An American visionary who was behind the aggressive, successful franchising of McDonald's restaurants, developed of the McDonald's Corporation franchising program.
“ Adversity can strengthen you if you have the will to grind it out.” – Ray Kroc
Raymond Albert “Ray” Kroc ( Oct 5, 1902 - January 14, 1984)
Fast food enthusiasts around the world take for granted what was once just a vision in the mind of franchise pioneer, Ray Kroc. Although Kroc was not the founder of McDonald’s restaurants nor the creator of franchising as a business growth strategy, he was the visionary behind the aggressive, successful franchising of McDonald's restaurants, and was the developer of the McDonald's Corporation franchising program.
Ray married his first wife, Ethel Fleming, in 1922 (divorced 1961) when he was barely 20 years old. His only child, Marilyn, was born in 1924. Having a young family to support, he worked at various jobs – often at the same time--- throughout the 1920s and Great Depression era. Possessed with a tireless work ethic, the gift of gab, a keen intellect, and a strong desire to succeed, Ray was a natural salesperson; selling everything from real estate to paper cups.
From 1938-1954, Kroc owned the Prince Castle Sales company which had exclusive rights to sell Multimixer machines that blended multiple milkshakes at the same time. It was through his mixer sales in 1954 that he met brothers Richard “Dick” and Maurice “Mac” McDonald in their small but wildly successful San Bernadino, Calif., McDonald’s restaurant, which they had opened in 1940.
Ray witnessed first-hand their booming hamburger, milkshake, and French fry take-out business. Kroc was impressed with their innovative, efficient food prep and delivery system which, combined with their limited menu items, enabled them to focus on quality, consistency, and quick service. Their system, which they called the Speedee Service System, delivered hot, fresh food orders and thick cold milkshakes in an astonishingly short 20 seconds from the time a customer placed their order.
The McDonalds were looking for a new franchising agent, and Ray immediately saw an opportunity.
At age 55, Ray partnered with Dick and Mac to continue the franchising of their restaurant, and formed McDonald’s System, Inc., a predecessor of the McDonald’s Corporation. Kroc franchised the first McDonald's restaurant in Des Plaines, Ill., on April 15, 1955.
In 1961, at age 62, when Ray’s vision for rapidly growing the company was no longer compatible with the more laid back McDonald’s brothers, he bought them out for $2.7 million dollars. Kroc risked his life savings and went into significant debt in order to fulfill his vision to aggressively, and strategically grow the number of McDonald’s locations on a national--- and eventually a global--level.
Having amassed great wealth, Ray started the Kroc Foundation in 1965 and was its sole benefactor. The foundation supported research on diabetes (which killed his daughter Marilyn in 1973), arthritis, and multiple sclerosis.With a singular focus on quickly growing the number of McDonald’s restaurants, Ray worked around the clock, 24/7 (which he called “grinding it out”). He continued to take big financial risks in order to achieve his goal of rapid growth for McDonald’s stores throughout the USA and internationally. This, along with other factors, took a toll on his personal life as evidenced by his two failed marriages. Ray married his third wife, Joan Mansfield, in 1969.
Kroc died of heart failure in San Diego, Calif., on January 14, 1984 at age 81. At that time, McDonald's Corporation had 7,500 restaurants across nearly 36 countries, was valued at about $8 billion dollars, and had sold its 50 billionth hamburger. At the time of Kroc’s death, his personal estate was estimated at $500 million. Less than 20 years later in 2002, Ray Kroc’s personal estate was worth more than $2.3 billion dollars. Prior to her death on October 12, 2003, his widow Joan had the vast responsibility of giving away that staggering amount of money to hundreds of charitable organizations and causes.
Today, McDonald’s Corporation is worth more than $104 billion dollars and is the world’s leading fast food retailer. According to the McDonald's Corporation website (as of January 2018), McDonald's has locations in 101 countries. Over 80% of the more than 36,000 restaurants around the world are franchised (owned and operated by local businesspersons) and serve about 69 million people every day.
As America was entering World War I, against his parents’ wishes, Ray dropped out of high school at age 15. Like several young men of that era, he lied about his age in order to enlist in the war effort. He signed up as a Red Cross ambulance driver, training in Connecticut. The Armistice was signed November 11, 1918 just before Ray was to get on a boat for France.
