Fast Food Nation - Eric Schlosser [14]
The leading fast food chains spread nationwide; between 1960 and 1973, the number of McDonald’s restaurants grew from roughly 250 to 3,000. The Arab oil embargo of 1973 gave the fast food industry a bad scare, as long lines at gas stations led many to believe that America’s car culture was endangered. Amid gasoline shortages, the value of McDonald’s stock fell. When the crisis passed, fast food stock prices recovered, and McDonald’s intensified its efforts to open urban, as well as suburban, restaurants. Wall Street invested heavily in the fast food chains, and corporate managers replaced many of the early pioneers. What had begun as a series of small, regional businesses became a fast food industry, a major component of the American economy.
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IN 1976, THE NEW HEADQUARTERS of Carl Karcher Enterprises, Inc. (CKE) was built on the same land in Anaheim where the Heinz farm had once stood. The opening-night celebration was one of the high points of Carl’s life. More than a thousand people gathered for a black-tie party at a tent set up in the parking lot. There was dinner and dancing on a beautiful, moonlit night. Thirty-five years after buying his first hot dog cart, Carl Karcher now controlled one of the largest privately owned fast food chains in the United States. He owned hundreds of restaurants. He considered many notable Americans to be his friends, including Governor Ronald Reagan, former president Richard Nixon, Gene Autry, Art Linkletter, Lawrence Welk, and Pat Boone. Carl’s nickname was “Mr. Orange County.” He was a benefactor of Catholic charities, a Knight of Malta, a strong supporter of right-to-life causes. He attended private masses at the Vatican with the Pope. And then, despite all the hard work, Carl’s luck began to change.
During the 1980s CKE went public, opened Carl’s Jr. restaurants in Texas, added higher-priced dinners to the menu, and for the first time began to expand by selling franchises. The new menu items and the restaurants in Texas fared poorly. The value of CKE’s stock fell. In 1988, Carl and half a dozen members of his family were accused of insider trading by the Securities and Exchange Commission (SEC). They had sold large amounts of CKE stock right before its price tumbled. Carl vehemently denied the charges and felt humiliated by the publicity surrounding the case. Nevertheless, Carl agreed to a settlement with the SEC — to avoid a long and expensive legal battle, he said — and paid more than half a million dollars in fines.
During the early 1990s, a number of Carl’s real estate investments proved unwise. When new subdivisions in Anaheim and the Inland Empire went bankrupt, Carl was saddled with many of their debts. He had allowed real estate developers to use his CKE stock as collateral for their bank loans. He became embroiled in more than two dozen lawsuits. He suddenly owed more than $70 million to various banks. The falling price of CKE stock hampered his ability to repay the loans. In May of 1992, his brother Don — a trusted adviser and the president of CKE — died. The new president tried to increase sales at Carl’s Jr. restaurants by purchasing food of a lower quality and cutting prices. The strategy began to drive customers away.
As the chairman of CKE, Carl searched for ways to save his company and pay off his debts. He proposed selling Mexican food at Carl’s Jr. restaurants as part of a joint venture with a chain called Green Burrito. But some executives at CKE opposed the plan, arguing that it would benefit Carl much more than the company. Carl had a financial stake in the deal; upon its acceptance by the board of CKE, he would receive a $6 million personal loan from Green Burrito.