McDonald’s Corporation

McDonald’s Plaza
Oak Brook, Illinois 60523
U.S.A.
(630) 623-3000
Fax: (630) 623-5004
Web site:http://www.mcdonalds.com

Public Company
Incorporated: 1955
Employees: 267,000
Sales: $11.41 billion (1997)
Stock Exchanges: New York Midwest Frankfurt Munich
Paris Tokyo Zurich Geneva Basel
Ticker Symbol: MCD
SICs: 5812 Eating Places

Since its incorporation in 1955, McDonald’s Corporation has not only become the world’s largest quick-service restaurant organization, but has literally changed Americans’ eating habits. On any given day, about eight percent of the U.S. population will eat a meal at a McDonald’s restaurant; in a year, 96 percent of Americans will visit a McDonald’s. The company stands head and shoulders above its competition, commanding by far the leading share—42 percent—of the U.S. fast-food market (Burger King is number two with 19 percent). Internationally, McDonald’s runs more than 23,500 restaurants in 114 countries. Eleven major markets—Australia, Brazil, Canada, England, France, Germany, Hong Kong, Japan, the Netherlands, Taiwan, and the United States—account for 87 percent of overall sales and 92 percent of operating income. McDonald’s growth is best described as phenomenal; McDonald’s has recorded increases in revenues, income, and earnings per share every quarter since it went public in 1965.

Early History

In 1954 Ray Kroc, a seller of Multimixer milkshake machines, learned that brothers Richard and Maurice (Dick and Mac) McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. His curiosity was piqued, and he went to San Bernardino to take a look at the McDonalds’ restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948 they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonald’s a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonald’s attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonalds’ workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each worker’s steps had been carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonald’s restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Kroc’s first McDonald’s restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonald’s building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Kroc’s initial failure to reproduce the McDonalds’ delicious french fries. When Kroc and his crew duplicated the brothers’ method—leaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold water—the fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry that was, in his opinion, slightly superior in taste to the McDonald brothers’ fries.

Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonald’s chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds had not informed him of this arrangement. He purchased the rights back for $25,000—five times what the Frejlacks had originally paid—and pressed on.

Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonald’s restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonald’s grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonald’s would not be a supplier to its franchisees—his background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He had also determined that the company should at no time own more than 30 percent of all McDonald’s restaurants. He knew, however, that his success depended upon his franchisees’ success, and he was determined to help them in any way that he could.

In 1960 McDonald’s advertising campaign, “Look for the golden arches,” gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonald’s Corporation—indeed, McDonald’s ads have been some of the most identifiable over the years. In 1962 McDonald’s replaced its “Speedee” the hamburger man symbol with its now world-famous golden arches logo. A year later, the company sold its billionth hamburger.

Phenomenal Growth in the 1960s and 1970s

In the early 1960s, McDonald’s really began to take off. The growth in U.S. automobile use that came with suburbanization contributed heavily to McDonald’s success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonald’s the number one fast-food chain in the country.

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 shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after 11 stock splits, about $1.8 million in 1997. McDonald’s Corporation is now one of the 30 companies that make up the Dow Jones Industrial Average.

McDonald’s success in the 1960s was largely due to the company’s successful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as “the fish that catches people,” was introduced in McDonald’s restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese known as a “hulaburger,” had flopped. The market was not quite ready for Kroc’s taste; the hulaburger’s tenure on the McDonald’s menu board was short. In 1968 the now legendary Big Mac made its debut, and in 1969 McDonald’s sold its five-billionth hamburger. A year later, as it launched the “You Deserve a Break Today” advertising campaign, McDonald’s restaurants had reached all 50 states.

In 1968 McDonald’s opened its 1,000th restaurant, and Fred Turner became the company’s president and chief administrative officer. Kroc became chairman and remained CEO until 1973. Turner had originally intended to open a McDonald’s franchise, but when he had problems with his backers over a location, he went to work as a grillman for Kroc in 1956. As operations vice-president, Turner helped new franchisees get their stores set up and running. He was constantly looking for new ways to perfect the McDonald’s system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonald’s used buns that were presliced all the way through and weren’t stuck together in the package. Such attention to detail was one reason for the company’s extraordinary success.

Company Perspectives:

With more than 23,000 restaurants in over 100 countries, our global market potential is enormous. On any day, even as the market leader, McDonald’s serves less than one percent of the world’s population. Our outstanding brand recognition, experienced management, high-quality food, site development expertise, advanced operational systems and unique global infrastructure position us to capitalize on global opportunities. We plan to expand our leadership position through convenience, superior value and excellent operations.

McDonald’s spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonald’s had served 20 billion hamburgers, and systemwide sales exceeded $3 billion.

McDonald’s pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonald’s restaurants.

Kroc was a firm believer in giving “something back into the community where you do business.” In 1974 McDonald’s acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a “home away from home” for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975 McDonald’s opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to get a quick meal. The company’s goal was to provide service in 50 seconds or less. Drive-thru sales eventually accounted for more than half of McDonald’s systemwide sales.

Survived 1980s “Burger Wars”

In the late 1970s competition from other hamburger chains such as Burger King and Wendy’s began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the “burger wars.” Burger King suggested that customers “have it their way”; Wendy’s offered itself as the “fresh alternative” and asked of other restaurants, “where’s the beef?” But McDonald’s sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonald’s best.

