McDonald’s paying R420,000 per month for an iconic site in Cape Town

 ·18 Jul 2024

McDonald’s in Green Point, Cape Town, recently renewed its lease at R420,000 per month for the prime site after a bidding war with KFC.

The highly recognisable 24HR McDonald’s drive-thru location has a lease agreement with the City of Cape Town.

The property lease was recently auctioned, sparking a competitive bidding war between McDonald’s and KFC.

Both renowned brands vied for the top location at the entrance to the DHL Stadium.

With a seating capacity 55,000, the stadium is set to host the eagerly anticipated Springboks vs New Zealand rugby match in September of this year.

Ultimately, McDonald’s emerged as the successful bidder, securing the site at a monthly rental rate of R420,000, equating to R5.04 million per annum.

Speaking to 94.7, Chris Teague, the director of property development and investments firm Flanagan and Gerard, said this is no ordinary rental – but fitting for what is no ordinary location.

Teague said the location is one of the best real estate in the country, and the rental amount is always a function of turnover.

“When you understand the performance potential of this site and the turnover potential of a business, rental should be a reasonable function of that.

“While it may differ from property company to property company, what typically happens is the tenant [McDonald’s] and landlord [the city] agree on what a reasonable turnover is likely to be, and then this is used to calculate a rental that the tenant can reasonably sustain.

“This means that this fee of R420,000 is reasonable when you consider the amount of money this site can generate, which is astonishing,” said Teague.

McDonald’s drive-thru, Green Point, Cape Town.
Google Maps view of site.

How much it costs to own a fast-food chain

The success and popularity of fast food franchises in South Africa is clearly evident based on the recent auction, but to hop on the gravy train will cost you millions.

Apart from the financial contributions and as part of the franchising process, most of these brands require prospective franchisees to undergo training lasting between six and eight weeks to a whole year in McDonald’s case.

They also require a percentage of unencumbered cash, which is the franchisee’s cash available in liquid form and should not be obtained from a bond or other loan that would increase the debt.

McDonald’s started as a single restaurant in Illinois in 1955 and today spans the globe with more than 35,000 restaurants in 120 countries – 335 of these in South Africa.

While Mcdonald’s doesn’t present updated franchising costs, the total investment to own a branch as of the end of 2022 includes the following:

  • Average investment required – between R4 million and R6 million.
  • 35% unencumbered cash contribution – between R1.4 million and R2.1 million.

The total investment depends on location, size, styling, and varying pre-operation expenses.

This is roughly in the same ballpark as KFC.

According to the latest franchise data available from KFC, new franchise owners could expect to pay close to R6 million for a new franchise.

This number may vary depending on location, size, and operation requirements.


Read: Three big South African shopping brands in deep trouble

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