Plenty of People Sold Hamburgers. He Was the First to Build a Fast-Food Chain Empire | A Curious Person

The McDonald's that Ray Kroc built redesigned how to sell a hamburger

Ray Kroc (1902-1984), an American, founder of the McDonald's Corporation, stayed involved in running the company until he died. He built a fast-food chain empire and turned McDonald's into one of the symbols of American culture.

The McDonald's he founded sold standardized chain service, not hamburgers. He wrote the rulebook for the entire fast-food industry.

"He took someone else's idea and America ate it up." That one line is how the film The Founder sums up its story about the father of McDonald's, Ray Kroc.

The film, directed by John Lee Hancock and starring Michael Keaton, is due out this August. To play Kroc, the lead is said to have studied Leonardo DiCaprio in The Wolf of Wall Street. That tells you something about Kroc's character: a forceful, domineering businessman.

In 1974, as Kroc was about to retire as chief executive of McDonald's, arthritis had left him bedridden. He also had diabetes and high blood pressure, so doctors refused to operate, but he insisted on having a plastic hip joint put in anyway. "Even if it kills me, I have to do it," he said. "Because I'd rather die than be forced to lie in bed."

It was the same spirit — better to fail than to retire into a comfortable old age — that had made him found the McDonald's Corporation at the ripe age of 52.

When people trace the history of McDonald's, they always reach back to the hamburger restaurant run by the brothers Dick and Mac McDonald. But the verdict that Kroc "took someone else's idea" is, in his case, plainly unfair.

Because the McDonald's Kroc ran was a standardized system. What it sold was chain service, not hamburgers.

To be exact, McDonald's invented nothing new. Hamburger stands had existed in America since the 19th century, and after the Second World War they sprang up on street corners all over the big cities. What the McDonald's hamburger chain did was apply management to a business that until then had been run like an unplanned mom-and-pop shop.

Kroc's innovation was the standardized fast-food service system and the franchise machinery behind it. In the words of Paul Graham, founder of the startup incubator Y Combinator, he made fast food a global business by "building it once and having it work everywhere" — and that is the gulf between Kroc and the McDonald brothers.

Kroc set out to make his own way at 15 and worked many jobs: playing piano in bar bands, selling paper cups, and starting a company of his own, Prince Castle, which sold milkshake mixers. Before his McDonald's years he also held a senior sales job at a paper-cup company. One day a customer told him, "I want a mixer just like the McDonald brothers have out in San Bernardino, California."

Something clicked. Kroc flew straight to California and found the McDonald brothers' restaurant. To his astonishment, eight milkshake machines were running there at once, each able to make five shakes at a time — an almost unbelievable sight in a remote small town in 1954 California.

The spotless storefront, the line out the door, the 15-cent burgers and 10-cent fries: Kroc saw the enormous potential hidden in this fast, cheap drive-through restaurant.

In his later autobiography, Grinding It Out: The Making of McDonald's, he wrote: "I had a dream, a rather spectacular picture forming in my mind, of McDonald's restaurants blossoming all across the country... running at high speed, and in doing so, bringing me a steady stream of wealth."

After talking with the McDonald brothers, he applied at once to become their franchising agent, and won the right to franchise McDonald's everywhere in the country except California and Arizona. He would take 1.9% of each franchisee's total sales, 0.5% of which went to the McDonald brothers.

His friends and his wife objected. They could not see why he would bet everything he had on selling hamburgers. He was 52, after all, and in poor health, with diabetes and arthritis. "But I always believed the best years of my life were still ahead of me."

On April 15, 1955, Kroc opened his first McDonald's in Des Plaines, Illinois. He did not change the basic layout of the brothers' restaurant, but he pulled McDonald's into a thrilling story of entrepreneurial adventure — which is why McDonald's became the McDonald's we know.

From the start he fixed on standardizing the food. When his fries came out less crisp than the ones at the California McDonald's, he went over the steps again and again with the McDonald brothers, and even called in experts from the potato and onion associations to solve it.

He wanted his McDonald's perfect. He worked hardest on keeping the store clean and orderly, and let no detail pass. He built a half-open kitchen so customers could see through the glass how clean it was and watch every move the cooks made. He is said to have often cleaned the place himself. His demands on cleanliness and consistency meant this McDonald's was profitable before long.

Thanks to the Des Plaines store, they signed up more than a dozen franchisees in 1956. More McDonald's soon appeared in Illinois, California and elsewhere. Kroc and his business partners quickly settled on a goal: build a system strong enough to push McDonald's restaurants across the whole country.

That system was standardized service. First came the product; then McDonald's redesigned — or invented — the tools of the job. In 1961, to train franchisees, Kroc founded Hamburger University. By 1963 this corporate school was turning out 200 to 300 operators and managers a year for McDonald's, another key piece of the standardized system.

He later set up a research lab, which produced such things as automatic fry-timing machines and fat analyzers. These electronic aids made the food more uniform and the stores more efficient. Every piece of meat, every slice of onion, every bun, every fry came out exactly the same size — what Peter Gluck called a production process that was "precisely timed and completely automated."

Finally, McDonald's studied what customers valued and defined it: quality and predictability in the product, fast service, absolute cleanliness, and friendliness. It wrote standards to match, trained employees to those standards, and tied their pay to meeting them. All of this was advanced management.

The standardized service Kroc built was, in fact, bound up with how much Americans were moving — first across the country, later across the world. Between the end of the Second World War and 1970, they moved a great deal. According to data from the Pew Research Center, about 20% of Americans changed their address in the mid-1960s alone. By 1950 the average American family already owned a car, and according to data from the U.S. Department of Transportation, the number of private cars rose 44.7% between 1960 and 1970.

