Number
5
McDonald’s Corporation
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Most Americans can’t remember when cigarette commercials were commonplace on their televisions, just as they can’t recall when fast-food restaurants were not in their neighborhoods. Surprisingly, there’s a connection between these two emerging and descending icons. The connection stems from a business principle that was devoutly practiced by a man who is almost singlehandedly responsible for the proliferation of these casual eateries in every corner of the globe.
Some four decades ago, when broadcast ads for tobacco products were far more prevalent than quickie hamburger outlets, many companies were hoping for the chance to install cigarette vending machines in their lobbies. In those days, such devices were enthusiastically welcomed as a customer convenience in any establishment—in the fanciest steakhouse to the most casual diner. They also provided a healthy profit for the owner, as well as the vending company. Why shouldn’t they be allowed inside fast-food upstarts as well?
The head of the class already was a newfangled burger joint called McDonald’s. It was spreading rapidly across the United States, and the most ambitious vendors were hot to get their feet in the door. But even if they managed to reach an official at the firm, they always were immediately rebuffed. Company chairman Ray Kroc, it seemed, did not want anyone lingering in his restaurants for a smoke after they had finished their meals. The idea behind McDonald’s, then as now, was to quickly serve and feed customers and then get them on their way so the booths could be filled with those next in line.
Bucking tradition was typical for the iconoclastic Kroc, whose empire is now as ubiquitous as the no-smoking sections in restaurants across the land. While the company’s growth has slowed of late, more than 15 years after his death it oversees 25,000 outlets in 119 countries—and, with them, controls almost half of the industry it originated. McDonald’s does this, observers agree, by continually adhering to the underlying philosophy that its founder championed from the outset: build simple, casual and easy-toidentify restaurants where the service is friendly, the prices are low, and there’s no waiting for tables while someone finishes a cigarette.
The rise of McDonald’s, and of Raymond Albert Kroc, is proof that worldchanging entrepreneurial drive knows no boundaries. Kroc always had aspirations to reach the top of his chosen field, but he didn’t realize true success until he reached middle age. In his 20s, after a brief stint as a Red Cross ambulance driver, he was scratching out a living by selling paper cups during the day and playing piano for a radio station at night. One of his biggest cup customers was Earl Prince, who invented a five-spindled milkshake maker that he called the Multimixer. Impressed by this revolutionary device, Kroc invested everything he had to become its exclusive distributor. He dropped the musical gig as well, and over the next 17 years tirelessly traveled around the country to peddle the machine.
Despite a host of physical ailments that included diabetes, arthritis, the loss of his gall bladder and most of his thyroid gland, Kroc was effective on the road. He saw greener pastures ahead in 1954 when he met two brothers from California named Richard and Maurice McDonald. The pair owned a restaurant in San Bernardino that was so busy it needed eight Multimixers to keep up. Kroc, then 52, decided to see what kind of establishment could generate such demand. He checked the place out and immediately decided it was time for a career change.
The McDonalds’ restaurant was a hamburger stand with a twist. Ever since the automobile first appeared, eateries catering to the motoring public began surfacing—particularly in California. The first was A&W Root Beer, which opened in Sacramento in the 1920s. It was followed by dozens of these so-called “drive-ins,” where “carhops” would bound to the parking lots and serve customers who never left their vehicles. The McDonald brothers joined the fray in 1940, and within a dozen years their burger-and-barbecue joint was a booming teenage hangout. In 1948, though, the pair decided to make the place stand out by initiating some significant changes. They eliminated their carhops, dropped their prices, and opened two windows where customers would place orders themselves from a newly limited menu. The main attraction, a 15-cent hamburger, was always served the same way: with mustard, ketchup, onions, and two pickle slices.
This unique approach attracted even more business, and six years later the McDonalds were calling on Kroc to supply them with multiple Multimixers. Kroc saw national possibilities in the restaurant’s design and quickly made a deal with the brothers to become their franchising agent. The next year, he opened his first restaurant in Des Plaines, Illinois. (This building is now a museum housing corporate artifacts, including a Multimixer.) In 1961, when he was running 228 outlets across the U.S., Kroc bought out the brothers for $2.7 million. He later told the media he needed the McDonald’s name because a “Kroc burger” just didn’t have the same ring. He also said he hoped that one day he’d operate 1,000 such eateries.