During the 1980s McDonald’s further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonald’s was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest-paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonald’s, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Though McDonald’s restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts’ claims that the fast-food industry was saturated, McDonald’s continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonald’s relentless marketing continued to improve sales. Innovative promotions, such as the “when the U.S. wins, you win” giveaways during the Olympic games in 1988, were a huge success.

In 1982 Michael R. Quinlan became president of McDonald’s Corporation and Fred Turner became chairman. Quinlan, who took over as CEO in 1987, had started at McDonald’s in the mailroom in 1963, and gradually worked his way up. The first McDonald’s CEO to hold an M.B.A. degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

McDonald’s growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of systemwide sales came from restaurants outside of the United States. McDonald’s opened its first foreign restaurant in British Columbia, Canada, in 1967. By the early 1990s the company had established itself in 58 foreign countries and operated more than 3,600 restaurants outside of the United States, through wholly owned subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets were Japan, Canada, Germany, Great Britain, Australia, and France.

In the mid-1980s, McDonald’s, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonald’s has always placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision-makers. By 1990, more than 40,000 people had received “Bachelor of Hamburgerology” degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

Braille menus were first introduced in 1979, and picture menus in 1988. In March 1992 Braille and picture menus were reintroduced to acknowledge the 37 million Americans with vision, speech, or hearing impairments.

Quinlan continued to experiment with new technology and to research new markets to keep McDonald’s in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases were tapped as sites for new restaurants. In response to the increase in microwave oven usage, McDonald’s, whose name is the single most advertised brand name in the world, stepped up advertising and promotional expenditures stressing that its taste was superior to quick-packaged foods.

McRecycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue were all made from recycled products. McDonald’s worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic led to a 90 percent reduction in the wrapping material waste stream.

1990s Growing Pains

It took McDonald’s 33 years to open its first 10,000 restaurants—the 10,000th unit opened in April 1988. Incredibly, the company reached the 20,000-restaurant mark in only eight more years, in mid-1996. By the end of 1997 the total had surpassed 23,000—by that time McDonald’s was opening 2,000 new restaurants each year—an average of one every five hours.

Much of the growth of the 1990s came outside the United States, with international units increasing from about 3,600 in 1991 to more than 11,000 by 1998. The number of countries with McDonald’s outlets nearly doubled from 59 in 1991 to 114 in late 1998. In 1993 a new region was added to the empire when the first McDonald’s in the Middle East opened in Tel Aviv, Israel. As the company entered new markets, it showed increasing flexibility with respect to local food preferences and customs. In Israel, for example, the first kosher McDonald’s opened in a Jerusalem suburb in 1995. In Arab countries the restaurant chain used “Halal” menus, which complied with Islamic laws for food preparation. In 1996 McDonald’s entered India for the first time, where it offered a Big Mac made with lamb called the Maharaja Mac. That same year the first Mc-Ski-Thru opened in Lindvallen, Sweden.

Overall, the company derived increasing percentages of its revenue and income from outside the United States. In 1992 about two-thirds of system wide sales came out of U.S. McDonald’s, but by 1997 that figure was down to about 51 percent. Similarly, the operating income numbers showed a reduction from about 60 percent derived from the United States in 1992 to 42.5 percent in 1997.

In the United States, where the number of units grew from 9,000 in 1991 to 12,500 in 1997—an increase of about 40 percent—the growth was perhaps excessive. Although the additional units increased market share in some markets, a number of franchisees complained that new units were cannibalizing sales from existing ones. Same-store sales for outlets open for more than one year were flat in the mid-1990s, a reflection of both the greater number of units and the mature nature of the U.S. market.

It did not help that the company made several notable blunders in the United States in the 1990s. The McLean Deluxe sandwich, which featured a 91 percent fat-free beef patty, was introduced in 1991, never really caught on, and was dropped from the menu in 1996. Several other 1990s-debuted menu items—including fried chicken, pasta, fajitas, and pizza—failed as well. The “grown-up” (and pricey) Arch Deluxe sandwich and the Deluxe Line were launched in 1996 in a $200 million campaign to gain the business of more adults, but were bombs. The following spring brought a 55-cent Big Mac promotion, which many customers either rejected outright or were confused by because the burgers had to be purchased with full-priced fries and a drink. The promotion embittered still more franchisees, whose complaints led to its withdrawal. In July 1997 McDonald’s fired its main ad agency—Leo Burnett, a 15-year McDonald’s partner—after the nostalgic ‘My McDonald’s” campaign proved a failure. A seemingly weakened McDonald’s was the object of a Burger King offensive when the rival fast-food maker launched the Big King sandwich, a Big Mac clone. Meanwhile, internal taste tests revealed that customers preferred the fare at Wendy’s and Burger King.

Late 1990s Comeback?

In response to these difficulties, McDonald’s drastically cut back on its U.S. expansion—in contrast to the 1,130 units opened in 1995, only about 400 new McDonald’s were built in 1997. Plans to open hundreds of smaller restaurants in Wai-Marts and gasoline stations were abandoned since test sites did not meet targeted goals. Reacting to complaints from franchisees about poor communication with the corporation and excess bureaucracy, the head of McDonald’s U.S.A. (Jack Greenberg, who had assumed the position in October 1996) reorganized the unit into five autonomous geographic divisions. The aim was to bring management and decision-making closer to franchisees and customers.

