Seller of success. Ray Croc - Founder of McDonald's

Published on October 07, 2008

Seller of success. Ray Croc - Founder of McDonald's

    On October 5, the world celebrated the centenary of the birth of Ray Crock, the man who created the McDonald's empire.

    “In 1954 I was 52 years old. I had diabetes and arthritis. I had a gall bladder and most of the thyroid gland excised. But I believed in the future, ”- Ray Crock recalled the fateful moment when he met the MacDonald brothers. In addition to numerous diseases, he was deaf and not rich. Krok was a well-known businessman, but all of his businesses regularly crashed. When in 1954 it took him 15 thousand in cash to buy out a McDonald's distribution license, not a single bank gave him a loan. I had to lay down a house and insurance.

    After that, he lived another 30 years and earned 600 million. Now the McDonald's empire consists of 29 thousand restaurants where 45 million people eat hamburgers and french fries every day. But Krok not only made a fortune - he changed our lifestyle and enriched thousands of his compatriots.

    History of his failures

    Ray Kroc did not come up with fast food, he traded them. Actually, only this he was able to do. For 17 years he traded in paper cups of Lily Cap Company and was recognized as the best dealer of the company. Then he created his own company in order to sell a “multi-mixer” (ice-cream production unit) of a new type, but by the beginning of the 50s all the employees of the company had to be fired: competitors released an improved installation and it drove out Krok's favorite car from the market. Once again, having found himself on the verge of ruin, he began, like an old man, to travel around the country. It was then that he noticed that a small roadside restaurant in San Bernardino ordered ten of his multi-mixers at once. “What are they doing there with them?” He asked a friend. “Earn money,” he answered. Kroc got behind the wheel and drove to California.

    San Bernardino turned out to be a small working town, and the roadside restaurant was the property of the McDonald brothers, who came up with a speed service system that still operates in all McDonalds restaurants. There Krok saw metal counters that customers approached themselves and made an order themselves. He saw a huge automated conveyor, where centners of potatoes were fried and hundreds of milkshakes were knocked down. He saw an unprecedentedly small menu - only nine items - and paper utensils that did not need to be washed. And impossible, indecently low prices: in all fast foods, a hamburger cost about thirty cents, MacDonalds sold it for fifteen.

    All this magnificence, bringing an unprecedented annual for fast food annual income of 300,000, was run by a couple of fat men with the same bald patches and the same glasses. The MacDonald brothers were mattresses. Having attacked the gold mine, they were lazy to develop it. When the first restaurateur, who bought a franchise from them, offered to name his McDonald's restaurant, Dick MacDonald said: “Why? In your city, this name doesn’t mean anything. ”They didn’t try to attract investors, but often discouraged them from investing in the construction of McDonald’s, giving them the right to open a new McDonald’s for a penny — the franchise cost from 1,000 to 2,500 dollars - they did not even guess to demand a percentage of the restaurant’s income.

    Kroc’s offer to sell their franchises nationwide was a blessing for the brothers. The franchise cost $
    950 and was issued for 20 years. And each restaurant was supposed to pay 1.9 percent of its income: 1.4% went to Crock, 0.5% to the MacDonald brothers for using their name and restaurant system. Kroc had no right to make the slightest change to the McDonald's system. Under these conditions, a bankrupt salesman went to conquer America.

    What do franchises eat with?

    Franchising is a distribution system. In the States, she was first tested by Singer, a manufacturer of sewing machines. He sold his distributors a “franchise” - a license to trade his products. In the 40s, the practice of franchising became extremely popular in the fast food system. The first to think of it was Henry Axen. Once he drove into a tiny restaurant, where he saw a curiosity - a new freezer that turned cream into soft ice cream. Aksen convinced the creator of the miracle freezer to sell the right to create such restaurants. He gathered 26 investors in Chicago, treated them to new ice cream, and on the same day he sold them franchises. Some franchises operated on the territory of entire states and cost from 25 to 50 thousand dollars. In addition, Axen demanded

    So began the fast food franchise fever. By the time Krok met with the MacDonalds, franchises were sold by all notable restaurateurs - Kentucky Freedom Chicken, Big Boy Sandwich, Insta Burger King. Franchising has become an ideal way to get "quick money." It seemed most profitable to sell licenses for servicing large territories, preferably entire states. The owner of such a license then resold the right to build individual restaurants and earned his percentage. But franchisors were not interested in the fate of the restaurants created under license. They did not control either local prices or quality of service. They did not care that poor restaurateurs could compromise their brand. They were in a hurry to weld more money. The only thing,

