excerpt:
In my company, which assembled in Connecticut for training, was another fellow who had lied about his age to get in. He was regarded as a strange duck, because whenever we had time off and went out on the town to chase girls, he stayed in camp drawing pictures. His name was Walt Disney.
I found that my customers appreciated a straightforward approach. They would buy if I made my pitch and asked for their order without a lot of beating around the bush. Too many salesmen, I found, would make a good presentation and convince the client, but they couldn’t recognize that critical moment when they should have stopped talking. If I ever noticed my prospect starting to fidget, glancing at his watch or looking out the window or shuffling the papers on his desk, I would stop talking right then and ask for his order.
Everything slowed down except for the hospital and medical clinic sales, and I didn’t have any of those places for customers. I didn’t do very well, because I thought of the customer first. I didn’t try to force an order on a soda fountain operator when I could see that his business had fallen off because of cold weather and he didn’t need the damn cups. My philosophy was one of helping my customer, and if I couldn’t sell him by helping him improve his own sales, I felt I wasn’t doing my job. I collected my salary of thirty-five dollars a week just the same. But my company was losing money on me by paying it, and I hated that. I vowed that I wouldn’t allow it to happen again the next winter.
They had no printed menu because there were just three entrees: Maine lobster, steak, and roast duckling. Years later I recalled that spare bill of fare in my first motto for McDonald’s—KISS—which meant, “Keep it simple, stupid.”
Another thing that captivated me was the deft service of the Swiss waiters. They would bring out a roast duckling on a big wooden platter and filet it right at the customer’s table, slicing it up with the flair of a magician producing rabbits from a hat. I admired their professionalism.
But I didn’t have a lot of time to observe what was going on that first night. I played the piano continuously. When it came time to take a break, the rest of the players left the bandstand, but Robinson placed a silk top hat on the piano and told me I had to keep playing requests for people who wanted to sing. The customers tossed tips into the hat, and I felt good about that until I discovered that I was expected to share the tips with all the other players. That was grossly unfair, and I was steaming mad. But it was the custom, apparently, and there wasn’t much I could do about it if I wanted to keep the job. I hammered away, my fingers getting painful from such unaccustomed exercise, and I vowed that I would figure out a way to keep this piano player from being the goat for the whole orchestra.
The solution didn’t come to me that first night, or even the first week. I was too busy worrying about whether I would last the entire evening. When I’d get home my fingers would be puffed and almost bleeding, and I had to soak them in a bucket of warm water. I tried the direct approach to Willard Robinson once more on a night when he seemed relatively mellow and more sober than usual.
“Mr. Robinson, I think I am getting a dirty deal,” I said. “When you played piano through all the breaks, it was different. You were the star folks had come to see, and they paid handsome tips. You could afford to share them, because you were getting your pay as leader, too. I’m just one of the boys, yet I have to play much more than the others and get nothing extra for it at all!”
He looked at me vacantly and then squinted until he got me in focus. “That’s too bad, Joe,” he responded. “Maybe you’ll get smart and learn to play the flute or somethin’.”
I got smart, all right, but no thanks to Robinson. I was doing my solo routine for requests one night, and an old geezer who’d won a bundle at the racetrack that day came in with a doll who could have been his granddaughter but obviously was not. They danced over to the piano in a spastic flutter, cheek-to-cheek, and the old boy waved a dollar bill at me and asked if I could play “I Love You Truly.” I just stared at him and shook my head negatively. He was startled and the young girl slapped his hand with the dollar, knocking it into the top hat, and she shouted, “How dare you insult him with a dollar, you cheapskate!” Then she grabbed a twenty-dollar bill out of the bundle that protruded from his breast pocket and dropped it in my lap. “Hey, wait a minute,” I called. “Did you say ‘I Love You Truly’?” and I played the first few bars haltingly, as though striving to recall them. He nodded vigorously, and I went ahead with the tune and played the hell out of it. If my associates in the orchestra noticed the extra tip, they didn’t say anything about it. Special requests for a little bit extra to the piano player became a common thing after that.
One day I said, “Mac, the only way in this world that you can increase your soda fountain volume is to sell to people who don’t take up a stool. Look, I’ll tell you what I’m gonna do. I will give you 200 or 300 containers with covers, however many you need to try this for a month in your store down the street. Now most of your takeout customers will be Walgreen employees from headquarters here, and you can conduct your own marketing survey on them and see how they like it. You get the cups free, so it’s not going to cost you anything to try it.”