On the marketing side, McDonald’s scored big in 1997 with a Teenie Beanie Baby promotion in which about 80 million of the toys/collectibles were gobbled up virtually overnight. The chain received some bad publicity, however, when it was discovered that a number of customers purchased Happy Meals just to get the toys and threw the food away. For a similar spring 1998 Teenie Beanie giveaway, the company altered the promotion to allow patrons to buy menu items other than kids’ meals. McDonald’s also began to benefit from a 10-year global marketing alliance signed with Disney in 1996. Initial Disney movies promoted by McDonald’s included 101 Dalmatians, Flubber, Mulan, Armageddon, and A Bug’s Life. Perhaps the most important marketing move came in the later months of 1997 when McDonald’s named BDD Needham as its new lead ad agency. Needham had been the company’s agency in the 1970s and was responsible for the hugely successful “You Deserve a Break Today” campaign. Late in 1997 McDonald’s launched the Needham-designed “Did Somebody Say McDonald’s?” campaign, which appeared to be an improvement over its predecessors.

Following the difficulties of the early and mid-1990s, the late 1990s were perhaps shaping up as transition years for a corporate turnaround. Several moves in 1998 seemed to indicate a reinvigorated McDonald’s. In February the company for the first time took a stake in another fast-food chain when it purchased a minority interest in the 16-unit, Colorado-based Chipotle Mexican Grill chain. The following month came the announcement that McDonald’s would improve the taste of several sandwiches and introduce several new menu items; McFlurry desserts—developed by a Canadian franchisee—proved popular when launched in the United States in the summer of 1998. McDonald’s that same month said that it would overhaul its food preparation system in every U.S. restaurant. The new just-in-time system, dubbed “Made for You,” was in development for a number of years and aimed to deliver to customers “fresher, hotter food”; enable patrons to receive special-order sandwiches (a perk long offered by rivals Burger King and Wendy’s); and allow new menu items to be more easily introduced thanks to the system’s enhanced flexibility. The expensive changeover was expected to cost about $25,000 per restaurant, with McDonald’s offering to pay for about half of the cost; the company planned to provide about $190 million in financial assistance to its franchisees before implementation was completed by year-end 1999.

In May 1998 Greenberg was named president and CEO of McDonald’s Corporation, with Quinlan remaining chairman; at the same time Alan D. Feldman, who had joined the company only four years earlier from Pizza Hut, replaced Greenberg as president of McDonald’s U.S.A.—an unusual move for a company whose executives typically were long-timers. The following month brought another first—McDonald’s first job cuts—as the company said it would eliminate 525 employees from its headquarters staff, a cut of about 23 percent. In the second quarter of 1998 McDonald’s took a $160 million charge in relation to the cuts. McDonald’s announced in September 1998 that it planned to purchase $3.5 billion of its common stock by year-end 2001. This flurry of 1998 activity boded well for the future of an American—and increasingly a global—institution.

Principal Subsidiaries

McDonald’s Australian Property Corporation; McDonald’s Deutschland, Inc.; McDonald’s Development Italy, Inc.; McDonald’s Property Company Limited; McDonald’s Restaurant Operations, Inc.; McDonald’s System of France, Inc.; McDonald’s Sistemas de España, Inc.; Restaurant Realty of Mexico, Inc.; McDonald’s Australia Limited; McDonald’s Properties (Australia) Pty., Ltd.; Restco Comercio de Alimentos Ltda. (Brazil); McDonald’s Restaurants of Canada Limited; McDonald’s Danmark A/S (Denmark); McDonald’s France, S.A.; McDonald’s GmbH (Germany); McDonald’s Immobilien GmbH (Germany); McDonald’s Restaurants Limited (Hong Kong); Italian Restaurant Financing S.R.L. (Italy); MDC Inmobiliaria de Mexico S.A. de C.V.; McDonald’s Nederland B.V. (Netherlands); McDonald’s LLC (Russia); McDonald’s Restaurants (Swisse) S.A. (Switzerland); McDonald’s Restaurants (Taiwan) Co., Ltd.; McDonald’s Restaurants Limited (U.K.).

Further Reading

Bigness, Jon, “Getting the Sizzle Back at McDonald’s,” Chicago Tribune, August 30, 1998.

Branch, Shelly, “McDonald’s Strikes Out with Grownups,” Fortune, November 11, 1996, pp. 157+.

______, “What’s Eating McDonald’s?,” Fortune, October 13, 1997, pp. 122+.

Burns, Greg, “Fast-Food Fight,” Business Week, June 2, 1997, pp. 34-36.

Byrne, Harlan S., “Welcome to Me World,” Barron’s, August 29, 1994, pp. 25-28.

Canedy, Dana, “McDonald’s Burger War Salvo,” New York Times, June 20, 1998, pp. DI, D15.

Cohon, George, with David Macfarlane, To Russia with Fries, Toronto: M & S, 1997, 335 p.

Donlon, J.P., “Quinlan Fries Harder,” Chief Executive, January/February 1998, pp. 45-49.

Gibson, Richard, “McDonald’s Makes Changes in Top Management,” Wall Street Journal, May 1, 1998, pp. A3, A4.

