A franchised royalty and property model against a company-operated retail one, in the same corner of consumer spending.
MCD and SBUX both sell inexpensive habitual purchases, but they capture the economics differently. McDonald’s mostly franchises: it collects royalties and rent, which is high-margin and stable, while operators carry the labour and food costs. Starbucks operates a large share of its stores itself, which means it takes the full margin and the full cost volatility. That structural difference explains most of what the two income statements look like, and how each behaves when wages rise or consumers tighten.
A largely franchised restaurant system that collects rent and royalties from operators rather than running most restaurants itself.
A coffee retailer that operates a large share of its stores directly, with a digital and loyalty programme that drives repeat visits.
The root cause of nearly every difference between these two income statements — margin level, margin volatility and capital intensity all follow from it.
Separates genuine demand from new store openings, and shows whether traffic or price is doing the work.
A franchised system should report a much higher margin. The comparison is only meaningful once you account for who is carrying the store costs.
Company-operated stores consume far more capital. ROIC is where the two models can be compared on the same footing.
One is closer to a royalty and property business with restaurants attached; the other is a retail operator. Those deserve different multiples and behave differently when labour costs rise.
Value positioning tends to gain traffic in a downturn while premium discretionary purchases get cut first. Comparable sales through the last slowdown show this more reliably than any forecast.
Educational only. Not investment advice.
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Because most restaurants are franchised. The company collects royalties and rent while operators carry food, labour and occupancy costs. Comparing that margin with a company-operated retailer’s without adjusting for the model is misleading.
Value-oriented fast food has historically gained traffic as consumers trade down, while premium discretionary purchases are cut earlier. Comparable sales through the last downturn are the evidence worth looking at.
Both pay dividends with long records of increases. Compare payout ratios against free cash flow — the franchised model produces steadier cash flow, which affects how safe an equivalent payout ratio actually is.
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