Finally he agreed. I brought him the cups, and we set the thing up at one end of the soda fountain. It was a big success from the first day. It wasn’t long before McNamarra was more excited about the idea of takeouts than I was.
I took care not to be ostentatious (I detest snobs), but my style kind of dazzled my staff at the office. They were eager to follow my examples. I stressed the importance of making a good appearance, wearing a nicely pressed suit, well-polished shoes, hair combed, and nails cleaned. “Look sharp and act sharp,” I told them. “The first thing you have to sell is yourself. When you do that, it will be easy to sell paper cups.” I also counseled them on handling money, encouraging them to spend wisely and save some for a rainy day.
The agreement was that I could not deviate from their plans in my units unless the changes were spelled out in writing, signed by both brothers, and sent to me by registered mail. This seemingly innocuous requirement created massive problems for me. There’s an old saying that a man who represents himself has a fool for a lawyer, and it certainly applied in this instance. I was just carried away by the thought of McDonald’s drive-ins proliferating like rabbits with eight Multimixers in each one. Also, I was swayed by the affable openness of the McDonald brothers. The meeting was extremely cordial. I trusted them from the outset. That trust later would turn to bristling suspicion. But I had no inkling of that eventuality.
The agreement gave me 1.9 percent of the gross sales from franchisees. I had proposed 2 percent. The McDonalds said, “No, no, no! If you tell a franchisee you are going to take two percent, he’ll balk. It sounds too full and rounded. Make it one and nine-tenths, and it sounds like a lot less.” So I humored them on that one. The brothers were to get .5 percent out of my 1.9 percent. This seemed fair enough, and it was. If they had played their cards right, that .5 percent would have made them unbelievably wealthy. But as my Grandpa Phossie used to say, “There’s many a slip twixt the cup and the lip.” Another aspect of the agreement was that I was to charge a franchise fee of $950 for each license. This was to cover my expenses in finding a suitable location and a landlord who would be willing to build to our specifications. Each license was to run for twenty years. My contract with the McDonalds was only for ten years. That was later amended to ninety-nine years.
A subject of much greater concern to me, however, was the great french-fry flop. I had explained to Ed MacLuckie with great pride the McDonald’s secret for making french fries. I showed him how to peel the potatoes, leaving just a bit of the skin to add flavor. Then I cut them into shoestring strips and dumped them into a sink of cold water. The ritual captivated me. I rolled my sleeves to the elbows and, after scrubbing down in proper hospital fashion, I immersed my arms and gently stirred the potatoes until the water went white with starch. Then I rinsed them thoroughly and put them into a basket for deep frying in fresh oil. The result was a perfectly fine looking, golden brown potato that snuggled up against the palate with a taste like … well, like mush. I was aghast. What the hell could I have done wrong? I went back over the steps in my mind, trying to determine whether I had left something out. I hadn’t. I had memorized the procedure when I watched the McDonald’s operation in San Bernardino, and I had done it exactly the same way. I went through the whole thing once more. The result was the same—bland, mushy french fries. They were as good, actually, as the french fries you could buy at other places. But that was not what I wanted. They were not the wonderful french fries I had discovered in California. I got on the telephone and talked it over with the McDonald brothers. They couldn’t figure it out either.
This was a tremendously frustrating situation. My whole idea depended on carrying out the McDonald’s standard of taste and quality in hundreds of stores, and here I couldn’t even do it in the first one!
I contacted the experts at the Potato & Onion Association and explained my problem to them. They were baffled too, at first, but then one of their laboratory men asked me to describe the McDonald’s San Bernardino procedure step-by-step from the time they bought the potatoes from the grower up in Idaho. I detailed it all, and when I got to the point where they stored them in the shaded chicken-wire bins, he said, “That’s it!” He went on to explain that when potatoes are dug, they are mostly water. They improve in taste as they dry out and the sugars change to starch. The McDonald brothers had, without knowing it, a natural curing process in their open bins, which allowed the desert breeze to blow over the potatoes.
I had been made aware of the ten other sites in California and Arizona that the brothers had lent their names to, and we’d agreed that was fine. I was to have all the rest of the United States. But there was one other agreement they hadn’t told me about, and that was for Cook County, Illinois, where I had my home, my office, and my first model store. The brothers had sold Cook County to the Frejlack Ice Cream Company interest for 25,000 to buy that area from the Frejlacks, and it was blood money. I could not afford it. I was already in debt for all I was worth.