______, “Some Franchisees Say Moves by McDonald’s Hurt Their Operations,” Wall Street Journal, April 17, 1996, pp. Al, A10.

______, “Worried McDonald’s Plans Dramatic Shifts and Big Price Cuts,” Wall Street Journal, February 26, 1997, pp. Al, A6.

Gibson, Richard, and Bruce Orwell, “New Mission for Mickey Mouse, Mickey D,” Wall Street Journal, March 5, 1998, pp. Bl, B5.

Kroc, Ray, Grinding It Out: The Making of McDonald’s, Chicago: H. Reguery, 1977, 201 p.

Leonhardt, David, “McDonald’s: Can It Regain Its Golden Touch?,” Business Week, March 9, 1998, pp. 70-74, 76-77.

Love, John F., McDonald’s: Behind the Arches, New York: Bantam Books, 1986, 470 p.

Machan, Dyan, “Polishing the Golden Arches,” Forbes, June 15, 1998, pp. 42-43.

Papiernik, Richard L., “Mac Attack?,” Financial World, April 12, 1994, pp. 28-30.

Serwer, Andrew E., “McDonald’s Conquers the World, Fortune, October 17, 1994, pp. 103+.

Watson, James L., ed., Golden Arches East: McDonald’s in East Asia, Stanford: Stanford University Press, 1997, 256 p.

—Anne C. Hughes
—updated by David E. Salamie

McDonald’s Corporation

McDonald’s Plaza
Oak Brook, Illinois 60521
U.S.A.
(708) 575-3000
Fax: (708) 575-5814

Public Company
Incorporated: 1955
Employees: 169,000
Sales: $19.93 billion
Stock Exchanges: New York Midwest Pacific Toronto Frankfurt Munich Paris Tokyo Zurich Geneva Basel
SICs: 5812 Eating Places

Since its incorporation in 1955, McDonald’s has not only become the world’s largest quick-service restaurant organization, but has literally changed Americans’ eating habits. On any given day, nearly seven percent of the American population will eat a meal at a McDonald’s restaurant; in a year, 96 percent of Americans will visit a McDonald’s. The company stands head and shoulders above its competition, commanding by far the leading share of the fast-food market. The company’s growth is best described as phenomenal; McDonald’s has recorded increasing sales and earnings every quarter since it went public in 1965.

In 1954 Ray Kroc, a seller of Multimixer milkshake machines, learned that brothers Richard and Maurice (Dick and Mac) McDonald were using eight of his high-tech Multimixers in their San Bernardino, California, restaurant. His curiosity was piqued, and he went to San Bernardino to take a look at the McDonalds’ restaurant.

The McDonalds had been in the restaurant business since the 1930s. In 1948 they closed down a successful carhop drive-in to establish the streamlined operation Ray Kroc saw in 1954. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonald’s a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonald’s attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonalds’ workers did their jobs. Mac and Dick McDonald had taken great care in setting up their kitchen. Each worker’s steps had been carefully choreographed, like an assembly line, to ensure maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents.

Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonald’s restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers.

Kroc’s first McDonald’s restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonald’s building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter, and cool air in the summer.

Most frustrating of all, however, was Kroc’s initial failure to reproduce the McDonalds’ delicious french fries. When Kroc and his crew duplicated the brothers’ method—leaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold water—the fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry which was, in his opinion, slightly superior in taste to the McDonald brothers’ fries.

Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonald’s chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds hadn’t informed him of this arrangement. He purchased the rights back for $25,000—five times what the Frejlacks had originally paid—and pressed on.

Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonald’s restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break.

McDonald’s grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc opened 67 new restaurants, bringing the total to more than 100.

Kroc had decided at the outset that McDonald’s would not be a supplier to its franchisees—his background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He had also determined that the company should at no time own more than 30 percent of all McDonald’s restaurants. He knew, however, that his success depended upon his franchisees’ success, and he was determined to help them in any way that he could.

In 1960 McDonald’s advertising campaign, “Look for the golden arches,” gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonald’s Corporation—indeed, McDonald’s ads have been some of the most identifiable over the years. In 1962 McDonald’s replaced its “Speedee” the hamburger man symbol with its now world-famous golden arches logo. A year later, the company sold its billionth hamburger.

In the early 1960s, McDonald’s really began to take off. The growth in automobile use that came with the suburbanization of America contributed heavily to McDonald’s success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonald’s the number one fast-food chain in the country.

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 shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after nine stock splits, more than $400,000 in 1989. McDonald’s Corporation is now one of the 30 companies that make up the Dow Jones Industrial Index.

McDonald’s success in the 1960s was largely due to the company’s successful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as “the fish that catches people,” was introduced in McDonald’s restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese known as a “hulaburger,” had flopped. The market was not quite ready for Kroc’s taste; the hulaburger’s tenure on the McDonald’s menu board was short. In 1968 the now-legendary Big Mac made its debut, and in 1969 McDonald’s sold its five-billionth hamburger. A year later, as it launched the “You Deserve a Break Today” advertising campaign, McDonald’s restaurants had reached all 50 states.

