and not take any action.

- McDonald's story is one time Ray Kroc

was speaking to a group of university students.

Asked the students, you know,

what business do you think I'm in.

All the students are saying oh, Ray, of course,

we know you sell hamburgers and fries.

You're in the hamburger business.

And Ray said no, I'm not in the hamburger business,

I'm in the real estate business.

That's partially true, that's what most people know.

I'm gonna give you something more advanced.

You want something more advanced?

Okay, that's what people think of.

It has evolved a lot.

First of all,

McDonald's owns some of the most expensive

real estates in the world.

They have a lot of locations.

The only reason they offer fries and burgers and all that,

they are really in three businesses.

One, they are what I call in the business in a box business.

Some people call it the franchise business.

I call it the business in a box business, okay.

So people buy McDonald's franchise,

they're buying business in the box.

It's turn-key.

Walk in, ready to go.

Why they need to sell the fries and the burgers

and all that?

Because it is cheap.

Mass appeal because the franchisee

needs to be able to make a decent income

so that to pay McDonald's the rental income.

So McDonald's goes in and buys this piece of property,

builds it, which they,

do you think they have a proven system

how to build these things at a good cost, quickly?

You bet.

They build tens of thousands of these, right.

Franchisee comes in, pays them money

to, which is well now $1.-- million, right,

to buy McDonald's franchise.

Which they would, guess what, leverage that

to get the financing to build this thing

so there's no money out for them,

but they own the piece of real estate

that you're leasing now.

You are a built-in tenant.

So that's the first business.

So they sell you the business, they make money upfront.

They own the piece of real estate,

they make money monthly.

But that's not the biggest business.

The third business is not even the royalty.

They get the royalty income too, yeah,

multiple streams of income, right.

But the biggest business they have,

McDonald's right now is the largest suppliers

to this, your straw, your napkin, that burger meat.

That's where the business is.

They're not in the retail business anymore.

They're in the wholesaling business.

Just think about the volume that goes through McDonald's.

Because if you only have a retail business,

they don't touch the retail.

Retail is expensive,

so they minimize the risk

by having the franchisee pays for it

because they've developed this phenomenal business in a box

and then you have the real estate

which builds massive amount of wealth.

They can refinance, get another location,

all kinds of stuff they can do.

And third, wholesaling just all day.

How many fries they supply every day to the world?

How many burger meats, how many nuggets, how many,

like this is why McDonald's is very strict.

You never ever, you cannot.

Let's say if I'm a franchisee

and I could find someone,

I can find somewhere I can buy napkins cheaper,

can I buy that?

Nope.

Every single thing you gotta buy from McDonald's.

From the napkin, from the straw, from everything.

From the paper that wraps a damn burger

you have to buy from McDonald's.

Everything.

I don't know, I'm not so sure if they even,

I'm not sure, I haven't done my research,

that's why I don't know.

I'm just guessing they might own some shares in Coca-Cola.

I wouldn't be surprised,

because they don't have Pepsi,

they only have Coca-Cola.

Vica-versa, maybe Coca-Cola owns some shares of McDonald's.

I haven't done by research, I'm just guessing.

That's what I would've done, right.

because if I'm the JV partner,

Coca-Cola owns McDonald's, I might as well own the shares

and get some dividend income

and it's a strategic alliance anyway.

The more money they make, more money I make.

So you see it's not very obvious a lot of these things.

You think oh they make money selling hamburgers.

It's a very low level, a way of viewing a business.

You look at it, it's look oh,

they make multiple streams of income.

And they've got a real estate play in it

which is brilliant.

because think about it.

Someone buys a franchise,

let's say the franchise doesn't work, which is,

it could happen.

Not often with McDonald's, but it could.

What's the risk?

They take it back, they sell it again.

And then, so think about this, right.

You bought, I'm McDonald's,

you bought a franchise from me,

and then we're running it, it's not quite working,

you put $1 million.

I'm sorry man, it's not working out.

And then you're like aw man,

but I'm on the hook on that lease for like 10 years.

You know what, no worries, it's okay.

No, you can exit.

You lost a lot of money, I feel bad for you, right.

Now take back.

But you're on the hook for the lease, right.

So don't worry about that.

Now go to the next person.

He's already got a McDonald's franchise.

You know, usually when you start from scratch

it's a million bucks.

Take it over, half a million.

I'll make it work for you.

I'll make it work for you, you know.

I just have another tenant.

I already collected a million up front,

and now I supply.

Now I go in with my expertise to McDonald's,

see if we can fix this location.

They actually would make more money

I'm guessing this, selling a second time

because all of my costs are already recouped.

The second time this is free money.

They would be more profitable

selling a second time.

I'm guessing, I don't know.

I haven't looked at the financials, I'm just guessing.