Fifties (28 page)

From the start his restaurant was successful; by the second full year it did a total volume of $200,000, which meant that his pretax profits were around 20 percent, or $40,000. His hard work became legend within the company. He remained wary of talent and education. “Nothing in the world can take the place of persistence,” he liked to say. “Genius will not. Unrewarded genius is almost a problem. Talent will not. The world is filled with unsuccessful men of talent. Education alone will not. The world is filled with educated derelicts.”

His associates were amused when he was asked, as he often was, the secret of his success, because they knew the answer. He would begin, “I am of Bohemian extraction and I have always believed in hard work ...” He would then tell his favorite anecdote about Bohemian upward mobility: A Bohemian lived in the basement floor of his own building and ventured upstairs to the first and second floors only to collect the rent. The only ethic he knew was hard work, and he saved every bit of money he made, no matter how small. According to Kroc, family responsibilities were an important part of the Bohemian ethic: Children (not the government) were to take care of their parents and grandparents as they grew older. To the day he died, Ray Kroc harbored a bitter grudge against Franklin D. Roosevelt because of Social Security.

As it became wildly successful, the company retained its distinctly populist culture. Everyone, no matter how important the job, was supposed to answer his or her own phone; there were to be no secretaries standing between the general public and McDonald’s executives. Once Kroc called down to his Atlanta operation and a secretary asked who was calling. Kroc went ballistic and demanded that the secretary be fired on the spot; her superiors had to hide her from Kroc for a year until the incident had blown over.

If the most important component of Kroc’s Bohemian ethic was hard work, the second most important was thrift. The ketchup came
in large cans, and employees were told to open any supposedly empty cans and scrape out every last bit of remaining ketchup. Even if it was only a spoonful, spoonfuls from thousands of cans added up. Even after he had become a millionaire, Kroc would visit various McDonald’s to patrol for unused packets of sugar, salt, and pepper, which had been left on the tables, in order to keep them from being thrown out. Ray Kroc was this way not just about his business but about his personal life. In his later years, as one of the wealthiest men in America, he dined at a fancy restaurant in Bel Air, ordered trout amandine, ate only half of it and, as he was finishing, asked the waitress to put the remains in a doggy bag. “Ray, what in God’s name are you going to do with half of a trout amandine?” asked Waddy Pratt, who had gone to dinner with him. “I’m going to take it home and have it for breakfast tomorrow,” said Kroc.

There were frequent letters to the wives of McDonald’s employees imploring them to be thrifty: cigarettes should be bought by the carton; socks, toilet paper, and toothpaste should be bought in quantity and on sale. “When beef, steaks, and chops are extremely high,” he added in one letter, “it certainly seems logical to use more fish, fowl, casserole dishes, and things of that sort that really have more flavor and save a lot of money. The same is true of baked goods. I had some pumpkin bread that Virginia Lea baked that was made with canned pumpkin, orange juice, flour, dates, and nuts that was out of this world. At one time you could bake a month’s supply. The same might be said for chicken pot pie when stewing chickens are on sale. One day could be spent processing this and putting it in the freezer. So what I am saying is that the smarter you are, the farther your money will go.”

In many comparable chains, the franchiser made his money up front, either through expensive equipment sales or through heavy franchise fees; that put a heavy burden on the franchisee and took away much of the incentive on his part to help make the local operation successful. Ray Kroc wanted none of that. He kept the entry price for a McDonald’s franchise around $80,000 in the beginning, a figure that was about one third the price of starting up an independent small restaurant. From the beginning he believed that the head of the chain and the smallest franchisee were not merely partners on paper but that they were in this together, that each could bring the other down, and that any weakness in the chain threatened the whole.

