Greatest Business Stories of All Time

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RAY KROC, M c DONALD 9S, AND THE FAST-FOOD INDUSTRY I n 1954, a Jfty-two-year-old milk-shake machine salesman saw a hamburger stand in San Bernardino, California, and envi- sioned a massive new industry: fast food. In what should have been hisgolden years, Raymond Kroc, the founder and builder of McDonald 9sCorporation, proved himself an industrial pioneer no less capable than Henry Ford. He revolutionized the American restaurant industry by imposing discipline on the production of hamburgers, french fries, andmilk shakes.

Bydevelopingasophisti- cated operating and delivery system, he insured that the french fries customers bought in Topeka would be the same as the ones purchased in New York City. Such consistency made McDonald 9s the brand name that deJned American fast food. By 1960, thereweremorethan 200 McDonald 9soutletsacross the country, a rapid expansion fueled by low franchising fees.

Ray Kroc had created one of the most compelling brands of all time. But he wasbarely turning a proJt. Ultimately, it washisdecision to use real estate as a Jnancial lever that made McDonald 9s a viable operation.

In 1956, Kroc set up the Franchise Realty FORBES GREATEST BUSINESS STORIES OF ALL TIME 178 Corporation, buying up tracts of land and acting as a landlord to eager ... more. less.

franchisees.With thisstep,McDonald 9sbegan togeneratereal income, and thecompany took off. Kroc then introduced national advertisingprogramsto support therapidly proliferatingfranchises, and when it appeared that growth in thecompany 9shometerritory wasslowingin theearly 1970s, hestarted an energetic and success- ful push to make McDonald 9s a global presence. Throughout the company 9sspectacular growth, Kroc maintained a delicate balanc- ingact, imposingrigoroussystem-widestandardswhileencouraging an entrepreneurial spirit that welcomed ideasfrom all levels. Many of these ideas contributed to the company 9s astonishing success. In amassinga$500-million fortune, thekingof thehamburger transformed the nation 9scultural landscape and forged an industry that isamongAmerica 9sgreatest exports. Thewidely imitated suc- cessof McDonald 9soffersan excellent examplefor today 9smanagers and executives searching for greater production efJciencies. By putting the humble hamburger on the assembly line, Kroc showed the world how to apply sophisticated process management to the most prosaic endeavors. To succeed the McDonald 9s way, compa- niesmust deJne the basic premise of the service they offer, break the labor into constituent parts, and then continually reassemble and Jne tune the many steps until the system works without a hitch. Today, companies engaged in delivering pizzas, processing insurance claims, or selling toysbeneJt from the kindsof systems R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 179 that Ray Kroc pioneered. To thedegreethat such operationsmain- tain quality control, and cherish customer satisfaction, proJts may Kow. Discovering the Future in San Bernardino Asa milk-shake machine salesman, Raymond Kroc routinely paid visits to clients. But when the Jfty-two-year-old salesman traveled from his home near Chicago to southern California to meet two of his biggest clients, the result was anything but routine. Maurice and Richard McDonald had left New Hampshire in 1930, seeking to make their fortune in Hollywood. Unable to strike it big in Tinseltown, thebrotherswound up asproprietorsof adrive-in restaurant in San Bernardino, a dusty outpost Jfty-Jve mileseast of LosAngeles. While most restaurantsbought one or two Prince Castle Multimix- ers, which could mix Jve shakesat once, the McDonaldshad purchased eight. And Kroc was curious to see what kind of operation needed the capacity to churn forty milk shakes at one time. So he trekked to San Bernardino, and what he saw there changed his life. Kroc stood in the shadows of the stand 9s two radiant golden arches, which lit up the sky at dusk, and saw linesof peoplesnakingoutsidetheoctagonal restaurant. Through the building 9s all-glass walls, he watched the male crew, clad in white paper hatsand white uniforms, hustle about the squeaky-clean restaurant, dishing out burgers, fries, and shakes to the working-class familiesthat droveup. 