    Ray Croc did not come up with franchising, he improved it. He wanted the national McDonald's network to bring long-term profit and not shame its brand. He resolutely refused the quick profits brought by the sale of licenses for entire territories. Krok sold franchises for the construction of only one McDonald's restaurant. Subsequently, if the restaurateur proved his compliance with the high standards of McDonald's, Crock could entrust him with the construction of another restaurant. Krok also did not want to cash in on restaurateurs, selling them equipment and food. However, everything they purchased had to strictly meet McDonald's standards - from the number of cash registers to the average size of potatoes. And for the first time in franchising, he made his profit dependent on the profit of a restaurateur.

    Such a scheme could not attract anyone. People with big money wanted to buy a license for the whole state, and then resell it. Small businesses were not happy with the fact that the franchise operated for only 20 years, and upon its completion they could easily lose their restaurant. And no one liked the strictest accounting and control that Kroc intended to establish in his empire.

    In the first year, Croc only managed to sell 18 franchises. Half of them went to California. Half he persuaded to buy the rich regulars of his club in Chicago. Those had their own business. Restaurants were of little interest to them. In their "McDonald's" reigned full of bedlam. On the menu, it was not known where pizzas and hot dogs came from. The price of a hamburger soared at times. Franchise owners looked at restaurants as their property and did what they wanted in them. Krok dreamed of a uniform paradise, where equally dressed sellers, beaming, selling customers the same hamburgers at the same prices. But how to realize this dream, he did not know.

    Krok’s salvation appeared in the image of a humble Chicago journalist. By the age of forty-six, Sanford Agatha had amassed twenty-five thousand dollars and dreamed of investing them in some sort of business. Krok persuaded him to buy a franchise. The owner of the land in the town of Vokegan agreed to build a McDonalds there and rent it out to Agatha for 5 percent of the restaurant’s turnover, but not less than 500 and not more than $ 1,000. Agate made a deposit, paid a down payment for the building, bought equipment, and there was not a cent left from his savings.

    May 26, 1955 "McDonald's" Agate opened. Two hours after the opening, long lines lined up in front of the building. Mrs. Agate was at $ 450 by evening. By the evening of the next day - more than 800. Cash did not fit in the cash register, and every evening the couple put them in brown paper bags and dragged them home. Two days later, McDonald's Agate began to generate a steady income of $ 1,000 a day. The land owner, who leased it to Agate, tore his hair on his head: he could not imagine that a small restaurant would earn 30 thousand a
    month, and he would pay a miserable thousand to rent. In 1957, Agate bought a luxurious house, and his profit was an order of magnitude higher than the earnings of Krok himself.

    The same optimistic losers as he was went to Krok in a series. These were small people with little money and a passion for work. Agate's success inspired them. The new McDonald's required investments from 17 to 30 thousand dollars and paid off in just six months. For the sake of this, people were ready to pray to Krok, follow all his instructions, spend days and nights in their restaurant, perfecting the McDonald's style. Krok is said to have populated America with millionaires. Out of these new millionaires, his empire arose. He sold these people more than just small businesses. He sold them success.

    Ground burgers

    In 1961, the MacDonald brothers agreed to sell their name to Croc and give him complete freedom to manage the brand. They estimated the famous letter “M” at 2.7 million in cash: a million to Dick, a million to Mack and 700 thousand to Uncle Sam for taxes. Kroc had no such money. There were 228 McDonald's restaurants operating throughout the country, in 1960 they earned 75 million, but the percentage owed to Crock was negligible. The profit of his company in 1960 amounted to 77 thousand dollars, and there were debts of five and a half million. I urgently needed a loan.

    The chief financier of McDonald’s Harry Sonneborn did the impossible: he managed to persuade the most famous universities (primarily Princeton) to invest $ 2.7 million in McDonald’s. For this, creditors, in addition to the repaid debt, were given the opportunity to pinch off exactly the same percentage that McDonald’s brothers had received from McDonald’s profits. Krok rejoiced: at last he could get rid of the bondage contract with his brothers.

    But the day before the delivery of 2.7 million lenders refused their decision. Sonneborn flew to New York by night. Sleepy and unshaven, he rushed to the creditors. Those set forth the traditional rationale: fast food is too unreliable business. Sonneborn hesitated, cleared his throat and with a hoarse voice revealed the great secret of McDonald's: “Actually, we are not engaged in fast food. We ... uh ... do real estate. "

    Harry Sonneborn was under Crock the same as Mr. Hyde under Dr. Jekyll. While Krok flashed a smile at his investors and spoke to his creditors, Sonneborn made a lot of money in his office silence, allowing McDonald's to soon become one of America's richest companies. Back in 1954, Sonneborn invented how to combine the restaurant business and real estate. His idea was to, without a penny in his pocket, gradually tidy up the McDonald's restaurant building along with the land on which they stood.