As more people moved, as the highway network went up and private cars spread, a restaurant like McDonald's — recognizable at a glance, the same service everywhere — grew steadily more valuable. This is the question of timing an innovation, and Kroc had clearly caught an excellent moment.

Even as he pushed his own McDonald's forward, his rift with the McDonald brothers widened.

The first spark came when Kroc found that the brothers had sold the franchise rights for Cook County, Illinois, to an ice-cream company for $5 without telling him first. He had to pay $25 to buy the rights to that store back. The other problem was that the brothers had no interest in making their restaurant business bigger, which disappointed him.

In 1961, Kroc decided to buy the company out — at the $2.7 million the brothers asked — and cut his ties with them. According to the book McDonald's: Behind the Arches, the two were afraid of paying too much tax, worried the bill would be big enough to burden their families after they died, which is why they never wanted the restaurant business to grow too large.

In 1963, on Kroc's decision, a clown in a red-striped shirt and a yellow vest made his debut: Ronald McDonald. John Mariani's well-known America Eats Out records: "After Ronald McDonald appeared in a national TV ad in 1965, within six years 96% of American children knew him — far more than knew the American president at the time." That image is still earning its keep today.

The other change Kroc made to the McDonald's business model was to set up a real estate company and raise money through land. They would lease promising storefronts first, then sublease them to franchisees.

The model survives today. McDonald's owns the land under many of its American stores, or holds long leases on it. Its property is worth somewhere between $16 billion and $18 billion, and in recent years rent has made up about a fifth of total revenue.

This was also one of the main reasons McDonald's could be copied so fast across the country. And for a company that insisted on absolute standardization, nothing mattered more than handling its franchisees and suppliers well.

Before Kroc bought out the company, franchises did not succeed all that often, because the McDonald brothers supplied only a week's worth of goods and basic instructions on fast service. When Kroc opened his own first store, he found how little help the brothers could give. They also rarely oversaw the stores they had licensed, so some restaurants cut corners — mixing beef hearts into the ground meat, or selling things that were not on the McDonald's menu at all, like pizza and tacos.

Kroc ended this hands-off treatment of operators. In his words, "the business is yours, the management is mine." He interviewed every operator himself, sent them to work and learn at existing McDonald's restaurants, and negotiated with the local licensed managers — a process that screened for applicants who loved the restaurant trade and were "good with people."

The 1950s through the 1970s were the years the American fast-food industry grew fastest: KFC, Burger King and Subway were all global chains founded or built up in that stretch. It had to do with the roads being built at the same time. In 1956 the United States began the Interstate Highway System, and between 1960 and 1970 interstate mileage grew 200%, to 30,000 miles.

In Los Angeles, the cradle of the drive-through, some operators quietly let suppliers overcharge franchisees and took a cut of it, cheating the very people who had bought in. McDonald's dealt honestly instead and protected its franchisees. The company found ways to save its suppliers money — designing sturdy, reusable boxes for its bread suppliers, for instance, to cut packaging costs — so that franchisees could buy supplies at reasonable prices and keep the food competitively priced.

In his autobiography Kroc describes an oil supplier that had grown up alongside McDonald's and wanted to give the company a gift. He turned it down and put his position this way: "All I want from you is a good product, nothing else. Don't buy me drinks, don't take me to dinner... If there are any cost savings, pass them on to the McDonald's store operators."

McDonald's kept good relations with its suppliers, too. In its hard early years it once borrowed $300,000 from them. The McDonald's website notes that many of its current suppliers were first chosen by Kroc, and that the company still does business with them.

By the time he retired in 1977, Kroc had built himself a fortune of $500 million, and McDonald's had annual sales of around $3.7 billion. When Ray died in 1984, McDonald's was a global fast-food empire: more than 7,500 stores in 31 countries and regions, with total annual sales of about $8 billion (in 1983).

Ray Kroc's formidable life was not without controversy.

He brought the practice of hiring teenagers part-time into McDonald's (surveys have found that at least one American in eight has worked or held a part-time job there), which saved an enormous amount on labor and was one reason McDonald's could keep its food cheap in the early years. He once gave more than $250,000 to support Nixon's reelection campaign. Rumor had it the money was meant to hold part-timers' wages down, since the Nixon administration opposed a minimum wage for teenage part-time workers. After Watergate he worked hard to put distance between himself and Nixon.

The other contested matter is a promise he never kept to the McDonald brothers: to hand the two founders 1% of revenue as a share. But where his autobiography describes the contract for buying the brothers' operating rights, it mentions only that $2.7 million, and says nothing about a cut of the profits.

Today the "McDonald's history" section of the McDonald's website carries only the life of founder Kroc, with barely a shadow of the McDonald brothers. Their descendants still accuse Kroc of seizing the fast-food business their forebears created. "Have you ever heard of an employee who ended up being described as the founder?" the brothers' nephew, Ronald McDonald, asked in an interview with the Daily Mail.

But it was in fact Kroc who turned McDonald's into a fast-food industry. What he sold was standardized management, not hamburgers and fries.

From the moment Kroc founded the McDonald's Corporation in 1955, the restaurant's history ran along two parallel tracks: on one side, a modest comfortable living; on the other, entrepreneurial adventure.

People will naturally remember the adventurer's story.

Images from McDonald's official website, Huffington Post, Rmyauctions and others.