8 8Something wasdeJnitely happening here, I told myself, 9 9 Kroc later wrote in his autobiography, Grinding It Out. 8 8This had to be the most amazing merchandising operation I 9d ever seen. 9 9 Unlike so many food-service operationsKroc had come across, this joint hummed like a Jnely tuned engine. As Forbes put it: 8 8In short, FORBES GREATEST BUSINESS STORIES OF ALL TIME 180 the brothers brought efJciency to a slap-dash business. 9 9 They offered a nine-item menu 4burgers, french fries, shakes, and pies 4eliminated seating, and used paper and plastic utensils instead of glass and china. They had also devised the rudiments of a hamburger assembly line so they could deliver ordersin lessthan sixty seconds. And the priceswere remarkably low: Jfteen-cent burgers and ten-cent fries. Kroc instantly knew he had seen the future. 8 8When I saw it working that day in 1954, I felt like some latter-day Newton who 9d just had an Idaho potato car- omed off his skull, 9 9 Kroc said. 8 8That night in my motel room I did a lot of heavy thinking about what I 9d seen during the day. Visions of McDonald 9s restaurants dotting crossroads all over the country paraded through my brain. 9 9 Kroc had seen his destiny. In 1906, Kroc 9s father had taken four- year-old Raymond to see aphrenologist 4a practitioner of a nineteenth- century 8 8medicine 9 9 that divined insights into a person 9s character and capabilities from the skull 9s shape and size. After groping and probing the bumps on the youngster 9s head, the phrenologist pronounced that the child would work in the food-service industry. Kroc had an intuitive feel for the restaurant business. He also pos- sessed a more practical working knowledge of the industry, having spent the past thirty years selling paper products and milk-shake machines to restaurantsall over the nation. In hisjourneys, Kroc saw an astonishing variety of operations 4coffee shops, mom-and-pop dinettes, diners, burger stands, and ice-cream chains like Tastee-Freez 4and became something of an expert on the low end of the American restaurant scene. Kroc concluded that too many of his clients were hamstrung by haphazard, unscientiJc management. And to their great chagrin, Kroc took to offering unsolicited advice on how they could improve their businesses. 8 8I considered myself a connoisseur of kitchens, 9 9 he said. 8 8I prided myself on being able to tell which operations would appeal to the public and which would fail. 9 9 Kroc felt sure the McDonald brothers 9 operation could succeed wildly if it expanded. So the next day, he offered them a proposition. R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 181 8 8Why don 9t you open a seriesof unitslike this? 9 9 he asked. The brothers demurred. They had already sold franchisesin Phoenix and Sacramento for very little money, and had reaped no great beneJts. At root, they were indifferent businessmen, satisJed with the $100,000 they earned annually and unwilling to invest the energy to build a chain. But Kroc wasaveteran salesman with morethan thirty yearsof experience. Using every ounce of persuasion he could muster, he Jnally convinced the brothers to cut a deal: Kroc would sell McDonald 9s franchises for the low price of $950. In exchange, he would keep 1.4 percent of all sales and funnel 0.5 percent back to the brothers. Because franchiseeskicked back such a meager percentage of total sales 4just 1.9 percent 4the corporate parent made very little money. This arrangement was far more favorable to the McDonalds 9 than to Kroc, for that small slice of revenues would have to account for Kroc 9soverhead and marketing costs 4and proJts. But it wasthe act of a desperate man. While Kroc made $12,000 a year from Multimixer sales, the business was marked for extinction due to heavy competition from Hamilton Beach-brand mixers. Too old to start again from scratch, the middle-aged salesman believed the comfortable existence he and his wife, Ethel, led in suburban Arlington Heights, Illinois, would vanish if this venture failed. 