The history of McDonald's

Table of contents

A) McDonald’s – one of the most widespread companies in the world

B) McDonald’s
I. Establishment of the first McDonald’s restaurant
1. Foundation and development of the successful concept
a) Evolution of the new concept
b) The first try for building up a franchising chain
2. The taking-over of the McDonald’s company by Ray Kroc
a) Kroc’s way to McDonald’s
b) Ray Kroc as the company’s franchising agent and his concept for building up a chain
c) Fred Turner’s entry into the business of burgers
d) The McDonald’s crisis and the final taking-over of the company by Ray Kroc
II. Becoming a global institution
1. Hamburger University – an important McDonald’s institution
2. The world-wide expansion
III. History of McDonald’s in Germany
IV. Regulations for McDonald’s food
1. The retention of the quality
2. The nutritional value
3. Regulations for McDonald’s burgers
V. McDonald’s advertising – a short survey

C) McDonald’s – not only a fast-food-restaurant, but also a charitable organization

D) Bibliography

E) Appendix (Page 1 – 6)

F) Declaration

A. McDonald’s – one of the most widespread companies in the world

Going for a walk through a deserted alley in the city at night, watching the stars shining above, it might not seldom happen that you notice a yellow glow from behind a corner. When having curiously turned around it, perceiving a creepy loud rumbling, you spot that the glow comes from a big shining “M” floating in the air. The symbol becomes bigger and bigger the nearer you walk towards it, your pulse rises and having finally reached the “M” you open the door of the McDonald’s restaurant and enter to have a burger to stop the rumbling of your stomach.

Meanwhile, there is a McDonald’s in every big city at nearly every corner. No wonder: already 743 McDonald’s restaurants exist solely in Germany^[1], 3,240 in Europe and 21,022 all over the world, namely in 109 countries on earth ( see “Anlage 1”: “International openings”), that is “75 Prozent aller Länder unserer Erde” ( all standings: December 1996)^[2]. Annually about 2,500 to 3,200 restaurants can be added, “das heißt ungefähr alle 3 ½ Stunden wird ein neues Restaurant auf unserem Globus eröffnet”^[3]. But where does McDonald’s originally come from?

Establishment of the first McDonald’s restaurant

Foundation and development of the successful concept

It all began in 1930, when the brothers Maurice “Mac” and Richard “Dick” McDonald moved from New Hampshire to San Bernardino, California, with the aim of trying their luck by opening their first barbecue drive-in seven years later. The primary step to this aim was the development of a different concept in 1948 to make the restaurant more profitable. They changed to “a limited menu of just nine items”^[4] instead of 25 “(hamburger, cheeseburger, three soft-drink flavors, milk, coffee, potato chips, (...) pie, (...) french fries and milkshakes)”^[5] lowering the price for a hamburger by half “to just 15 cents”^[6] and they reconstructed the kitchen to make it fit for mass production. Furthermore they introduced a new company symbol (a little hamburger man called “Speedee” [see “Welcome to McDonald’s”, page 2/3]), plastic dishes and self-service instead of car-hops. With this concept being successful the McDonald brothers were pioneers both of McDonald’s and the fast-food-industry, which became the quintessence for the American way of life later.

With business going on well Dick and Mac chose Neil Fox as their first franchisee to manage a drive-in restaurant in Phoenix, Arizona, now provided with the company symbol of the “Golden Arches” designed by the marketing-man Richard McDonald, and they also sold franchises to Sacramento soon in order to build up a chain. “For as little as a thousand dollars, franchisees would receive the McDonald’s name, a basic description of their Speedy Service System, and the services of Art Bender, their original counterman at the new restaurant, for a week or two to get them started”^[7]. But the brothers soon realised that franchising was not very profitable and for this reason they gave up their plans for building up a chain.

