else thought to. That explains a menu whose only lasting improvements in twenty years are more sauce on the Big Mac and a higher warming temperature so the cheese melts.
The price of that scale is control, and the franchisees have it. They run 95% of the world's McDonald's, set their own prices, and revolt against anything that slows the line — Snack Wraps were discontinued because rolling tortillas was too tedious. The average US franchise now grosses $3.88 million against $1.89 million in 2008, while restaurant margin fell from 17.6% to 14.8%. Wendy's and Burger King are worse off, living on royalties rather than land.
So the giants stopped competing on product, and four operators in Los Angeles walked into the gap. Proudly Serving grosses $2.3 million at a 23% margin — more than the average Five Guys, Burger King or Wendy's, at better margins than any of them. For The Win runs eleven fully owned stores on $20 million at 25%, higher than Shake Shack. And none of them are cheaper: a double cheeseburger and fries is $17.45 at For The Win against $12.19 at McDonald's. Americans are paying five dollars more on purpose.
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The statistics
By the numbers — swipe or use arrows
Franchise rent, royalties, per-franchisee payments, same-store sales, average unit volumes and restaurant-level operating margins from McDonald's, Burger King, Wendy's, Shake Shack, Five Guys and Jack in the Box annual reports and franchise disclosure documents for the years shown; store-level revenue, order size and operating margins disclosed on camera by the owners of Proudly Serving, Ban Ban Burger, Bungraze and For The Win; menu prices surveyed across Los Angeles locations
Key takeaways
McDonald's does not make its money on food. Income from franchisees splits into rent and royalties, and rent has run at close to double royalties for the entire period: $3.8B vs $1.7B in 2006, $6.1B vs $3.1B in 2014, $10.0B vs $5.6B in 2024. It is a landlord that happens to sell burgers.
The product has barely moved in twenty years. The only lasting menu improvements are more sauce on the Big Mac, raising the warming temperature so the cheese melts better, and removing artificial ingredients. When the business is rent, the burger only has to be good enough to keep the lease occupied.
So franchisees can simply refuse. Snack Wraps were discontinued because rolling tortillas was considered too tedious to execute at line speed. Remodels and gourmet products were tried and failed. The one place corporate can still influence price is the mobile app — and franchisees can opt out, which is what *at participating locations* has always meant.
When franchisees raised prices under cover of inflation, corporate went along because it had no choice. Average US franchise sales went $1.89M, $2.10M, $2.30M, $2.30M, $2.45M, $2.72M, $2.92M, then $3.60M after roughly 20% of price hikes, and $3.88M by 2024.
Almost none of that reached the bottom line. Restaurant-level operating margin over the same years ran 17.6%, 19.5%, 18.2%, 15.9%, 15.2%, 17.4%, 14.2%, 15.6% and 14.8% — lower today than it was two decades ago, on double the revenue.
Wendy's and Burger King are in a worse position because they are not deep in real estate and live on royalties. Wendy's restaurant-level margin went 14.7%, 15.1%, 10.7%, −1.6%, −5.7% and back to 9.1%, while Burger King held between 14% and 18%. Neither has a landlord's income to fall back on.
Customers noticed. Same-store sales — the cleanest read on retention — went −2%, 1%, −2%, 4%, 3%, 5% at McDonald's before the 2021 reopening spike, and back to 0% in 2024. Burger King posted −6% in 2020. The 2021 and 2023 numbers are price, not traffic.
Meanwhile the average unit volumes tell you where the momentum went. In 2024, McDonald's grossed $3.88M per store and Shake Shack $3.67M, against $2.08M at Wendy's, $2.06M at Burger King, $1.57M at Jack in the Box and $1.43M at Five Guys.
Shake Shack is the proof that the top end works. Average sales per restaurant post-IPO ran $3.6M, $4.2M, $4.1M, $3.8M, $3.6M, $3.5M while store count went from 63 to 579 — and recovered to $3.7M by 2024. Scaling a premium burger without franchising is possible; it is just slow.
Proudly Serving is the suburban bet and the numbers vindicate it. $190,000 a month, a $2.3 million annual run rate per store — more than the average Five Guys, Burger King or Wendy's — with an average order of $28, 70% in-house and 30% delivery, and alcohol contributing only 13% of sales.
Its restaurant-level operating margin is 23%, against 21% at Shake Shack, 16% at Wendy's, 15% at McDonald's, 9% at Burger King and 4% at Five Guys. A single suburban independent out-earns every national burger chain on both revenue and margin.
For The Win is what happens when the format scales. Santos pivoted from a Michelin bistro shut down by the pandemic to American takeout, applied fine-dining precision to it, and now runs LA's largest independent smashburger chain — 11 stores, all fully owned and operated, no franchisees, no licensees, no venture capital.
The format flexes in a way a franchise cannot. A 2,000-square-foot plaza store in Hollywood grosses $3.5 million a year; a 100-square-foot stall in Grand Central Market grosses nearly $1.9 million; a 500-square-foot strip mall unit in Glendale grosses $1.2 million. Total across all eleven: about $20 million a year.
And it out-earns the chains it competes with. Best stores run 30% operating margins and the portfolio-wide average is 25% — higher than Shake Shack at 21%, and against 15% at McDonald's, 9% at Burger King and 4% at Five Guys. Average order size is $30, which is remarkable for a fast-casual concept.