In 1968 McDonald’s opened its 1,000th restaurant, and Fred Turner became the company’s president and chief administrative officer. Kroc became chairperson and remained CEO until 1973. Turner had originally intended to open a McDonald’s franchise, but when he had problems with his backers over a location, he went to work for Kroc in 1956. As operations vice-president, Turner helped new franchisees get their stores set up and running. He was constantly looking for new ways to perfect the McDonald’s system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonald’s used buns that were presliced all the way through and weren’t stuck together in the package. Such attention to detail was one reason for the company’s extraordinary success.

McDonald’s spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonald’s had served 20 billion hamburgers, and system wide sales exceeded $3 billion.

McDonald’s pioneered breakfast fast food with the introduction of the Egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonald’s restaurant.

Kroc was a firm believer in “putting something back into the community where you do business.” In 1974 McDonald’s acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a “home away from home” for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States.

In 1975 McDonald’s opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to get a quick meal. The company’s goal was to provide service in 50 seconds or less. Drive-thru sales eventually accounted for more than half of McDonald’s system wide sales.

In the late 1970s competition from other hamburger chains such as Burger King and Wendy’s began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the “burger wars.” Burger King suggested that customers “have it their way”; Wendy’s offered itself as the “fresh alternative” and asked of other restaurants, “where’s the beef?” But McDonald’s sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonald’s best.

During the 1980s McDonald’s further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonald’s was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest paced decade yet. Efficiency, combined with an expanded menu, continued to draw customers. McDonald’s, already entrenched in the suburbs, began to focus on urban centers and introduced new architectural styles. Though McDonald’s restaurants no longer looked identical, the company made sure food quality and service remained constant.

Despite experts’ claims that the fast-food industry was saturated, McDonald’s continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonald’s relentless marketing continued to improve sales. Innovative promotions, such as the “when the U.S. wins, you win” giveaways during the Olympic games in 1988, were a huge success.

In 1982 Michael R. Quinlan became president of McDonald’s Corporation and Fred Turner became chairperson. Quinlan, who took over as CEO in 1986, had started at McDonald’s in the mailroom in 1963, and gradually worked his way up. The first McDonald’s CEO to hold an MBA degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants.

McDonald’s growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of system wide sales came from restaurants outside of the United States. McDonald’s opened its first foreign restaurant in British Columbia, Canada, in 1967. Since then the company established itself in 58 foreign countries and now operates more than 3,600 restaurants outside of the U.S., through wholly owned subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets are Japan, Canada, Germany, Great Britain, Australia, and France.

While western Europe’s population far exceeded that of the United States in 1992, it had only 1,300 restaurants. Latin America, with twice the population of the United States, sufficed with 200 restaurants. China’s first McDonald’s restaurant, located in Shenhen, made a profit in its first year of operation. Beijing and Shanghai restaurants soon followed, giving China’s 1.1 billion people three places to find the golden arches. In March of 1992, two native Czechoslovakians opened a McDonald’s in Prague, and it took three years of bureaucratic red tape to open the Jakarta, Indonesia, restaurant.

In the mid-1980s, McDonald’s, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonald’s has always placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision makers. By 1987, more than 30,000 people had received “Bachelor of Hamburgerology” degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982.

The McDonald’s Corporation operates only 20 percent of its restaurants. It receives 20,000 franchise inquiries a year. In 1991, 350 new licensees joined the corporation’s extensive training program, and of these more than 60 percent were women and minorities. By the end of 1991, there were more than 12,000 system wide restaurants.

Braille menus were first introduced in 1979, and picture menus in 1988. In March of 1992, Braille and picture menus were reintroduced to acknowledge the 37 million Americans with vision, speech, or hearing impairments.

Quinlan continued to experiment with new technology and to research new markets to keep McDonald’s in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases are being tapped as possible sites for new restaurants. In response to the increase in microwave oven usage, McDonald’s, whose name is the single most advertised brand name in the world, has stepped up advertising and promotional expenditures stressing that its taste is superior to quick packaged foods.

McRecycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue are all made from recycled products. McDonald’s worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic led to a 90 percent reduction in the wrapping material waste stream.

Although it took McDonald’s 33 years to open its first 10,000 restaurants, the company plans to open the next 10,000 by 2005, mainly by taking advantage of strong opportunities overseas. The company’s ability to adapt to the changing tastes and habits of its customers has made it the virtually unassailable leader in the fast-food industry. McDonald’s commands $13 billion of America’s $93 billion quick-service food industry, but considers its area of national sales growth to be the $200 billion “eat out” market. Providing more “loose” seating, rather than the conventional bolted down tables and chairs, has been considered as one way to relax the atmosphere and attract more families as dinner patrons. Pizza, chicken, and pasta menu additions also have been tested.

By the spring of 1992, the company was testing Menu Vision television network in 12 eastern U.S. restaurants. Computer-generated images of menu items and promotional deals were displayed on monitors. McNews, a closed network of live entertainment provided by Turner Broadcasting, also was tested.

In July 1992, the corporation announced a new program for investors who own less than 50 shares, which would allow them to purchase additional McDonald’s shares or donate the new issues to selected charities without incurring brokerage commissions. During the 30-day offer, McDonald’s made matching donations equal to the value of all shares donated, up to a combined maximum of $100,000 worth of stock—all to attract and retain small individual investors. New challenges will undoubtedly arise, but the company seems to have plenty to look forward to.

