McDonald’s Fast Food Is Incorporated and Franchised Summary

  • Last updated on November 10, 2022

Ray Kroc acquired the right to franchise McDonald’s fast-food restaurants, not only creating a huge restaurant chain but also popularizing the franchising concept. The company already had revolutionized food preparation and restaurant aesthetics by the late 1940’s, ideas that were replicated throughout the fast-food business.

Summary of Event

The concept of McDonald’s Corporation’s fast-food restaurants was developed by brothers Maurice and Richard McDonald in San Bernardino, California, in the late 1940’s. Maurice and Richard developed the basic concept, but Ray Kroc, who became their franchising agent in 1954, had developed the concept into the restaurant chain known around the world. In 1960, Kroc bought out the two brothers for $2.7 million. [kw]McDonald’s Fast Food Is Incorporated and Franchised (Mar. 2, 1955)[Macconalds Fast Food Is Incorporated and Franchised] [kw]Fast Food Is Incorporated and Franchised, McDonald’s (Mar. 2, 1955) [kw]Food Is Incorporated and Franchised, McDonald’s Fast (Mar. 2, 1955) McDonald’s restaurants[Macdonalds restaurants] Fast food Franchising McDonald’s restaurants[Macdonalds restaurants] Fast food Franchising [g]North America;Mar. 2, 1955: McDonald’s Fast Food Is Incorporated and Franchised[04780] [g]United States;Mar. 2, 1955: McDonald’s Fast Food Is Incorporated and Franchised[04780] [c]Business and labor;Mar. 2, 1955: McDonald’s Fast Food Is Incorporated and Franchised[04780] [c]Manufacturing and industry;Mar. 2, 1955: McDonald’s Fast Food Is Incorporated and Franchised[04780] [c]Trade and commerce;Mar. 2, 1955: McDonald’s Fast Food Is Incorporated and Franchised[04780] Kroc, Ray McDonald, Maurice McDonald, Richard

Beginning in the 1930’s, and continuing in the 1940’s and 1950’s, drive-in restaurants were extremely popular. These restaurants were serviced by carhops and tended to be frequented more extensively by teenagers than by any other group.

Maurice and Richard McDonald left their home in New Hampshire and sought jobs in California. They worked odd jobs for a time and even ran their own film theater. The two did not think that they were making progress toward financial stability in this venture, so in 1937 they opened their own drive-in restaurant in Pasadena. The brothers were extremely successful in the restaurant business and soon opened a second, even larger, restaurant in San Bernardino. These two restaurants were the first McDonald’s restaurants but had yet to assume the format that made the name famous.

By 1948, the McDonalds were so successful with their restaurants that they were making more money than they knew what to do with. The McDonalds were not as interested in accumulating massive wealth as they were in the challenge of the business. Changes they implemented in the drive-ins were not motivated so much by the desire for more money as by the desire to make their business better.

The nature of the drive-in business resulted in a teenage market. This patronage caused a number of problems, including relationships developing between carhops and customers, limited purchases per customer, theft of utensils, and, probably more important to the McDonalds, limited patronage by families. The McDonalds wanted families as their customers, so in the late 1940’s they instituted changes that they hoped would change the market for their restaurants.

The brothers eliminated carhops entirely, developing a self-service format. They increased grill space to provide for the large quantities of food they hoped to sell. Their menu was cut to nine items. French fries and malted milks were added later. They also standardized the fare, eliminating choices. Burgers always came with ketchup, mustard, and pickles; customers could choose only whether to include cheese.

Perhaps more innovative than these changes were the changes the brothers made in the manner in which food was prepared. They transformed their kitchen to an assembly line for food preparation. Each employee performed only a few operations on the food. For example, the grill operators only grilled the burgers. Other employees put the condiments on the buns, some drew drinks, and still others took orders. This was a nontraditional way to run a kitchen. The brothers brought assembly line efficiency to food preparation. These changes allowed the McDonalds to bring two changes to customers. First, they were able to sell their food at reduced prices, and second, they were able to service customers much more rapidly than they could with carhops. Orders were processed in less than one minute.

The brothers instituted another change that is associated with McDonald’s to this day. They developed a kitchen that was open for all to see. This openness made kitchen cleanliness a necessity. All parts of the kitchen were cleaned several times a day by an employee whose sole role was cleaning. The outcome of these changes was the prototype of the McDonald’s that Ray Kroc discovered in the mid-1950’s.

