Grinding It Out (23 page)

During the Christmas holidays in 1972, I happened to be visiting in Santa Barbara, and I got a call from Herb Peterson, our operator there, who said he had something to show me. He wouldn't give me a clue as to what it was. He didn't want me to reject it out of hand, which I might have done, because it was a crazy idea—a breakfast sandwich. It consisted of an egg that had been formed in a Teflon circle, with the yolk broken, and was dressed with a slice of cheese and a slice of grilled Canadian bacon. This was served open-face on a toasted and buttered English muffin. I boggled a bit at the presentation. But then I tasted it, and I was sold. Wow! I wanted to put this item into all of our stores immediately. Realistically, of course, that was impossible. It took us nearly three years to get the egg sandwich fully integrated into our system. Fred Turner's wife, Patty, came up with the name that helped make it an immediate hit—Egg McMuffin.

The advent of Egg McMuffin opened up a whole new area of potential business for McDonald's, the breakfast trade. We went after it like the Sixth Fleet going into action. It was exhilarating to see the combined forces of our research and development people, our marketing and advertising experts, and our operations and supply specialists all concentrating on creating a program for catering to the breakfast trade. There were a great many problems to overcome. Some of them were new to us, because we were dealing with new kinds of products. Pancakes, for example, have to be offered if you intend to promote a complete breakfast menu. But they have an extremely short holding time, and this forced us to devise a procedure for “cooking to order” during periods of low customer count. Our food assembly lines, so swift and efficient for turning out hamburgers and french fries, had to be geared down and realigned to produce items for the breakfast trade. Then, after all the planning and all the working out of supply and production problems, it remained for the individual operator to figure out whether to adopt breakfast in his store. It meant longer hours for him, of course, and he'd probably have to hire more crew members and give the ones he had additional training. Consequently, the breakfast program is growing at a very moderate rate. But I can see it catching on across the country, and I can visualize extensions for a lot of stores, such as brunch on Sunday.

I keep a number of experimental menu additions in the works all the time. Some of them now being tested in selected stores may find their way into general use. Others, for a variety of reasons, will never make it. We have a complete test kitchen and experimental lab on my ranch, where all of our products are tested; this is in addition to the creative facility in Oak Brook. Fred Turner has a tendency to look askance at any new menu ideas. He'll usually try to put them down with some wisecrack such as, “That may be all right, but when are we going to start serving grilled bananas? We could put a little container of maple syrup on the side, and maybe for dinner we could serve them flaming.” Such sarcasm doesn't bother me. I know Fred's thinking, and I respect it. He doesn't want us going hog wild with new items. We aren't going to, but we are going to stay flexible and change as the market demands it. There are some things we can do and maintain our identity, and there are others we could never do. For example, it's entirely possible that one day we might have pizza. On the other hand, there's damned good reason we should never have hot dogs. There's no telling what's inside a hot dog's skin, and our standard of quality just wouldn't permit that kind of item.

Some executives have maps of the country with different colored pins indicating their sales outlets. I don't have such a map. I don't need one, because I have it all in my mind, and that includes the kind of store on a given location, who the operator is, what kind of volume he's doing, what his problems are, and so forth. Of course, with 4,000 locations to keep in mind, I can't keep as current on every store's operations as a franchisee's field consultant or his district manager. But I keep in touch through my real estate activities.

Back in the days when we first got a company airplane, we used to spot good locations for McDonald's stores by flying over a community and looking for schools and church steeples. After we got a general picture from the air, we'd follow up with a site survey. Now we use a helicopter, and it's ideal. Scarcely a month goes by that I don't get reports from whatever districts happen to be using our five copters on some new locations that we would never have discovered otherwise. We have a computer in Oak Brook that is designed to make real estate surveys. But those printouts are of no use to me. After we find a promising location, I drive around it in a car, go into the corner saloon and into the neighborhood supermarket. I mingle with the people and observe their comings and goings. That tells me what I need to know about how a McDonald's store would do there. Hell, if I listened to the computers and did what they proposed with McDonald's, I'd have a store with a row of vending machines in it. You'd push some buttons and out would come your Big Mac, shake, and fries, all prepared automatically. We could do that; I'm sure Jim Schindler could work it out. But we never will. McDonald's is a
people
business, and the smile on that counter girl's face when she takes your order is a vital part of our image.

