In 1940 two brothers, Dick and Maurice ‘Mac’ McDonald, opened a small drive-in restaurant in San Bernardino, California, about 60 miles east of Los Angeles. As at other American drive-ins, customers drove into the lot and parked. Carhops scurried out to greet them, hand out menus and take their orders. The orders were relayed to the kitchen; when the food was ready, the carhops delivered it on trays. When customers finished eating, the carhops gave them their bills, collected payment and carted away trays of dirty dishes.
After eight years, the McDonald brothers concluded that this system was slow, laborious and inefficient. They also had problems with employees – particularly the carhops and cooks. The young female carhops worked mainly for tips, and hence spent considerable time chatting up customers. Carhops attracted teenage boys, who were less interested in ordering food than in socializing. Cooks were often unreliable, showing up late or not at all, or coming to work inebriated. Yet another problem was customers who drove off without paying – or who pulled out of the parking lot with dishes, glasses, cups and utensils.
The brothers set about designing a better operation; then they closed their drive-in, remodelled it and reopened it on 20 December 1948. They had streamlined food preparation so that orders could be cooked quickly and assembled promptly with minimal effort, and had pared down the menu to a handful of items. The workstations were organized like an assembly line, with each employee handling simple tasks. The brothers staffed their stand with teenage boys, who were largely interchangeable – if one didn’t show up, another filled in. They used only disposable paper wrappings, bags and cups, eliminating theft, breakage and cleaning. Their new model required customers to do what the carhops had done: patrons lined up at windows to place, pay for and receive their orders. They carried the meal back to the car and, after eating, threw away their own rubbish. The brothers called their new model the ‘Speedee Service System’. Compared with other drive-ins, it could handle many more customers in less time at much lower cost.
Within months, their stand was serving several hundred customers daily. In 1951 the McDonalds grossed $275,000, of which $100,000 was profit, a phenomenal amount by any standard for a food-service business. Reports of the brothers’ success spread around the restaurant world, and in July 1952 American Restaurant magazine ran a cover story on ‘McDonald’s New Self-Service System’.
During the next few years, the brothers continued to refine their system. They hired an architect to create a completely new building with a distinctive design that could be easily spotted from the road. It was constructed with a forward-sloping glass front; the walls were painted in red-and-white stripes. Dick McDonald came up with the idea for the ‘golden arches’, which bisected the roof. White tiles predominated on the walls, implying cleanliness, and there was lots of window glass, making food preparation visible to all.
The brothers advertised for franchisees, who were required by contract to build the structure that the architect had designed, follow exactly the same procedures as they proposed and offer exactly the same menu. By the end of 1953 the brothers had sold 21 franchises, only ten of which ever became operational. Compared to other fast-food chains at the time, this was an extremely modest success, but this was about to change.
For millennia ready-to-eat foods have been sold on the street and from small stands throughout the world. The fare they served was inexpensive and convenient. In North America and Europe industrialization, urbanization, health laws and vendor zoning restrictions beginning in the late nineteenth century created the need for other limited-service food distribution systems for workers with extra money in their pockets. Cafeterias, buffets, luncheonettes, takeout stands and kiosks, self-service cafés, vending machines and automated cafeterias offered customers speedy service coupled with cheap food.
Fast-food chains were yet another option. They were invented in the United States during the early 1920s, and were based on efficient internal operating procedures and speedy but limited service. Compared with full service restaurants, fast-food chains were less expensive. Most specialized in one main menu item, such as sandwiches, hamburgers, hot dogs, pizza or fried chicken, accompanied by a few side orders, beverages and a dessert. Others concentrated on single items, such as ice cream, doughnuts, cookies or coffee.
Low-cost automobiles coupled with improving transportation grids created opportunities for a new type of food-service operation – the drive-in – where customers drove up to a stand, ordered food and ate in their cars. In Lodi, California, Roy Allen and Frank Wright opened their first drive-in A&W Root Beer stand in 1920. They sold food, but their signature item was a beverage – root beer. In 1924 they took an unprecedented step in food retailing: they began to franchise. For a fee, Allen and Wright supplied the root beer syrup to other drive-in operators, who were permitted to use the A&W logo, but franchisees had little else in common. The chain thrived, and by the 1950s, more than 2,000 franchise outlets sold A&W Root Beer.
