I made Harry Sonneborn president and chief executive officer of McDonald’s in 1959, when he negotiated the $1.5 million loan with the three insurance companies. I continued as chairman, and we worked substantially as equals. Harry’s sphere was financial and administrative matters. Mine was the retail end—operations, dealing with suppliers, and so forth. Our interests and control overlapped when it came to seeking out sites and developing them. The two of us were the only officers with authority to close a transaction for a new location.
My view was that this relationship and relatively smooth-running division of responsibilities would continue when I moved to California. I’m not sure exacty what Harry thought, but I believe his opinion was that I had removed myself from the command center to go off on what, at heart, he considered a fool’s errand. At any rate, as time passed he became increasingly bullheaded and willful, and we began clashing on all kinds of trivial as well as important issues. The only thing that kept us together, finally, was the diplomacy of June Martino. When Harry would countermand one of my directives, leaving some young executive between a rock and a hard place, June would work it out with us individually. She became known in office gossip as “The Vice-President of Equilibrium.” Needless to say, it was not long before this began affecting morale in the organization, expecially in Chicago. It also caused the gradual creation of an unwritten organizational chart in which executives were identified as Kroc people or Sonneborn people. Harry brought in a hard-driving real estate operative named Pete Crow, who with others formed the nucleus of the Sonneborn faction.
I could see this situation forming like a glacier beginning to build in the Chicago office, but there wasn’t a damned thing I could do about it. I had my hands full with the boar’s nest of problems I found in California. In the end, my California project was worth the effort. The position of the area for McDonald’s changed between 1961 and 1967 from an insignificant cluster of stores to a dynamic market, equal in development and volume to the rest of the country. But it took me fully three years to get the mess unraveled and headed in the right direction. First off, because Los Angeles had been the cradle of drive-in restaurants, and they had grown so wildly throughout the region, the industry had accumulated more corrupt habits than a flophouse janitor. Suppliers had formed a series of cartels and managed to push prices out of sight. For example, the same buns we were paying twenty cents for in Chicago were going for forty cents in L.A. Meat was the same way. But meat was even worse, because of the dramatic fluctuations in supply. When beef grew scarce, fast-food operators began performing the ancient ritual known as turning pockets inside out. To make matters more difficult, California distributors took it for granted that a franchisor walked around with his hand out for kickbacks in exchange for granting exclusive contracts. The distributor always made out, because he would get back the amount of the payoff and maybe even a little extra in increased prices to the franchisee.
Convincing these people that we were an honest operation, that we protected our operators, and that we would take no kickbacks, was a big order. They could not be persuaded that if they would supply McDonald’s restaurants with items the way we wanted them at prices that would allow us to sell hamburgers for fifteen cents, our growth would put them on Easy Street. McDonald’s had no identity as a system out there, and that sharpened the other barb of our problem—low volume.
Mental Snapshot: Nick Karos, field consultant, one of the group of executives I’d brought with me from Chicago to help develop California, is standing on the corner in front of an invitingly clean McDonald’s where we are doing zero business. Nick has one foot up on a fireplug, and he is watching the flow of people in bizarre-looking cars and the pedestrians walking brightly ribboned dogs, typical Angelinos in their habitat. He says to me, “Ray, the reason we can’t pull people in here is because these golden arches blend right into the landscape. People don’t even see them. We have to do something different to get their attention.”
“Okay, Nick,” I reply. “Lemme know when you find the solution.”
Nick did come up with a proposal, but it wasn’t the next day, or even the next year. As one of Fred Turner’s favorite sayings has it, we were up to our asses in alligators, and in that situation it is difficult to remember that your objective is to drain the swamp. First we had to get our supply problem solved. Nick Karos was a big help there. He was a griddle-savvy guy who had grown up in a Wimpy’s restaurant that his father owned in Joliet, Illinois. He’d come to us from operating a Henry’s hamburger stand in Chicago, and he did a lot of fieldwork for us in the St. Louis area, where he’d dealt with the Freund bakery people. It happened that Harold Freund had retired to California. So Nick looked him up and introduced him to me. As I mentioned earlier, I had a hell of a time persuading Harold to go back into business and build a bakery to serve McDonald’s operators. But he did, at last, and our financial prospects brightened immediately.
At the same time, I was looking for a meat purveyor. My choice was a fellow I had known from my years of traveling before I started McDonald’s System. His name was Bill Moore, and he had a company called Golden State Foods. Bill had bought out his partner in the firm the year before I moved to California, and he’d lost money for thirteen straight months. His plant and equipment were outdated, and he needed capital. His approach was to try and get me to buy Golden State Foods. I turned that off quickly, explaining that I didn’t want McDonald’s in the supply business.
“Well, then,” he said, “I need about a million dollars to keep from going under. You’ve done a fair amount of borrowing. What do you think I should do?”
“Listen, Bill,” I said, “you hang on here. We have fifteen stores now, and pretty soon we’ll have a hundred. You’ll be able to get back on your feet and expand right along with us.”
