You are right that some environments have draconian franchising rules, and force fast-food operators into alternative operating models (i.e. corporate/JV owned

You are right that some environments have draconian franchising rules, and force fast-food operators into alternative operating models (i.e. corporate/JV owned outlets). An important distinction for me is that those alternatives are forced onto brands, and if they had a choice they would swap to the franchise model. We see this playing out with McDonalds in China - as soon as franchising rules have been relaxed slightly, McDonalds went into high gear recruiting traditional franchisees to fuel growth in China [1]. Of course there are other places where operating directly makes a lot more money, but those are very very rare (e.g. Russia). In regards to McDonalds investing back into the business they know, you are right again. However, what they know best is not running restaurants but investing into property. The self-proclaimed description of McDonalds' business model is that they are in real estate, not hamburgers [2]. The latest available annual report shows that the 7,000 company stores generated ~$3B profits, but McDs made as much on royalties and twice as much on renting out properties to their franchisees [3]. Further, store margins are going down fast while royalty/property margins are going up. This year more than half of McDonald profits will be from collecting rent - flipping burgers and selling royalties is a nice side hobby. So to maximise their core business, they have to maximise how many renters they have, i.e. increase the number of franchisees. [1] http://www.worldcrunch.com/business-finance/supersize-the-franchise-mcdonald-039-s-new-china-strategy/kfc-fast-food-rivalry-catering-restaurant-franchisee/c2s15258/#.U7lYi2SJ-wE http://www.worldcrunch.com/business-finance/supersize-the-fr... [2] http://money.howstuffworks.com/mcdonalds2.htm http://money.howstuffworks.com/mcdonalds2.htm [3] http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDs2013AnnualReport.pdf http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Inv...