8 8If I lost out on McDonald 9s, I 9d have no place to go, 9 9 he said. Branding a Service and an Operating System With thedeal in hand, Kroc set about fulJllinghisvision of McDonald 9s restaurants blooming from coast to coast. He started by building the chain 9sJrst link 4an experimental model in DesPlaines, Illinois, outside Chicago, that featured the same low prices, limited menu, and rapid service as the San Bernardino stand. Opening on April 15, 1955, the store rang up a respectable $366.12 in sales, and quickly became proJt- able. Kroc watched over the store with the vigilance of a new mother, FORBES GREATEST BUSINESS STORIES OF ALL TIME 182 personally overseeing the kitchen and scraping gum off the parking lot with a putty knife. For Kroc, duplicating the McDonald brothers 9 single store was just the beginning. To build a chain, Kroc knew that he had to impose discipline on the loosely run restaurant industry. And that meant reJn- ing standardized operating procedures into easily replicable processes. Forty yearsearlier, Henry Ford had realized that the massproduction of automobiles required the marriage of precision parts to an efJcient assembly process. Kroc 9sinsight wasto apply the same rigor to the con- struction of sandwiches. Espousing the idea that 8 8there is a science to making and serving a hamburger, 9 9 Kroc endowed his beef patties with exacting speciJcations 4fat content: below 19 percent; weight: 1.6 ounces; diameter: 3.875 inches; onions: 1 D 4 ounce. Kroc even built a laboratory in suburban Chicago to devise a method for making the per- fect fried potato in the late 1950s. The upstart company became an obsession for Kroc. 8 8I believe in God, family, and McDonald 9s 4and in the ofJce, that order isreversed, 9 9 he liked to say. But it seemed McDonald 9salwayscame Jrst. Kroc 9ssales experience taught him that business was a Darwinian proposition, in which those least Jt and adaptable would go the way of the dinosaur. Apparently, Kroc 9smarriage wasnot strong enough to survive the chal- lenges of starting a new business. Ethel didn 9t share her husband 9s visceral feel for the restaurant business, and angered by Ray 9s late-life gamble, she resented the way the new company had taken over her husband 9s life. 8 8This was a veritable Wagnerian opera of strife, 9 9 Kroc wrote. 8 8It closed the door between us. 9 9 The thirty-nine-year marriage would Jnally end in divorce in 1961. In seeking to build a chain, Kroc knew that McDonald 9s did not have the Jeld to itself. When he opened for business in 1955, A&W, Dairy Queen, Tastee-Freez, and Big Boy were all modestly established chains, and the Jrst Burger King (known then asInstaBurger King) had just openedin Miami. ConsequentlyKroctook great painstodifferentiate McDonald 9sfrom theseplayers 4for competitiveand intellectual reasons. R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 183 The crucial difference between Kroc and his rivals was one of world view. He saw franchiseesasbusinesspartners, not asmere customers. In his travels selling the Multimixer, he had observed the way franchisers milked franchiseesfor proJtswithout concern for their long-term viabil- ity. Kroc vowed not to fall into that lucrative but ultimately unproduc- tive trap. 8 8My belief was that I had to help the individual operator succeed in every way I could. His success would insure my success. But I couldn 9t do that and, at the same time, treat him as a customer, 9 9 he said. Instead of simply supplyingfranchiseeswith milk-shakeformulaand ice cream, Kroc wanted to sell hisnew partnersan operating system. In other words, hebranded aservice. And thiswastherevolutionary means McDonald 9s would use to create a chain in which a store in Delaware and a store in Nevada could serve burgers of the exact same size and quality, each containing the same number of pickle slices and topped with the same-size dollops of mustard and ketchup, each arrayed on a similar tray alongside potatoes deep-fried for the exact same length of time. AsKroc recalled, 8 8Perfection isvery difJcult to achieve, and per- fection waswhat I wanted in McDonald 9s. Everythingelsewassecondary for me. 9 9 But the exacting demandsserved a strategic goal. 8 8Our aim, of course, was to insure repeat business based on the system 9s reputation rather than on the quality of a single store or operator, 9 9 Kroc said. Among Kroc 9s Jrst partners were fellow members of the Rolling Green Country Club who had seen Kroc 9sbusy Kagship store, which was a great advertisement for success. By 1958, Kroc had sold seventy-nine franchises, someof them to RollingGreen golJngbuddies. Many custom- ers, their curiosity piqued by a pleasant dining experience, knocked on Kroc 9sdoor. Still other prospective operatorsanswered Kroc 9snewspaper ads. One of them was twenty-three-year-old Fred Turner, whom Kroc hired asa dollar-an-hour burger Kipper in 1955. Turner shared hisboss 9s fascination for the mechanics of burger-making, and quickly became a favorite of Kroc, who had only a daughter. 