Art Trygg was the bosom companion of my late fifties. He had been on the staff of Rolling Green Country Club, where I often ate dinner in those days. I hired him to write a newsletter for our operators, but he soon became my valet and chauffeur as well. We were like boyhood chums. And I needed Art’s gruff good humor and sympathetic ear at dinner, because a powerfully distracting new force had swept into my life—I was in love!
Her name was Joni Smith. She lived in St. Paul.
I had gone to the Criterion restaurant up there to meet the owner, Jim Zien, who was interested in becoming a McDonald’s franchisee. I found myself having a hard time concentrating on our dinner conversation, however, because of the classy organ music in the background. It set my pianist’s spirit twitching and dancing in time to its sprightly rhythms. Finally Jim took me over to introduce me to the organist.
Well!
I was stunned by her blond beauty. Yes, she was married. Since I was married, too, the spark that ignited when our eyes met had to be ignored, but I would never forget it.
I saw her often in the months that followed. Jim Zien’s involvement in McDonald’s provided an ideal excuse for me to go up there. We progressed from exchanging small talk, to playing duets on piano and organ, to long, earnest conversations in which I poured out my ideas about McDonald’s and my plans for the company’s future. Joni was a marvelous listener.
Jim Zien finally got his first location going in Minneapolis and, as luck would have it, he hired Joni’s husband, Rollie, to be his manager. This led to long telephone consultations between Joni and me. Strictly business, of course, but with an overlay of growing affection. I would be tingling with pleasure from head to toe when I hung up the receiver.
Feeling this way made it impossible for me to go on living with Ethel. I moved out of our home in Arlington Heights to an apartment in the Whitehall. The next step was to propose to Joni that we both get divorced and marry. I knew this would be a difficult question for her to face, because both of us had grown up with a deep respect for religion and propriety, and we both had been brought up to believe in the sanctity of marriage. She couldn’t make up her mind. Finally, I decided that one of us would have to make the first move and get a divorce, and it would have to be me.
So I bought my freedom from Ethel. She wound up getting everything I had except my McDonald’s stock. She got the house, the car, all the insurance, and $30,000 a year for life. I was happy to pay the alimony. I respected Ethel, she was a lovely person and a wonderful homemaker, and I wanted to be sure she was secure. My immediate problem was raising the attorneys’ fees, $25,000 for my lawyer and $40,000 for hers. There was only one way I could get my hands on that kind of money—by selling Prince Castle Sales, the company that had been my birthright as an independent businessman. Harry Sonneborn helped me arrange a transaction in which executives of McDonald’s would purchase Prince Castle for $150,000 cash. It was worth far more, but I didn’t mind, I had to have the money immediately and my own people would be the beneficiaries of the deal (they subsequently sold the company for about a million dollars).
Now I could marry Joni as soon as she got her divorce. That thought filled me with glad anticipation. I knew she would need persuasion, but I was certain that she would do it. Nothing so right as our being man and wife could possibly go wrong. So I went up to make my case and watch her face as she considered it. There was nothing in her reaction that dismayed me. In fact, it was more positive than I’d hoped for. Of course, she needed time to think it over. I’d been prepared for that, and I plunged into the press of McDonald’s business to relieve the anxiety of waiting.
* * *
The most important item in my plans for the company was to end our relationship with the McDonald brothers. This was partly for personal reasons; Mac and Dick were beginning to get on my nerves with their business game playing. For example, I had introduced them to my good friend and paper supplier, Lou Perlman, and they began buying all of their paper products from him, too. They would come to Chicago and visit Lou and ask him to drive them around to see all the McDonald’s locations in the area, which he did, but they would not come by corporate headquarters or even call me on the telephone; Lou would fill me in later on where they’d gone and what they’d said.
But the main reason I wanted to be done with the McDonalds was that their refusal to alter any terms of the agreement was a drag on our development. They blamed their attorney for this lack of cooperation, and he and I certainly were at dagger’s point all the time; but whatever the reason, I wanted to be free of their hold on me.
