---
title: "Why fast food can't make a good burger"
url: https://modern-mba.com/case/smashburgers
sector: "Food & beverage"
sector_url: https://modern-mba.com/sector/food-and-beverage
aired: 2025-05-31
published: 2026-08-26
updated: 2026-08-28
reading_time_minutes: 13
charts: 14
video: https://www.youtube.com/watch?v=Ixv2NTMVidU
author: "Yishan Lin"
author_url: https://www.linkedin.com/in/yishanlin/
publisher: Modern MBA
license: "© Modern MBA, all rights reserved. Quote and cite with credit and a link; republishing needs written permission."
---

# Why fast food can't make a good burger

McDonald's has made three lasting changes to its menu in twenty years: more sauce on the Big Mac, a higher warming temperature so the cheese melts, and fewer artificial ingredients. That is not incompetence — it is the business model. McDonald's earns nearly twice as much from rent as from food royalties, franchisees run 95% of the stores and set their own prices, and Snack Wraps were discontinued because rolling a tortilla was too tedious. This case study films four Los Angeles smashburger operators who have taken the lane that left open.

## Key figures

- **$10.0B vs $5.6B** — McDonald's income from rent against food royalties
- **25% vs 15%** — For The Win's operating margin against McDonald's
- **$17.45 vs $12.19** — Double cheeseburger and fries, independent against McDonald's

## The argument

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.

## Charts

### A landlord that sells burgers

McDonald's revenue from franchisees, in billions. Rent has run at roughly double food and beverage royalties for generations.

|  | Rent | Food & beverage royalties |
| --- | --- | --- |
| 2006 | $3.8B | $1.7B |
| 2008 | $4.6B | $2.3B |
| 2010 | $5.2B | $2.6B |
| 2012 | $5.8B | $2.9B |
| 2014 | $6.1B | $3.1B |
| 2016 | $6.1B | $3.1B |
| 2018 | $7.1B | $3.9B |
| 2020 | $6.8B | $3.8B |
| 2022 | $9.8B | $5.5B |
| 2024 | $10.0B | $5.6B |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-1 · Sources: https://modern-mba.com/case/smashburgers#sources

### What each franchisee pays up

Average annual payment in rent and royalties per franchisee, 2024. Timing in the 1950s land market, compounded for seventy years.

|  | US dollars |
| --- | --- |
| McDonald's | $373,737 |
| Shake Shack | $180,188 |
| Five Guys | $139,639 |
| Burger King | $121,931 |
| Wendy's | $111,729 |
| Jack in the Box | $93,354 |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-2 · Sources: https://modern-mba.com/case/smashburgers#sources

### The price hikes worked

Average sales per US McDonald's franchise, in millions. Franchisees set their own prices and corporate went along.

|  | US dollars |
| --- | --- |
| 2008 | $1.89M |
| 2010 | $2.10M |
| 2012 | $2.30M |
| 2014 | $2.30M |
| 2016 | $2.45M |
| 2018 | $2.72M |
| 2020 | $2.92M |
| 2022 price hikes | $3.60M |
| 2024 | $3.88M |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-3 · Sources: https://modern-mba.com/case/smashburgers#sources

### And almost none of it reached the bottom line

Average restaurant-level operating margin at corporate McDonald's stores. Lower today than two decades ago, on double the revenue.

|  | Percentages |
| --- | --- |
| 2008 | 17.6% |
| 2010 | 19.5% |
| 2012 | 18.2% |
| 2014 | 15.9% |
| 2016 | 15.2% |
| 2018 | 17.4% |
| 2020 | 14.2% |
| 2022 | 15.6% |
| 2024 | 14.8% |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-4 · Sources: https://modern-mba.com/case/smashburgers#sources

### Worse without a landlord's income

Average restaurant-level operating margin. Wendy's runs on royalties rather than rent, and it went negative twice.

|  | Wendy's | Burger King |
| --- | --- | --- |
| 2014 | 14.7% | 5.8% |
| 2016 | 15.1% | 18.3% |
| 2018 | 10.7% | 15.8% |
| 2020 | −1.6% | 15.0% |
| 2022 | −5.7% | 14.1% |
| 2024 | 9.1% | 15.7% |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-5 · Sources: https://modern-mba.com/case/smashburgers#sources

### Customers voted with same-store sales

US same-store sales growth. The 2021 and 2023 numbers are price rather than traffic.

|  | McDonald's | Wendy's |
| --- | --- | --- |
| 2014 | −2% | 2% |
| 2015 | 1% | 3% |
| 2016 | −2% | 2% |
| 2017 | 4% | 2% |
| 2018 | 3% | 1% |
| 2019 | 5% | 3% |
| 2020 | 0% | 4% |
| 2021 | 14% | 9% |
| 2022 | 6% | 4% |
| 2023 | 9% | 4% |
| 2024 | 0% | 1% |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-6 · Sources: https://modern-mba.com/case/smashburgers#sources