8 8I have a son 4his name is Fred Turner, 9 9 wroteKroc. Turner becameKroc 9stop assistant and joined FORBES GREATEST BUSINESS STORIES OF ALL TIME 184 two other key employees in the central ofJce: June Martino, who had been Kroc 9s secretary from his Multimixer days; and Harry Sonneborn, a former Tastee-Freez Jnance executive who offered to come work for McDonald 9s for the low salary of $100 a week in 1955. Real Estate as a Financial Engine Although McDonald 9s franchises sprouted up across the Midwest and West like wildKowersafter aspring rain, the company 9ssuccessappeared to beshort lived. Whiletheoriginal deal hehad struck with theMcDon- ald brothers endeared Kroc to early franchisees, it also set his Kedgling enterprise on a direct course to insolvency. Through 1960, when the chain 9s restaurantsracked up $75 million in sales, McDonald 9s earnings wereamere$159,000. 8 8In short, Kroc 9sconcept for buildingMcDonald 9s was Jnancially bankrupt, 9 9 wrote McDonald 9s historian John Love. And Kroc 9s dream house of cards began to collapse under its own weight. Unable to give valued employees like Martino and Sonneborn raises, Kroc paid them by grantingthem 30 percent of thecompany. Hefurther diluted his equity by ceding 22 percent of McDonald 9s stock to two insurance companies to get a $1.5-million loan in 1961. Even thisloan, obtained at remarkably onerousterms, only tempo- rarily slaked the Jrm 9s thirst for capital: Kroc needed to raise a huge chunk of money 4$2.7 million 4to buy out the McDonald brothers. His relationship with them was a continuing source of irritation. They did not meet his precise standards at the McDonald 9s franchises they had sold in California. Worse in Kroc 9seyes, they took the liberty of selling a McDonald 9sfranchise to a competitor in Cook County, Illinois, Kroc 9s home territory. Such actions intensiJed Kroc 9s desire to manage the growing enterprise on hisown. However much he came to rue hiscon- nection with the McDonald brothers, Kroc realized the value of product identiJcation created by the more than 200 outletsbearing their name. 8 8I needed the name, 9 9 Kroc lamented. 8 8How far could I go on Kroc burgers? 9 9 Desperate for ultimate control of the McDonald 9s name, in R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 185 1961 he mortgaged the company 9s future again. A New York money manager arranged a $2.7-million loan from several college endowment and pension funds, the interest payments on which were calculated as a percentage of McDonald 9s sales. Deep in hock and with no proJt growth in sight, Kroc faced a classic dilemma. He couldn 9t afford to expand. And he couldn 9t afford to tread water. Fortunately, Harry Sonneborn came up with a solution. He thought McDonald 9scould make money by leasing or buying poten- tial store sites and then subleasing them to franchisees initially at a 20 percent markup, and then at a 40 percent markup. Under this plan, McDonald 9s would scout out sites and sign twenty-year leases at Jxed rates. Franchiseeswould then pay McDonald 9seither a minimum rate or a percentageof sales, whichever wasgreater. Assalesand pricesinevita- bly rose over the years, the company would collect more and more rent as its costs remained virtually constant. Embracing Sonneborn 9sidea, in 1956 Kroc set up a subsidiary, the Franchise Realty Corporation, to execute the new strategy. In the years thereafter, heKew around thecountry in asmall airplane, scoutingsubur- ban neighborhoods dotted with tract housing, schools, and churches 4 which he regarded as fertile ground for the planting of new 8 8Golden Arches. 9 9 In thispre-strip-mall era, real estatealongwell-traveled byways was both cheap and plentiful. And in a short period of time, the real estate operation became a high-margin contributor to McDonald 9s bot- tom line. As Kroc noted: 8 8This was the beginning of real income for McDonald 9s. 9 9 The real estate strategy played perfectly into Kroc 9s larger goal of control. Rather than sell blanket geographic franchises, which would grant the holder the right to build asmany or asfew storesashe chose in a particular area, Kroc sold only individual franchises, for a low fee of $950. Thisinsured that operatorsunwilling to play by hisrulescould open no more than one outlet. Asa landlord, Kroc could compose legal documents guaranteeing further control. And by writing leases that would forcetenantsto conform to corporatepolicy, hecould moreeasily FORBES GREATEST BUSINESS STORIES OF ALL TIME 186 insure that the look, feel, and taste of McDonald 9s would be identical in Bangor, Maine, and Butte, Montana. Leaving the company 9s stabilized Jnances in the capable hands of Harry Sonneborn, Kroc set about expanding and professionalizing the growing industrial empire. Under hisnovel conception, each franchisee and operator was like a plant manager. Knowing that the hallmark of any sophisticated industrial complex is professional management, Kroc in 1961 launched a training program 4later called Hamburger Univer- sity 4at a new store at Elk Grove Village, Illinois. There, the faculty trained franchiseesand operatorsin the scientiJc methodsof running a successful McDonald 9s and drilled them in the Kroc gospel of Quality, Service, Cleanliness, and Value. 