I knew from conversations I’d had with Lou Perlman and others that the McDonald boys could be persuaded to sell. Maurice’s health had not been the best, and Dick had expressed concern about that and talked about retiring. I wanted to help them retire, but I was afraid of what it might cost me. Harry Sonneborn and I had several long sessions hashing over the pros and cons of it, deciding the best approach to take. Finally, we determined that we would hit them right between the eyes with it. No use shilly-shallying, because their lawyer would only waste a lot of time bickering about it, and we would come out at the same place in the end anyhow.
So I called Dick McDonald and asked him to name their price. After a day or two he did, and I dropped the phone, my teeth, and everything else. He asked me what the noise was, and I told him that was me jumping out of the 20th floor of the LaSalle-Wacker Building. They were asking $2.7 million!
“We’d like to have a million dollars apiece after taxes, Ray,” Dick explained. “That’s for all the rights, the name, the San Bernardino store, and everything. You know, we feel we’ve earned it. We’ve been in business over thirty years, working seven days a week, week in and week out.”
Very touching. But somehow I just couldn’t seem to work up any tears of pity.
This was really going to take some financial wheeling and dealing. I asked Harry to take a run at the three insurance companies that had lent us the million and a half dollars. We had to anyhow, because they had a right of first refusal on McDonald’s borrowing for a period. But John Gosnell said Paul Revere Life couldn’t take any bigger bite than it had, Fred Fideli said State Mutual Life felt the same, and Massachusetts Protective couldn’t swing a deal without the other two. So there we were—three strikes and we were out on the street looking for some Santa Claus with a bagful of money.
I was feeling pretty low, so I called Joni and told her about it. I said it would be a lot easier for me if I had her by my side. She said she needed more time. She couldn’t make up her mind.
Damn!
Harry found our money man in New York. His name was John Bristol, and he was financial advisor to Princeton University, Howard University, Carnegie Tech, the Ford Foundation and others, a total of twelve educational and charitable institutions. The deal we agreed on, I think, put a new wrinkle in American financial arrangements. Harry was delighted with its intricate design. Here’s how it worked:
In return for $2.7 million in cash from Bristol’s group (who were called The Twelve Apostles in our records) we were to pay them .5 percent of the gross sales of all McDonald’s stores in three periods. In the first period we would pay .4 percent immediately and put aside .1 percent until the third period. The method of computing how much of the .4 percent would go to interest was figured on the basis of 6 percent of $2.7 million; whatever remained would go toward retiring the principal. The first period would end when the principal was retired. The second period would be for a length of time equal to the first period, whatever that was. In the second period we would pay a straight .5 percent of our gross. The third period, then, would be the payment of the deferred .1 percent from the first period.
Our original projection sheets anticipated that it would take us until 1991 to pay it all off. But that was on the basis of 1961 volume. We managed to pay off the principal in six years and finished paying off the loan completely in 1972.
It was an extremely successful deal. All concerned were happy. The Twelve Apostles wound up making about $12 million on it, and while that seems like a terrific price to pay, remember that we had been forking over .5 percent to the McDonald brothers all along anyhow. The total cost of the transaction to us—about $14 million—was peanuts compared to what the corporation earned in the years that followed by retaining that .5 percent instead of paying it to Mac and Dick McDonald. On today’s systemwide sales of more than $3 billion, that .5 percent would be up there over $15 million a year.
The McDonald brothers retired happily to travel and tend their real estate investments in Palm Springs. Maurice died a few years later and Dick moved back to New Hampshire and married his childhood sweetheart, a pleasant person named Dorothy French, daughter of a Manchester banker. Her first husband had died and Dick and his first wife were divorced, so the reunion was fortunate. I’m told that the marriage has mellowed Dick’s New England crustiness to the point where he now recalls our association as “the finest business relationship we ever had.”
