Saturday, June 3, 2017

that's a Kroc!

From time to time, all of us have been exposed to information so blatantly false that we find ourselves exclaiming, “what a crock!” That kind of information has had a variety of titles over the years, but today it largely falls into the categories of either “fake news” or “alternate facts”, and we are seeing plenty of both in recent months.

Sharon and I watched a movie called “founder” the other day, and found it to be a very compelling story. It’s a tale about a man who started one of the most successful companies in the world. Today, McDonald's has 36,900 locations in 120 countries in the world. Annual revenue is just under $25 billion. Every day, the chain feeds roughly 1% of the entire population of the world, and it is the 2nd largest private employer in the world, second only to Walmart.   

Contrary to popular opinion, the first McDonald’s location was NOT in Des Plaines, Illinois in 1955. The very FIRST McDonald’s restaurant was a barbeque restaurant started by brothers Richard and Maurice McDonald in San Bernadino, California in 1940. In 1948, they reorganized the restaurant as a hamburger stand, using production line principles. The business was so successful that they opened a second location (complete with golden arches) in Phoenix in 1953. 

In 1955, a multi-mixer salesman named Ray Kroc joined the company as a franchise agent in 1955, and he subsequently purchased the company from them, and rapidly increased the size of the company.

Background information about the company states that the founder, Ray Kroc, was “noted for aggressive business practices”, which is a polite way of saying that Ray Kroc was a crook. He eventually forced the closure of the original restaurant in San Bernadino, and the location was demolished in 1971. Today, it is the site of a Juan Pollo chicken restaurant. 

One of Kroc’s early advisors (and later CEO of the company) convinced him to buy land, and lease it back to his franchise operators. The largest landowner in the world is Queen Elizabeth, who owns 6.6 billion acres.   The Pope is #3 on the list, with 177 million acres around the world. Although the acreage that McDonald’s owns is less than that, it owns $28.4 billion world of land and buildings around the world. The return on equity on its land ownership is 82.7%, significantly higher than the 17.4% margin on company-owned stores.

The advisor who gave some really good advice about land to Kroc eventually quit the company after a dispute with Kroc.

One of Kroc’s early franchise owners was a Minnesota man named Rawland
Smith, whose wife Joan played the organ at the Criterion restaurant in St. Paul, Minnesota. When Kroc first met her in 1957, he was entranced by her stunning good looks, and she eventually divorced her husband of over 20 years and became Kroc’s third wife in 1969. (If you live in Minnesota, you may be interested to know that she was born in West St. Paul, Minnesota, the first town that Sharon and I lived in as a married couple).

Kroc had a volatile personality, and was a heavy drinker. Joan Kroc considered divorcing him, but she hung on, and eventually inherited his fortune, which was estimated to be around $500 million, which allowed her to be a very generous philanthropist.

In the movie, the main character (played by Michael Keaton) gave his opinion about why the company was so successful, and it has a lot to do with the name. “McDonald’s” has a hearty American ring to it, much more appealing than “In N Out burger”, or a host of other competitors. If the chain had been named “Kroc” it would have ceased operations a long time ago. His parents were of Czech origin, a nationality that does not translate well in many parties of our country, or around the world.

If you really want to experience this movie to its fullest, grab a bag of burgers on the way back from RedBox. After all, you deserve a break today.

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