Introduction
McDonald’s restaurant is operated by either a franchisee, an affiliate, or the corporation itself. The corporation’s revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants.
McDonald’s Corporation is the world’s largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized their business as a hamburger stand using production line principles. Businessman Ray Kroc joined the company as a franchise agent in 1955
America is a country of countless entrepreneurs, some more successful than others, but many who have strived to live the proverbial “American dream.” Ray Kroc is an extraordinary example of an entrepreneur who indeed lived the “American dream.” Kroc built McDonald’s Corporation into one of the most successful and most popular companies in the history of the United States. His legacy and actions have had a dramatic influence on hospitality professionals and others around the world and as such, he is truly an industry pioneer.
McDonald’s Corporation by Ray Kroc
Ray Kroc, The Early Years
Raymond A. Kroc was born on October 5, 1902 in Oak Park, Illinois and grew up in a working class family in the suburbs of Chicago. At the age of four, his father took him to a phrenologist who said that the child would work in the fast food industry, doubtless not comprehending the magnitude of this prediction. By the time he was fifteen, Kroc dropped out of high school and lied about his age to join the Red Cross as an ambulance driver. Before leaving for overseas, however, the war ended. He then found his first job as a piano player, using the skills his mother had drilled into him. A few years later in 1922, he began working as a salesman for Lily Tulip Cup Company. He worked hard selling cups by day and playing the piano by night. That same year, at twenty years old, he married his first wife Ethel. About 15 years later in 1937, Kroc began selling milk-shake mixers and did so for the next seventeen years. He was so fascinated with the multi-mixer machine, he obtained exclusive rights to it and sold it across the nation.
As a product of the country’s Great Depression, Kroc developed his strong work ethic in the early years of his life. He learned the importance of seizing opportunity and establishing relationships early in his life. Kroc was also able to gather insight about the food service industry while selling products to those in the industry. Ray Kroc’s perseverance in the beginning years of his life and the experience that he gained during this time proved to be beneficial as time progressed.
Ray Kroc, The Founder
Ray Kroc is credited with making McDonald’s a brand name that is recognized throughout the world. It all began in 1954 when, at the age of 52, Kroc started what would become one of the largest fast-food franchisees in the world. McDonald’s Corporation continued to expand and flourish even after its founder and Senior Chairman died in January of 1984.
Kroc began his success story while still working as a milk-shake machine salesman. He traveled to San Berdanino, California after hearing much about a nine-menu restaurant that was one of his biggest customers. Maurice and Richard McDonald, two brothers, ran a successful drive-in restaurant that used Kroc’s Prince Castle Multimixers. The McDonald brothers bought at least eight mixers for use in their small burger joint, far more than the two that most successful food establishments purchased and used. Kroc was intrigued by the small but tremendously busy operation. Due to his knowledge of the food service industry and his entrepreneurial spirit and vision, he was immediately determined to become involved with this relatively new concept. Kroc’s discovery on his west coast trip and the plan that he envisioned would soon prove to be one of the greatest American success stories in history.
As a result of meeting the brothers and exercising his outstanding salesmanship skills, Kroc flew back to his home in Ohio with an agreement that authorized him to act as the franchising agent for the food service establishment known as McDonald’s. Under the contract, Kroc would sell the McDonald’s franchises for the low price of $950 and charge each franchisee a service fee of 1.9 percent of a store’s sales. Of the 1.9 percent, Kroc would keep 1.4 percent and the McDonald brothers would keep .5 percent. At the time, the financial implications of the deal were not particularly good for Kroc; however, the low cost structure was one of the elements that ensured McDonald’s would grow quicker than most could imagine in the years ahead.