I was happy too, except for one part of the deal that stuck in my throat like a fishbone. That was the McDonald brothers’ last minute insistence on retaining their original restaurant in San Bernardino. They were going to have their employees run it for them. What a goddam rotten trick! I needed the income from that store. There wasn’t a better location in the entire state. I screamed like hell about it. But no way. They decided they wanted to keep it, and they were willing to pull the plug on the whole arrangement if they didn’t get it. Eventually I opened a McDonald’s across the street from that store, which they had renamed The Big M, and it ran them out of business. But that episode is why I can’t feel charitable or forgiving toward the McDonald brothers. They went back on their promise, made on a handshake, and forced me into grinding it out, grunting and sweating like a galley slave for every inch of progress in California.
California! I was fascinated by the promise I saw out there. The tide of population growth and economic and cultural energy in the country had shifted from the Northeast and was running toward the South and Southwest. I didn’t want McDonald’s to miss out on that rising crest.
“You know, I’ve been thinking I ought to go out to California and open an office out there.…” I remarked to Art Trygg.
“I knew another guy had ideas like that,” my companion said with mock peevishness as he wheeled my Thunderbird through Michigan Avenue traffic. “The doctor told him to soak his head in beer every night, and it cured him.”
“Don’t you like sunshine, Art?”
“Not if I can get moonshine, Ray.”
I have a whole album of mental snapshots from that period. Turning through them brings back a rush of memories. Not nostalgia, but reaffirmation of my faith in McDonald’s and the people who helped me build it. I speak of faith in McDonald’s as if it were a religion. And, without meaning any offense to the Holy Trinity, the Koran, or the Torah, that’s exactly the way I think of it. I’ve often said that I believe in God, family, and McDonald’s—and in the office, that order is reversed. If you are running a hundred-yard dash, you aren’t thinking about God while you’re running. Not if you hope to win. Your mind is on the race. My race is McDonald’s.
Mental Snapshot: A thin, solemn young man sits next to my desk. He’s clearly nervous. His name is Luigi Salvaneschi and he has not been in this country long. June Martino sponsored his immigration from Italy and got him a job as a crewman in our store in Glen Ellyn, Illinois. I am trying to find out what potential he might have within the corporation. His chief handicap is not his difficulty with the English language—he probably has a bigger vocabulary than I do. His problem is that he is overeducated.
Luigi has a Ph.D. in canon law from the University of Rome and Latin University in the Vatican. He reads ancient Greek for relaxation. When he came to the United States he anticipated getting a university teaching position. His wife, also a Ph.D., was hired by Valparaiso University in Indiana, but Luigi learned to his great astonishment that colleges here are not teaching Latin anymore. They had no need of his specialty, so he stayed with McDonald’s and worked his way up from the lowest crew position to manager of the store. His conversation with me is full of explanations of how he has been “culture shocked” by his transition from classic refinement in Rome to a restaurant that is the symbol of a “society on wheels” in which people eat on the move, holding their food in their hands. He thinks the architecture of our red-and-white tile buildings should be redesigned.
Is this guy nuts?
My decision finally was to bring Luigi into the corporation. All that education had given him a complete set of additional things to worry about beyond the normal problems of business, but he seemed to handle them well. Certainly his work record made him a prime candidate to manage one of our new McOpCo stores. One of the things Luigi had done in that Glen Ellyn McDonald’s was to teach what may have been the first formal operations lessons in our system. He decided that his crew was not greeting customers properly, so he wrote what he called a “Windowman Lesson” and sat his crew members on shortening cans in the basement to listen to him lecture. He even gave them homework to do and money rewards when they showed improvement.
The idea of holding classes for new operators and managers had occurred to me when I first brought Fred Turner into headquarters. He was enthusiastic about it, too, and it was one of those goals that keep coming up in meetings but are put aside to make room for more pressing things. Fred refused to let the idea get buried, though. He collaborated with Art Bender and one of our field consultants named Nick Karos to compile a training manual for operators. When we were planning to build a company store in Elk Grove Village, a fast-growing development northwest of Chicago, I insisted that it have a full basement instead of the usual partial basement. That was to be the first classroom for courses that eventually would become Hamburger University. There was a motel next to the Elk Grove store so it was convenient for out-of-town operators and managers to stay there while attending classes. They would sit at desk-arm chairs down among the potato sacks and listen to lectures by Nick Karos, Fred Turner, and Tony Felker. At noon the students would apply what they’d learned by doing practical work upstairs in the store. Our first class had eighteen students.1 We awarded them a Bachelor of Hamburgerology degree with a minor in french fries.
