McDonald's has raised its dividend for 50 years in a row and may post record profit this year.
By Vlad from Bastion on
Yet the stock has fallen 30% from its peak over the past year. Why? $MCD
McDonald's makes its money from franchisees: they run 95% of its 46,000 restaurants. Franchisees pay rent for buildings McDonald's owns, $10B a year, and royalties, $6B a year.
These payments are not tied to whether a franchisee makes a profit. Rent includes minimum payments, while some rent and royalty payments vary with sales. So weaker sales can reduce what McDonald’s collects, but an unprofitable restaurant still owes its contractual payments.
That can make the health of the restaurant business look better in McDonald’s results than it feels to franchisees. The company stopped reporting guest counts after traffic fell in 2018 and 2019. But we know that US same-store sales rose about 35%, while prices rose about 40%. Almost all the growth comes from higher prices, and actual traffic is most likely shrinking.
The most frequent customer started coming less. The CEO says low-income visits to fast-food chains have been down nearly 10% for two years. To win them back, the company added cheap items to the menu.
The cheap menu worked in late 2025: US same-store sales jumped 6.8% in Q4. Then growth slowed to 3.9% in Q1 2026 and 0.8% in Q2, and it will likely only get worse from here.
Importantly, these discounts come out of franchisees' pockets. In an August survey by their own association, 3 in 4 owners said they were pushed to cut prices, and 95% said Q1 profit fell. In other words, the margin hit from the discount menu doesn't show up in McDonald's results. It shows up only in the franchisees' results.
Now franchisees are being asked to remodel. The next redesign cycle could cost $400,000 to $700,000 per restaurant. With profits under pressure, many owners may struggle to fund the work.
At its Investor Day on September 23, McDonald's agreed to take on part of the cost: $8.5B through 2036 in lower rent and partial funding of capex. That suggests franchisee economics may be under more pressure than investors had assumed.
McDonald's doesn't make it into Bastion's strategy portfolios, although its GEAR+ rating is high thanks to the stock's low volatility and high business quality. The rising cost of supporting franchisees will likely hurt the company's metrics over the next year.