I couldn’t blame the Frejlacks, of course, they were completely aboveboard and fair. But I could never forgive the McDonalds. Unwittingly or not, they had made an ass of me—in the Biblical sense. I’d been blindfolded by their assurances and led to grind like blind Samson in the prison house.
June Martino was usually there ahead of me and had the day’s business started with our East Coast reps. I had manufacturers’ representatives all over the country to handle Multimixer sales. For a time I kept some of the big customers, such as Howard Johnson’s, Dairy Queen, and Tastee Freeze, as my personal accounts. I relinquished these gradually as McDonald’s business demanded more and more of my attention. In the evenings, I would commute back to Des Plaines and walk over to the store. I was always eager to see it come into view, my McDonald’s! But sometimes the sight pleased me a lot less than other times. Sometimes Ed MacLuckie would have forgotten to turn the sign on when dusk began to fall, and that made me furious. Or maybe the lot would have some litter on it that Ed said he hadn’t had time to pick up. Those little things didn’t seem to bother some people, but they were gross affronts to me. I’d get screaming mad and really let Ed have it. He took it in good part. I know he was as concerned about these details as I was, because he proved it in his own stores in later years. But perfection is very difficult to achieve, and perfection was what I wanted in McDonald’s. Everything else was secondary for me.
Harry Sonneborn.
That name on my appointment calendar in late May of 1955 was familiar yet strange. I remembered having talked to him on the telephone a few times about Multimixer sales when he was vice-president of Tastee-Freeze. Now he’d called to tell me he had resigned from Tastee-Freeze, sold all his stock, and he wanted to come to work for me.
“I heard about your operation in Des Plaines, so I went out to look it over,” he said. “I can tell just by watching it from across the street that you’ve got a winner there, Mr. Kroc, and I’d like to be part of your organization.”
“Call me Ray,” I told him. “I’d be interested in chatting with you, but I must tell you that I’m not in a position to hire anyone.”
“I’d like to try and change your mind about that, Ray,” he said. So we arranged a time to meet in my office.
One of the basic decisions I made in this period affected the heart of my franchise system and how it would develop. It was that the corporation was not going to get involved in being a supplier for its operators. My belief was that I had to help the individual operator succeed in every way I could. His success would insure my success. But I couldn’t do that and, at the same time, treat him as a customer. There is a basic conflict in trying to treat a man as a partner on the one hand while selling him something at a profit on the other. Once you get into the supply business, you become more concerned about what you are making on sales to your franchisee than with how his sales are doing. The temptation could become very strong to dilute the quality of what you are selling him in order to increase your profit. This would have a negative effect on your franchisee’s business, and ultimately, of course, on yours. Many franchise systems came along after us and tried to be suppliers, and they got into severe business and financial difficulty. Our method enabled us to build a sophisticated system of purchasing that allows the operator to get his supplies at rock-bottom prices. As it turned out, my instinct helped us avoid the antitrust problems some other franchise operations got into.
Another judgment I made early in the game and enforced through the years was that there would be no pay telephones, no jukeboxes, no vending machines of any kind in McDonald’s restaurants. Many times operators have been tempted by the side income some of these machines offer, and they have questioned my decision. But I’ve stood firm. All of those things create unproductive traffic in a store and encourage loitering that can disrupt your customers. This would downgrade the family image we wanted to create for McDonald’s. Furthermore, in some areas the vending machines were controlled by the crime syndicate, and I wanted no part of that.
These basic elements will insure success for a store, unless its location is unspeakably bad, and we have had only a few instances of that in more than twenty years. But the fundamentals do not spring forth, self-evident and active, from the brow of every former grocery clerk, soda jerk, military man, or specialist in one of the hundreds of other callings who join the ranks of McDonald’s operators. Quite the contrary; the basics have to be stressed over and over. If I had a brick for every time I’ve repeated the phrase QSC and V (Quality, Service, Cleanliness, and Value), I think I’d probably be able to bridge the Atlantic Ocean with them. And the operators need the stress on fundamentals as much as their managers and crews. This is especially true of a new location.
Fred Turner.