Principal Subsidiaries

McDonald’s Deutschland GmbH; McDonald’s Development GmbH; McDonald’s Hamburgers Limited; McDonald’s Italia Sri.; McDonald’s Restaurants of Canada Ltd.; McDonald’s Restaurants (Hong Kong) Ltd.; McDonald’s Sistemas de España; McDonald’s System of Australia Ltd.; McDonald’s System of France SARL; McDonald’s System of New Zealand Ltd.

Further Reading

Kroc, Ray. Grinding It Out: The Making of McDonald’s, Chicago, H. Reguery, 1977; Love, John F., McDonald’s: Behind the Golden Arches, New York, Bantam Books, 1986.

—updated by Anne C. Hughes

McDonald's Corporation

One McDonald's Plaza
Oak Brook, IL 60523
(630) 623-3000
www.mcdonalds.com

In more than one hundred countries around the globe, the sight of two golden arches tells hungry diners that a fast, inexpensive meal is just a few moments away. The arches form the shape of the letter "M," which stands for McDonald's, the world's largest restaurant chain. McDonald's perfected the selling of fast food: burgers, fries, and drinks served and eaten quickly. With its stress on quality, service, cleanliness, and value, the company serves as a model for competing restaurant chains, and other service industries. Each day, forty-five million people eat at least one of their meals at "Mickey D's."

The McDonalds and Their Restaurant

Ray Kroc founded the McDonald's empire, but he borrowed many key ideas from the real McDonalds, brothers Richard (died 1998) and Maurice (c. 1902-1971). Known as Dick and Mac, the McDonalds opened their first restaurant in Pasadena, California, in 1937. It was one of many drive-ins popping up in California at the time. At these restaurants, the staff, called carhops, came to the customers' cars, took their orders, and brought out the food. Some carhops used roller skates to speed up the service.

At the first McDonald's, Dick and Mac served hot dogs, not the more common hamburgers, and diners could stay in their cars or eat inside. Business boomed, and the McDonalds opened a larger restaurant in San Bernardino, with burgers added to the menu and no inside seating. By 1948, the brothers were rich, but they also had competition and their costs were rising. The McDonalds shut their store and reopened with a new concept. They wanted to cut costs and lower prices to attract more business.

The brothers fired the carhops; customers now walked up to a window to place their order. The McDonalds also stopped using dishes and glasses and switched to paper plates and cups, so they did not need a dishwasher. Then the brothers made their burgers a little smaller and cut the price from thirty cents to fifteen cents. The burgers came just one way, with the condiments—ketchup, mustard, onions, and pickles—already on them. The focus was on cheap, fast food, not variety. In McDonald's: Behind the Arches, Dick explained, "If we gave people a choice, there would be chaos." Eventually the menu also included French fries and milkshakes. The McDonalds called their new approach the "Speedee Service System." The restaurant's mascot was a small chef with a hamburger for a face; he was later known as Speedee.

McDonald's at a Glance

• Employees: 212,000
• CEO: Jack Greenberg
• Subsidiaries: Italian Restaurant Financing S.R.L; MDC Immobiliaria de Mexico S.A. de C.V.; Restaurant Realty of Mexico, Inc.; Restco Comercio de Alimentos Ltda.
• Major Competitors: Burger King; Wendy's; Kentucky Fried Chicken; Pizza Hut
• Notable Menu Items: Big Mac; Egg McMuffin; Quarter Pounder; Filet-O-Fish; Chicken McNuggets; Happy Meal; McSalad Shaker

At first the new McDonald's lost customers, especially the teenagers who wanted carhop service. But as teens stopped hanging out at the restaurant, more families began to come. The United States had just begun its historic "baby boom," as millions of soldiers returning from World War II (1939-45) started families. These new parents and their children would fuel McDonald's growth for decades to come. The families appreciated the restaurant's low prices, and since the kitchen was in full view, they could see that the McDonalds ran a clean operation. Once again, business soared.

Timeline

1948:

Richard and Maurice McDonald open their first fast-food restaurant in San Bernardino, California.

1954:

Ray Kroc takes over franchising for McDonald's.

1955:

Kroc opens his first McDonald's in Des Plaines, Illinois.

1961:

Kroc takes full control of the McDonald's Corporation and opens Hamburger University to train employees.

1963:

Ronald McDonald appears in public for the first time in Washington, D.C.

1965:

First national TV ads appear; Filet-O-Fish sandwich introduced.

1968:

One thousandth McDonald's restaurant opens in Des Plaines; Big Mac introduced.

1971:

First McDonald's opens in Japan, Germany, and Australia.

1979:

McDonald's serves its thirty-billionth hamburger.

1984:

Ray Kroc dies.

1999:

In Chicago, Illinois, McDonald's opens its twenty-five thousandth restaurant.

Kroc Launches the McDonald's Chain

In 1954, a salesman named Ray Kroc visited the McDonalds in San Bernardino. Kroc sold Multimixers, machines that mixed five milkshakes at a time. He was amazed to hear that the McDonalds ran eight Multimixers at once. After he saw the McDonalds's operation, Kroc knew they had developed a new restaurant concept that could be repeated across the country. The McDonalds had already opened ten other stores, including two in Arizona, but Kroc convinced the brothers to let him use his selling skills to make the chain even bigger. In his autobiography, Grinding It Out, Kroc wrote, "Here was a complete package, and I could get out and talk up a storm about it."

