Last week, McDonald’s CEO Chris Kempczinski made some notable comments about the company’s development strategy, all but screaming his intent to build more locations in the Southeast.
We’ll take the quote from a Sentieo/AlphaSense transcript: “The U.S. restaurant estate today reflects probably what the demographic profile or the population profile looked 20 or 30 years ago,” Kempczinski said. “And imagine the amount of shifts that have happened, people moving to the South, Southeast. That isn’t reflected in our footprint.”
“You end up finding there’s a number of places around the U.S. where we are significantly underdeveloped relative to where the population exists today,” he added. “That opens for us a whole bunch of development opportunities for us to go after.”
Indeed. Depending on how you look at it, McDonald’s could add quite a few locations in certain states. But some of the states where it could theoretically be the most aggressive will likely surprise you.
We analyzed McDonald’s locations by state, using data from Restaurant Business sister company Technomic. And we analyzed that data based on 2022 population estimates from the U.S. Census to get a calculation of the number of Americans per McDonald’s restaurant (just under 25,000).
We then calculated the number of residents of each state compared with the number of the chain’s restaurants and then compared those numbers to the U.S. total to figure out which states have the highest number of McDonald’s locations relative to their population. This is the result:
Perhaps unsurprisingly, McDonald’s has the highest concentration of restaurants in the Midwest, not far from its Chicago headquarters. And it has a lower concentration of locations on the coasts, further away from its home.
The Southeast is home to a moderately lower concentration of restaurants, but at least on this map it doesn’t appear to be that substantial of a deficit. Tennessee, home to 337 McDonald’s locations, has 42 restaurants more than average, for instance. Or about 12%.
But it helps to compare the above map with another one that looks at population growth by state over the past 30 years.
In comparing these two maps, we can see the population shift Kempczinski has talked about. And we can also see the impact it’s had on McDonald’s real estate.
In essence, McDonald’s has been left with a higher concentration of restaurants in states where the population isn’t growing as much. And it has a lower concentration of restaurants in more high-growth states. It certainly warrants some rethinking on McDonald’s part.
Florida and Texas, for instance, have a lower-than-average number of restaurants for the McDonald’s system. Texas could add another 35 restaurants. Florida could add another 14.
The development potential is even greater if the goal was to get those states up to the concentration we see in the Midwest. We analyzed the average for the 10 most McDonald’s-heavy states. To get to that average, Florida could add another 290 restaurants. Texas could add another 410.
But that’s nothing compared with what McDonald’s could do if it focused on … New York, New Jersey and California.
On a percentage basis, New York has 35% fewer restaurants than the country as a whole, on average. New Jersey has 45% fewer McDonald’s locations.
California, meanwhile, has 27% fewer locations than average. It alone could add another 339 restaurants to get to the national average.
And if it brought those three states to the average of the 10 most McDonald’s-heavy states? McDonald’s could add nearly 1,600 restaurants. It’s very much unlikely that McDonald’s would try to bring any state up to its Midwest average. But it provides some comparable numbers.
That said, it’s time for some substantial caveats.
Expansion is often the result of real estate decisions, and there are many factors that can explain the lack of McDonald’s restaurants in those states.
The lack of penetration in New York and California is likely due to the cost of real estate in many of those markets. California and New York are home to some of the most expensive markets in the world, and a McDonald’s doesn’t always work well there. Indeed, McDonald’s itself has closed some of its New York City locations for that reason.
Local resistance to fast-food restaurants, wage rates, minimum wage rules and the overall regulatory environment can also discourage location decisions. The combination of costly real estate and a difficult and expensive regulatory environment provide an incentive for McDonald’s to maintain fewer restaurants that generate higher average revenues in California and New York.
And, the stronger population growth in the South and Southeast, as Kempczinski said, means it’s a generally better idea to concentrate real estate efforts there.
To be sure, many other restaurant chains are making the same sorts of calculations. Chain restaurants as a whole have concentrated much of their development efforts on the Southern part of the country.
But that can create its own problems. With so many brands looking at the same real estate in the same parts of the country, that real estate gets more expensive. And that can wipe out many of the potential benefit, in terms of a return on investment, that such locations typically promise.