Obviously, somebody wanted to get rich. And that somebody was not the McDonald brothers, who lived a quiet, comfortable life in southern California, content with their pretty white house and its pleasant view.
A man of a different ilk proved the dynamo behind the scenes, the relentlessly driving entrepreneur who would see those now familiar golden arches in every waking hour and in his dreams, rising majestically in every opportune empty lot.
This man was Ray Kroc, middle-class midwesterner, high school dropout, former piano player and Florida real estate salesman. The son of a Western Union employee who could never get out of debt, Kroc was born to hustling and got pretty skilled at it. “It’s dog-eat-dog,” remarked Kroc to Forbes magazine in 1973, “and if anyone tries to get me I’ll get them first. It’s the American way of survival of the fittest.- Thus in his personal credo, Kroc dismissed the age-old ideals of talent, genius, and education, endorsing instead his immense ambition.
Kroc persisted for 17 years in selling paper cups for Lily Tulip, first to pushcart vendors and Polish shopkeepers in Chicago, culminating with two soda fountain chains and a volume of 5 million cups a year. When he could go no higher, Kroc tried his hand at Multimixers, hitting the road with his little machine that could mix six milkshakes at a time. Kroc was by then in his 50s and by no means rich.
One day in 1954, Kroc drove out to San Bernardino to check out a little hamburger drive-in that, oddly enough, had seen the need to buy no less than eight of his Multimixers. On arrival, Kroc was stunned at the volume of business, which he rapidly calculated to be about $250,000 a year.
People actually waited in line (though not for long—customers could be in and out in 30 seconds) for a 15-cent hamburger in a paper bag, or a helping of French fries for a dime. Not much of a menu, but then that meant not much waste either. And no fussing with dishes and silverware. Dick and Maurice McDonald had unwittingly hit on the new American dream of dining out, fast, homogenized, clean, comfortingly predictable. It was the boon of merchandisers who could simplify, minimize, and economize. Kroc didn’t intuit all this in a flash of genius. He saw only that if the McDonalds would open ten more stores he could sell 80 Multimixers.
The McDonald brothers had been approached before by entrepreneurs looking to make it big. In fact, they were already selling franchises to a few people upstate and in Arizona. But some of these did not maintain the McDonalds’ high standards and this, in turn, reflected on their own establishment. Furthermore, the McDonalds were netting $75,000 and that was enough to live well on, and to do so in their hometown. That was the key. Kroc won them over because he offered a plan that would cause them the least trouble and least effort.
By the next day Kroc was on his way to Chicago with a floor plan of the McDonalds’ drive-in restaurant, a recipe for their crispy French fries, and a wide-open contract allowing him to find new sites for McDonald’s branches, open them—in short, run the show.
Wide open with a few seemingly minor restrictions, that is, one being that all restaurants look exactly like the one in San Bernardino, with any deviation requiring written permission from the founding brothers.
When the first restaurant in Illinois required a furnace and heating system, unnecessary in the original at the edge of a desert, Kroc already found himself in breach of contract. Furthermore, the financial deal would not make Kroc a millionaire overnight: he was to collect only 1.9 percent of the store owner’s revenues, and of that 0.5 percent went to the McDonalds. For some years to come Kroc would have to rely on his trusty Multimixers.
The site of Kroc’s first experiment was on Lee Street in Des Plaines, Illinois. At 5:30 every morning one could see an anxious middle-aged man scanning the construction, okaying every detail, and dreaming the dreams of a young man, before rushing off on the commuter train to work.
Kroc had to split the ownership of the first restaurant with the construction company just to get it built. And then once it opened, horrendous problems arose with the French fries. Here in Illinois they just didn’t taste like the ones out west. The recipe was tried again and again and followed with meticulous care. Even the Potato and Onion Association couldn’t figure out why Kroc’s potatoes were so mushy and tasteless. A scientist friend finally solved the mystery: while Kroc stored his potatoes in the basement, the McDonalds kept theirs outside in chicken-wire bins, exposed to the desert winds, which had a curing effect. Henceforth, Kroc’s potatoes were cooled and cured by large electric fans in the basement.
This first restaurant, which opened in 1955, was a great success. There followed three more in California, where the market was assured. From there the rate of growth began to escalate: 37 sites by 1957 and 164 more in the succeeding two and a half years.
Soon Kroc was buying out Idaho Russet Burbank’s entire crop each year and dictating to the hamburger packagers just how high they could stack their patties, so his employees wouldn’t have to restack them to save the bottom ones from being crushed. In 1960 Kroc’s partner Harry Sonneborn came up with a brilliant idea that would bring in hundreds of millions in revenue in years to come. He launched McDonald’s in the real estate business. Now Kroc’s company would lease and develop a site, and then re-lease it to the franchisee, who would have to pay rent in addition to franchising fees. Today annual rental income amounts to over $200 million, nearly 10 percent of the company’s total revenue. Beginning in the late ’60s, McDonald’s made it a policy to buy up as many of its store properties as possible. While this initially accrued huge debts, the policy gives individual McDonald outlets the upper hand against competitors, who periodically face massive hikes in rental fees.
Kroc’s commitment to his stores was total. He poured everything he had into expansion, borrowing money against future earnings. He quickly grew tired of his lethargic partners in the West, troubled by his breaches of contract, which could lead them to sue him, and anxious lest the McDonalds sell their rights to someone who did not want him around. However cash poor he still was, Kroc determined to buy them out. The asking price was $2.7 million. Sonneborn got it from New York venture capitalist John Bristol, whose clients, college endowment funds—ultimately got a $14-million return on their investment.
Then in 1963 Kroc’s company went public and hundreds of millions began pouring in. The shares sold at first for $22.50, quickly rose to $50, and today go for nearly $70, after adjusting for splits.
Over the past two decades McDonald’s has grown and expanded on every front: architectural variations have been made on the red-and-white-tile, box-shaped prototype; seating accommodations were added in the ’60s and drive-through facilities in the ’70s; Ronald McDonald began drumming up business over the radio in 1963 and by the ’70s, claims McDonald’s, he was familiar to 96 percent of American children; Filet-of-Fish, Chicken McNuggets, Egg McMuffins, and the wildly popular Big Mac (promoted by a $10-million “Build a Big Mac” contest) have enriched the menu.
Nineteen eighty-one saw an expenditure of $322 million in advertising, making McDonald’s the 14th-largest advertiser in the United States. That same year the company’s university (Hamburger U) for franchisees and personnel awarded its 20,000th Bachelor of Hamburgerology. McDonald’s operates over 6,700 restaurants, of which about 1,000 are in 29 foreign countries. Kroc is a billionaire and many who followed him are without a financial worry in the world. But that will not sate their hunger.
Failure to grow is decidedly not the American way. And so the golden arches must line the London streets and grace the Champs-Elysees, giving the world a cheap taste of our gainful American culture.