Kroc and the McDonalds became partners in a franchise business. Kroc would find franchisees, or people willing to pay to use the McDonald's name and its methods. The franchisees bought a license to run a restaurant for twenty years, then the partners could take over if they chose. The franchisees also paid a percentage of their restaurants' total sales to Kroc and the McDonalds. The franchised stores would form a chain of McDonald's that stretched across the United States.

On April 15, 1955, Kroc opened his first McDonald's, in Des Plaines, Illinois, and sold $366 worth of food. He wanted it to be a model for all the franchised restaurants to follow. The building had one large arch on each side, a feature of most McDonald's for years to come. Kroc used the McDonald brothers' assembly-line approach to cooking food. Certain chefs did just one job over and over, such as grilling burgers or making shakes. Some food was made before customers arrived, so they would not have to wait long once they ordered. Kroc also copied the equipment used in the original McDonald's kitchen. Some of the machines had been specially designed for the restaurant. Kroc, like the McDonalds, wanted to produce food as fast and cheaply as possible. His motto was "Quality, Service, and Cleanliness" (QSC). Later, he added "Value" as well.

Dominating the Industry

The first franchised McDonald's opened in California in 1956. The same year, one opened in the Midwest. One of Kroc's goals was to ensure that each restaurant served exactly the same food, but he ran into a problem with the French fries. At the original San Bernardino restaurant, the potatoes used for the fries sat in wire baskets. The California air helped dry them out and improved their taste. The Midwest McDonald's fries, however, did not dry out before cooking. To improve the taste, Kroc cooked them twice—the potatoes were briefly fried, then allowed to dry before their final cooking. McDonald's is still famous for its tasty fries.

By 1960, the company had more than one hundred restaurants. Kroc and the McDonalds owned some, but most were franchises. In addition to paying a franchise fee and part of their profits, franchisees also paid the company rent on the land where the stores sat. This income eventually earned more money for the McDonald's Corporation than selling food.

During the 1960s, McDonald's saw many changes. Kroc became the sole owner in 1961, paying the McDonalds $2.7 million for their share of the business. The same year, the company opened "Hamburger University" at its Oak Brook, Illinois, headquarters to train employees. In 1962, McDonald's golden arches replaced Speedee as the restaurant's main symbol, and ads told customers to "Look for the golden arches."

Kroc believed in advertising heavily and in targeting children. In 1965, the company introduced a new mascot, a red-haired clown named Ronald McDonald, who became a frequent and friendly face in television commercials. The company was one of the first restaurants to run TV adds, and it spent millions of dollars to promote new products and to create a wholesome image. An ad launched in 1971 featured one of the most famous advertising slogans ever: "You deserve a break today."

McLibel

One McDonald's lawsuit led to some of the company's worst publicity ever. In the so-called "McLibel" trial of 1994 to 1996, the company sued two English citizens, David Morris and Helen Steel. They were accused of libeling McDonald's, deliberately spreading false information about its practices. Among other things, McDonald's was supposedly guilty of selling unhealthy food, destroying rain forests in South America to raise cattle, and mistreating its workers. The company did win, but the judge ruled that some of the statements about McDonald's were true, including the company's role in the cruel treatment of animals killed for meat. The McLibel trial confirmed some people's view of McDonald's as a huge corporation determined to do anything to increase its profits.

Although McDonald's was not the only fast-food chain, it became the largest and most successful one. Customers appreciated Kroc's QSCV approach. The company took advantage of changing lifestyles, placing restaurants in growing suburbs and along the interstate highways that crisscrossed the country. By 1968, McDonald's had one thousand restaurants, and sales reached $1 billion in 1972. Throughout its growing years, the company added new menu items. In 1965, it introduced the Filet-O-Fish sandwich, and three years later the Big Mac appeared. In 1973, McDonald's brought the fast-food concept to breakfast, selling its first Egg McMuffin.

Success Abroad, Trouble at Home

By 1970, McDonald's had restaurants in all fifty states and a few in Canada and the Caribbean. Foreign operations exploded during the 1970s and 1980s, as the company expanded into Asia, Australia, South America, and Europe. Kroc counted on the expertise of local companies to help them adapt McDonald's food and service to other lands. By 1992, almost 40 percent of the company's sales came from overseas.

At home, however, McDonald's began to face some problems. In 1976, a false rumor spread that the company added worms to its meat. Some press stories criticized the quality of the food and the way the company kept track of its finances. During the 1980s, McDonald's also faced stiff competition from Burger King and Wendy's, two other fast-food chains that specialized in hamburgers. In addition, fast food was expanding to include other foods, such as pizza, sandwiches, and Mexican dishes.

Many of McDonald's new menu items were suggested by franchisees. Lou Groen of Cincinnati pushed for adding a fish sandwich, and the Big Mac was created by Jim Delligati of Pennsylvania. One of Ray Kroc's ideas for a new sandwich was the hulaburger. This hamburger with cheese and a pineapple slice flopped.

Even with these concerns, McDonald's kept opening new restaurants and adding new menu items. It also continued to advertise heavily and to appeal to children. In 1979, the company introduced Happy Meals, which packaged a burger, fries, and soda in a colorful cardboard box. Later Happy Meals included toys not available in any store. Thousands of restaurants added outdoor playgrounds and indoor playscapes. McDonald's also placed restaurants in new locations, such as inside airports, museums, and gas stations. By 1995, McDonald's controlled 42 percent of the hamburger fast-food market.