Another pioneering fast-food operation was launched in 1921 by two Kansans: J. Walter Anderson, who owned three hamburger stands in Wichita, and a local entrepreneur named Edgar Waldo Ingram. They named their new operation ‘White Castle’. The original menu was limited to hamburgers, coffee, carbonated drinks (sodas) and pie, but other items were added over the years. Anderson and Ingram applied the principles of Henry Ford’s automobile assembly line and Frederick Taylor’s views of scientific management to their food-preparation system to maximize its efficiency. Their goal was to lower costs and increase profitability.
Unlike A&W Root Beer, White Castle did not sell franchises, but it did open lots of outlets – all of them boxy white buildings with crenellated turrets. At first, Anderson and Ingram made arrangements with local butchers to supply beef ground to their specifications. As the White Castle chain grew, they established meat-processing plants, paper suppliers and bun-baking operations to ensure consistent products for all their locations.
White Castle targeted urban areas near transportation hubs or close to large factories whose workers did late-night shifts. The company used the chain-wide slogan ‘Sell ’em by the sackful’, and advertised widely in local newspapers, greatly increasing visibility and sales. Because its hamburgers and drinks cost mere pennies, White Castle became a little ‘luxury’ that many working people could afford during the Depression. In 1925 the company served 84,000 hamburgers; by 1935, it was selling 40 million a year.
The industry was abetted by the industrialization of agriculture, a process that had been under way in the U.S. since the 1920s. Thanks to mechanization and improved agricultural techniques, farmers produced cheap grain, especially wheat and corn, and inexpensive meat, particularly beef and chicken. National meat and poultry processors negotiated contracts with large food chains at greatly reduced rates. Chains passed these savings on to customers, who were drawn to fast-food by its relatively low cost. Everyone profited from this system except local eateries, small farmers and regional meatpackers who could not compete with such economies of scale.
Yet another type of fast-food operation was launched by Earl Prince, who opened an ice-cream parlour in DeKalb, Illinois, in 1926. Prince partnered with Walter Fredenhagen, his ice-cream supplier, to open a number of new outlets that were also designed to resemble castles. Their speciality was ice-cream cones and sundaes. Prince and Fredenhagen bought their paper cups from the Lily Cup Corporation. The salesman who handled the Prince Castle account was Ray Kroc, a high-school dropout who had worked for Lily Cup since 1922. Hoping to drum up more business, Kroc persuaded the partners to sell milkshakes (to be served in paper cups, of course).
Earl Prince devised an extra-thick shake consisting mostly of ice cream. Customers loved it, but it was too much for his mixer to handle. Even had the motor been up to the job, the machine could make only one milkshake at a time, and during busy times, servers couldn’t keep up with orders. So Fredenhagen and Prince invented a more powerful machine, the Multimixer, with spindles that could whip up several shakes at once. It was so good that Kroc felt he could sell the new mixer to other restaurant chains, so in 1938 he left Lily Cup and established what became the Prince Castle Sales Division. Kroc promoted Multimixers at industry gatherings such as the Dairy Queen National Trade Association Convention. As he sold mixers, he also picked up the ins and outs of fast-food franchising.
When other appliance manufacturers, such as Hamilton Beach, brought out cheaper machines for making multiple shakes, sales of Kroc’s Multimixer slumped. By 1954 the company was in financial trouble. It was then that the 52-year-old noticed an anomaly in one order: most outlets bought just one Multimixer, but the McDonald brothers, who owned just a single hamburger stand, ordered eight. This piqued Kroc’s curiosity: why would a small hamburger stand need to make so many milkshakes simultaneously? He flew out to San Bernardino to investigate this obscure startup. The answer was simple: rather than making each milkshake as it was ordered, they prepared dozens in advance and held them in a refrigerated case. When there was a lull, shakes were prepared to refill the case. This speeded up the process of fulfilling orders.
Kroc was impressed with the operating efficiencies that the brothers had introduced. It took him just one day of observing the hamburger stand – and the crowds lined up at the front – to realize that the owners, Dick and ‘Mac’ McDonald, had created a system that could serve hundreds of customers promptly, efficiently and profitably. Kroc imagined that their system could easily work throughout the U.S., and he promptly negotiated an agreement with the McDonald brothers to become their exclusive franchise agent. Kroc’s initial interest was not in running food stands but in selling franchises and providing Multimixers to them; this changed in 1955, when he opened his first hamburger stand in Des Plaines, Illinois.
