Lecture on Ray Kroc and the McDonald's Story

Ray Kroc's Early Struggles

• Time Period: 1954
• Profession: Salesman
• Product: Multimixer milkshake machine
• Challenges: Difficulty selling the machines to small drive-ins; problematic restaurant service (slow, incorrect orders); dislikes teenage clientele.

Turning Point: McDonald's Discovery

• Location: San Bernardino, California
• Business: McDonald's small walk-up stand
• Efficient Service: Fast order processing, disposable food wrappings, small family clientele
• Introduction to Founders: Mac McDonald and Dick McDonald
• Standards and Tools: Custom-made serving tools, exacting standards
• History: Originally aimed to work in Hollywood films, opened food stand focusing on hamburgers, fries, milkshakes
• Speedy Service Development: Chalk configurations on a tennis court to optimize layout

Franchising Proposal

• Kroc's Idea: Franchise McDonald's restaurants
• Brothers' Skepticism: Previous failed attempts at maintaining quality standards
• Inspiration: Golden arches design in Phoenix location

Initial Expansion Efforts

• First Franchise: Des Plaines, Illinois
• Funding: Mortgages home without telling wife Ethel
• Operational Challenges: Conflict with brothers over commercialization (e.g., Coca-Cola sponsorship)
• Wife's Doubts: Ethel unsure about business venture
• Franchisee Quality Issues: Lack of adherence to standards
• Strategy Shift: Targeting American working class for franchisees

Financial Struggles

• Profit Margin Issues: 1.4% not sufficient; refrigeration costs
• Conflict with Brothers: Refusal to renegotiate terms
• Cost-Saving Proposal: Powdered milk mix for milkshakes (rejected by brothers)

Solution: Real Estate Strategy

• Advisor: Harry Sonnenborn
• Proposal: Buy the land for franchises, lease to franchise owners
• Benefits: Additional income from rent, better adherence to standards
• Company Name Change: Franchise Realty Corporation (FRC)

Escalating Conflicts and Legal Maneuvers

• Contract Disputes: Ray ignores original contract terms, uses separate company (FRC)
• Infatuation with Joan: Leads to divorce from Ethel
• Buyout Proposal: Ray offers $2.7 million, ownership of San Bernardino store, handshake agreement for 1% profits
• Brothers' Resignation: Accept Ray's terms, rebrand original store
• Ray's Justification: Believed McDonald's name was key to appeal

Conclusion

• Outcome: Brothers forced to remove McDonald's name
• Ray's Success: Transformation of McDonald's into a national icon