McDonald's Will Be Defeated by a YouTuber

It may sound crazy to think a 24-year-old kid from Greenville, North Carolina will go on to defeat the world’s largest fast-food chain at their own game, but I promise the story has legs.

Before we get into it, here’s a quick little message from me:

I know we have our favorites: Chick-Fil-A, In-N-Out, Whataburger, Taco Bell… but when 99% of people hear the word fast food they think of McDonald's.

It’s iconic. The golden arches. The crispy fries. The quick service, and the creepy clown.

They have over 38,000 locations worldwide and they serve 69 million customers per day. That’s the entire state of California and Texas combined.

They sell $2.5 billion in hamburgers every year, and they made nearly $24 billion in revenue in 2022. To put that in perspective, their biggest competitor, Wendy’s, did only $2 billion in revenue in 2022.

BUT, what if I told you that a 24-year-old from Greenville, North Carolina, who didn’t even finish college, will end up beating out Mcdonald's as the most successful fast food burger chain in the world?

This is my case for Mr. Beast Burgers becoming bigger than McDonald's.

What makes Mcdonald's so special?

How did Mcdonald's become the most valuable fast-food chain in the world?

Well, I’m not going to give you the entire history lesson on the company because there’s a movie called?The Founder?that does that better than I could.

We’re exploring what separates Mcdonald's from its competition.

Was it the franchise business model?

One of their distinguishing characteristics is their franchise model which has led to record growth in store count, but franchises weren’t really a world-changing innovation, in fact, A&W, better known for their root beer, implemented the first franchise restaurant in 1919 – 36 years earlier than McDonald’s first franchised store in 1955.

So was it the quality of their food that separated them??

A picture paints a thousand words.

Besides their french fries, comparing a Mcdonald's cheeseburger to that of In-N-Out’s, Five Guy’s, or Shake Shack’s is like comparing a Toyota Corolla to a Ferrari… it doesn’t stand a chance against these more premium burgers.

In fairness, back in the day, their food was higher in quality. Most of which stemmed from them cooking in beef tallow compared to the canola-oil blend they use today, but I digress.

If It wasn’t their food or their franchises that propelled them to the top, what was it?

It was a combination.

One aspect was their unique assembly line cooking system, called the “Speedee System”.

This system allowed them to create orders faster, sell them for cheaper, and ultimately sell far more meals than their competitors. They basically took Henry Ford’s world-changing assembly line and applied it to burgers.

The second characteristic that has led to their dominance is their brand recognition.

Coupled with their low-price, high-speed business model their ability to create a brand that everyone in the world recognizes has maintained their dominance for the past 75 years.?

But, today, every fast food chain has state-of-the-art cooking technology and a drive-thru, and so really all that separates Mcdonald's from its competitors is their brand value.

And that’s where Mr. Beast Burgers will gain its edge.

The Phenomenon of Mr. Beast Burgers

To get the boomers up to speed, Mr. Beast is the biggest YouTuber in the world and he recently launched a few brands:?pre-packaged snack food, candy bars, and a burger restaurant.

When Jimmy, aka Mr. Beast, opened the first physical location of a Mr. Beast Burger inside American Dream Mall just outside of New York City, they set the world record for the number of burgers sold in a single day.

They went on to sell approximately 5,500 burgers in one day. At $10 a burger and including sides, drinks, and large orders, it’s estimated they did over $100k in sales in a single day. For perspective, the average Mcdonald's location generates $6,575 in daily revenue.

The grand opening of the store even set a record for foot traffic within the mall, seeing a 325% increase compared to their 12-month average.

Now, these numbers are staggering, but this is only in one store. And more importantly, it’s their only physical store. Which is weird considering they did over $100 million in revenue in 1.5 years since their launch… but how could they do that with only one physical store?

The answer: More than 1,700 virtual locations.?

A virtual location is simply an existing restaurant that licenses the menu and brand from Mr. Beast and fulfills orders that are placed on Mr. Beast’s website or popular delivery apps like DoorDash.

Now, they don’t plan to stay virtual for long given they likely only keep anywhere from 15-25% of the revenue. But still, that's $15-25 million in revenue in less than 2 years with what I presume to be “limited” expenses given they’re only handling the software and marketing.

But back to the important part:?how does Mr. Beast generate such large sales at his one physical burger store compared to the global burger chain leader?

Well it’s not a secret and I’m no genius for pointing this out, but it doesn’t make it any less valuable. It’s his audience. His fans. His following. Whatever you want to call it. It’s his brand that he’s developed throughout his career on YouTube.

10 years ago, business leaders or investors didn’t think much of YouTubers. They’re just hobbyists entertaining people on the internet, how could they be so important?

But now, it’s obvious.

People with social brands and followings have gone on to create billion-dollar businesses by leveraging their audience. Kylie Jenner created her billion-dollar cosmetics business. Ryan Reynolds and other Hollywood stars have created liquor brands that have, as a whole, sold for many billions of dollars. And now Mr. Beast has created a brand that was?valued at $1B?by an undisclosed buyer… which he declined.