Although some believe that Kroc was truly the father of the fast food establishment or the mastermind of franchising, the fact is that McDonald’s and similar burger operations existed before Ray Kroc. There were even attempts to franchise McDonald’s long before Kroc made the trip from Illinois to California and first laid eyes on the original McDonald’s. However, it was Kroc who led McDonald’s to the forefront of the business world. Kroc made mistakes along the way, but for the most part, his decisions and abilities proved to be instrumental in his success and the company’s success. One of the toughest decisions for Kroc came in the first part of the 1960s when he was faced with the opportunity to own McDonald’s.
In 1961, Kroc ended the often times rocky relationship with the McDonald’s brothers by raising enough money to buy them out. This pivotal moment in McDonald’s history came about mostly because of Kroc’s dissatisfaction with the brother’s tolerance of sub-par franchises in California and Arizona. Kroc had not been involved there due to his current agreement with brothers. The brothers also infuriated Kroc by selling a franchise that could compete directly with his personal McDonald’s in his home state of Illinois. That proved to be the ultimate motivation for Kroc ending the already difficult relationship. Luckily with the help of his loyal team, Kroc obtained the financing and legal expertise to proceed with the deal. The buyout of the McDonald brothers came with a hefty price tag and financially burdened Kroc and the company. But it gave Kroc the opportunity to truly shape its direction and allow his existing involvement in the organization to flourish. By 1960, McDonalds had over 200 restaurants, yet its annual earnings were a mere $159,000 compared to the $75 million in sales earned by the firm’s restaurants. Kroc, who had paid $2.7 million to buy out the McDonald’s brothers, had to work extremely hard to ensure the success of his new company.
Ray Kroc, The Salesman
As mentioned earlier, Kroc was not the first to discover or even franchise the McDonald’s brother’s popular business. However, he was able to convince the skeptical brothers to begin the relationship that would prove to be so successful for the aging visionary. Although Kroc did not invent McDonald’s and originally saw the concept as an opportunity to advance his milk-shake mixer business, his passion for Quality, Cleanliness, Service, and Value drove McDonald’s to success. After visiting the McDonald’s brother, Kroc said, “the vision of McDonald’s Restaurants dotting crossroads all over the country paraded through my brain.”
The salesmanship skills that Kroc developed over the years proved successful, as he was able to obtain the initial agreement with the McDonald brothers. He also used the skills to influence franchisees and establish relationships with vendors. Kroc noted that “a handshake was all we ever needed to bind an agreement” when referring to his original paper supplier, Lou Pearlman. As McDonald’s grew, Kroc would go on to shake the hands of many people including employees, vendors, and a variety of influential social and political figures.
In the early years, he was able to develop franchisees by involving close friends – particularly those from the country club of which he was a member. He formed strong relationships with suppliers and always demanded that a fair price was made available to his franchises and that quality was never comprised. Kroc was also known for believing that McDonald’s would be successful if the individual franchisee was successful.
Ray Kroc, The Leader
The first few years after Kroc founded McDonald’s Corporation were very tough. Although the restaurants did well, McDonald’s Corporation did not realize the profits that other early franchisors did, mostly due to its low franchise fee structure. Kroc devised a plan with Harry Sonneborn, a former Tastee-Freeze executive he had hired in the initial stage of creating McDonald Corporation. He had known Sonneborn from his days selling multi-mixers. A plan was devised to purchase real estate sites for future McDonald’s restaurants. The fee structure for the leasing of these sites would allow McDonald’s to generate some much- needed cash and provide added control over potential franchisees. Kroc leveraged nearly everything he owned to make sure that this plan worked, thereby allowing another avenue for the company to grow and for his operational excellences to be put into practice. The Franchise Realty Corporation that Kroc and Sonneborn developed was a financial stroke of ingenuity and provided the corporate office with a steady stream of income.
Kroc implemented tough standards for his franchisees. Naturally, he wanted them to be successful, but he also wanted to make sure they followed strict guidelines to keep the brand strong and consistent. When Kroc opened his first restaurant in 1955, he experimented extensively to ensure that his French Fries were of the same quality and taste as the McDonald brother’s successful product in California. This drive and obsession with the details is a testament to the type of organization Kroc demanded. At a time when other restaurant chains were focusing on making money, Kroc’s approach of focusing on service, quality and cleanliness actually proved to pay better returns in the grand scheme of things.