8 8I put the hamburger on the assembly line, 9 9 Kroc liked to say. Hamburger U also contained a research and development laboratory to develop new cooking, freezing, storing, and serving mechanisms. While Kroc dictated the size and shape of burgers, he gave franchi- sees wide latitude in other areas. He knew that McDonald 9s had to simultaneously unleash the entrepreneurial energiesof hundredsof oper- ators while maintaining the standards and regulations crucial to the efJcient operation of a far-Kung industrial enterprise. As McDonald 9s chronicler John Love wrote: 8 8Ray Kroc 9s genius was building a system that requiresall of itsmembersto follow corporate-like rulesbut at the same time rewards them for expressing their individual creativity. 9 9 Going Public Through Advertising and a Stock Offering Nowhere wasthe dichotomy between central control and operating au- tonomy more evident than in advertising. At Christmas in the late 1950s, Turner and other managerswould tour the Chicago Loop in the 8 8Santa Wagon, 9 9 an ice-cream truck converted into a rolling likeness of a McDonald 9s drive-in. But despite this penchant for old-fashioned hucksterism, McDonald 9shad no company-wide advertising strategy. In- stead, when Minneapolisoperator Jim Zein saw hissalesexplodein 1959 R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 187 after running radio ads, Kroc encouraged operators to take to the air- waveswith their own campaigns. Followingthisdirective, two Washing- ton, D.C., franchisees, John Gibson and Oscar Goldstein, decided to target kids by sponsoring a local children 9s show, Bozo 9s Circus. When the station canceled the show in 1963, the franchisees hired the head- liner, a twenty-Jve-year-old television announcer named Willard Scott, to create a new clown persona for local ads. Thus was born one of advertising 9s most enduring icons: Ronald McDonald. Successful advertising helped spur even greater growth. And in 1965, with 710 McDonald 9s spread throughout forty-four states, $171 million in sales, and a relatively tidy balance sheet, McDonald 9s Jnally blossomed. The company went public on April 15, ten yearsto the day after Kroc opened the Des Plaines store, selling 300,000 shares priced at $22.50 each. Many of the shares were offered by Kroc, who reaped $3 million on the sale, as well as by Sonneborn and June Martino. As investors jumped on the McDonald 9s bandwagon, the stock jumped to $30 on its Jrst day of trading and soared to $49 soon after. Kroc deployed the cash to expand and fend off rapidly proliferating rivals, for thecompany 9ssuccesshad spawned aslew of imitatorsseeking to cash in on the growing industrialization of fast food. In 1965, there werealready 1,000 Kentucky Fried Chickens, 325 Burger Chefs, and 100 Burger Kings in operation. Each chain, fortiJed by cash infusions, ex- panded rapidly in the late 1960s, so much so that by 1970, fast food had grown to a$6.2-billion businessgarnering17.8 percent of all money spent in restaurants. In such an environment, standingstill wastantamount to shrinking. 8 8A laurel rested upon quickly wilts 9 9 was a favorite Kroc-ism. So aside from opening new restaurantsat a breakneck pace, McDonald 9sadded a new weapon to itsarsenal: national advertising. Havinglabored mightily to create uniform standardsthroughout the system, Kroc expended capi- tal to forge a uniform image. In 1967, McDonald 9s spent $2.3 million, or about 1 percent of itssales, on itsJrst national advertising campaign, which wasan unheard amount for a fast-food chain. 8 8What small busi- FORBES GREATEST BUSINESS STORIES OF ALL TIME 188 nessman wouldn 9t cheerfully give up 1 percent of his gross to get our kind of commercials and things like sponsorship of The Sound of Music on network television to promote his store? 