Not convinced of the power of digital followings?

Mr. Beast has been able to achieve an average of 1 billion views per month. That’s 1 billion customers who have chosen to consume his content every single month. In just 10 years he achieved this with less than 100 employees.?

It took Mcdonald's 75 years, billions of dollars, and over 200,000 employees to achieve 2 billion customers every month.

Not to mention, the 1 billion “customers” that Mr. Beast serves aren’t really customers. They’re fans. These are people who adore and trust Mr. Beast and spend hours upon hours every month being entertained by him.?

I would venture out to say that most people eating at Mcdonald's are just trying to get a quick bite to eat. They’re not looking to spend hours at the store nor are they really interested in what Mcdonald's is doing week after week.

Thus, 1 billion fans are far more valuable than 2 billion casual customers if managed by the right entrepreneur.

So that’s why when Mr. Beast puts the message out that he’s opened a burger restaurant in New York he sets world records. People aren’t just there to get a quick bite that will fill them up. They’re there for the experience and novelty of the event.

There’s a reason brands spent over $4 billion on influencer marketing in 2022. These influencers or entertainers have a connection to their audience that these brands can’t emulate. These influencers also have an intimate idea of what their fans truly want and how best to deliver it to them.?

Can’t you imagine a kid begging his parents to take him to Mr. Beast Burger because he would have a chance of being featured in a Mr. Beast video taken at that location, or they’d have other games at the store that could win the kid a free meal, merch, or even a car??

His entire channel and brand is about games and entertainment… and that’s what Mcdonald's has tried so hard to achieve over the years, but ball-pits and slides can’t compete with Mr. Beast’s creativity and influence.

Do the numbers even add up?

What will it take for Mr. Beast to convert his followers into the most valuable burger chain in history?

Well, this is where we depart from the qualitative assessment of Mr. Beast vs McDonald's and we enter the world of numbers. Don’t worry, I won’t bore you.

Remember, some of these numbers may seem staggering and even implausible, but everyone including Mr. Beast would have said reaching an audience of 1 billion people every month would be implausible… yet here we are.

If he wants to dethrone Mcdonald's, his burger chain would have to generate roughly $23 billion in revenue per year.

How would he get there?

Well first, he won’t get there via virtual stores. The presumed 15-25% gross margins just won’t cut it if he wants to reach $23 billion in revenue.

At the current sales figures, even if he achieved 38,000 virtual locations (the same number of stores that Mcdonald's has) he would only generate $300 million in sales. He would need to have over 440,000 virtual locations to meet his mark… simply unrealistic.

What if he copied the same franchise model as Mcdonald's?

In that case, assuming he had the same percentage of corporate-owned stores to franchises, he would need 9,500 franchised stores and 1,100 corporate-owned stores.

It’s important to note that assumptions have to be made in order to forecast these numbers.

The most important assumption I made was that his stores would generate 25% of the revenue that his first store did on its opening day. There’s no complex math behind it, and it’s anyone’s guess as to what this number would be, but I figured a 75% discount on the grand opening annualized sales would be a good ballpark.

At this number, Mr. Beast locations would have an average of $25,000 in sales per day compared to a typical Mcdonald's store which generates $6,575. It sounds like a steep premium but it’s not unrealistic given Chick-Fil-A stores do an average of $22,000 per day.

But, he doesn’t even have to copy McDonald’s strategy, in fact, I think Mr. Beast would be better off forgoing the franchise model and opening corporate-owned locations.?

The reason being he would only need approximately 2,500 locations to reach Mcdonald’s revenue.

I think that's a better bet than 1,100 corporate-owned locations plus an additional 9,500 franchises.

I don’t want these figures to sound understated because 2,500 locations is a tall order, but if anyone is up to the challenge of scale… it’s Mr. Beast.

Now, one of the most important aspects that has allowed Mcdonald's to scale to its current size has been their international presence. They have over 10,000 stores outside of the US.

This is typically a disadvantage for an entrepreneur who doesn’t have the backing of a billion-dollar conglomerate, but not for Mr. Beast. You see, he’s already tapped into international markets with his youtube channel. In fact, he has almost 50 million subscribers across his 7 non-English speaking channels.

Furthermore, he’s even created a service providing international?voice-over actors for creators?to use to expand their video’s reach.

Foreign expansion doesn’t scare Mr. Beast, and I think he can grow larger internationally than these older companies such as Mcdonald's given he actually has fans abroad not just citizens who are interested in trying American fast food.

Conclusion

At the end of the day, only time will tell how successful Beast Burgers will be, but I know he has the secret sauce to make it happen. He asked his audience on Twitter recently if he should take it public… and I’m praying he does because I’d personally invest big dollars into the fast food chain.

Let me know if you’d invest in Beast Burgers if it went public.

Remember to share this newsletter, and also try to eat less fast food… grab a steak!

Graham, out.