Authors: Ray Kroc
McDonald's is vastly different now from the company it was back in the early days, and that's good. We responded to the social changes of the late sixties by increasing minority hiring, and organizing a program to bring in qualified black women operators. We've been a leader in advancing black capitalism. We also have made energy consumption in our stores more efficient than in the average home for preparing equivalent meals. We're international now. Hamburger U. has a handsome campus with classrooms equipped with the latest teaching aids. Our headquarters has its own modern, eight-story building in Oak Brook, a suburb west of Chicago. Jobs that one of us used to handle in a few minutes of spare time each week have grown into whole departments with hundreds of people on the staff.
Unfortunately, a few of our operators resented the changes. They couldn't see the big picture from the windows of their individual stores. Their operations hadn't changed, so why did the company have to change? They longed for the
good old days
when they could pick up the telephone and talk to Ray Kroc or Fred Turner to get help with their problems. As we became more decentralized, those old-time operators found themselves responsible to district, regional, and zone executives who in many cases were a lot newer to the organization than they were and who had not lived through store openings with them as Fred Turner had or helped them clean up their parking lots as I had. But there was another element in the situation, and that was the fact that some of these franchisees were approaching the end of their twenty-year licenses. Among them was a handful of bad apples who knew that their chances of being granted new franchises were slim. These characters tried to gain company for their misery by forming what they called the McDonald's Operators Association (MOA). They organized in about 1973 and put out a newsletter full of vicious gossip. Their theme quickly became triteâ
The company has changed. If you don't fight back you will be kicked out when your franchise expires, and the company will take over the store.
That's patent nonsense, because we don't want company-owned stores to ever exceed more than about 30 percent of total units. Moreover, we need good operators. It would be the height of folly to kick out an operator who met our standards of quality, service, and cleanliness, who had established his McDonald's in a neighborhood, had built up good community relations and a strong spirit among his employees. But MOA's whisper campaign did stir up apprehensions. Even some of our good operators, who should have known they had no need to worry, had to have continual reassurances that we didn't intend to buy back their stores. MOA was organized by Don Conley, an early corporation employee, who instead of taking cheap shots at the company should be saying a prayer of thanks to McDonald's every morning. He was one of the small group who shared in the purchase of Prince Castle Sales from me. But he put up no cash, and all the payments on his note plus interest, which was only about seven percent, were paid from dividends the group received from Prince Castle's profits. When Prince Castle was sold to Martin-Brower Corporation in less than two years, Conley made a six-figure profit. He then acquired 20,000 shares of McDonald's stock, which he's very smug and arrogant about today, since it makes him a millionaire. How ironic that this came, in effect, as a gift from me!
Conley is spiteful, perhaps, because he was fired. Anyhow, June Martino felt sorry for Conley. She worked it so that he was able to buy two fine McDonald's storesâin lieu of severance pay, perhaps, since we had no real money in those days. At any rate, he got a sweetheart of a deal from us that he repaid with ingratitude.
We could have found what operators were involved in MOA and made it tough for them even though their membership lists were secret. But we didn't care to get involved in spying and intrigue. We refused to sink to their level. All we had to do was wait for their influence to evaporate. The good operators among them would eventually get disgusted with MOA's negativism. They would realize that while the corporation had grown large and, of necessity, more impersonal, our basic philosophy and our values had not changed.
Mental Snapshot:
I am sitting in Frank Cotter's office in 1954 discussing the licensing agreement he is drafting for me to use in the franchising arrangement I've set up with his clients, the McDonald brothers. He is insisting on all kinds of clauses and tortured phrases spelling out the relationship so that I will be able to “control” my licensees. I am getting sick as hell of his prissy niceties. I look out the window and ignore him until he finishes reading.