Now in complete control, Kroc stuck with his proven principles. “If you’ve got time to lean, you’ve got time to clean” became one of his favorite sayings, and he regularly followed through on its sentiments by personally picking up a broom to sweep floors and parking lots. “The definition of salesmanship is the gentle art of letting the customer have it your way” was another, which he regularly offered as an explanation of his business philosophy. The actions behind these and similar aphorisms helped McDonald’s sell more than 1 billion hamburgers by 1963, and the milestone was trumpeted on neon signs out front. That same year Kroc opened his 500th outlet and introduced the enduring Ronald McDonald clown—initially portrayed by soon-to-be weathercaster Willard Scott—in a series of TV commercials that ultimately became as well-known as the chain itself.
In 1965, McDonald’s went public. (Two decades later, it was named a component of the 30-company Dow Jones Industrial Average; stock valued at $2,500 in that initial public offering would be worth about $3 million today.) Kroc tried to initiate several other restaurant concepts in the following years, but none caught on. McDonald’s continued to flourish, though, and Kroc’s dream of 1,000 locations was realized in 1968. Three years later, his company made its initial foray outside the U.S. by expanding into Europe and Australia. When Kroc died in 1984 it had more than 7,500 outlets worldwide.
McDonald’s continues to break new ground, and customers eagerly follow even in places that many would consider unlikely. In 1994, for instance, some 15,000 lined up on opening day at a new McDonald’s in Kuwait City. Today, the overseas network accounts for nearly 60 percent of the company’s total sales and profits. Its 12,500 facilities in the U.S., bolstered in recent years by the addition of mini-restaurants within non-traditional venues like Wal-Mart and Amoco service stations, now account for some 40 percent of this country’s fast-food business.
Operations on the domestic front have not been proceeding without problems, however. A combination of market saturation and intensifying competition—from other burger chains as well as those pushing pizza, Mexican food and fried chicken— limited new U.S. restaurant openings to just 92 in 1998. Changing tastes and perhaps even some backlash against its widespread reach also contributed to flattening sales. But McDonald’s continues to fight back with highly publicized promotions featuring children’s toys, often tied to the day’s biggest movies. Highly focused TV ads, promoting such familiar items as the Big Mac along with new products like the McFlurrie dessert, also are deployed. At the same time, recent investments in small pizza and Mexican chains provide the company with new growth potential. And officials predict they could still open as many as 10,000 new McDonald’s in emerging global markets in the years ahead.
Just as the company he founded is more than a simple restaurant chain, Ray Kroc was more than just a businessman. Believing it was critical to give back to the communities in which he was located, Kroc started McDonald’s on a philanthropic path in 1974—when such actions were few and far between—by opening the first Ronald McDonald House in Philadelphia. Designed to provide families of critically ill children with a comfortable place to stay, there are now 200 of these worldwide following a 1999 dedication in Budapest. In addition, the McDonald’s Charitable Foundation and Kids Charities are among its corporate arms responsible for some $20 million in annual donations.
Two year’s after Kroc’s death, his widow Joan continued these efforts by founding the Ronald McDonald House Charities. Since then she has personally contributed more than $100 million to that cause, in addition to others focusing on everything from the homeless to nuclear disarmament. In recent years she also has quietly given $15 million to flood victims in North Dakota, along with $80 million to the Salvation Army for construction of a community center in San Diego.
McDonald’s hires thousands of older and disabled workers, and has implemented programs to help advance their careers along with those of women and minority employees. After years of criticism aimed at the litter that is generated by its products, the company also has been working with the Environmental Defense Fund to reduce solid waste generation by, among other things, switching from polystyrene foam to paper-based packaging.
Additionally, since 1994, some 8,500 McDonald’s have voluntarily become totally smoke-free environments. And, of course, they still don’t have cigarette vending machines in their lobbies.