    To begin with, it was necessary to persuade the owners of the land to lease it to the McDonald's restaurant. This was not so easy to do. In the new suburbs, where, for the most part, the McDonald's were being built, there were many empty sections near the highway, but gas station owners were in a hurry to dismantle them. Then Sonneborn began to offer rents, which for the year were not 7 percent of the cost of the site and the building, as gas stations paid, but 10 percent. Overjoyed owners themselves found loans for the construction of the building for McDonald's.

    But the trick was that, no matter how the land owners insisted, they could not get a percentage of the restaurant’s income. They received a strictly fixed fee, which did not change for the 20 years for which the contract was concluded. At first it seemed to them that $ 700 a month was a lot. But in the late 60s, when real estate prices rose by an order of magnitude, they were just fit to rush out of the window. Having rented a plot with the building for the $ 700, McDonald's rented it to a restaurateur for a thousand. But when the restaurateur unwound, he was offered to pay not a fixed rent, but a percentage of income - from 5 to 8.5%. That is, McDonald’s leased land at a fixed price, and leased it for a percentage of profits.

    The next step was the purchase in installments of buildings along with land.

    Restaurateurs paid for McDonald's real estate without knowing it. When buying a franchise, the restaurateur was obliged to put from 10 to 15 thousand dollars on a deposit for a period of twenty years. Fifteen years later, half of the amount was returned to him, after twenty - the second. Naturally, no percent was supposed. It was this money that Sonneborn transferred to the accounts of the land owners as a down payment. In the first ten years of real estate operations, Franchise Estate, created by Crock and Sonneborn, turned out to be the owner of real estate worth a total of $ 16 million.

    But mortgage payments, contributions for buildings and plots were impossible without loans, and McDonald’s at the beginning of a long journey had absolutely nothing. “Banks,” as Sonneborn once remarked, “give money only to those who do not need it. A company that really needs a loan is too much risk for them. ” It was a small matter - to create “McDonalds” the image of a prosperous company. While Crock was experimenting with fried potato recipes and personally picking out chewing gum in the next McDonald's parking lot, Sonneborn found an accountant and lawyer named Richard Jay Boylan.

    Boylan re-led the McDonald's books. He realized that since McDonald’s rented the building, that means that he would own them. And the value of buildings and land was attributed to the assets of the company. Then he figured that in a few years the value of real estate will increase in order, and this growth is written in the “income” column. After such simple combinations (which are strictly forbidden by the US Generally Accepted Accounting Principles), McDonald's income — at least on paper — quadrupled in 1960. The main growth was in the column with the mysterious name “Unrealized income from the increase in the value of assets”. With such a statement, it was not a shame to come to the richest banks and demand a loan on the most favorable terms. “In fact, we all honestly explained in the notes,

    In 1961, when Sonneborn persuaded creditors to give his company 2.7 million, McDonald's assets, amended by Boylan, amounted to $ 17 million. The news that the real business of the company is not fast food, but real estate, made a good impression. Sonneborn talked for an hour about McDonald's investments in the best plots of land, finally hoarse and went to wash off the road. Representatives of famous universities consulted and decided that investing in McDonald's is a reliable business.

    Standing over the urinal, Sonneborn heard the good news - 2.7 million would be transferred to his company. The MacDonald brothers got compensation and flew out of business. Ray Croc revolutionized US agriculture by founding a new system for milking cows, growing potatoes and packing cream. Big Mac appeared on the MacDonalds menu, and Ronald MacDonald appeared on his ad. In Moscow and Kuwait, people lined up in multi-kilometer lines at the opening of the first McDonald's. And the McDonald's restaurant business continues to turn ordinary Americans into millionaires. 85% of the company's 21 billionth annual turnover is accounted for by individual investors in the United States.

    Victoria Nikiforova
    Source: http://www.gilbo.ru/index.php?page=persons&art=2661

    Comment by Div: Ray Crock's success story has little to do with IT, but it is of great interest to novice businessmen and startups. After reviewing it, I considered it necessary to bring this story to the attention of the habrasociety and publish it on the corresponding blog not as a link, but as a post. If this is a mistake - ready to fix it.