9 9 Kroc asked rhetorically. Expanding the Ronald McDonald campaign created by the Washington franchisees, thecompany outJtted theclown with agaggleof kid-friendly characters such as the Hamburglar, Mayor McCheese, and Grimace, a large purple creature who craved shakesand french fries. 8 8We 9re not in the hamburger business; we 9re in show business, 9 9 Kroc liked to say. Kroc backed up theadvertisingblitzkriegwith several new products, many of which werecreated by franchisees. Pittsburgh operator Jim Del- ligatti, seeking to bolster sales, in 1967 began testing a new double- decker hamburger that he dubbed the Big Mac. McDonald 9sintroduced the sandwich throughout the chain in lessthan a year, and it hassince become the Jrm 9s enduring signature product. Other new menu items, ranging from the Filet-o-Fish to the Egg McMufJn, also sprouted from the fertile imaginationsof McDonald 9soperatorsand were similarly wel- comed by Hamburger Central, as the headquarters came to be known. Becoming a Global Institution Through rapid growth and extensiveadvertising, McDonald 9sin theearly 1970sbecamethenation 9slargest fast-food chain and an easily recogniz- able feature of the American cultural landscape. And the supreme ruler of McDonaldland, Ray Kroc, became a Jgure of national stature. In 1972, when more than 2,200 McDonald 9s outlets racked up $1 billion in sales, Kroc received the Horatio Alger award from Norman Vincent Peale. As the value of his stock holdings rose to about $500 million, the septuagenarian acquired certain trappingsof wealth: a house in Bev- erly Hills, a mansion in Florida whose doorbell chimed 8 8You Deserve a Break Today, 9 9 and the San Diego Padres baseball team. But Kroc re- mained at heart a simple man, who spoke proudly of 8 8the peasant bones of my Bohemian ancestors. 9 9 Unlike so many other newly rich captains of industry, hedeveloped no tastefor great art or society events. Instead, R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 189 he continued to Jnd beauty in the simple bun. 8 8It requires a certain kind of mind to seebeauty in ahamburger bun, 9 9 Kroc rhapsodized. 8 8Yet, is it any more unusual to Jnd grace in the texture and softly curved silhouette of a bun than to reKect lovingly on the hacklesof a favorite Jshing Ky? 9 9 Just astheFord Motor Company aroused thescrutiny of muckraking journalists and reforming politicians, Ray Kroc 9s high-proJle industrial juggernaut attracted attention from many quarters. As McDonald 9s fare became a staple of the American diet, it aroused the snobbery of the food industry elite. New York Magazine 9s Mimi Sheraton proclaimed: 8 8McDonald 9sfood isirredeemably horrible, with no saving graceswhat- ever. 9 9 Nor did the nutritioniststake kindly to McDonald 9sofferings. As Dr. Jean Mayer, a Harvard professor, wrote: 8 8The typical McDonald 9s meal 4hamburgers, french fries, and a malted 4doesn 9t give you much nutrition. . . . It 9s typical of the diet that raises the cholesterol count and leads to heart disease. 9 9 Politicians took note, too. In 1974, when the company 9s market value surpassed that of lumbering U.S. Steel, Senator Lloyd Bentsen complained: 8 8Something is wrong with our economy when the stock market islong on hamburgersand short on steel. 9 9 But the future Secre- tary of the Treasury ignored the fact that burgershad become an indus- trial product nearly as signiJcant as rolled steel, for the McDonald 9s industrial complex wasaprodigiousconsumer of raw materials. It bought about 1 percent of all beef wholesaled in the United Statesand a huge quantity of potatoes besides. Each store was an opportunity-generating machine 4providing one out of Jfteen young Americans with a point of entry into the workplace. To broadcast itsbooming output, McDon- ald 9s made a practice of posting its latest chain-wide total sales Jgures on the Golden Arches. And the mounting billions were monitored in the highest ofJces in the land. President Richard Nixon, upon meeting Kroc in the early 1970s, asked him: 8 8What is it now, eight or nine billion? 9 9 Kroc replied: 8 8Mr. President, it 9s twelve billion. 9 9 Many analystsviewed McDonald 9srampant growth asunsustainable. FORBES GREATEST BUSINESS STORIES OF ALL TIME 190 But Kroc believed the company needed to continue to expand in order to survive. 8 8I don 9t believe in saturation, 9 9 hesaid. 8 8We 9rethinking and talking worldwide. 