He agreed, and that’s exactly what happened. In fact, Bill Moore is a good example of what McDonald’s has done for the suppliers who came with us and helped us grow. In 1965 he and a partner bought a McDonald’s franchise in San Diego, a market I was dubious about because it was the home turf of the Jack-in-the-Box chain, which had about thirty locations there. Burger Chef had broken its spatula trying to compete with them. Bill and his partner had a low start, but they made it. In just over two years they developed four more stores and were really cooking with gas when the partner dropped dead of a heart attack. We bought back all five units for stock. A couple of years later Bill sold the stock for enough money to build a large manufacturing and warehouse complex in City of Industry, California. His meat plant there now processes 300 million hamburger patties a year for McDonald’s restaurants, and in addition, he makes syrup for soft drinks and manufactures milk shake mix. He also has gone into distribution for McDonald’s units. He perfected the one-stop service idea, in which a truck pulls up to one of our stores and fills all its needs, like an old-fashioned grocery store delivery truck, with a single call. This results in great savings for both parties. Bill has another plant and warehouse in Atlanta and distribution centers in San Jose, California, and in North Carolina and Hawaii.
I could tell the same sort of story about most of the suppliers who started with us in the early days and grew right along with us. Lou Perlman, our paper supplier, also went back a long way with me. He and I used to call on the same customers when I was selling Multimixers and he was peddling paper products. We attended the same conventions, and we became friends. So it was only natural that I went to him when I was starting McDonald’s and asked him to come up with a program of paper products imprinted with the McDonald’s logo.
Lou and I shook hands on an arrangement that grew and multiplied for both of us. He began supplying McDonald’s operators with a complete line of paper goods, and his Perlman Paper Company became a subsidiary of Martin-Brower Corporation. He was chairman of the board of Martin-Brower when he retired.
Harry Smargon, our shortening supplier, is another case in point. I was introduced to his product by accident. A fellow named Dick Keating was trying to sell me the kind of french fryer he made, and I was impressed—we still use Keating fryers to this day—but I was equally impressed with the quality of shortening used in the demonstration. So I found out about Harry Smargon and Interstate Foods, the young company he’d started three years earlier, and I telephoned him and asked for a thirty-pound sample. It wasn’t long before McDonald’s stores were ordering thousands of pounds of shortening from Interstate Foods. Naturally, Harry was delighted. He had been in the wholesale coffee business before he started Interstate, and experience there had taught him that customers often gave him an account because they wanted something extra, a sign, a clock, a coffee urn, or some such thing. So he telephoned one day and said he’d like to meet the man who was giving him so much business. Fine, come on down, I said.
I could tell Harry was surprised at the tiny size of our office on LaSalle Street. I introduced him to June Martino, and we exchanged pleasantries for a time. Finally he said, “Ray, I’ve been getting a lot of business from you, and I’d like to show you my appreciation. I’d like to give you something for your stores—a sign or a clock—what would you like?”
“Listen, Harry, you don’t know me, so I am going to forgive you for that,” I said. “But let’s get this straight, once and for all. I want nothing from you but a good product. Don’t wine me, don’t dine me, don’t buy me any Christmas presents. If there are any cost breaks, pass them on to the operators of McDonald’s stores.”
Harry Smargon has prospered with McDonald’s, and I never heard him so much as hint at a kickback again.
Gene Veto, our insurance man, was introduced to me by June Martino. We had sixteen restaurants franchised at the time, and there were about fifty or sixty insurance policies covering them. I knew we had a mess on our hands, but I didn’t know what to do about it. Gene took our portfolio home and spent about a week analyzing it. He returned with a report that pointed out duplications, areas where we needed more protection, and some overcharges. I thought it was a terrific report, and I pointed out that he had forgotten to bill us for it.
He said, “I’m not going to send you a bill. I don’t think you can afford it. But you’ve got a great concept here, and I think we’ll be able to do some business in the future. I’ll be in touch.”
As a matter of fact, Gene wound up reorganizing the insurance coverage for our franchised stores and later developed a plan whereby we could pool a number of our restaurants, regardless of location, and take advantage of discounts. His Keeler Insurance Company grew right along with McDonald’s. In 1974 when Keeler became a division of the Frank B. Hall Company, Gene was named chairman of the board.
There are few things more gratifying to me than to see a meat plant like the one operated by Arthur and Lenny Kolschowsky in Chicago. It was built so they could offer McDonald’s operators in the Midwest millions of pounds of frozen patties. I can remember buying my first pound of ground beef for my Des Plaines store from the boys’ father, Otto Kolschowsky, in his neighborhood butcher shop!
As we solved our supply problems in California and built more stores, business gradually picked up. But it remained far lower than it should have been. In midsummer of 1963, Nick Karos came to me with a proposal he had drafted for a television advertising campaign. The projected cost was $180,000 and he wanted to pay for it by raising the price of hamburgers in our company-owned stores a penny, from fifteen to sixteen cents.