The taking-over of the McDonald’s company by Ray Kroc

A phrenologist had predicted that at that time four-year-old Raymond Kroc would have a job in the food-service industry one day, but it did not seem like that when Ray “dropped out of high school at age 15 to drive a Red Cross ambulance in World War I”^[8], where he also got to know Walt Disney. Later he sold paper products to street sellers in Chicago where his home was nearby. Fortunately for him he started as a representative for milkshake machines for the “Prince Castle Multimixer” company afterwards: in 1954, Ray Kroc went to San Bernardino, at the age of 52, to visit the brothers McDonald, who had bought eight of his mixers “, which could mix five shakes at once (...) [,so they had the] capacity to churn forty milk shakes at one time”^[9], which means they obviously made more than 20,000 shakes a month. All those facts excited Kroc’s curiosity. Arriving at the McDonald’s restaurant in California at lunch-time, Ray saw numerous people walking in and out, “buying bags of burgers and fries”^[10] and, despite the enormous rush, being served promptly.

At that time Kroc realised that he had found a new form of catering trade, which supplied people with quickly obtainable and rather cheap meals of top quality. Raymond’s comment was: “That night in my motel room (...) visions of McDonald’s restaurants dotting crossroads all over the country paraded through my brain.”^[11] Richard and Maurice McDonald answered Kroc’s question if they wanted to build up a franchise

chain with a straight “no” on account of their bad experiences of franchising and, moreover, because they were satisfied with their yearly earnings of $ 100,000 and did not want to take the risk of sustaining any losses. But Ray was convinced that his idea would be a great success and so he finally talked the brothers into giving him exclusive U.S. franchising rights. On the recommendation of Kroc the franchising fee for a restaurant was degraded to $ 950 and the commission on every restaurant amounted to 1.9 percent, from which Mac and Dick McDonald got 0.5 percent, so obviously none of all three made great receipts from it. Differently from the original concept which the brothers McDonald had used for their franchising system, the “franchise owners [were not provided with] their equipment, their supplies, or their food. The company did, however, purchase or lease much of the real estate the restaurants were located on, a program that soon produced a valuable competitive asset in its own right”^[12]. Nevertheless, Kroc took a great risk by reaching this arrangement with the brothers, as, if his plans failed, he and his wife, Ethel, would have to face a hard struggle for existence. Having no alternative, because his current employer “Prince Castle Multimixer” seemed to become bankrupt due to the rivalry with other companies of the same trade, and as he was too old to look for a new job, Ray’s only possibility was to work hard and to support the franchisees to get as many earnings as attainable. To be successful “Kroc formed the new franchising company on March 2, 1955 under the name of McDonald’s System, Inc.”^[13] and, already in April, the first McDonald’s led by the franchising agent Raymond Kroc opened its gates in Des Plaines, Illinois, one of Chicago’s suburbs. It was run on the same principles ( low prices, limited menu, rapid service) as the original McDonald’s adding the fact that Ray especially paid attention to the cleanliness of his restaurant (see “Anlage 2”: “Stories cataloguing the consistent willpower of McDonald’s”) and ensured the keeping of the strict regulations for the burgers. Moreover, he was very committed, as his success depended on his franchise owners’ one, and he even did without any salary in the first six years. Despite of strong competition Kroc started to build up a chain whereof each restaurant could be distinguished from other fast-food chains like Burger King, which is still the greatest competitor of McDonald’s nowadays, by the good co-operation and cohesion between Kroc and his franchisees. Raymond treated them like “business partners, not as mere customers”^[14] and, furthermore, he gave an operating system to them, which made sure that all McDonald’s in the USA were of the same standard.

A man, 23 years of age, joined the just recently opened restaurant in 1955 “as a dollar-an-hour burger flipper”^[15]. His name was Fred Turner and Kroc had a big amount of sympathy with him, because he showed the same enthusiasm for the fast-food industry as Ray himself, what was shown later when Raymond called him his son and gave him the job as one of his top assistants, trustingly. By 1958, Fred was appointed to be the Vice President and, in 1968, when Kroc retired, he even got chief executive.