9 9 Kroc envisioned a world in which 12,000 sets of Golden Archeswould stand asoutpostsof a mighty commercial empire. Sure, there wasone store for every 90,000 citizensof the United States in 1972. But there were three billion people outside America 9s borders who had never wrapped their mouths around a Big Mac. So just as Henry Ford sought foreign marketsfor theModel T, Ray Kroc embarked upon an ambitious campaign. McDonald 9s started by invading former Axis powers Japan and Germany in 1971. And in 1977, it introduced the fast-food sandwich to the land of Sandwich, opening the company 9s 3,000th store in London. 8 8With all the fervor of the Pilgrims returned, McDonald 9sset out to introduceEuropeto thejoysof thereal American hamburger, 9 9 Forbes noted. Establishing beachheads in European capitals was just the begin- ning. Over the course of the decade, the thousand stores that the company opened overseas fueled its 27 percent annual growth rate. Golden Arches sprouted from the soil in virtually every continent 4in South America, in Europe, and in Asia. Thechain becameso universally recognized asa symbol of American enterprise and inKuence that, when Marxist guerrillasblew up a McDonald 9sin San Salvador in 1979, they proclaimed the terrorist act a lethal blow against 8 8imperialist America. 9 9 Although Kroc stepped down as chief executive in 1968, giving way to Fred Turner, he remained a vital symbol of the company 9sroots, and an enduring inKuence over day-to-day operations. The founder re- viewed Jrst-day results from each new store, and kept watch over the company-owned McDonald 9s outlet from his ofJce in southern Califor- nia. 8 8Despite McDonald 9s success, and his personal wealth of $340 million, he always worries, 9 9 Forbes wrote in 1975. 8 8When Kroc travels, he insists that his chauffeur take him to at least six McDonald 9s for surprise inspections. 9 9 Though he killed the competition, the competition didn 9t kill Ray R AY K ROC , M C D ONALD 9S , AND THE F AST -F OOD I NDUSTRY 191 Adapting to Foreign Climates O ne key to McDonald 9s continued growth is international expansion. With opera- tions in more than 65 countries, McDonald 9s now opens about one-third of its new restaurants outside of the United States. In the early 1990s, Fred Turner predicted that international sales would eventually surpass U.S. sales. While foreign markets can sometimes offer new obstacles for the American company, like hostile government bureaucracies and unreliable local suppliers, McDonald 9s faces an even greater overall challenge. In each country, from Bel- gium to Brunei, the company is forced to walk the tightrope of selling its uniquely American product, while simultaneously catering to local tastes. Although McDonald 9s always insisted on planting its rigid operating system in foreign soil, when it came to other aspects of the restaurants 9 operation, the company was more 8exible. For example, to make the chain 9s name more easily pronouncable for Japanese consumers, it was changed to Makudonaldo , and its mascot became Donald McDonald. Hamburger Central also allowed local opera- tors to devise unique promotional campaigns. 8 8Our name may be American, but we 9re all Irish, 9 9 ran one promotional campaign for outlets in Dublin. Today, even the menus at McDonald 9s restaurants in foreign locations clearly re8ect differences that do not exist at the company 9s American outlets. While the stores offer fare like hamburgers, french fries and milk shakes, there have been some additions: for example, when McDonald 9s restaurants opened in Germany in the early 1970s, they started serving beer; in the Philippines they offer McSpaghetti noodles, while Norwegian franchises offer a salmon 7llet sandwich, the MacLak. Kroc. Hepassed away from old agein January 1984, at theageof eighty- one, just ten monthsbeforeMcDonald 9ssold its50-billionth hamburger. Ray Kroc didn 9t live to see his company 9s ultimate triumph. The Dow Jones Industrial Average, the best daily barometer of the nation 9s FORBES GREATEST BUSINESS STORIES OF ALL TIME 192 economy, consists of the nation 9s thirty most important companies. In 1985, when the value of McDonald 9s $4.16-billion real estate portfolio surpassed that of Sears, the New York Stock Exchange added McDon- ald 9s to the Dow. With this stroke, Wall Street validated Ray Kroc 9s contention that beef patties could be placed on the assembly line. The once-humble hamburger Jnally took its rightful place among planes, trains, and automobiles as a titan of American industry.

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