More Problems

In 2001, McDonald's continued to grow—and face problems. Expensive new equipment designed to improve food quality did not boost sales as hoped. The Federal Bureau of Investigation (FBI) investigated a crime ring that stole prizes used in McDonald's contests. Vegetarians were upset to learn that the company used a beef product to flavor French fries. In France, Jose Bove, a farmer who had earlier been arrested for destroying part of a McDonald's restaurant, staged another protest. Bove is one of many Europeans who think McDonald's threatens the jobs of local farmers and offers poor-quality meals. At his trial in 2000, Bove told reporters, "The fight is going on all over the world … against bad food."

Despite its troubles, McDonald's remained the top fast-food restaurant in the world. In 2001, the company had more than twenty-nine thousand restaurants, with more than half of these outside of the United States. It bought more beef, pork, and potatoes than any other U.S. company, and it spent more on advertising. The company planned to open as many as one thousand new stores each year and expand several new restaurant chains it acquired during the 1990s—Boston Market and Chipotle Mexican Grill.

McDonald's, fast‐food restaurant franchiser. Richard and Maurice McDonald introduced assembly‐line techniques at the hamburger drive‐in they opened in San Bernardino, California, in the 1940s. Their “Speedy Service System,” combined with economies of scale made possible by serving many customers quickly, proved far more profitable that the traditional labor‐intensive approach. Their success attracted potential franchisees, including Ray Kroc (1902–1984), who supplied the Multimixers used to prepare McDonald's milk shakes. Overcoming the McDonalds' reluctance to invest time or money in franchising, Kroc offered to take all responsibility as the sole franchise agent. The brothers accepted Kroc's offer, and in 1955 McDonald's restaurants began to appear nationwide. Kroc bought out his contract with the McDonald brothers in 1962. Kroc's vision of clean, quick, family restaurants with an instantly recognizable logo—the golden arches—fit beautifully with postwar trends of suburbanization, highway expansion, working mothers, and consumer preference for standardized, mass‐marketed products.

Fast‐food franchising had a mixed record before Kroc. Earlier franchisers had tended to sell off large territories to raise capital quickly, or to operate as the supplier for the franchisees (as the Howard Johnson's restaurants did in the 1930s), creating potential conflicts of interest and temptations to overcharge franchisees. Kroc emphasized efficient restaurant operations and guaranteed franchisees' profits before McDonald's Corporation took its cut. A key to McDonald's success was chief financial officer Harry Sonneborn, who structured franchise deals that insured profitability not by food sales alone, but through the real estate the restaurants occupied.

By the mid‐1990s, McDonald's was the world's largest private real‐estate enterprise, as well as its largest food service provider, serving nearly forty million meals daily in more than one hundred countries, with annual sales in excess of thirty billion dollars. A host of competitors such as Kentucky Fried Chicken, Taco Bell, Wendy's, and Burger King testified to the success of the McDonald's formula.
See also Consumer Culture; Fifties, The; Food and Diet; Highway System; Mass Marketing.

Bibliography

Ray Kroc with and Robert Anderson , Grinding It Out: The Making of McDonald's, 1977.
John F. Love , McDonald's: Behind the Arches, 1986.

Christopher Berkeley

McDONALD'S

McDONALD'S, the world's leading fast food restaurant chain. In 1948, the brothers Maurice and Richard McDonald converted their San Bernardino, California, drive-in to a take-out restaurant serving mainly inexpensive hamburgers and French fries prepared assembly-line style. Ray A. Kroc (1902–1984) became the brothers' franchising agent in 1954, and expanded the company nationwide, opening his first McDonald's in Des Plaines, Illinois, the next year. Using business-format franchising, Kroc maintained strict corporate-level control of the McDonald's concept, service, and products. Kroc's chief financial officer, Harry Sonneborn, created a system of carefully choosing sites for new stores, then leasing them to franchisees, making rents an important source of corporate revenue and the company the world's largest owner of commercial real estate.

McDonald's mass-marketing strategy emphasized family-oriented and "all-American" themes, "quality, service, cleanliness, and value," and continual innovations, such as the Big Mac in 1968, a line of breakfast foods in the mid-1970s, child-oriented Happy Meals in 1979, and Chicken McNuggets in 1982. In 2001, McDonald's, with 30,000 stores and 395,000 employees serving 46 million people each day in 121 countries, achieved sales of $14.9 billion—over 60 percent of that outside the United States—earning $1.6 billion in net income. The international expansion of McDonald's has made its logo, the golden arches, a leading symbol of globalization and American culture.

BIBLIOGRAPHY

Kroc, Ray, with Robert Anderson. Grinding It Out: The Making of McDonald's. Chicago: Regnery, 1977.

Love, John F. McDonald's: Behind the Arches. Rev. ed. New York: Bantam, 1995.

Mariani, John. America Eats Out: An Illustrated History of Restaurants, Taverns, Coffee Shops, Speakeasies, and Other Establishments That Have Fed Us for 350 Years. New York: Morrow, 1991.

Jeffrey T. Coster

See also Food, Fast .