“Listen, Frank,” I tell him, “you can hogtie these guys with all the
ifs, buts,
and
whereases
you like, but it's not going to help the business one goddam bit. There'll be just one great motivator in developing loyalty in this operation. That is if I've got a fair, square deal, and the guy makes money. If he doesn't make money, I'm in a peck of trouble. I'm gonna lose my shirt. But I'll be right out there helping him and doing all I can to make sure he makes money. As long as I do that, I'll do just fine.”
Back then, of course, I couldn't foresee an operator owning twenty-five or thirty stores. I couldn't envision situations in which an operator claimed we were hurting his sales volume by locating another store too close to his. I couldn't imagine having to deal with a franchise where an operator dies leaving his widow to run the store. (We have widows who are operators today, and they are good ones.) I wasn't thinking about what would happen when a franchise expired. But the basic philosophy of my statement to Cotter is as true today as it was then. We are an organization of small businessmen. As long as we give them a square deal and help them make money, we will be amply rewarded. I think that MOA has lost any power it ever had, and it will soon vanish. Fred made a fighting speech at our 1976 conventions in Florida and Hawaii, challenging them to come out in the open with any grievances they have or else get out of the way, because we are moving aheadâwith them or without them. The silence since then can only mean that MOA is less.
With all these events clamoring to be dealt with, and government agencies such as OSHA making mountains of paperwork for us, some of the things I considered to be of major importance were going much too slowly. One of them was the new architectural look for our restaurants, the brick buildings with mansard roofs, stylish expanses of windows, and inside seating. It's worth noting that after this new style was adopted and had spread across the country it became the object of much serious discussion in architectural classes. James Volney Righter, who teaches architecture at Yale, says he believes the style “holds great potential in that it links the energy of lively American âpop' forms with functional utility and quality construction. As the taste of the average consumer becomes more sophisticated, pressures are generated which might transform the visual and psychological energy of the American commercial strip into a cultural asset.” He also talks about the “fascinating architectural problem of establishing an image easily identified by and desirable to the customer.” I approved the new design in 1968, and it was to replace all of our red-and-white tile buildings. It was a drastic change in the image we'd established and in which we had a big investment, and Fred and I had to fight like hell to push it through the board of directors.
Brent Cameron, who is in charge of construction for us, is very conservative. Brent was the advocate of the MiniMac building, a scaled-down version of the new McDonald's restaurant that could be situated in smaller communities, where they might not have enough trade to support a full-sized store. This idea developed from a theory of Luigi Salveneschi's called “The Monotony Index.” Luigi's idea was that the higher the level of monotony in a town, the better McDonald's chances of doing business there. “In big cities with all kinds of shops and restaurants, you are only one of thousands of choices,” Luigi said. “But when you go into areas where there is nothing to do on Sunday afternoon, and people do not know how to spend their free time, your rate of frequency will go up dramatically. And there are literally thousands of areas like this where the
monotony index
is very high. These are people forgotten by industry and bypassed by superhighways and shopping centers. Yet they are important to us, the heart of America is still there in the boonies.”
So Brent pushed the MiniMac concept. A booklet was published advancing it, and Fred Turner bought it.
I was so damned mad I was ready to turn my office on the eighth floor of our new building into a batting cage and let those three guys have it with my cane. I had rheumatoid arthritis in my hip, and the pain of that didn't help my disposition any. But the reason I hated the MiniMac idea was that it was thinking small. Brent's plan was to buy enough property for a full-size store and put up a small unit. If it does well, then expand it. It was hard to argue against the program, because it took off very successfully. The initial MiniMac did about $70,000 gross the first month. But after they had built about twenty-two mini-units, some without seating and some with only thirty-eight seats, they finally got tired of my screaming and scrapped the program. And it's a damned good thing they did, because those minis were converted into regular stores and the majority of them are doing tremendous business. I believe that if you think small, you'll stay small.
Getting Brent turned around on the MiniMac program provided momentum for our remodeling and inside-seating campaign. I had to keep hammering away though, because in locations where I thought we needed 80 seats, they were putting in 50. Where I thought we needed 140, they were putting in 80.