None of this is achieved by being cheap. A double cheeseburger and fries in Los Angeles costs $17.45 at For The Win, $17.00 at Bungraze and Ban Ban, and $16.00 at Proudly Serving — against $12.19 at McDonald's, $12.99 at Wendy's and $14.99 at Burger King. Only Shake Shack at $17.98 and Five Guys at $20.58 price above them.
Which is the whole conclusion. The giants cannot make a better burger because their businesses are not designed to — McDonald's collects rent, Wendy's and Burger King collect royalties, and none of the three controls the product or the price at the counter. The independents can, and the market is paying five extra dollars for it.
Common questions
Does McDonald's make more money from real estate than from burgers?
From its franchisees, yes, and it is not close. Rent has run at roughly double food and beverage royalties for generations — $10.0 billion against $5.6 billion in 2024, $6.1 billion against $3.1 billion in 2014, $3.8 billion against $1.7 billion in 2006. The company started buying land in the 1950s before anyone else did, which is why the average McDonald's franchisee pays about $373,737 a year in rent and royalties against $121,931 at Burger King and $111,729 at Wendy's. Because the profit is rooted in rent, the strategy is to open and lease as many stores as possible rather than to improve the food.
Why hasn't McDonald's improved its burgers?
Because it does not control the kitchen. Franchisees run 95% of the world's McDonald's, handle all execution and set their own prices, and they revolt against anything that slows the line down — Snack Wraps were discontinued because rolling tortillas was considered too tedious. Remodels and gourmet products were tried and failed. The only lasting menu improvements in twenty years are more sauce on the Big Mac, a higher warming temperature so the cheese melts better, and removing artificial ingredients. The company is now pivoting toward beverages, because drinks mass-produce efficiently and the only complexity is a blender.
How much does a smashburger shop actually make?
More than most people assume, and more than the chains per store. Proudly Serving grosses $190,000 a month in the LA suburbs — a $2.3 million annual run rate — at a 23% restaurant-level operating margin. For The Win's Hollywood plaza store does $3.5 million a year, its 100-square-foot Grand Central Market stall nearly $1.9 million, and its 500-square-foot Glendale unit $1.2 million, for about $20 million across eleven stores at a 25% portfolio margin. Even the one-year-old concepts work: Bungraze grosses $396,000 at 18% and turned a profit in month ten.
Are smashburgers cheaper than fast food?
No — that is the interesting part. A double cheeseburger and fries in Los Angeles costs $17.45 at For The Win, $17.00 at Bungraze and Ban Ban, and $16.00 at Proudly Serving, against $12.19 at McDonald's, $12.99 at Wendy's and $14.99 at Burger King. Average order sizes run $30, $28, $26 and $18 at the independents against $11 at McDonald's and $13 at Burger King. Customers are paying several dollars more per burger and two to three times more per visit, deliberately.
Why can't Burger King and Wendy's just do smashburgers?
Because they have the same franchisee problem as McDonald's without the landlord's income to cushion it. Their businesses run on royalties rather than rent, so a change that slows service costs them directly, and franchisees who set their own prices have no incentive to adopt a slower, more labor-intensive product. Wendy's restaurant-level operating margin has already gone negative twice — −1.6% in 2020 and −5.7% in 2022. Making a seared-to-order burger with a small menu means changing the business model, not adding a menu item.
Is Shake Shack proof that this can scale?
It is the closest thing to it. Average sales per restaurant post-IPO ran $3.6 million to $4.2 million while store count went from 63 to 579, and after a pandemic dip to $2.8 million it recovered to $3.7 million by 2024 — second only to McDonald's on unit volume, at a 21% store-level margin. That said, For The Win runs a 25% portfolio margin on eleven stores without franchising, licensing or outside capital, which suggests the ceiling for a premium burger chain is set by operating discipline rather than by scale.
Where did the smashburger trend come from?
Los Angeles, in 2018, out of driveways. Smashburgers themselves are not new — Shake Shack, Five Guys and Culver's built their businesses on them from the 2000s — but the current wave started with individuals selling them from home, in the same city that produced frozen yogurt, bubble tea and hot chicken. Over seven years the first movers turned viral pop-ups into lean multi-million-dollar brick-and-mortar concepts. LA is where the market is most mature, the quality highest and the competition fiercest, which is why barriers to entry being low cuts both ways.
Discussion
McDonald's earns $10.0 billion leasing property to its own franchisees against $5.6 billion in food royalties. If the landlord business is twice the food business, what is the food actually for?
No answers yet — be the firstFranchisees run 95% of the world's McDonald's, set their own prices, and revolt against anything that slows the line. Who is the customer of a franchisor — the diner or the operator?
No answers yet — be the firstTwenty years produced more sauce on the Big Mac and a higher warming temperature. Is that a failure of ambition or the predictable output of the ownership structure?
No answers yet — be the firstSpeed is the constraint that decides what can be on the menu. Which other industries have a hidden constraint that quietly writes the product spec?
No answers yet — be the firstYou want to sell a genuinely good burger at national scale. What structure would you need, and what does it cost you in growth?
No answers yet — be the first
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