Finding locations for McDonald's is the most creatively fulfilling thing I can imagine. I go out and check out a piece of property. It's nothing but bare ground, not producing a damned thing for anybody. I put a building on it, and the operator gets into business there employing fifty or a hundred people, and there is new business for the garbage man, the landscape man, and the people who sell the meat and buns and potatoes and other things. So out of that bare piece of ground comes a store that does, say, a million dollars a year in business. Let me tell you, it's great satisfaction to see that happen.

In 1974 The Fourteen Research Corporation published a seventy-five page analysis of McDonald's growth projected through 1999. It described very neatly our financial position and the kind of real estate development I myself foresee:

The basis of McDonald's success is serving a low-priced, value-oriented product fast and efficiently in clean and pleasant surroundings. While the Company's menu is limited, it contains food staples that are widely accepted in North America. It is for these reasons that demand for its products is less sensitive to economic fluctuations than most other restaurant formats.

Until the early 1970s, McDonald's was expanding almost exclusively in the suburbs. Yet for quite a while it had been spending a great deal on national advertising that was creating a latent, nationwide demand for its product. Thus, the stage was set for the company to diversify and strengthen its expansion program. There are now over 100 stores located in cities, shopping centers, and even on college campuses; most are doing exceptionally well, with many more planned.

We firmly believe that McDonald's can successfully locate a store almost anywhere there are primary concentrations of population (i.e., suburbs and cities) and secondary concentrations (schools, shoping centers, industrial parks, stadiums, etc.) provided that capital turnover rates meet corporate objectives. It is this “nook and cranny” type of expansion along with continued conventional growth that leads us to project that on average 485 new stores will be added each year (through 1979) to world operations.

Nook and cranny
expansion. Exactly! There are countless nooks and crannies throughout the country that are possible locations for us, and we fully intend to expand into them.

What does it take to get a McDonald's franchise? A total commitment of personal time and energy is the most important thing. A person doesn't need to be super smart or have more than a high school education, but he or she must be willing to work hard and concentrate exclusively on the challenge of operating that store. The value of our franchises has increased greatly over the years. I started issuing them for $950 back in 1955. Ten years later, when we went public, the average investment was $81,500. These days it takes about $200,000 for the franchise and related expenses—equipment, furnishings, signs, etc.—not counting interest or finance charges on borrowed money.

In the initial interview, the applicant is told what we expect and what the corporation will contribute. If he's still interested after learning about the kind of personal and financial investment required, we put him to work in a McDonald's store near his home. He's assigned to evening or weekend hours that won't conflict with his present job, and he learns firsthand what's involved in both crew work and management. If he's not really suited for our kind of restaurant operation, this is the time to find that out. After this experience and a final discussion with the licensing manager in his area, the applicant puts up his $4,000 deposit and is informed of the market area in which his restaurant is likely to be located. We never promise a specific community. Getting onto the list of registered applicants waiting for a location is harder than it used to be, because we give preference to present operators and to McDonald's employees who have been with the corporation for ten years or more.

The applicant is advised when a site comes up for him (usually less than two years after his registration), and if he's still interested after looking over the location, we begin getting him more involved in McDonald's. We stay in close contact as he arranges to join us, divesting himself of another business, perhaps, selling a home, and looking for a new one in the community where his store is to be located. We now ask him to spend another 500 hours working in a McDonald's restaurant. He's also invited to attend orientation and management classes. Then, about four to six months prior to the date his store is scheduled to open, the licensee attends our advanced operations course at Hamburger U. This adds polish to the management skills and operations know-how he'll need to greet his first customers.