You can argue both sides of this one. If you put in 140 seats, you may fill them for only an hour and a half at noon. The rest of the day you may have half of them empty. This is typical of a lot of restaurants in downtown locations. If you must cover a lot of empty seats for eighteen or twenty hours a day, the economics don't work out. But of course, where McDonald's is concerned, I favor the high side. Fred Turner does, too, and I like his thinking on it, which is that
business will expand to tax the facilities provided.
In other words, if you have a few extra feet of griddle and an extra fry station, or if you install one more cash register than existing business requires, you'll be challenged to put them to use.
While I'm talking about Brent Cameron, I should point out that I've always considered our conflicts creative. We first started butting heads in California, when he was an area supervisor in Los Angeles. He and Fred usually take the conservative stand on any issue. I'm the liberal, and that always makes for interesting executive meetings.
Some of my detractors, and I've acquired a few over the years, say that my penchant for experimenting with new menu items is a foolish indulgence. They contend that it stems from my never having outgrown my drummer's desire to have something new to sell. “McDonald's is in the hamburger business,” they say. “How can Kroc even consider serving chicken?” Or, “Why change a winning combination?”
Of course, it's not difficult to demonstrate how much our menu has changed over the years, and nobody could argue with the success of additions such as the Filet-O-Fish, the Big Mac, Hot Apple Pie, and Egg McMuffin. The most interesting thing to me about these items is that each evolved from an idea of one of our operators. So the company has benefited from the ingenuity of its small businessmen while they were being helped by the system's image and our cooperative advertising muscle. This, to my way of thinking, is the perfect example of capitalism in action. Competition was the catalyst for each of the new items. Lou Groen came up with Filet-O-Fish to help him in his battle against the Big Boy chain in the Catholic parishes of Cincinnati. The Big Mac resulted from our need for a larger sandwich to compete against Burger King and a variety of specialty shop concoctions. The idea for Big Mac was originated by Jim Delligatti in Pittsburgh.
Harold Rosen, our operator in Enfield, Connecticut, invented our special St. Patrick's Day drink, The Shamrock Shake. “It takes a guy with a name like
Rosen
to think up an Irish drink,” Harold told me. He wasn't kidding. “You may be right,” I said. “It takes a guy with a name like Kroc to come up with a Hawaiian sandwich ⦠Hulaburger.” He didn't say anything. He didn't know whether I was kidding or not. Operators aren't the only ones who come up with creative ideas for our menu. My old friend Dave Wallerstein, who was head of the Balaban & Katz movie chain and has a great flair for merchandisingâhe's the man who put the original snack bars in Disneyland for Walt Disneyâis an outside director of McDonald's, and he's the one who came up with the idea for our large size order of french fries. He said he loved the fries, but the small bag wasn't enough and he didn't want to buy two. So we kicked it around and he finally talked us into testing the larger size in a store near his home in Chicago. They have a window in that store that they now call “The Wallerstein Window,” because every time the manager or a crew person would look up, there would be Dave peering in to see how the large size fries were selling. He needn't have worried. The large order took off like a rocket, and it's now one of our best-selling items. Dave really puts his heart into his job as a director, now that he's retired and has plenty of time. There's nothing he likes more than traveling with me to check out stores.
Our Hot Applie Pie came after a long search for a McDonald's kind of dessert. I felt we had to have a dessert to round out our menu. But finding a dessert item that would fit readily into our production system and gain wide acceptance was a problem. I thought I had the answer in a strawberry shortcake. But it sold well for only a short time and then slowed to nothing. I had high hopes for pound cake, too, but it lacked glamor. We needed something we could romance in advertising. I was ready to give up when Litton Cochran suggested we try fried pie, which he said is an old Southern favorite. The rest, of course, is fast-food history. Hot Apple Pie, and later Hot Cherry Pie, has that special quality, that classiness in a finger food, that made it perfect for McDonald's. The pies added significantly to our sales and revenues. They also created a whole new industry for producing the filled, frozen shells and supplying them to our stores.