Over the following decade, Kroc purchased the entire company from the McDonald brothers, and quickly grew the chain through franchises. He found deficiencies in the McDonald brothers’ model and corrected them. Kroc contracted with suppliers to do as much of the food preparation as possible before it arrived in outlets. Through trial and error, he created a modified fast-food model that centralized purchasing, negotiated large contracts with suppliers, developed efficient and tightly controlled internal operating procedures, hired low-cost labour, controlled franchisees tightly and launched aggressive advertising and marketing campaigns.
As ambitious and far-sighted as Kroc was, he could not have anticipated the astonishing repercussions that his creation would have on America and the world. Although his model would be tweaked and improved, virtually all successful fast-food chains – and many other businesses – have followed versions of it.
A robust, self-confident America emerged after the Second World War. Servicemen returned home, sought jobs, married and started families. America’s war manufacturing industries turned to civilian production. Wages increased by 30 per cent during the decade following the war and disposable income increased, creating a consumer culture. Automobiles became affordable for even the working class. There were 15 million cars in 1945 in America; there were 40 million by 1950. The construction of new highways made it possible for families to move out of cities and commute by car. Low-interest, federally guaranteed home loans helped millions of veterans acquire new homes, and the postwar baby boom pushed many middle-income couples into the suburbs, which were residential tracks studded with single-family homes largely populated with baby-boom families with plenty of children. When they were first constructed, suburban neighbourhoods were devoid of eating establishments, and many entrepreneurs jumped into the culinary void. When suburban families had a little money to spare, where would they go out to dinner?
Fast-food outlets were the perfect answer to this question. Ray Kroc was one of the first to recognize the ramifications for the fast-food industry of this population shift. He refused initially to build outlets in major urban areas, which were becoming increasingly run-down and crime-ridden; instead, he selected sites in emerging suburban communities.
Fast food was particularly tempting for families with two working parents and for single parents with children.1 Rather than spending time shopping for food, preparing it and eating at home, all they had to do was walk or drive to a fast-food outlet, place an order, grab a food-filled bag and dine. Each member of the family could choose a different combination of food and beverages. Fast food offered predictability. What was available at one chain outlet could be ordered at another and it tasted exactly the same.
McDonald’s was just one of many fast-food chains in America during the 1940s and ’50s. In June 1940 Sherb Noble, an ice-cream store owner in Kankakee, Illinois, acquired a franchise for selling soft-serve ice cream and opened his first outlet in Joliet, Illinois; he named the shop Dairy Queen. In 1946 Irvine Robbins and Burt Baskin opened the first Baskin-Robbins ice-cream parlours. They began selling franchises, and the chain quickly expanded. Jack in the Box was started in 1951 by Robert O. Peterson, who offered 18-cent hamburgers at his drive-through stand in San Diego, California. In 1948 Glen Bell ran a one-man hamburger, hot dog and taco stand at San Bernardino, California; fourteen years later, he launched a chain of Mexican-inspired fast-food outlets in Downey, California, and dubbed them Taco Bell. In 1948 William Rosenberg of Quincy, Massachusetts, noting the tremendous popularity of doughnuts, opened a small doughnut shop initially called The Open Kettle. Two years later he renamed it Dunkin’ Donuts and began to franchise it. Harland Sanders of Corbin, Kentucky, began franchising the secret recipe for his Kentucky Fried Chicken in 1952 and A. L. Tunick launched the Chicken Delight chain in Illinois. In Jacksonville, Florida, Keith G. Cramer opened the Insta-Burger King, later renamed Burger King. His 18-cent burgers were an immediate hit, and Cramer began franchising his operation in 1954. Four years later, Frank Carney, an eighteen-year-old student at the University of Wichita, opened a pizza parlour named Pizza Hut because the first stand looked like a hut. In 1961 Domino’s pizza was created in Ypsilanti, Michigan. Many more chains were launched during the following decades. Some thrived. Those that didn’t remained local favourites, went out of business or were gobbled up by the survivors.