That was the name I had in mind for the position of corporate operations man. I have a mental snapshot on file that shows Fred, who one day would become President and then Chairman of the Board of McDonald’s, as he looked when he first walked into my office, in February 1956. He was little more than a kid, twenty-three years old. He had a baby face and the most infectious grin I’d seen in years. He and another young fellow named Joe Post came in to answer an ad I had run in the Chicago Tribune for franchisees. Fred and Joe and two other members of their families had formed what they called the Post-Turner Corporation. Their aim was to buy a McDonald’s franchise, which Fred and Joe would operate. I gladly took their down payment on the license fee and suggested that it would be a good thing if they learned the ropes by working in the Des Plaines store while waiting to get their own location going. Fred took me up on it. He went to work immediately for 85 a week from his family group, an advance they agreed to consider part of the cost of getting into the business, although Fred was obligated to pay it back eventually.
I’ve been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, “I think you’d better fire that man.”
“Oh, Ray, come on!” he exclaimed. “Give the kid a break. He’s young, he has a good attitude, and I think he will come along.”
“You could be right, Bob,” I said, “but I don’t think so. He has no potential.”
Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, “Listen goddammit, I want you to fire that man!”
One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He’s a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, “If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out.”
I agreed, reluctantly. What happened after that was the kind of personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald’s. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that “this man has no potential.”
Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that’s not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he’d been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.
Fred applied the same sort of thinking he’d used on buns to all the other supplies being purchased. It’s important to make clear here that Fred wasn’t buying these items on behalf of the corporation, and we weren’t selling to the operators. We set the standards for quality and recommended methods for packaging, but the operators themselves did the purchasing from suppliers. Our stores were selling only nine items, and they were buying only thirty-five or forty items with which to make the nine. So although a McDonald’s restaurant’s purchasing power was no greater in total than that of any other restaurant in a given area, it was concentrated. A McDonald’s bought more buns, more catsup, more mustard, and so forth, and this gave it a terrific position in the marketplace for those items. We enhanced that position by figuring out ways a supplier could lower his costs, which meant, of course, that he could afford to sell to a McDonald’s for less. Bulk packaging was one way; another was making it possible for him to deliver more items per stop.
I first became aware of the hamburger patty as an element of food purveying when I was a young man going to dances on Chicago’s West Side. There was a White Castle on the corner of Ogden and Harlem Avenues, where we could go for hamburgers after a dance. They used a sort of tiny ice cream scoop to make a patty about one-inch square, and they sold their burgers by the bagful. Then, at the World’s Fair in 1933, Swift & Company had all the concessions, and they introduced frozen blocks of ground beef that had five holes concealed in them. The holes allowed the concession operator to get two more patties to the block—eighteen instead of sixteen. It is possible, of course, to make money by employing such material-stretching methods. One time a McDonald’s operator came to me with the idea he’d dreamed up to cut costs by producing a doughnut-shaped patty. His notion was to plug the hole with condiments, and cover it with a pickle so the customer wouldn’t notice the hole. I told him we wanted to feed our customers, not fleece them, but I couldn’t suppress a chuckle at the outrageous con artistry of the idea; a real Chicago fast one.
We decided that our patties would be ten to the pound, and that soon became the standard for the industry. Fred did a lot of experimenting in the packaging of patties, too. There was a kind of paper that was exactly right, he felt, and he tested and tested until he found out what it was. It had to have enough wax on it so that the patty would pop off without sticking when you slapped it onto the griddle. But it couldn’t be too stiff or the patties would slide and refuse to stack up. There also was a science in stacking patties. If you made the stack too high, the ones on the bottom would be misshapen and dried out. So we arrived at the optimum stack, and that determined the height of our meat suppliers’ packages. The purpose of all these refinements, and we never lost sight of it, was to make our griddle man’s job easier to do quickly and well. All the other considerations of cost cutting, inventory control, and so forth were important to be sure, but they were secondary to the critical detail of what happened there at that smoking griddle. This was the vital passage in our assembly line, and the product had to flow through it smoothly or the whole plant would falter.
The proposition that Harry finally brought to me was for three insurance companies to lend us 1.5 million was irresistible. The arrangement we came up with, after a lot of discussion, was that I would contribute 22½ percent of my remaining stock (leaving me with 54¼ percent), Harry would put in 22½ percent and June Martino would give up 22½ percent of hers.
It turned out to be the best deal those three insurance companies ever made. They sold their stock a few years later for between 10 million. That is one hell of a return on investment. (However, if they’d waited until 1973 to sell, they could have gotten over five hundred million dollars!)
That loan could be called the liftoff of McDonald’s rocketlike growth in the sixties. It took a lot more financial thrust to put us into orbit, but we would never have gotten off the ground without it. Our first McOpCo (McDonald’s Operating Company) store was purchased from an operator in Torrence, California. A short time later, in the summer of 1960, we opened our first company-built store in Columbus, Ohio.