After a slow start, business picked up considerably. The new clientele was different from the old. The low prices and new atmosphere enabled families to eat out with the kids. Another advantage of the new format was its appeal to children. It was easy for them to approach the ordering window, money in hand, and order their own meal. The restaurants continued to cater to the children’s market through special products, playgrounds, and the Ronald McDonald character, all introduced later.

The McDonald brothers’ restaurant was phenomenally successful. At peak hours, there would be two lines of twenty or more people waiting to order. One factor that kept customers coming back was that they were never in those lines for long. The brothers dabbled in franchising but never developed the idea. They sold the right to use the McDonald name and showed the franchisees how they conducted business. A franchise was not necessary, however; the McDonalds would show individuals how they conducted their business for free. Their philosophy was that they were not giving away anything since anyone could see into the kitchen and view how it operated.

Had Kroc or someone like him not come along, the brothers likely would have continued operating in the same manner, at least until their restaurant business began to slow down. Kroc sought out the McDonalds as a result of his representation of Prince Castle Prince Castle , a company that primarily marketed the Mult-A-Mixer Mult-A-Mixer[Multamixer] , a five-spindle milkshake maker. Sales of the product were falling off. As Kroc’s fortune was tied to the appliance, he was looking for ways to increase sales. It was not unusual for a restaurant or soda fountain to have one or two of these appliances, but the McDonald’s restaurant had eight in one location. When this was brought to Kroc’s attention, he decided that he had to see the restaurant that needed to be able to make forty milkshakes at one time.

Kroc was overwhelmed by the San Bernardino restaurant. At noon, more than 150 people were waiting to be served, and these people were being served in about fifteen seconds each. Kroc later reported that he decided after his first visit that this type of restaurant was the key to Mult-A-Mixer sales.

Kroc discovered that the McDonalds were looking for a franchise agent and requested that they notify him when they found one. One week later, he asked to be that agent. The brothers agreed, and a franchising agreement was developed. Kroc formed McDonald’s System, Inc., on March 2, 1955, and opened his showcase restaurant in Des Plaines, Illinois, on April 15. The first franchised restaurant opened in Fresno, California, later in 1955.

The initial agreement was not very favorable for Kroc. Franchisees were to pay a $950 franchising fee, plus 1.9 percent of sales as a service fee to the system. Of this, 1.4 percent was to go to the McDonalds. Kroc’s initial intent was to sell Mult-A-Mixers, but he soon realized that his future was with the restaurant, not the mixers.

The contract between Kroc and the McDonalds stipulated that franchisees offer the same menu as the original restaurant, charge the same prices for the same quantity and quality, and maintain a standard of cleanliness. It also stipulated that any changes in form or format be approved in writing by the McDonalds. The system worked as long as Kroc did not want to make changes in the format of the restaurants. In 1960, Kroc decided that he wanted to buy out the McDonald brothers. His initial offer was $500,000. Maurice and Richard McDonald considered this offer and finally suggested $2.7 million. This figure, daunting as it seemed to Kroc when initially proposed, turned out to be one of the bargains of the century.

Significance

The fact that the McDonald brothers signed a franchise agreement is not significant. What is significant is that they signed this agreement with Ray Kroc, who used the agreement to such tremendous benefit. The McDonald brothers had dealt with franchise agents in the past.

The concept of assembly line food preparation developed by the McDonalds had spread beyond their restaurants. The brothers were all too willing to share their ideas with anyone who asked. Several fast-food restaurants, including Hardee’s and Taco Bell, received a boost when the McDonalds showed operators the way their restaurant ran.

Kroc recognized that the McDonalds had researched how they could best set up a kitchen, prepare the food, and deliver that food. He recognized that the brothers had, to the best of their ability, developed the ideal way to offer the consumer a well-prepared meal quickly and at an attractive price. He recognized that the cleanliness the McDonalds insisted on was part of the restaurant’s attraction. This cleanliness appealed to families, who saw that the facilities at McDonald’s restaurant were as clean as, if not cleaner than, their kitchens at home.

Kroc appreciated that the McDonald brothers had developed a winning concept and that to maximize the potential for success, future McDonald’s restaurants would need to copy the original as closely as possible. Kroc was a stickler for details in the restaurants that were developed. In addition, he continued to pursue the design and food preparation research that the McDonald brothers initiated.