Kroc married his first wife, Ethel Fleming, in 1922 (divorced 1961) when he was barely 20 years old. His only child, Marilyn, was born in 1924. Having a young family to support, combined with his tireless work ethic, Ray worked at various jobs---often at the same time-- throughout the 1920s and Great Depression era, including selling real estate in Florida, and playing piano in orchestras and bands during live radio program broadcasts.
Ray’s gift for gab, candid, no nonsense approach, and self-assuredness suited him well for sales. For most of the 1920s and 1930s, Kroc was a successful salesperson for the Lily Cup (aka Lily Tulip) Company, selling paper cups and containers to restaurants, stores, hotels, and businesses nationwide. Due to the American flu epidemic of 1918, paper cups were initially popular as a way of avoiding infection. With Prohibition, America became a nation of ice cream consumers, with bars and lounges in hotels selling ice cream and milkshakes since they could not legally sell alcohol. This further expanded the demand for paper cups and paper-based containers.
It was during a sales call to the founders of one of his paper cup clients, the Prince Castle Company, that ultimately led to Ray crossing paths with the McDonald brothers in California. Prince Castle made Multimixer machines, a six-spindled, 30 lb. metal contraption that could efficiently blend up to six milkshakes at a time. Ray saw enormous potential in selling these machines to restaurants who also bought paper cups. In 1938, Ray paid $68,000 to have the exclusive right to sell Multimixers and to use the name Prince Castle, a move that increased his total debt to $100,000. He formed a new corporation called Prince Castle Sales to distribute the powerhouse machines.
In one year alone, Kroc and his team sold about 8,000 Multimixers to neighborhood drugstores with soda fountain counter service, and businesses like Dairy Queen, Tastee-Freeze, Willard Marriott of A & W Root Beer, and to a hamburger joint in San Bernadino, Calif., called McDonald’s.
In 1954, Ray noticed his west coast Prince Castle Sales representative, William Jamison, was frequently ordering Mixmasters for a small roadside restaurant in San Bernadino, Calif., called McDonald’s. Curious as to why one hamburger joint needed multiple Mixmasters, Ray flew out to see the business for himself and witnessed first-hand the constant stream of customers. Business was brisk and booming at McDonald’s.
At this time, the McDonald brothers were receiving franchise inquiries even though expanding their locations was not their focus nor driving interest. They had a franchising agent currently battling health issues, but he had succeeded in building and selling nine McDonald’s stores, with about another 20 deals in the works.
Ray was in the right place, at the right time. Kroc loved the McDonald’s streamlined Speedee Service System and saw the potential to put a McDonald’s store in every state in the nation, and eventually across the world.
– Ray Kroc
In 1954, at the age of 52, Ray Kroc encountered the opportunity of a lifetime.
With their franchising agent battling ill health, Kroc negotiated a contract with the McDonald brothers to become their agent. The contract stated that Ray would keep any $950 franchise fee he collected. New franchisees would turn over 1.9% of their gross sales. Of that, 1.4% would be for Ray to sustain and expand the business. The remaining ½% would go to Dick and Mac McDonald as a royalty for use of their name and idea.
Kroc franchised the first McDonald's restaurant in Des Plaines, Ill., on April 15, 1955, thus launching the McDonald’s franchise system. In 1955, Ray founded a new corporation called McDonald’s Systems, Inc. (predecessor of the McDonald’s Corporation) in Chicago, Ill.
In 1956, one of the first employees Kroc hired for his newly formed McDonald's Corp. was Fred L. Turner. Although he started as a grill operator, Fred wrote the company’s first training manual in 1958, went on to be the founder of McDonald’s Hamburger University training program in 1961, co-founder of Ronald McDonald Charities, and progressed to become McDonald’s president, CEO, and chairman.
In 1961, at age 62 and recently divorced from his first wife, Ethel, Ray’s vision for rapidly growing the company was no longer compatible with the McDonald brothers. He bought them out for $2.7 million dollars. Kroc risked his life savings and once again went into significant debt in order to fulfill his vision to aggressively, and strategically grow the number of McDonald’s locations on a national level.
With a singular focus on quickly growing the number of McDonald’s restaurants, Ray worked around the clock, 24/7 (which he called “grinding it out”), and continued to take big business risks, often remortgaging his home and other personal assets as collateral. Ray achieved his vision for rapid growth.
While the name on the stores said “McDonald’s”, the face of the restaurant brand quickly became Ray Kroc’s, with many stores displaying wall plaques with Kroc’s likeness.