I am not above that, let me assure you, and more than once at two o’clock in the morning I have sorted through a competitor’s garbage to see how many boxes of meat he’d used the day before, how many packages of buns, and so forth.
Competition has from time to time planted spies in our stores. One very prominent franchisor once got hold of a McDonald’s operations manual. Word was that he intended to use it to expand his drive-ins to include hamburgers and french fries. My attitude was that competition can try to steal my plans and copy my style. But they can’t read my mind; so I’ll leave them a mile and a half behind.
A good example of this was the situation we faced with our 200th unit, which was opened August 30, 1960, in Knoxville, Tennessee, by a former marine corps major named Litton Cochran. There was a competing hamburger operation a few doors away, part of a large Southern chain, and the day Litton opened his McDonald’s his competitor announced a special—five hamburgers for thirty cents. They kept it up for a solid month. Litton wasn’t selling any hamburgers, but he was showing a profit because many of the folks who got hamburgers “to go” from the competition were coming to his place for soft drinks and french fries. Litton figured he’d hang in there, the competition couldn’t afford to keep it up for long, and his business would pick up as soon as the guy next door backed down. Instead, the competition got tougher. It advertised a new special—10, 10, and 10—hamburger, milk shake, and french fries for ten cents each!
Litton was really staggered by that one. He was president of the Knoxville Marketing and Sales Executives’ Club, and some of his associates there were outraged by his competitor’s tactics. One of them, a lawyer, told Litton that it was a clear violation of federal trade regulations since this one store in a chain was being used to drive him out of business by cutting prices. The lawyer offered to go to the government and initiate action against the competitor.
It was with this sad story that Litton Cochran appeared in my Chicago office wondering what he should do.
I am sure this big ex-leatherneck may have heard more abrasive language in the course of his marine career, but I think he’ll admit that he’s never had a more sincere chewing out than I gave him that afternoon.
“Litton, you are getting your ears beat down, and it’s not right,” I said. “We can agree on that. But I’m going to tell you something I feel very strongly about. The thing that has made this country great is our free enterprise system. If we have to resort to this—bringing in the government—to beat our competition, then we deserve to go broke. If we can’t do it by offering a better fifteen-cent hamburger, by being better merchandisers, by providing faster service and a cleaner place, then I would rather be broke tomorrow and out of this business and start all over again in something else.”
I could see that my words had made a positive impression. Litton told me later that he could hardly wait to get back to Tennessee and get cracking in his store. I never heard another word from him about problems with competition, which is pretty good considering that he now owns ten McDonald’s in Knoxville! He’s president of the national alumni association of the University of Tennessee, where he often lectures on marketing, and I’m told he gives a dynamite talk on the virtues of our free enterprise system.
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.
Jane and I sold our place in Woodland Hills and moved to a big house in Beverly Hills. I wasn’t around there much though, because when you’re green and growing at the rate McDonald’s was in 1963, there’s little time for personal interests. We topped all previous construction records in 1963 by building 110 stores scattered all over the country, and we did even better the following year when we had a net income of 129.6 million. I became a regular commuter between Los Angeles and corporate headquarters, spending two weeks at a time in L.A. and the next week in Chicago.
I appreciated Art’s honesty. I like people who level with me and speak their minds. I always say exactly what I think; it’s a trait that’s gotten me in trouble plenty of times, but I never have problems getting to sleep at night with a guilty conscience. That’s why I could never be a politician. People have told me from time to time that I should run for president. They think I could run the country with the same integrity and sound business sense that I gave to McDonald’s. I know it wouldn’t work. Not that I think a politician has to be dishonest—but he has to compromise some things he believes in strongly for the sake of political expediency. I could not do that.
So we went on the market at 30 before trading ended that first day. The issue was oversubscribed—a tremendous success. Before the first month ended, it had climbed to $50 a share, and Harry, June, and I were wealthier than we’d ever dreamed possible.