Successful fast-food chains franchised their operation. Franchising was a system that had been applied to other businesses since the mid-nineteenth century. Typically franchisees paid franchisers an up-front fee plus a percentage on all sales. This system had several advantages: those who founded businesses could expand them without expending their own capital. Franchisees could start their own businesses by building on a successful brand without risking everything on a new venture. Ray Kroc required all McDonald’s franchises to conform in every detail to his formula. This guaranteed consistency among all outlets. Other fast-food chains eventually followed Kroc’s lead.
Competition among fast-food chains generated innovation: operating procedures, menus and services were regularly revised to survive in the highly competitive fast-food world. Successful chains also recognized the importance of advertising. They did so in newspapers and magazines, but the most successful promotional campaigns would be launched on television, the new medium that enthralled America in the postwar period.
Chains constantly experimented with their menus. When other fast-food chains brought out new menu items, their competitors countered with similar products. The success of Burger King’s Whopper hamburger, for instance, led McDonald’s to introduce Big Macs and Quarter Pounders. The popularity of KFC’s fried chicken led McDonald’s to come up with Chicken McNuggets, which, as observers have pointed out, are chicken only through the miracle of advertising, for they include large amounts of water, soya protein, flavourings and sugar.2
Other menu innovations included bundled meals (a.k.a. value meals), consisting of a preselected combination of foods such as a hamburger, french fries and a soda. Customers order by the number of the meal. Research has shown that bundled meals encourage customers to purchase more than they might if they just selected individual items.3 It also makes it easier and less time-consuming for workers to take and assemble orders.
When one fast-food chain introduced a successful innovation, other chains followed. McDonald’s began to reconsider its ‘one size fits all’ design when its first outlet in downtown Washington, DC, opened in 1964. There was no room for a parking lot, so indoor tables and chairs were required. Other McDonald’s outlets, however, remained unchanged. When Burger King launched a newly designed restaurant with indoor seating, McDonald’s management took notice. Until that time it had been assumed that people were happy to eat in their cars. But this could be uncomfortable on hot, steamy days and equally so in frigid weather. Indoor eating areas permitted year-round climate control, which Burger King customers greatly appreciated. Kroc met the challenge by developing a new restaurant with indoor seating, which McDonald’s inaugurated in 1968.
Early fast-food outlets were built along highways leading into cities, and most customers arrived by car. In-N-Out Burger, a small chain based in Baldwin Park, California, installed a drive-through (more often called ‘drive-thru’) lane and a two-way speaker box permitting customers to order from their cars. This sped up ordering and service, and it has been a feature of In-N-Out Burger outlets ever since. During the 1950s, Jack in the Box and Burger King both experimented with a drive-through design similar to that of In-N-Out Burger. Burger King assigned separate staff to run their drive-throughs. These early efforts were unsuccessful and were discontinued.
Wendy’s, a hamburger chain founded in 1969, incorporated a successful drive-through system beginning in 1971. Drive-up service windows saved space in both parking lots and indoor dining areas, as customers usually drove away and ate elsewhere. Observers credited the chain’s phenomenal success to the drive-through. In response to Wendy’s innovation, other chains began tearing down walls to install drive-through windows. Research showed that the windows actually increased sales. By 1976, most national fast-food chains offered the service, and some built double drive-throughs, with two traffic lanes, to speed up the delivery of orders. Outdoor menu boards were installed to further cut waiting time. Drive-through windows could stay open late, long after indoor dining areas closed. This provided protection for employees who worked late at night, as well as providing a welcome service for night-owl customers.
Drive-throughs were well received by travellers. Rather than parking, drivers picked up orders in their cars and ate while driving – or took the food elsewhere to eat. This induced car manufacturers to equip front seats with cupholders to facilitate dashboard dining. Drive-through windows featured food that could be held in one hand, enabling drivers to eat and drive simultaneously – for instance, hamburgers rather than fried chicken or pizza. McDonald’s introduced its Chicken McNuggets, which were designed for easy one-handed consumption. Other fast-food operations followed McDonald’s lead, and similar foods were engineered to be managed while driving. Taco Bell started using soft tortillas that would not crumble, and KFC launched a chicken pitta sandwich; both of these could easily be held in one hand without dripping all over the eater. Eventually 78 per cent of all American fast-food sales would be from drive-throughs.4 Speed was important for the large consumer segment known as ‘functional eaters’, who just want to fuel up.