The company made its money by taxing sales at the seemingly minuscule rate of 1.9 percent. “Ray, you’ve got to be crazy,” Tony
Weismuller, one of Kroc’s country-club friends, who owned a heating company, said. “There’s no way you can make money on 1.9 percent.” In the beginning, Kroc stumbled on his way to figuring out who were the perfect franchisees; he went first to his pals at his suburban Chicago country club, sure that these were the paradigms of America’s business success. Later he realized they lacked the true grit and absolute commitment that Kroc demanded for his new empire. They were, it turned out, men who had already made it, and they either looked down on the hamburger business or thought it something of a lark. Few were willing to work the backbreaking hours that owning one of these restaurants demanded or surrender as much independence as Kroc demanded. One old pal decided to charge 18 cents instead of 15 cents for a hamburger and, even worse, wore a beard—which Kroc hated. At one point Kroc even ordered the offender to take down his arch, but his friend refused. Many of his old friendships turned so sour through business involvements that Kroc found it difficult to mention their names.

The best owners, he learned, were people who had not yet made it but who were ready to bet their entire lives on one break: people like him. They had worked hard all their lives, saved a surprising amount of money, and always dreamt of owning their own business. Often, both husband and wife would be involved, and they did not so much work there as live there. He gave Sandy and Betty Agate an early franchise in Waukegan because he was encouraged by the simplicity of their background and remarkable determination: Sandy was a pressman who went to night school to get a degree in optometry and Betty, who was Jewish, sold Catholic Bibles door to door. Their franchise became one of the early showplaces. When potential franchisees showed up, Kroc often sent them to see the Agates, who would tell their entire success story and even show their tax returns. Kroc gloried in the success of such families, and it did not bother him at all if they were making a great deal more money than he was in those early years. His ego was always invested in the success of the chain, not his own financial gain.

He was a fanatic about quality control, and he became furious if he thought an owner was buying substandard ingredients. The Department of Agriculture permitted up to 33 percent fat in hamburger meat, but Kroc kept it much lower, and he kept beef additives out. He soon developed equipment with which he could test the quality of the meat at his local stands. He pushed owners to use only the best potatoes and worked hard to make sure that the potato wholesalers did not rebag and substitute second-rate potatoes. He
treated his suppliers well, and did not try to exploit his relationship with them as many franchisers did. Indeed, when he received price breaks based on the volume of business he was doing, Kroc passed much of the savings back to his franchisees. That was unheard of in this cut-throat business.

He started franchising in 1955, when his own McDonald’s was one of only two he had awarded. At first he moved very slowly. In 1956, he awarded twelve more. In 1957, there were forty; by 1958, 79; by 1959, 145; and by 1960, 228. As the new decade began they were planning to open a hundred new restaurants a year. The word was out and the rush was on. Soon the company was becoming more identified with Ray Kroc than with the McDonald brothers. “I put the hamburger on the assembly line,” Ray Kroc said in 1959, and in the larger sense, at least, he was right.

His success mounted as the highway became ever more a part of the social fabric of American life. Powerful new competitors entered the field, but by and large, Kroc treated them with scorn; they were out to make money, he said, not to make hamburgers and perform a service. They had no quality-control systems, no love of the product, no desire to make every small part of the chain as good as its whole.

Unlike the McDonald brothers, Kroc was a fierce competitor and remarkably ungenerous with others trying to establish themselves on what he considered his turf. For a long time he even refused to join any groups representing the food industry, for fear of giving away the secrets of his success. It was, he said, “ridiculous to call this an industry. This is not. This is rat eat rat, dog eat dog. I’ll kill ’em and I’m going to kill ’em before they kill me. You’re talking about the American way of the survival of the fittest.” Asked on another occasion how he felt about his competition, he answered with a vintage Krocism: “If they were drowning to death I’d put the hose in their mouth.”

His whole life became McDonald’s. He would talk about little else and had no interest in those who did not share his obsession. It was said that an earlier marriage foundered because his wife did not love McDonald’s enough; a third marriage succeeded because it was to a woman already steeped in the culture of the company. Finally, he had someone to talk to. Everything about the company, he thought, was pure artistry. “Consider, for example, the hamburger bun,” he once said. “It requires a certain kind of mind to see the beauty in a hamburger bun. Yet is it any more unusual to find grace in the texture and softly curved silhouette of a bun than to reflect
lovingly on the hackles of a favorite fishing fly? Or the arrangements and textures and colors in a butterfly’s wings? Not if you’re a McDonald’s man. Not if you view the bun as an essential material in the art of serving a great many meals fast. Then this plump yeasty mass becomes an object worthy of sober study ...”