### Where the volume actually is

Average sales per store by chain, 2024, in millions. Shake Shack is second only to McDonald's.

|  | US dollars |
| --- | --- |
| McDonald's | $3.88M |
| Shake Shack | $3.67M |
| Wendy's | $2.08M |
| Burger King | $2.06M |
| Jack in the Box | $1.57M |
| Five Guys | $1.43M |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-7 · Sources: https://modern-mba.com/case/smashburgers#sources

### Scaling a premium burger is possible, just slow

Shake Shack average sales per restaurant post-IPO, in millions, as store count went from 63 to 579.

|  | US dollars |
| --- | --- |
| 2014 63 | $3.6M |
| 2015 114 | $4.2M |
| 2016 208 | $4.1M |
| 2017 311 | $3.8M |
| 2018 436 | $3.6M |
| 2019 579 | $3.5M |
| 2020 | $2.8M |
| 2021 | $3.3M |
| 2022 | $3.4M |
| 2023 | $3.6M |
| 2024 | $3.7M |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-8 · Sources: https://modern-mba.com/case/smashburgers#sources

### One format, three completely different boxes

For The Win annual revenue per store by location and size. The economics do not depend on square footage.

|  | US dollars |
| --- | --- |
| Hollywood 2,000 ft² | $3.5M |
| Grand Central 100 ft² | $1.9M |
| Glendale 500 ft² | $1.2M |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-9 · Sources: https://modern-mba.com/case/smashburgers#sources

### The independents out-gross the chains

Average annual revenue per store, in millions. Proudly Serving beats every national burger chain except McDonald's and Shake Shack.

|  | US dollars |
| --- | --- |
| McDonald's | $3.9M |
| Shake Shack | $3.7M |
| Proudly Serving | $2.3M |
| Burger King | $2.1M |
| Wendy's | $2.1M |
| Five Guys | $1.4M |
| Ban Ban | $0.9M |
| Bungraze | $0.4M |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-10 · Sources: https://modern-mba.com/case/smashburgers#sources

### And out-earn them per dollar

Average store-level operating margin by chain and concept. For The Win's portfolio-wide margin beats Shake Shack's.

|  | Percentages |
| --- | --- |
| For the Win | 25% |
| Proudly Serving | 23% |
| Bungraze | 18% |
| Ban Ban | 6% |
| Shake Shack | 21% |
| Wendy's | 16% |
| McDonald's | 15% |
| Burger King | 9% |
| Five Guys | 4% |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-11 · Sources: https://modern-mba.com/case/smashburgers#sources

### Nobody is doing this by being cheap

Average price for a double cheeseburger and fries across Los Angeles. The independents price above every chain except Five Guys.

|  | US dollars |
| --- | --- |
| Five Guys | $20.58 |
| Shake Shack | $17.98 |
| For the Win | $17.45 |
| Bungraze | $17.00 |
| Ban Ban | $17.00 |
| Proudly Serving | $16.00 |
| Burger King | $14.99 |
| Wendy's | $12.99 |
| McDonald's | $12.19 |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-12 · Sources: https://modern-mba.com/case/smashburgers#sources

### Two to three times the spend per visit

Average order size by chain and concept. Customers are deliberately trading up.

|  | US dollars |
| --- | --- |
| For the Win | $30 |
| Proudly Serving | $28 |
| Ban Ban | $26 |
| Shake Shack | $20 |
| Bungraze | $18 |
| Chipotle | $17 |
| Wendy's | $14 |
| Burger King | $13 |
| McDonald's | $11 |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-13 · Sources: https://modern-mba.com/case/smashburgers#sources

### Profitable in month ten

Bungraze gross sales per month since opening, in thousands. Almost no restaurant turns a profit in its first year.

|  | US dollars |
| --- | --- |
| May 2024 | $20K |
| Jun | $26K |
| Jul | $29K |
| Aug | $27K |
| Sep | $26K |
| Oct | $30K |
| Nov | $31K |
| Dec | $29K |
| Jan 2025 | $28K |
| Feb | $31K |
| Mar | $42K |

Source: Modern MBA, “Why fast food can't make a good burger”, aired May 2025. Chart: https://modern-mba.com/case/smashburgers#chart-14 · Sources: https://modern-mba.com/case/smashburgers#sources


## Takeaways

1. **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.
2. 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.
3. 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.
4. 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.
5. 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.
6. **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.
7. 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.
8. 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**.
9. **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.
10. **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.
11. 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.
12. **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.
13. 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.
14. 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.
15. 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.
16. 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?
- Franchisees 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?
- Twenty 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?
- Speed is the constraint that decides what can be on the menu. Which other industries have a hidden constraint that quietly writes the product spec?
- You want to sell a genuinely good burger at national scale. What structure would you need, and what does it cost you in growth?

## Sources

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

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/smashburgers](https://modern-mba.com/case/smashburgers), or watch the episode at https://www.youtube.com/watch?v=Ixv2NTMVidU.