My God, it was great to be green and growing! To see stories in newspapers across the country recognize our impact on business and praise our operators for their participation in community affairs.
Ours was the kind of story the American public was longing to hear. They’d had enough of doom and gloom and cold war politics. The Soviet Union’s blustering announcements of new ballistic missiles and launching of the first satellite, Sputnik, into orbit around the earth had fostered a defensive attitude in our country, and people built bomb shelters in their backyards and read up on what to do in case of nuclear attack. In the fall of 1959 Soviet Premier Nikita Khrushchev told the United Nations General Assembly, and the world, banging his shoe on his desk for emphasis, that his nation’s system would bury capitalism.
Shortly after that Irv Kupcinet wrote in his Chicago Sun-Times column:
Nine sailors, soon to be discharged from Great Lakes, called on Ray Kroc, head of McDonald’s Drive-ins, at his LaSalle Street offices the other day. They related that they had entered the service together, were leaving together, and wanted to go into business together. Kroc obliged them. The nine sailors will be partners in a McDonald’s franchise in Portland, Ore. This is what Ray Kroc means by fulfillment of the American capitalist dream. See, Khrushchev?
I’ve held a lot of press conferences and given a lot of interviews during the growth of McDonald’s throughout the country, but one of the most memorable was set up by Al Golin with the late Associated Press columnist Hal Boyle. I knew Boyle only by reputation as a Pulitzer Prize–winning war correspondent whose column seemed to show up in papers in just about every city I visited. I didn’t know that he was one of New York’s more disorganized writers, and I was blissfully unaware of Al Golin’s agonies over the fact that Boyle had forgotten about our appointment and wanted to “do it some other time.” Al did tell me there’d been a problem, and we would have to do the interview in Boyle’s office instead of over lunch.
That was okay with me, but I wasn’t prepared for this big room with clattering typewriters and teletype printers. You could hardly hear yourself think. And there was Boyle, looking like a fun-loving Irish bartender behind a desk covered with what one of his colleagues had described as “a sacred pile of debris, which is said to conceal the first of the Dead Sea Scrolls and the last of Judge Crater.”2 Boyle shoved a pile of papers from a chair and asked me to sit down. I chose the edge of a desk. My public relations man looked a bit dismayed, but I didn’t mind. I’d come to tell the story of McDonald’s and I did, raising my voice to carry over the background noise. One by one the other reporters and editors left what they were doing and gathered around Boyle’s desk. By the time I finished talking the room was quiet. There was a crowd listening, and several of them wanted to know how they could get out of the newspaper business and become McDonald’s operators. Boyle was impressed, too. His column started this way:
America has gone mad over pizza pies, but in less than five years Ray Kroc has built up a 25-million-dollar business in an older U.S. food favorite—the hamburger. “I put the hamburger on the assembly line,” said Kroc, 56, president of a chain that now sells 100 million 15-cent hamburgers a year.
It went on to tell how I’d developed the system, and it closed with these observations:
Kroc says his spectacularly successful hamburger emporiums average a net of $40,000 on an annual gross of $200,000. The average customer’s check is 66 cents. “Not one franchise has failed … we don’t see how one could,” he said crisply. “In any case, we wouldn’t let it. We’d come in and take over.”
What none of these stories mentioned, and I wasn’t about to tell anyone, was that even though our stores were booming, and even though our “development accounting” allowed us to show a profit, we had no cash flow. We were in the trough between our heavy outlays for land and buildings and the income in rents from those properties. Of our first 160 stores, only 60 were units for which we had developed the restaurants and were receiving income above the service fee. The rest were units in which the operators themselves owned the restaurants, and they paid us only the 1.9 percent service fee. This put us in a rather paradoxical situation. Our gross sales figures continued to climb, and many individual units were prospering. One store in Minneapolis chalked up a then incredible one-month sale of $37,262. At the same time, we were barely able to meet our payrolls in corporate headquarters. Harry Sonneborn issued an order that no bill for more than a thousand dollars would be paid in full. Anything over a thousand would be paid in monthly installments.