Toward the end of his life, after suffering several partially disabling strokes, he sat in his office in San Diego and watched the traffic at a nearby McDonald’s through a telescope, clocking it against a watch and picking up the phone to yell at the manager if he thought the service was too slow.

By 1961, Kroc had started preliminary talks with the McDonalds about buying them out. The brothers were doing well: They made an annual profit of $100,000 on their own stand and in 1960, they took in an additional $189,000 from the franchises—they got one half of one percentage on sales, which by then had reached $37.8 million. The relationship between Kroc and the brothers was becoming ever more strained. Their heart had always been in their own stand. He had come to think of them as careless and lazy, people who thought in small terms, willing to sit on the sidelines and make an easy profit while he did all the heavy lifting. The brothers themselves wanted out, but they wanted out on their terms: $2.7 million to sell the name and the company to Kroc, which meant $1 million after taxes for each brother. It was a great deal of money, and Kroc was already in debt from expanding. Nevertheless, he sensed it was a bargain: The chain was growing at roughly a hundred stands a year, and would hit Kroc’s magic goal of one thousand by the end of the decade.

With the help of his financial aides, Kroc put together the loan and bought out the brothers. It was not easy to accomplish: Despite the self-evident success of McDonald’s, most banks and Wall Street financiers wanted no part of putting money into fast food. After pulling it off, Kroc’s long-simmering resentment toward the brothers finally surfaced: “Art, I’m not normally a vindictive man,” he told one friend, Art Bender, a franchisee in Sacramento, “but this time I’m going to get those sons of bitches.” Now he had the chance. He forced them to take their own name off their restaurant in San Bernardino (they changed the name to the Big M instead), and he put up a brand-new McDonald’s one block away. The real glory years for the chain were just beginning. Kroc’s old estimate of 1,000 outlets had been far too modest; some thirty-seven years after he took over the franchising, there were 8,600 McDonald’s in America, and 12,000 in the rest of the world. He achieved wealth beyond his wildest
dreams—$600 million, by some estimates)—but was completely uninterested in what wealth could bring him (other than buying a baseball team, something he had always wanted). He told one reporter, “I have never worshiped money and I never worked for money. I worked for pride and accomplishment. Money can become a nuisance. It’s a hell of a lot more fun chasin’ it than gettin’ it. The fun is in the race.”

TWELVE

T
HE VACATION THAT CHANGED
the face of the American road occurred in the summer of 1951. Kemmons Wilson was a successful home builder in Memphis, Tennessee, and he and his wife decided to take their five children to see the nation’s monuments in Washington, D.C. In those days, before superhighways, tourism was a far smaller industry than it is today. Air travel was prohibitively expensive, and the railroads were in decline. The family car was becoming the key to the new tourism. The Wilson family was fairly typical; its new Oldsmobile experienced far fewer flat tires and mechanical mishaps than prewar cars, but with all the rest and bathroom stops required for that many children, it was hard to make more than three hundred miles a day. Each afternoon, the Wilsons would have to search for one of the new landmarks of the American road, the motel. Young families generally tried to stay
away from downtown hotels, which were either too expensive or, more likely, in various stages of neglect and disrepair, reflecting the early decline of some urban neighborhoods.

But motels in those days were not exactly reliable, either. Usually located right on the main roads, they were convenient and seemed more modern than the old hotels and the alternative of dark, musty roominghouses. But at this moment, the motel business was still in its infancy and there was little in the way of industry standards. There was no way to tell which motels were clean and comfortable and which, despite the flashiness of their signs, were rattraps. At the end of the day, most motorists, tired and irritated, pulled into a motel, got out, and checked the rooms to see if the place passed inspection. Some motels, Wilson later recalled, were god-awful; some were very pleasant. The only way you could tell which was which was to see for yourself. The price per night varied in those days between $8 and $10. That was not so bad, but Wilson was enraged to find that every motel charged extra for children. The fee was usually $2 per child, even though his children had brought their own bedrolls. Thus, for a family like his, the final cost tended to be around $20. Even worse, there was rarely a place to eat nearby, and so he and his family would have to pile back into the car and hunt for a decent family restaurant.