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- May 19, 1975
- Vol. 3
- No. 19
The Mc Donald's Man: What Ray Kroc Hath Wrought Around the World
Most people's uncles, however, did not found the worldwide chain of restaurants called McDonald's, launching the drive-in, fast-food era that has changed the face of America, as well as its eating habits. And very few uncles are worth $500 million, which is a conservative estimate of Kroc's current holdings.
Kroc, who is 72, did not strike gold—as in arches—until he was 60, but he now owns homes in Fort Lauderdale and Chicago and a ranch near Santa Barbara, Calif., has four luxury cars, a personal jet and his own major league baseball team. "I always knew I would be rich," he says. "Even when I didn't have much money, I acted rich anyway, buying second-hand Cadillacs and used but really good furniture.
"I've always believed that if you run your business the right way the money takes care of itself. The problem I have now is figuring out what to do with the money I've got."
Today there are 3,343 McDonald's across the breadth of the USA, as well as in Hong Kong, Costa Rica, France and 16 other countries. Despite a sagging economy, McDonald's Corp., which has no business other than the restaurants, achieved a 28 percent increase in net income in the first three months of this year. Sales in all licensed and company-owned restaurants were a record $524 million.
Although Kroc retired as chief executive of McDonald's in 1973, he is still a very active chairman of the board. Nothing important is decided without him, and he relishes his role as a touring protector of McDonald's integrity, making unannounced inspection tours of restaurants all over the country. ("If you see a man in a $300 suit picking up paper in the parking lot," goes a company adage, "you'd better get out there and help him, because it's Ray Kroc")
The board chairman complains that it's hard to run a business these days without the government getting in the way. Asks Kroc, "Did you know that we have to keep our job applications at all the McDonald's on file for a year, so the government will know we aren't discriminating against minorities? The people in Congress are stupid blunderers who are going to destroy our system. They never met a payroll, and they should just stay out of the way."
Kroc is still bitter about his own only known venture into politics. In 1972 he donated $255,000 to Richard Nixon's campaign. He doesn't regret the contribution, he says, only the furor that arose after the election when the administration insisted that a minimum wage bill include a lower minimum for teenage workers—the core of McDonald's work force. Sen. Harrison Williams (D., N.J.) publicly suggested that the administration's position was related to Kroc's contribution.
"I said then and I say now," Kroc fumes, "that Williams is a no-good..." and a stream of obscenity and vituperation follows. "And I dare him to sue me." (Congress wouldn't accept the provision and Nixon vetoed the entire bill as "inflationary." The critics called it "McDonald's Veto.")
Since Watergate, Kroc sourly insists there is no national politician he is currently interested in backing. Instead, he has turned his avocational energies toward baseball. Early last year he asked his wife Joan how she felt about his buying the San Diego Padres, and she replied, "I think you'd be nuts." Kroc is reputed to have paid $10,100,000 for the team in January 1974. It made a "modest operating profit" last year.
When Joan Kroc came home a couple of weeks ago and told her husband that shots for the Krocs' two dogs had cost her $23 at the veterinarian, he smiled and said, "You've got an expensive hobby." Mrs. Kroc eyed the Padres' team picture on her husband's desk, smiled in return and said, "So do you."
Kroc nonetheless is enjoying himself. He talks with only minor residual embarrassment of his public temper tantrum last season over the Padres' blunders in the opening home game. "I got so excited that I ran over to the booth where the public address announcer sits," Kroc recalls. "He looked up, kind of shocked, and said, 'Hello, Mr. Kroc,' but I grabbed the microphone away from him and told the crowd how sorry I was the team was playing so badly and that it was the stupidest baseball I had ever seen."
Before he bought the Padres, he tried to purchase the Chicago Cubs, for whom he has been a lifelong rooter. It is part of his affection for Chicago, whose suburbs house the McDonald's corporate offices (in Oak Brook) and "Hamburger University" (in Elk Grove Village), where people interested in franchises are trained and given degrees in "hamburgerology."
Kroc himself was born in a Czech neighborhood on Chicago's South Side and grew up in suburban Oak Park, where his father worked for Western Union. Kroc dropped out of school at 15 to join the Ambulance Corps in World War I and dropped out again after the war to become a piano player.
His mother, a music teacher, had taught Kroc classical piano, but he worked with a number of dance bands. Just married at 20 and disliking musicians' hours, Kroc became a salesman for what is now the Lily-Tulip Cup Corporation. But show business beckoned again, and he joined an early Chicago radio station, WGES, as musical director. The job included hiring talent, and among other performers Kroc signed up Freeman Gosden and Charles Correll, a black dialect act then known as Sam and Henry and later famous as Amos 'n' Andy. After less than two years, Kroc left WGES for a short-lived, disastrous try at selling real estate in Florida. Rejoining Lily-Tulip in 1926, he worked his way up to Midwestern sales manager. In 1937, when he ran across a machine that could mix six malts at once, Kroc started his own company to distribute "Multimixer." He built it into a solid, if unspectacular, enterprise.