Business was promising and McDonald’s expanded quickly, having 79 franchises in 1958. But already in 1960, Kroc’s plans seemed to fail, when McDonald’s became insolvent and “financially bankrupt”^[16] and the reason for it appeared to be the agreement with Dick and Mac McDonald. Ray attempted to solve the problem by selling “22 percent of McDonald’s stock to two insurance companies to get $ 1.5-million loan”^[17], by remunerating the important employees June Martino and Harry Sonneborn by giving them a 30% share in McDonald’s, and finally by the taking-over of the McDonald’s company in 1961. In principle, Kroc appreciated being able to stop

co-operating with the brothers as there had been some quarrels in the past about the McDonald’s standards, which Richard and Maurice did not keep to sometimes, and locations, as the McDonalds sold a “franchise to a competitor in Cook County, Illinois, Kroc’s home territory”^[18]. Raymond’s only problem was the fact that the McDonald brothers wanted $ 2.7 million for the company, whereof $ 700,000 were liable to taxation, so both Dick and Mac got $ 1,000,000, and Kroc was short of money. His single chance was to borrow the $ 2,700,000, although it would mean a repayment of

$ 14 million^[19], and he took the risk again. Now being the only owner of the McDonald’s corporation did not only mean being in a heap of debts, but also that Kroc’s work took up all of his time and Ray’s wife Ethel had no understanding for her husband’s readiness for taking risks and his engagement, what finally led them into the dissolution of their marriage after years of arguing.

Since his marriage had already broken down, Ray Kroc wanted to save his enterprise, at least. The company’s and his salvation was ,firstly, that he got all earnings now, and, secondly, the idea Harry Sonneborn had in 1956: McDonald’s used to purchase or lease the land, where it planned to build a new restaurant, and, afterwards, sublet the estate to franchisees demanding from 20% to 40% higher rents than the concern had to pay. On this principle Ray founded the Franchise Realty Corporation to have an additional source of income, with the aid of which he pulled the McDonald’s company out of the overdraft and gradually made it the successful fast-food enterprise of today.

Becoming a global institution

To take the world-wide market, it was essential to form competent managers and franchisees and for this reason “Kroc, in 1961, launched a training program – later called

Hamburger University – at a new store at Elk Grove Village, Illinois.”^[20] At this

university the training students learnt how to manage a restaurant and how to keep the McDonald’s principles QSC & V (Quality, Service, Cleanliness & Value). Moreover, there was a laboratory at Hamburger University, which investigated and tested to perfect the McDonald’s fare. To this day, Hamburger University has trained nearly 50,000 people, with now 30 professors instructing in 14 languages, and at a new and bigger location of a 130,000 square foot area in Oak Brook, Illinois.^[21]

Now being able to employ a competent staff, McDonald’s invested in advertising campaigns, in newspapers as well as on radio, to rise its fame. The effect of a great increase of popularity was immense: in 1974, the McDonald’s share prices were going up so grossly that they passed those of the steel industry whereupon “Senator Lloyd Bentson complained: “Something is wrong with our economy when the stock market is long on hamburgers and short on steel.””^[22] But on closer examination it was not surprising, as McDonald’s purchased 1% of the beef sold in the USA, employed every 15th American youth in one of its restaurants and saw to it that there was a fast-food stand for every 90,000 people. Being a well known fast-food chain in America, McDonald’s expanded first on its own continent, namely in Canada on June 1, 1967. Only in July 1971, they dared to make the long stride over the big ocean, actually to Tokyo, Japan. It took a long

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^[1] Nach McDonald‘s Pressemitteilung „McDonald‘s und seine Franchisenehmer“, S. 1

^[2] McDonald‘s Entwicklung 1996, S. 22

^[3] ebd.

^[4] Welcome to McDonald’s, S. 7

^[5] ebd.

^[6] ebd.

^[7] ebd.

^[8] Welcome to McDonald’s, S. 8

^[9] Ray Kroc and the Fast Food Industry, S. 1f

^[10] Welcome to McDonald’s, S. 8

^[11] Ray Kroc and the Fast Food Industry, S. 2

^[12] Welcome to McDonald’s, S. 8

^[13] ebd.

^[14] Ray Kroc and the Fast Food Industry, S. 3

^[15] Ray Kroc and the Fast Food Industry, S. 4

^[16] ebd.

^[17] Ray Kroc and the Fast Food Industry, S. 4

^[18] ebd.

^[19] Nach Welcome to McDonald’s, S. 9

^[20] Ray Kroc and the Fast Food Industry, S. 5

^[21] Nach Welcome to McDonald’s, S. 24

^[22] Ray Kroc and the Fast Food Industry, S. 7