McDonald’s & Ray Kroc: A scalability of success

Ray Kroc, perhaps the entrepreneur who achieved the maximum scalability of an idea in the history of franchising, was born in 1902 in the village of Oak Park, Illinois. As young as 15, he started working in the beverage section of the store of his uncle in Chicago. He became interested in business and soon dropped out of school to start selling paper and plastic cups for Lilly-Tulip Cup Co. where he quickly became the best salesman. At age 37, he met Earl Prince, a customer of him who had devised a mixing machine that could prepare several milkshakes at a time. Fascinated by its efficiency, Kroc started selling it and soon was given the exclusive marketing rights of the Multimixer. However, it took him yet another decade as a salesman, before he thought of the fast-food business as a path for growth. One day he got an unusually large order for 8 Multimixers from the small fast-food chain of the brothers Mac and Dick McDonald in San Bernardino, California. His surprise made him travel to see the organization that needed so many machines at once. What he found out was a business organized with a nearly perfect product assembly line that focused on 4 products: 15 cent burgers, 10 cent fries, beverages and milkshakes. Unusually for the fast food business, there was no drive-through, so the clients had to enter the store to make their purchase.  Even though, the efficiently structured assembly line made for the orders to be ready in one minute. When Kroc came up to the brothers with the franchising proposal, they said they were not interested in expanding the business, but agreed to give him the rights to sell franchises.

 

 "When you are green, you are growing, when you’re ripe, you rot" used to say Kroc and he definitely wanted to grow. However, his initial 2% royalty proposal seemed too high to the McDonald brothers, but they eventually agreed to let him collect 1,9% of future franchisees’ sales, half of which went to them. Ray sold his first franchise in 1955 and 18 more in the first year. Nevertheless, even now, the small royalty didn’t give Kroc the growth and turnover he wanted to achieve with McDonald’s.

A couple of months later, he met with financier Harry Sonneborn, who eventually became his business partner and who came up with the idea of buying, developing and then renting the Real Estate needed for every new restaurant to all new franchisees. In 1961, Kroc finally bought the rest of the McDonald’s brothers business, except for the original restaurant, for 2,7 million dollars. By the end of the sixties, McDonald’s had more than 1500 franchisees.  In 1963, franchisee Willard Scott from Washington DC created the Ronald McDonald mascot to boost sales in the region.

 

But Kroc continued improving the brand and even wrote a new detailed 75 page guide for every aspect of running a McDonald’s restaurant. By the time of his death in 1984, a franchisee opened a new restaurant every 17 hours.

Even after his formal retirement, he continued working in his San Bernardino office, overseeing the functioning of the company and liked to call the manager of the nearby McDonald’s to check on his store and to remind him to pick up the thrash and turn off the lights after closing.