“Nick, this is a terrific plan,” I said. “But we’re not gonna raise the price. What I want you to do is go back to Chicago and present this to Harry Sonneborn. Make him come up with the money.”
I knew he’d be able to do it, because the logic of his one-page memo was irrefutable. It demonstrated precisely how an ad campaign would repay its cost many times over, while failing to spend the money would cost us much more in the long run. Nick was successful, although Harry went along very reluctantly. The advertising campaign we put together was a smash hit. It turned Californians into our parking lots as though blindfolds had been removed from their eyes, and suddenly they could see the golden arches. That was a big lesson for me in the effectiveness of television.
* * *
As we began to turn the corner in California, the corporation as a whole was starting to reap the benefits of our earlier planning and investments. By 1963 we had gotten over the hump of front-end outlay for leased and purchased properties, and they were beginning to pay us some handsome returns.
Also by this time our program of building and operating company stores was in its third year and had shifted into high gear. It too was contributing significantly to our mounting profits.
Hamburger University had meshed fully into our system by 1963 and was sending a steady procession of qualified operators and managers into the field, where they spread the gospel of Quality, Service, Cleanliness, and Value. Classes had grown to an average of twenty-five or thirty students, and we were holding eight to ten two-week sessions a year. Hamburger U was also helping to test and implement training procedures on new equipment that was being developed by our Research and Development Laboratory in Addison, Illinois.
Louis Martino, June’s husband, had started the R&D lab in 1961. He’d had extensive in-store experience as an operator in Glen Ellyn, Illinois, and he saw the need for more sophisticated mechanical equipment and electronic aids to speed up our food assembly line and make our products more uniform. His first project was the development of a computer to time the blanching of french fries. We had a recipe for blanching that called for pulling the potatoes out of the oil when they got a certain color and grease bubbles formed a certain way. It was amazing that we got them as uniform as we did, because each kid working the fry vats would have his own interpretation of the proper color and so forth. Louis’s computer took all the guesswork out of it, modifying the frying time to suit the balance of water to solids in a given batch of potatoes. He also engineered a dispenser that allowed us to squirt exactly the right amount of catsup and mustard onto our premeasured hamburger patties. Our insistence that beef used to make our patties be no more than nineteen percent fat had been difficult to enforce. We had to take relatively large samples to some laboratory and have it tested. This changed with the development of the Fatilyzer, a simple but precise testing device that an operator could use to analyze meat right in his store. If it was more than nineteen percent fat, he would reject an entire shipment. After this happened to a supplier a few times, he would get the message and improve his own quality controls.
All of this progress was very rewarding.
I should have been elated.
We had a fine, hard-working staff in California—Bob Whitney handled real estate; Gene Bolton, legal; Bob Papp, construction; and Nick Karos, operations. The office was enlivened by the pranks of my fun-loving secretary, Mary Torigian. It was a hell of a contrast to the austere mood of the Chicago office. One morning, for example, I came to work to find Colonel Sanders sitting outside my door typing away. It was Mary wearing a Kentucky Fried Chicken Halloween mask. I didn’t say a word. I walked right by her and bopped her on the head with my rolled up newspaper as I passed.
I should have been happy, but the undeniable fact was that I was miserable. I had forced Joni out of my mind, but I could not get her out of my heart. She and her husband had long since moved to Rapid City, South Dakota, to open McDonald’s stores of their own, and I knew they were doing very well from the daily financial reports I received on all our operations.
I wondered if she missed me as much as I missed her. After Art Trygg went back to Chicago, I was really lonely. He had a girlfriend there, a spinster who worked in our real estate department, so I couldn’t blame him for not wanting to stay in California.
I moved out of my apartment into a home in Woodland Hills. I busied myself in buying furniture and fixing the place up with all kinds of conveniences for gracious living. I have never been a cliff dweller, I told myself. But down deep, I think I did it with the subconscious hope that Joni would change her mind, and we would live there together.
One thing I liked about that house was that it perched on a hill looking down on a McDonald’s store on the main thoroughfare. I could pick up a pair of binoculars and watch business in that store from my living room window. It drove the manager crazy when I told him about it. But he sure had one hell of a hard-working crew!
Some people are bachelors by nature. I am not. I guess I need to be married to feel complete. That’s why I fell so hard for Jane.
Her name was Jane Dobbins Green. She was John Wayne’s secretary. A mutual friend introduced us, and I was charmed by Jane’s sweet disposition. She was lovely, a sort of diminutive Doris Day, and she was completely opposite to Joni in manner. Joni is a strong person who knows her own mind. Jane was compliant: If the sky was clear and I said it looked like rain, Jane would agree.
We had dinner together the night after we met, and the next night, and the night after that. In fact, we had dinner together five nights in a row. I was enchanted. Within two weeks we were married.
Of course, Joni found out about it eventually. One day I got a telephone call from her and we had a brief, businesslike conversation that she ended by asking, “Ray, are you happy?”
I was shaken and astonished. It took me a moment to catch my voice. Then I blurted, “Yes!” and slammed down the receiver.