For those customers too lazy to drive to a fast-food outlet, companies also offered home delivery. In the 1950s Chicken Delight in Illinois was the first company to do so. Pizza chains, such as Domino’s and Pizza Hut, picked up on the idea in the 1970s. Hamburgers and french fries became soggy after preparation, but hamburger chains have now solved that problem and they do now deliver to offices and homes in selected cities around the world. In India, fast-food companies with home delivery facilities reported in 2015 that 30–40 per cent of their orders now come online, most from smartphone applications.
Another technique frequently employed by fast-food chains is ‘limited time offers’ (LTOS). This traditional sales technique encourages customers to buy a product now that may not be available later. LTOS permit companies to test-market new products to determine if they should be added to their regular menus. LTOS include McDonald’s McRibs, which had very limited sales. In 2005 the company marketed them with a ‘Farewell Tour’. The tour was a great success – and McRibs have subsequently had additional Farewell Tours. Burger King responded with its own LTO of ‘real’ BBQ ribs. It also introduced an LTO Sprout Surprise Whopper with a fried brussel-sprout patty and Emmental cheese in selected stores in Britain and a ‘stuffed’ Steakhouse burger with bits of jalapeño peppers, cheddar cheese and condiments in the hamburger patty. From a sales standpoint, LTOS may not be financial successes, but they frequently acquire vast amounts of free advertising as news media – and Internet sources – comment on their unusual combinations.
A slightly different business strategy was developed by casual fast-food chains that emerged in the 1990s. Like other fast-food chains, fast-casual operations do not offer full table service. Customers queue to place their orders, pick up their own food, locate their own tables and throw away their rubbish when they leave. The average cost of meals at fast-casual restaurants is double that of fast-food chains, however. Fast-casual chains, such as Au Bon Pain, Boston Market, Chipotle Mexican Grill, Five Guys, Grill’d, Mad Mex, Panda Express, Panera Bread, El Pollo Loco, Qdoba, Pret A Manger and Shake Shack, focus on particular types of item, such as upscale ethnic foods, salads or bakery goods. During the past twenty years, fast-casual chains have surged throughout the U.S., and sales have regularly outpaced those of traditional fast-food outlets. In 2013 fast-casual chains grew by 11 per cent, compared with just 3.5 per cent for fast-food outlets.5
Fast-casual chains have attracted millennials, which bodes well for the sector’s future – and not so well for traditional fast-food chains such as McDonald’s, Wendy’s and Burger King, which have seen declines in sales to millennials for the past seven years.6 McDonald’s have tested new upscale menu items, such as the ‘Artisan Grilled Chicken Sandwich’ and a premium ‘Sirloin Third Pound’ burger, trying to stem the exodus of younger consumers to fast casual restaurants, as yet to no avail.
Nowhere is fast-food consumption more popular than in the U.S. According to the National Restaurant Association, fast-food restaurants generated a total of $191 billion in sales during 2013 in America, where 240,000 fast-food and fast-casual restaurants served an estimated 75 million customers – about one in four Americans – every day. For many, fast food is just a beverage or a snack in addition to three meals a day. An estimated 11.3 per cent of the total calories consumed by adult Americans derive from fast food.7 Analysts call the American industry ‘mature’, and most do not project high growth rates in the future. Pessimists say the industry is oversaturated, and it is increasingly difficult for franchisees to generate profits.
Optimists believe that American fast-food chains are in a period of reinvention and re-energization. Fast-food chains have begun experimenting with new upscale restaurants and new menu options. European McCafés offer a broad selection of baked goods, from brownies to doughnuts, and even cupcakes named for New York City neighbourhoods. Selected McDonald’s stores have trialled table service in France, Germany, Switzerland, Austria and the UK. In Shanghai, Yum! Brands opened Atto Primo, an Italian cuisine-inspired outlet intended to test ideas for other Yum! Brands fast-food restaurants. McDonald’s Australia opened The Corner, a shop to test new products and concepts for eventual rollout into their other outlets. In 2014 Starbucks launched the Starbucks Reserve Roastery and Tasting Room in Seattle to retail premium coffee.8
While some fast-food chains in America are stagnating, the industry is surging ahead in other countries and most multinationals are putting their energy – and their money – into expanding their operations abroad.