All of this preparatory work and training helps insure success for the small businessman who gets a McDonald's franchise. And it doesn't stop there. We stay right in there helping him through our system of field representatives.

It's all interrelated—our development of the restaurant, the training, the marketing advice, the product development, the research that has gone into each element of our equipment package. Together with our national advertising and continuing supervisory assistance, it forms an invaluable support system. Individual operators pay 11.5 percent of their gross to the corporation for all of this, and I think it's a hell of a bargain.

Art Bender, my first franchisee, says he's sometimes asked why he doesn't just start his own restaurant instead of paying a percentage of his gross to McDonald's. After all, he helped teach Ray Kroc the business; he could make it on his own easily.

“I might have a successful restaurant,” Art says, “but I'd have to think what it would cost me as an individual to buy the services I get from the corporation. The name itself is worth a lot, of course. National advertising with Art's Place? No way. Then there's purchasing power, Hamburger U. training for my managers, product development … how could I do all that alone?”

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Our development in urban areas has been challenging, because it represents an entirely different kind of real estate situation. There also are all kinds of social and political currents swirling around in a big city that you don't have to deal with in suburbia. Occasionally activists of one kind or another have tried to use an attack on McDonald's to advance whatever cause they were pushing. We are a convenient symbol of establishment business. Our development in New York City, for example, was characterized by snobbish writers as some sort of sinister plot. Here was Daddy Warbucks dressed up like Ronald McDonald setting out to milk money from an unsuspecting populace. What these fanatics actually opposed was the capitalist system. Their political cant held that to be successful in the context of free enterprise, a business must be morally corrupt and guilty of all kinds of shabby business practices. I feel sorry for people who have such a small and wretched view of the system that made this country great. Fortunately, their hysterics rarely make much of an impression on residents, who welcome the clean and wholesome kind of operation McDonald's runs. They realize that our stores can help upgrade their community. There are rare circumstances in which a neighborhood genuinely feels that McDonald's would not be in keeping with its character. This happened in the posh Lexington Avenue area of New York City, and we withdrew. It cost us a lot of money, but we sure don't want to locate in an area where people don't want us—that makes for a losing business proposition. But if any of the aristocratic residents of Lexington Avenue think McDonald's can't be a tasteful, refined, and socially uplifting operation, a visit to Water Tower Place in Chicago might change their minds. Our neighbors in this ultramodern Michigan Avenue building include the classiest names in retailing. Our store there does a tremendous business, even though we have to explain to an occasional mink-furred dowager that, like it or not, she has to go to the counter and order her own hamburger, we have no table service.

It was wonderful to see all these changes taking place in McDonald's and to be part of them. However, I was finding it increasingly difficult to keep up. Some days I could hardly get around because of the way arthritis was warping my hip. Yet pain was preferable to idleness, and I kept moving despite Joni's urging that we settle down on our ranch. She really loves it there. So do I. But there were a lot of things I wanted to do that could not be accomplished from an easy chair.

For one, I wanted to own the Chicago Cubs, the baseball team I had been rooting for since I was seven years old. In 1972 the time seemed ripe and I tried to make an offer, but Phil Wrigley wouldn't even talk to me. He sent word that if the club was for sale, I was the sort of person he would like to have buy it—but it wasn't for sale. That made me madder than hell, because Wrigley is just sitting on that team. He hasn't done a damn thing to improve them, but he won't give them up and let someone else do it. It's idiotic. The message he sent me indicated that he might change his mind one of these days, but I sure as hell wasn't going to sit around waiting for that to happen. I just forgot about the whole thing. I wasn't even considering going into baseball when I was flying out to Los Angeles to meet Joni early in 1974 and read the sports stories about the impending sale of the San Diego Padres. I thought to myself, “My God, San Diego is a gorgeous town. Why don't I go over there and look at that ball park?” I've always admired Buzzy Bavasi, who was running the team, and the whole thing sounded very appealing. So I got in the car with Joni at the airport and told her that I was thinking of buying the San Diego Padres. She looked at me quizzically and said, “What on earth is that, a monastery?”