Harry was as happy with the outcome as I was, but he wasn’t satisfied with having our stock listed over-the-counter. He wanted to see McDonald’s up there with the bluest chips on the big board. The New York Stock Exchange had some pretty tough requirements. You had to have so many shareholders in a certain geographic distribution, and you had to have a certain number of round-lot (100 shares or more) shareholders. I really didn’t care that much about it. I went along with Harry on the basis that the New York was the class listing, where McDonald’s ought to be. But it struck me that some of these folks he was dealing with about it were codfish aristocrats who weren’t too sure they wanted to deal with a company that sold fifteen-cent hamburgers. If so, to hell with them! At any rate, we were accepted, and to celebrate, Harry and his new wife, Aloyis, and June Martino and Al Golin all ate hamburgers on the floor of the New York Stock Exchange. Boy! That got terrific coverage in the newspapers. Not only because of the hamburgers, but Aloyis and June were among the first women ever allowed on the floor of the exchange.
Our first store with inside seating opened in Huntsville, Alabama, in July 1966. It was pretty primitive compared to the kind of seating we have now—a narrow counter with stools and a couple or three small tables—but it was a big step forward.
Harry agreed to stay, but it was an unhappy situation for both of us. He continued to spend more time in Alabama than he did in Chicago, and I felt he was just going through the motions of running the company. But it’s true that his health was getting worse all the time. Finally we agreed he would resign. Based on his employment agreement, he would be paid 100 million. So his lack of faith in us was very costly for him.
I really had my work cut out for me now. I took the title of president and chairman of the board, and I removed that misguided moratorium on building new stores. In reviewing our real estate picture, I discovered all kinds of locations we had purchased and sort of stockpiled for future development. When I was told that we were waiting for the local economy to improve in those areas, I hit the ceiling.
Unfortunately, a few of our operators resented the changes. They couldn’t see the big picture from the windows of their individual stores. Their operations hadn’t changed, so why did the company have to change? They longed for the good old days when they could pick up the telephone and talk to Ray Kroc or Fred Turner to get help with their problems. As we became more decentralized, those old-time operators found themselves responsible to district, regional, and zone executives who in many cases were a lot newer to the organization than they were and who had not lived through store openings with them as Fred Turner had or helped them clean up their parking lots as I had. But there was another element in the situation, and that was the fact that some of these franchisees were approaching the end of their twenty-year licenses. Among them was a handful of bad apples who knew that their chances of being granted new franchises were slim. These characters tried to gain company for their misery by forming what they called the McDonald’s Operators Association (MOA). They organized in about 1973 and put out a newsletter full of vicious gossip. Their theme quickly became trite—The company has changed. If you don’t fight back you will be kicked out when your franchise expires, and the company will take over the store. That’s patent nonsense, because we don’t want company-owned stores to ever exceed more than about 30 percent of total units. Moreover, we need good operators. It would be the height of folly to kick out an operator who met our standards of quality, service, and cleanliness, who had established his McDonald’s in a neighborhood, had built up good community relations and a strong spirit among his employees. But MOA’s whisper campaign did stir up apprehensions. Even some of our good operators, who should have known they had no need to worry, had to have continual reassurances that we didn’t intend to buy back their stores. MOA was organized by Don Conley, an early corporation employee, who instead of taking cheap shots at the company should be saying a prayer of thanks to McDonald’s every morning. He was one of the small group who shared in the purchase of Prince Castle Sales from me. But he put up no cash, and all the payments on his note plus interest, which was only about seven percent, were paid from dividends the group received from Prince Castle’s profits. When Prince Castle was sold to Martin-Brower Corporation in less than two years, Conley made a six-figure profit. He then acquired 20,000 shares of McDonald’s stock, which he’s very smug and arrogant about today, since it makes him a millionaire. How ironic that this came, in effect, as a gift from me!
The basis of McDonald’s success is serving a low-priced, value-oriented product fast and efficiently in clean and pleasant surroundings. While the Company’s menu is limited, it contains food staples that are widely accepted in North America. It is for these reasons that demand for its products is less sensitive to economic fluctuations than most other restaurant formats.
Until the early 1970s, McDonald’s was expanding almost exclusively in the suburbs. Yet for quite a while it had been spending a great deal on national advertising that was creating a latent, nationwide demand for its product. Thus, the stage was set for the company to diversify and strengthen its expansion program. There are now over 100 stores located in cities, shopping centers, and even on college campuses; most are doing exceptionally well, with many more planned.
We firmly believe that McDonald’s can successfully locate a store almost anywhere there are primary concentrations of population (i.e., suburbs and cities) and secondary concentrations (schools, shoping centers, industrial parks, stadiums, etc.) provided that capital turnover rates meet corporate objectives. It is this “nook and cranny” type of expansion along with continued conventional growth that leads us to project that on average 485 new stores will be added each year (through 1979) to world operations.