bosses, Mac and Dick McDonald, and arranged to take them out to dinner.
As the brothers outlined their system that evening, Kroc became hooked by its simplicity and efficiency. The menu was strictly limited to just nine items, including drinks. The food comprised of either hamburgers or cheeseburgers and fries. The burgers were all identical — a tenth of a pound of beef, all cooked the same way. Whereas a coffee shop sold a hamburger for thirty cents, it was only fifteen at McDonald’s, or four cents more for a cheeseburger. The star attraction was the French fries, though — another bargain at ten cents for a three-ounce bag. The menu was completed by coffee at a nickel a cup, soft drinks at a dime, or a large milkshake for twenty cents. That was it.
Kroc had tracked down a remarkable unsung success story in San Bernardino. The brothers had started their business back in 1948, when they turned the barbecue restaurant they’d been running into a slick assembly-line operation they called a “speedee service line.” At the time the typical mass-market restaurant was a mom-and-pop coffee shop offering hundreds of items. The brothers’ nine-item menu never changed. Food was always cooked and served in the same automated way, so customers always got their meals immediately, when they were hot. They paid when they ordered, and cleared away their own debris after eating.
All of the food was good, especially the fries, yet Kroc stressed that the main attraction was the price. A meal at McDonald’s cost about half the equivalent at a coffee shop. How had Dick and Mac McDonald managed to do this?
Like Henry Ford and Ingvar Kamprad, they added value by subtraction. By removing menu variety, they made it much simpler to procure ingredients, operate the restaurant, and cook and serve the food. They subtracted waitresses. By simplifying and automating the whole process, persuading customers to do some of the work, and producing assembly-line food, their labor costs per serving were reduced to a fraction of those of a typical coffee shop. The levels of throughput were astounding, too. The little shop that Ray Kroc visited had sales exceeding $400,000 a year (around $4 million in today’s money) — more than that of an average (much bigger) McDonald’s today.3
By sourcing beef and other ingredients in large quantities, a virtuous circle was created — lower prices for hamburgers, leading to higher demand, further increasing purchasing muscle and overhead cost coverage, resulting in yet-lower prices but also higher margins. Even when it was a tiny operation with just a handful of restaurants, McDonald’s had great purchasing power, which allowed it to cut costs. The restaurants needed to buy fewer than forty items in total to make their nine products, unlike a coffee shop which needed to purchase hundreds of items for its far more extensive menu. Even with sales no greater than those of the local coffee shop, therefore, each McDonald’s outlet had much more concentrated buying power for its buns, ketchup, mustard, and other ingredients.4
Kroc recognized a money-making machine when he saw it. He also realized that the way to achieve even lower costs, and therefore prices, was to scale up the operation, while maintaining its pristine simplicity. At dinner that first day with the brothers, he told them that he’d never seen anything to rival their system in all the time he’d been selling milkshake machines to restaurants and drive-ins throughout America. He asked the McDonalds why they hadn’t already opened dozens of outlets and was met by silence. “I felt like I’d dragged my tie in my soup or something. The two brothers just sat there looking at me.”5
Finally, Mac turned round to point up a hill that rose behind the restaurant. There was a big white house with a large and pretty porch, from where the McDonalds could watch the sunset. They loved the peace and quiet and didn’t want the hassle of expansion. They were happy with their lot.
Kroc didn’t understand. He felt they were sitting on a gold mine, and if he were in their position . . .
What had the McDonalds achieved before they met Kroc? They had invented a product and proved its potential. They had reinvented the restaurant and proved the economics of fast-food simplicity. The good deal for the customer and its attraction were also basically in place. As with Ford and IKEA, the overwhelming attraction was dramatically lower prices. The original huge sign hanging over the first restaurant proclaimed “McDonald’s famous Hamburgers — Buy by the Bag,” but this was framed on both left and right by a simple “15c” in far bigger point size. Fifteen cents.6
In addition, there were subsidiary benefits (again, as with both Ford and IKEA):
1 Usefulness:High-quality food. As Ray Kroc said, “the simplicity of the procedure allowed the McDonald’s to concentrate on quality in every step, and that was the trick.”7Consistency and reliability — an identical product time after time.
2 Art:Spiffy uniforms for sharp employees.The Golden Arches.Cleanliness and visible hygiene in the store.The McDonald’s name and “M” branding.
3 Ease of use:Fast service.No tipping.
The brothers licensed eight other outlets in California and two in Arizona, but these restaurants failed to adopt the simplified approach of the San Bernardino operation. According to Ray Kroc, “The brothers” own store in San Bernardino was virtually the only “pure” McDonald’s operation. Others had adulterated the menu with things like pizza, burritos, and enchiladas. In many of them the quality of the hamburgers was inferior, because they were grinding hearts into the meat and the high fat content made it greasy.”8
Kroc had the vision of a host of “pure” McDonald’s franchisees. He negotiated a deal with the brothers whereby he would franchise the new outlets, and in 1961 he bought the whole company for $2.7 million (about $21 million in today’s money).
Then he set about turning McDonald’s into a big chain. He created a universal product of high quality, and produced a uniform system that allowed no variation, making it sufficiently simple to be franchised to thousands of entrepreneurs while still retaining absolute control and consistency. In his short memoir, he devotes a full twelve pages to the beauty of McDonald’s fries, which he claims are in a different league to those of their rivals and prepared with religious devotion, both under the brothers and on a far bigger scale under his stewardship.
Initially, getting the French fries right on an industrial scale was one of Kroc’s biggest challenges. He describes the dismay he felt in 1955 when he opened his first franchise restaurant in Des Plaines, Illinois, and failed to replicate the taste of the McDonald brothers’ fries. His fries, he said, were as good as elsewhere, but they were not a patch on the McDonalds’ fries in California. Hugely frustrated, he called the brothers, but they couldn’t work out what he was doing wrong. The breakthrough came when a researcher at the Potato and Onion Association asked Kroc to describe in detail the procedure for making fries in San Bernardino. The secret turned out to be that the potatoes were stored in open chicken-wire shaded bins, which allowed plenty of time for the wind to dry out the potatoes and change the sugars to starch. With advice from the potato experts, Kroc created his own natural curing process with a big electric fan. And bingo! The fries now tasted just like those in the original restaurant, and the same process could be replicated in all new stores.9
Kroc also describes how he developed a proprietary system that would deliver consistency for both customers and franchisees:
Consistent menu — no variants allowed — and the same methods to attain the same food quality.10
Sparkling clean toilets, restaurants, and parking lots. Cleanliness was one of the four principles that Kroc stressed, along with quality, service, and value.11
No pay telephones, jukeboxes, or vending machines of any kind.
Founding the “Hamburger University” for franchisee and staff training.
Offering