When Kroc took over the franchising of McDonald’s restaurants, he stopped the haphazard spread of the restaurant format and provided for an organized extension of the McDonald’s concept. He demanded that franchisers strictly adhere to a prescribed format. What this meant for consumers was that if they went into a McDonald’s in California they could be sure that the french fries they purchased were going to be as crisp and flavorful as those they had purchased in Chicago. They could be sure that the facility would be clean, from kitchen to restrooms, and that they would obtain value for their money. Customers flocked to McDonald’s around the country, and later around the world, because of the guaranteed consistency.

Another impact of the agreement was on middle- and low-income parents, who gained access to an affordable restaurant for their families. Pulling up to the red-and-white-tile building of a McDonald’s, with its golden arches, and eating a hamburger and fries and drinking a soda or a shake, formed one of the earliest restaurant experiences for many American children. Kroc promoted the spread of McDonald’s, first across the United States, and then across the world.

The agreement itself caused rethinking in the ways of doing business. Built into the agreement was the stipulation that any changes in restaurant format or design be approved in writing by the McDonalds. Kroc agreed to this, as he recognized that the success of franchises would depend on their ability to follow the practices of the McDonald brothers. Kroc did not recognize the problems that this aspect of the agreement would cause. Something as simple as adding a furnace would violate the franchise agreement, and obtaining written approval for any change proved to be impossible, as the McDonalds stuck with their formula. This aspect of the agreement made it almost impossible for Kroc to deal with the brothers. Along with other problems in the relationship, it drove Kroc to buy their share of the business. This permitted Kroc to develop the franchises his way.

With McDonald’s, Kroc presented other fast-food restaurants and patrons with a standard for comparison. Kroc’s success with McDonald’s likely provided the inspiration for the increase in the number of fast-food franchises in the years after 1960. He developed a fast-food empire that is equated with American food around the world. McDonald’s restaurants[Macdonalds restaurants] Fast food Franchising

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Alfino, Mark, John S. Caputo, and Robin Wynyard, eds. McDonaldization Revisited: Critical Essays on Consumer Culture. Westport, Conn.: Praeger, 1998. Essays explore George Ritzer’s 1993 concept of “McDonaldization” (see Ritzer) through the lenses of critical theory, feminism, postmodernism, and semiotics and analyze the work in the context of consumer culture.
  • citation-type="booksimple"

    xlink:type="simple">“Appealing to a Mass Market.” Nation’s Business 56 (July, 1968): 70-74. An interview with Ray Kroc. Provides a brief view of his perception of the restaurant’s inception.
  • citation-type="booksimple"

    xlink:type="simple">Boas, Max, and Steve Chain. Big Mac: The Unauthorized Story of McDonald’s. New York: New American Library, 1977. Provides an interesting history of McDonald’s restaurant and Kroc’s involvement. It tends toward sensational and negative aspects of McDonald’s history. The text is interesting to read, and most of the facts appear to be accurate.
  • citation-type="booksimple"

    xlink:type="simple">Jakle, John A., and Keith A. Sculle. Fast Food: Roadside Restaurants in the Automobile Age. Baltimore: Johns Hopkins University Press, 1999. An architectural history of roadside restaurants, including McDonald’s.
  • citation-type="booksimple"

    xlink:type="simple">Kroc, Ray, with Robert Anderson. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnery, 1977. An autobiography of Ray Kroc, focusing on the development of McDonald’s. This text brings a different slant to the company’s history and provides a different interpretation of that history.
  • citation-type="booksimple"

    xlink:type="simple">Love, John F. McDonald’s: Behind the Arches. New York: Bantam Books, 1986. Possibly the definitive text on the history of McDonald’s. Includes much information on the restaurant’s origins in San Bernardino. Probably the least biased and best of the books listed here. Love indicates that he received cooperation from McDonald’s in writing the book.
  • citation-type="booksimple"

    xlink:type="simple">Moser, Penny. “The McDonald’s Mystique.” Fortune, July 4, 1988, 112-116. Attempts to uncover the appeal of McDonald’s. Provides a brief history of the chain but concentrates on recent events and why McDonald’s has such a positive image.
  • citation-type="booksimple"

    xlink:type="simple">Ritzer, George. The McDonaldization of Society. 1993. Rev. ed. Thousand Oaks, Calif.: Pine Forge Press, 2004. Ritzer views the “McDonaldization” of society with a great deal of criticism, as enshrining homogeneity and mediocrity at the expense of variety, individualism, and excitement.
  • citation-type="booksimple"

    xlink:type="simple">_______, ed. McDonaldization: The Reader. Thousand Oaks, Calif.: Pine Forge Press, 2002. A companion to Ritzer’s earlier work. Can, however, be examined separately as a collection of writings on Ritzer’s original concept.

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