Kroc’s philosophy and focus ensured that McDonald’s grew and by 1957, just five years into his venture, the number of McDonald’s was at 40. He used a variety of advertising methods, including billboards and magazines, to make certain people knew about his product. Kroc surrounded himself with strong executives that understood his philosophy but also had their own ideas and initiative. He discovered radio advertising from a franchisee just as he had discovered many of the ideas that helped to shape the company and make it successful by being open to others’ suggestions and watching others’ actions. It was one of his franchise owners in Pittsburgh that introduced the Big Mac in 1968. Although Kroc was persistent in imposing his values and standards on his franchisees, he also was engaged with their ideas and constantly studied the business. A few of the early McDonald’s ad slogans were:
- “All American Meal”
- “Look for the Golden Arches”
- “Go for Goodness at McDonald’s”
- “McDonald’s is your kind of place”
Shortly after buying the McDonald brothers out, Kroc opened Hamburger University in the basement of a McDonald’s restaurant. Here he trained franchisees in the art of hamburger making and by 1963, over 500 students had graduated. Kroc continued to preach his service, quality, cleanliness, and value doctrine to those who were becoming part of his future empire. Unlike many other franchises, McDonald’s employees understood the product and the company and Hamburger University was just one of the tools Kroc used to ensure it.
Kroc continued to apply the assembly line approach to the hamburger that the McDonald brothers had used and proved that a systematic approach to a simple process could increase productivity and consistency, particularly on a large scale. He was able to impose his strict standards on his management team and franchisees without stifling their passion or creativity. Although Kroc was said to have a temper and be uncompromising when it came to his beliefs, many concede that Kroc was ultimately a reasonable and compassionate individual – especially when one could convince him the alternative was correct or better.
Ray Kroc, The Growth Years
Kroc took pride in McDonald’s to the point where it became an obsession. In 1961, Kroc’s 39- year marriage to his first wife Ethel ended in divorce. Kroc knew that his business played a role in this, but he nevertheless continued to focus on the brand he was building. Kroc used to say, “I believe in God, family, and McDonald’s… and in the office, that order is reversed.” He went on to marry Jane Dobbins Green in 1962, whom he later divorced, and then Joan Smith in 1969.
Kroc built upon the original fundamentals set up by the McDonald brother’s first restaurant. He was rigorous when it came to standards, quality, and cleanliness. His employees heard him preach, “If you’ve got time to lean, you’ve got time to clean.” He often conducted personal inspections of restaurants to ensure that they were meeting the expectations he had set. He continued to expand the company and had a knack for picking locations that proved to be successful.
Kroc wanted to make McDonald’s a common choice for people. He recognized the importance of McDonald’s appeal to families and the need for McDonald’s to advertise and market its product. Ronald McDonald, the trademark clown character, was familiar to 96% of American children six years after its 1965 debut. Interestingly, Willard Scott, the long time Today Show weatherman, portrayed the first Ronald McDonald clown. Other marketing efforts for the company continued to develop and the all familiar “two all beef patties, special sauce, …” jingle became popular in 1975.
Approximately eleven short years after Kroc began McDonald’s Corporation, the company went public and its shares traded for $22.50 on the floor of the New York Stock Exchange. McDonald’s also reached $200 million in sales and debuted in the Macy’s Thanksgiving Day Parade. By the end of the month, its shares were selling at $50 a piece. In 2003 dollars, 100 shares purchased the first month by a savvy investor for $2,250 would have been worth more than $1.8 million.