He was still selling Multimixers in 1954 when he visited a thriving drive-in restaurant in San Bernardino, Calif. where 12 of his Multimixers hummed away. It was run by Maurice and Richard McDonald, who had seven of these fast-food, self-service restaurants and were interested in franchising others. Intrigued by the McDonald brothers' extraordinarily high volume, Kroc studied their business, noting the quick customer turnover, limited menu, consistent quality and cleanliness. Then he proposed a franchise arrangement to the McDonalds which he would supervise, relieving them of most of the headaches.
Kroc's timing was perfect. Although he was still thinking of markets for his Multimixers when he opened his first franchised McDonald's in Des Plaines, Ill. in 1955—with the brothers receiving one half of one percent of revenues—Kroc quickly saw wider possibilities. By 1960 there were 228 McDonald's franchises in the country. But to expand as he dreamed Kroc needed fiscal experience and contacts in banking. He got both by bringing in a partner, former Tastee-Freez executive Harry Sonneborn, who worked out a lucrative plan for the parent corporation to lease restaurant sites as well as sell franchises.
(Today a McDonald's licensee pays the company $10,000 outright, puts up a minimum $80,000 in cash and provides for an additional $100,000 in financing. The money is used for equipment, supplies and start-up costs; the company chooses the site and supervises construction. The licensee's rent to McDonald's is 8.5 percent of its sales after sales tax, and he pays an additional 3 percent annual franchise fee. The license is for 20 years.)
In 1960 Kroc sold the Multimixer business, which up to then had been subsidizing the McDonald's operation to help finance expansion, and the resourceful Sonneborn wangled a $1.5 million loan from two Massachussetts insurance companies. In 1961 Sonneborn raised another $2.7 million that Kroc used to buy out the McDonald brothers. Kroc maintains that they had never shown much enthusiasm for the franchising operation other than collecting their percentage.
On the subject of Kroc, Richard McDonald is restrained in his admiration. "Until we sold the operation, we had complete control," he insists. "Kroc couldn't even change the toilet paper without written authorization from me." McDonald credits Sonneborn for the pots of gold at the end of the yellow arches ("our idea too"). "I still eat at McDonald's, and I like the food," says McDonald. "But, to be honest, I don't think they're as good as they were a few years ago, before they went to frozen patties and French fries."
By 1964 Kroc had 657 outlets and a $129 million annual gross. But he wanted more, and his dissatisfaction extended to two close colleagues, Sonneborn and Kroc's longtime secretary and administrative assistant, June Martino. They had become complacent, Kroc says now. "When you're green you're growing: when you're ripe you rot. So I told them I'd give them a $100,000-a-year pension for life if they would quit and get out of the way." Both Sonneborn and Mrs. Martino left in 1967. Since then neither of them has been known to mutter a word about Kroc—unkind or otherwise—and Sonneborn refuses to discuss McDonald's at all.
As the familiar sign changed from "4 billion served" to "10 billion" to "16 billion," Kroc kept a tight rein on operations. He made sure that every McDonald's flew an American flag, required conservative dress and haircuts for employees and followed his ubiquitous posted dictum: "Quality service, clean lines." His restaurants were always ready with free hamburgers and coffee when floods or tornadoes hit and willing to sponsor fund-raising campaigns for needy families. The company also went out of its way to promote black ownership of franchises in black neighborhoods. "Being involved is good for the community," Kroc says, "and it's good for the business."
In 1972 Kroc was flush enough to celebrate his 70th birthday by giving more than $7.5 million to charity, part of it to his own Kroc Foundation, which supports research in diabetes, arthritis and multiple sclerosis (Kroc is afflicted with the first two diseases, his only sister the last). Then in 1973 he gave up the corporation's chief executive post to Fred Turner, 42, who had worked as a cook in Kroc's first McDonald's franchise and had been named president in 1968.
When McDonald's is criticized for catering to Americans' addiction to junk food, Kroc still takes it personally. "What do all those nutritionists and college professors and those Nader types know?" he says. "How many jobs have they ever created?" He is offended, too, by the occasional community protest over the prospective construction of yet another McDonald's.
"It's true that it would be hard to start a business like McDonald's today, with all the interference you'd get from the government and the unions," Kroc ruminates. "But I think this country could use a lot of things. Some popcorn stands, for instance, just nice simple popcorn with salt and real butter, a good product at a reasonable price. If I were a little younger..."
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