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The Great Leaders Series: Ray Kroc of McDonald's
 

Ray Kroc was able to bring to scale his McDonald's operation in a way that few entrepreneurs could rival.

Courtesy McDonald's

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For Ray Kroc, it all boiled down to destiny. Once, as a small boy living in Oak Park, Illinois, Kroc's father took the future CEO of McDonald's to a phrenologist--a kind of pseudo-scientist who claimed he could determine a person's future by "reading" the bumps and shape of their scalp. The phrenologist forecasted that the young Kroc would find his future in the food-services industry. And so he did. He did not invent the fast-food business or even the system that made McDonald's famous. But starting in the 1950s, he came up with an effective sales pitch for these concepts and brought them to scale in a way that no other entrepreneur could.

Like many entrepreneurs, Kroc dipped into several professions before he found his calling. In his teens, he lied about his age to land a job as a Red Cross ambulance driver during the First World War, but the fighting ended before he was able to serve. Kroc then worked as a pianist, a grocery store bagger, and a paper cup salesman. This last job proved to be pivotal. One of his best cup accounts turned out to be a man named Earl Prince, who had invented a five-spindle milkshake-mixing machine called the Multimixer. The two became friends, and Prince eventually gave Kroc the exclusive marketing rights to the mixer. Kroc spent the next decade traveling the country selling the product, until his travels brought him to San Bernadino, California, where he paid a call on an interesting new client.

At the time, it was customary for restaurants to order just one Multimixer, but Dick and Mac McDonald's southern California drive-in hamburger joint had recently purchased eight machines, which piqued Kroc's curiosity. He paid them a visit to see for himself the operation that could support such a large capital outlay. At McDonald's, Kroc witnessed something that is familiar today but was then unique. The McDonald brothers had created an assembly line-style "Speedee Service System," which allowed customers to place an order and then receive their 15-cent hamburgers and 10-cent fries in less than one minute.

The concept was distinctive in other ways. Customers didn't get drive-in service; they had to come into McDonald's to place their orders. The menu was short and standardized. Unlike a traditional restaurant, there were no servers and few utensils. But what the operation lacked in ambience and amenities, it made up for in cleanliness and efficiency. In his 1977 autobiography, Grinding it Out, Kroc recalled thinking: "Something was definitely happening here… This had to be the most amazing merchandising operation I'd ever seen."

The McDonald brothers soon agreed to partner with Kroc, and awarded him the rights to open additional McDonald's restaurants and to start a franchise. Kroc agreed to collect 1.9-percent of the gross sales from each franchise he opened, and from that figure he gave the McDonald brothers one half-percent. He opened the first chain establishment in 1955, in the Chicago suburb of Des Plains. But by the end of his first year in the business, Kroc realized that he was barely breaking even, even though he had sold 18 franchises.

Enter Harry Sonnenborne, a financier who convinced Kroc that real estate was the key to a franchise's financial success. He guided Kroc to establish another business, the Franchise Realty Corporation, in 1956. That company bought land and leased it out to franchisees at a handsome proft. Unfortunately, Mac and Dick McDonald did not approve of Kroc's new business methods and, after months of arguing, the brothers sold their stake in the company back to Kroc for $2.7 million.

Now firmly in control of the organization, Kroc began recruiting franchises at a feverish rate and invested heavily in marketing, unveiling a new company mascot named Ronald McDonald in 1963. By 1965, he had opened more than 700 restaurants in 44 states. He then began opening McDonald's overseas, tailoring his fast-food menu to incorporate elements of local cuisine.

Kroc turned over the company to Fred Turner in 1968, but he continued to chair the McDonald's Corporation until his death in 1984, at the age of 81. He was an optimist and a man of boundless energy and, perhaps most of all, a survivor. His achievement is all the more remarkable given that, long before he ever stepped in McDonald's, he was chronically ailing. For more than three decades, Kroc suffered from diabetes and arthritis, and he had his gall bladder and his thyroid gland surgically removed at a relatively young age. Despite these medical setbacks, neither his drive as a salesman nor his desire to expand the business were impeded. Within a year of Kroc's death, McDonald's sold its fifty-billionth burger. Today, the chain has 30,000 restaurants in 100 countries around the world. And more than most businesses of that scale, the McDonald's of today is not all that different from the McDonald's that Kroc opened across the country more than 50 years ago.

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Last updated: Nov 20, 2009




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