Kroc was able to recognize that people were looking for a simple identifiable restaurant that served low-cost quality food in a fast and efficient manner. This realization and the fact hat Kroc was able to rapidly duplicate the McDonald restaurant across the nation was instrumental in the success of the individual units. Kroc approached his business in a scientific manner and utilized the latest research tools throughout its functions. He was able to withstand the pressures of competition and the many obstacles that are present in the business world and make McDonald’s a success story that many of today’s entrepreneurs try to emulate.
Ray Kroc, The Final Years
In 1974, Fred Turner was named Senior Chairman of McDonald’s Corporation. Kroc had hired Turner in the early days of the company and had mentored him to be one of his admirals and eventual successor. By this time, McDonald’s was a strong company that was continuing to grow both domestically and internationally. The 3,000th restaurant opened in Woolwich, England and Ronald McDonald House opened in Philadelphia, Pennsylvania. Kroc continued to be an active member in the company as he watched the company continue to flourish in the years to come. By Kroc’s 75th birthday, McDonald’s was approaching 5,000 outlets and entering the Asian market.
On January 14, 1984, Ray Kroc died. Although he did not live to see McDonald’s sell its 50 billionth hamburger, (this happened 10 months after his death), he was able to watch his vision grow into a reality. McDonald’s Corporation was added to the Dow Jones Industrial Average, a tribute to Kroc’s efforts.
McDonald’s is growing by the day and currently consists of over 30,000 restaurants and 119 countries. Four key corporate values are listed on its web site that can be traced back to Kroc in some form or another. The values are:
McDonald’s People Promise:
For McDonald’s to achieve our goal of being the world’s best quick service restaurant experience, we must have the best experience for all McDonald’s employees. So we formalized our beliefs into our People Vision and our People Promise.
Corporate Responsibility:
Corporate responsibility is an important part of McDonald’s heritage. We have a long track record of industry leadership in community involvement, environmental protection, diversity, opportunity, and work with our suppliers to help improve their practices. We are committed to do still more to earn the trust of our customers and everyone else affected by our business.
Diversity:
McDonald’s is the world’s community restaurant. We are proud of our long-standing commitment to a workforce that is diverse. We believe in developing and maintaining a diverse workforce that will strengthen the McDonald’s system.
World Children’s Day:
Participating McDonald’s restaurants in more than 100 countries worldwide are gearing up for World Children’s Day at McDonald’s 2003, an annual global fundraiser benefiting Ronald McDonald House Charities® (RMHC®) and local children’s causes.
Kroc’s widow Joan, upon her death in 2003, left over 200 million to National Public Radio and donated much to other organizations that promote world peace. This along with many other acts of philanthropy that came about from Mr. Kroc’s successes is a true testament and lasting impact to his hard work and vision.
Ray Kroc, The Legacy
There are some who say that McDonald’s is not the ideal company and that the product and brand that Kroc worked so hard to create is the reason for many shortcomings in American society. Books like “Fast Food Nation” and the recent documentary “Super Size Me” support this feeling. However, there are few that can argue that while Ray Kroc did not invent McDonald’s, he certainly was the key person in making sure the “golden arches” dotted the world. And Kroc used these “golden arches” to craft an American success story that many would try to emulate. He also was able to help many along the way just as many helped him. It’s no surprise that in 1990, Life Magazine named Ray Kroc one of the “100 Most Important Americans of the Twentieth Century.”
References
Gross, Daniel. (1996). Forbes greatest business stories of all times. John Wiley & Sons, Inc. Retrieved November 2, 2004, from http://www.wiley.com/legacy/products/subj ect/forbes/kroc/
Kroc, R. & Anderson R. (1977). Grinding it out. Chicago: Comptemporary Books, Inc.
Love, J. F. (1986). McDonald’s: Behind the arches. Bantam Books, Inc.
McDonald’s corporation. Retrieved November 2, 2004, from http://www.mcdonalds.com
/corp/
Pepin, Jacques (1998). The Time 100. Retrieved November 1, 2004, from http://www.tim
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