By 1959, McDonald’s had opened its 100th store; by 1960 there were more than 200. In 1963, with more than 110 new McDonald’s stores being built across the country, Ray married his second wife, Jane Green; they divorced in 1968. Kroc credits colleague Harry J. Sonneborn as the genius behind the business strategy that was key in driving big profits for McDonald’s Corporation: having the corporation own the land and the building of each store, and leasing them to the franchisee; thus making money from rental income, as well as the franchise royalties. To that end, in 1956, Kroc set up the Franchise Realty Corporation to buy up land tracts and serve as landlord to McDonald’s franchisees.
In 1965, McDonald's Corporation went public. Common shares were offered at $22.50 per share. By the end of the first day's trading, the price had risen to $30. In 1967, the first McDonald’s restaurants outside of the continental USA opened in Puerto Rico and Canada.
In 1968, McDonald's opened its 1,000th restaurant in Des Plaines, Ill., the same city where Ray Kroc had opened his first store when he first became the franchising agent for McDonald’s.
Ray married his third wife, Joan Mansfield, in 1969.
By 1970, there was a McDonald’s in every USA state, and, in 1971, the first McDonald’s in Japan opened.
In 1980, McDonald's Corporation became one of the 30 companies that make up the Dow Jones Industrial Average.1976 was a benchmark year for McDonald’s Corporation: they surpassed $1 billion in total revenue for the first time, less than 22 years into the company’s history. For perspective, consider that IBM did not achieve $1 billion sales mark until its 46th year.
Developing the McDonald's Franchising Program
Kroc made a number of innovative changes in the food-service franchise model. Key among them was the strategy of selling only single-store franchises instead of selling larger, territorial franchises that were common in the industry at the time. Above all else, and in keeping with contractual obligations with the McDonald brothers, Kroc wanted uniformity in service and quality among all of the McDonald’s locations. Without the ability to influence franchisees, Kroc knew that it would be difficult to achieve uniformity. By granting a franchisee the right to only one store location at a time, Ray retained for the franchise a measure of control over the franchisee -- at least for those franchisees desiring to own rights to an additional store.
The McDonald’s operating system also required franchisees to follow Ray’s core business principles known as QSC and V: Quality, Service, Consistency and Value. Those basics built McDonald’s restaurant success. Every employee from line cooks to managers were required to embrace and adhere to the QSC and V practice. Kroc maintained the assembly line "Speedee Service System" for food preparation that the McDonald brothers had developed in 1948. Ray’s strict guidelines regarding preparation, portion sizes, cooking methods and packaging ensured that McDonald’s food would look and taste the same across franchises, regardless of location. These innovations contributed to the success of the McDonald’s brand on a global scale.
Founder of the Kroc Foundation (1965-1985)
Ray Kroc founded the Kroc Foundation in 1965 and was the sole benefactor. The Foundation was dedicated to supporting medical research on chronic diseases, including diabetes, multiple sclerosis, and arthritis. His only child, Marilyn Janet Barg (Kroc) was born in 1924 and died in 1973, suffering from diabetes.
In 1969, his brother Robert Louis Kroc, became president of the Kroc Foundation. The Foundation sponsored conferences, which resulted in a number of publications, and bestowed nearly 1,600 research grants to various institutions, both here in the USA, and in foreign countries.
Although the Foundation dissolved in April 1985, one year after Ray’s death, the impact of the research work it had funded at institutions around the world continues to this day.
Owner of the San Diego Padres Baseball Team (1974-1984)
Kroc’s purchase of the Padres on Jan. 25, 1974, directly saved the declining team from collapse and relocation away from San Diego.
In 1973, the team’s situation was dire. The founding owner had run out of money to support the team, the Padres win/loss record was an embarrassing 60-102, and box office attendance was dismal. The Padres were scheduled to move to Washington, D.C., at the end of the 1973 season.
Kroc, a lifelong avid baseball fan, bought the team for $12 million, thus saving them from relocating and endearing himself to local fans. Sadly, Kroc died two months before the Padres won their first World Series Championship in 1984. The team wore a memorial RAK patch on their uniform in the 1985 season in tribute to Kroc. Ray’s widow Joan Kroc owned the team through 1990 before selling it.
Websites/Blogs/Online Articles
Wikipedia.com - Ray Kroc
Biography.com - Ray Kroc
PBS.org series - Who Made America: Ray Kroc
Time.com: How a Late-Blooming Entrepreneur Made McDonald’s the World’s Largest Burger Chain
