• Choose a category
• All
• Classic-Fiction

By Root 1325 0

fully to McDonald’s. To test the commitment of prospective franchisees, he frequently offered them a restaurant far from their homes and forbade them from engaging in other businesses. New franchisees had to start their lives anew with just one McDonald’s restaurant. Those who contradicted or ignored Kroc’s directives would never get the chance to obtain a second McDonald’s. Although Kroc could be dictatorial, he also listened carefully to his franchisees’ ideas and complaints. Ronald McDonald, the Big Mac, the Egg McMuffin, and the Filet-O-Fish sandwich were all developed by local franchisees. Kroc was an inspiring, paternalistic figure who looked for people with “common sense,” “guts and staying power,” and “a love of hard work.” Becoming a successful McDonald’s franchisee, he noted, didn’t require “any unusual aptitude or intellect.” Most of all, Kroc wanted loyalty and utter devotion from his franchisees — and in return, he promised to make them rich.

While Kroc traveled the country, spreading the word about Mc-Donald’s, selling new franchises, his business partner, Harry J. Sonneborn, devised an ingenious strategy to ensure the chain’s financial success and provide even more control of its franchisees. Instead of earning money by demanding large royalties or selling supplies, the McDonald’S Corporation became the landlord for nearly all of its American franchisees. It obtained properties and leased them to franchisees with at least a 40 percent markup. Disobeying the McDonald’s Corporation became tantamount to violating the terms of the lease, behavior that could lead to a franchisee’s eviction. Additional rental fees were based on a restaurant’s annual revenues. The new franchising strategy proved enormously profitable for the McDonald’s Corporation. “We are not basically in the food business,” Sonneborn once told a group of Wall Street investors, expressing an unsentimental view of McDonald’s that Kroc never endorsed. “We are in the real estate business. The only reason we sell fifteen cent hamburgers is because they are the greatest producer of revenue from which our tenants can pay us our rent.”

In the 1960s and 1970s McDonald’s was much like the Microsoft of the 1990s, creating scores of new millionaires. During a rough period for the McDonald’s Corporation, when money was still tight, Kroc paid his secretary with stock. June Martino’s 10 percent stake in Mc-Donald’s later allowed her to retire and live comfortably at an oceanfront Palm Beach estate. The wealth attained by Kroc’s secretary vastly exceeded that of the McDonald brothers, who relinquished their claim to 0.5 percent of the chain’s annual revenues in 1961. After taxes, the sale brought Richard and Mac McDonald about $1 million each. Had the brothers held on to their share of the company’s revenues, instead of selling it to Ray Kroc, the income from it would have reached more than $180 million a year.

Kroc’s relationship with the McDonalds had been stormy from the outset. He deeply resented the pair, claiming that while he was doing the hard work — “grinding it out, grunting and sweating like a galley slave” — they were at home, reaping the rewards. His original agreement with the McDonalds gave them a legal right to block any changes in the chain’s operating system. Until 1961 the brothers retained ultimate authority over the restaurants which bore their name, a fact that galled Kroc. He had to borrow $2.7 million to buy out the McDonalds; Sonneborn secured financing for the deal from a small group of institutional investors headed by Princeton University. As part of the buyout, the McDonald brothers insisted upon keeping their San Bernardino restaurant, birthplace of the chain. “Eventually I opened a McDonald’s across the street from that store, which they had renamed The Big M,” Kroc proudly noted in his memoir, “and it ran them out of business.”

The enormous success of McDonald’s spawned imitators not only in the fast food industry, but throughout America’s retail economy. Franchising proved to be a profitable means of establishing new companies