That was the situation when Dick Boylan decided to hire a young accountant named Gerry Newman. Dick had developed into Harry Sonneborn’s understudy—Harry didn’t spend a nickel or even sneeze, it seemed, without telling Boylan what he was doing and why. He wanted to make sure his deals would be carried out if he should happen to get run over by a truck. We needed someone with experience in construction accounting who could analyze our costs. Newman had handled books on brick-and-mortar and plumbing businesses, so Boylan brought him aboard. Gerry had wanted to handle us as one of several accounts, but he soon found that our workload left little time for other clients. That would have been all right if we’d been able to compensate him for it. But we couldn’t. All we had to offer was more work. We had forty-five people in our office then, and their cost was more than our revenue. The week finally came that we were overdrawn at our bank and couldn’t meet our payroll. Gerry’s solution was to switch the pay period from weekly to bimonthly. He posted a notice on the bulletin board that anyone who was strapped by not getting their check that Friday could borrow up to $15 from petty cash.
Mental Snapshot: I am sitting in Dick Boylan’s office with Dick and Harry and this new kid, Gerry Newman. I don’t know much about him, but I’m told he’s bright as hell. We are having a late-evening conference about accounting. Art Trygg arrives from the Singapore with a load of barbecued ribs and other goodies, and this gets us off the subject of bookkeeping, for which I am grateful, because what I really want to talk about is the tremendous sales volumes our units around the country are reporting.
“Listen,” I say, “one of these days we are going to hit grosses of $100,000 a month! We’re gonna be a billion-dollar company!”
Newman is frozen by that statement, stopped in mid-bite. He looks at me with this funny, pop-eyed expression.
Years later I learned that Gerry had gone home and told his wife, Bobbi, that he had met me that night, and I had to be either a nut or a dreamer or both. Here he was worried about whether we’d still be in business the next week, and I was carrying on about the billions of dollars in our future. A year or so after that incident, Gerry was offered a job by another drive-in chain at twice the salary he was getting from us. He turned it down. When the disbelieving head-hunter asked why, he said, “Because you don’t have a Ray Kroc.”
But it took more than belief in me for Gerry to stay with us. It also took daring and a personal vision. Gerry has a mind that’s much like mine in certain respects. He has a strong memory that gives him total recall of situations. Unlike me, however, he’s also a squirrel with reports and odd pieces of paper. As a result, he is able to answer virtually any question one could ask about McDonald’s. He even remembers some things that I forget, and that’s rare.
Cynics say everything has its price. I say poppycock! There are things money can’t buy and hard work can’t win. One of them is happiness. There’s a slippery notion for you! Would I have been happy if I’d never met Joni Smith? I don’t know. Certainly I was fulfilled in my work. It was my life. Yet, having met her, I realized there was something missing. So I went after it. I would have given anything. I would even have dropped McDonald’s to win her. But money had no value in this quest. All I could do was wait and hope that she would come to me.
Finally, after what seemed like months, Joni called to tell me she’d made up her mind. Rather, her daughter and her mother had helped her make up her mind. They were both strongly opposed to her getting a divorce, and she couldn’t bring herself to break with them. So her answer was no.… A giant fissure cracked the concrete of LaSalle Street, and our office building crumbled into it as thunder rolled and lightning cracked over the smoking ruins! I was the only one who felt it, of course, but that made the agony a hundred times worse. I sat there alone for hours, ignoring the ringing of the telephone, watching the daylight wane and streetlights come on. Then I heard Art Trygg calling to me from the outer office. He stood in the door looking at me quizzically.
“Get your bags packed, Art,” I told him. “We’re going to California!”