Grinding It Out

by Ray Kroc

  A few of our executives left when Harry resigned, notably Pete Crow, who went back to his native Alabama to join a fast-fish chain called Catfish Hattie. But the thing we feared most—that a shattering loss of faith in McDonald’s might run through the financial community when Harry departed—simply didn’t happen. Dick Boylan moved right in behind Harry and kept the ball rolling for us with the bankers and the financial analysts. Dick had worked with these people all along, of course. Harry would initiate deals, but he left the detail work to Dick. So we had no problems. Office politicians and gossips had Dick figured as a Sonneborn man who would either quit when Harry left or when he himself didn’t get the presidency. I knew Dick was above that though, and I think he understood that I would never appoint another president of McDonald’s who didn’t have a strong background in operations. So I pitched him the ball of chief financial officer, and he hit it over the grandstand.

  Dick knew that I consider most of the language of high finance to be mumbo-jumbo. That bothered him, and he wanted to educate me a little bit. Also, he wanted to give the analysts the benefit of some of my sales message about McDonald’s. Aloyis Sonneborn used to say I was the only guy she knew who could make a hamburger sound as appealing as filet mignon. I considered that a high compliment, because she is a woman of flawless good taste. Anyhow, Boylan started taking me to meetings with the analysts, and I enjoyed it. I came to appreciate their views a little more although I still think a lot of their approach is mumbo-jumbo. I also found that they really enjoyed straight talk about the nuts and bolts of our business.

  My biggest task after Harry left the company was to recapture the territory we had granted back in our early and more innocent days to a pair of very smart business heads named John Gibson and Oscar Goldstein. They had an exclusive license like the one Lou Groen had for Cincinnati, but on a much grander scale. Their partnership, Gee-Gee Distributing Company, had the entire District of Columbia and a number of surrounding counties in Maryland and Virginia as an exclusive territory. We couldn’t put up a single store in their area. Man-oh-man, that hurt!

  Harry had done some dickering with Gibson and Goldstein in an effort to get the area back, but he wasn’t willing to pay their price. This rubbed me the wrong way, because I knew we could develop that territory with substantially more than the forty-three stores Gee-Gee had there, and the real estate wasn’t ever going to come down in price—no way!

  I got my opportunity to corral the two big G’s about five months after Harry left, when we met at our national operator’s convention at the Doral Hotel in Miami Beach, Florida. They were hard bargainers. Goldstein had been a delicatessen owner in Washington, and Gibson had been an assistant secretary of labor in Truman’s administration; so they knew which way the salami was sliced and who had the strongest hand in our negotiations: They did. But I managed to hammer out a deal for a few million dollars more than Harry Sonneborn had been willing to pay.

  Gibson and Goldstein wound up getting about $16.5 million in cash. That was a very good dollar, but I didn’t begrudge it. I don’t stew about what the other guy is making in a deal like this; I’m concerned about whether it is going to be a good thing for McDonald’s. Usually there’s no reason both sides can’t come out winners and be happy.

  What we got in return was worth far more to McDonald’s than the $16.5 million. We have increased the number of stores in the area from forty-three to ninety. But we also acquired a lot of fine executive talent in the move.

  I had one personal reason for taking charge of the company myself after Harry Sonneborn left. We had recommended retail price increases to our operators for January 1967, and we weren’t sure how badly the boost was going to affect us. I can still picture those newspaper headlines announcing, “The End of an Era: McDonald’s 15-Cent Hamburger is Now 18 Cents.” Whew! There had been a lot of controversy within the company about the increase. After all, it was our first, except for recommending raising cheeseburgers from nineteen cents to twenty cents and minor raises in fries, shakes, and Filet-O-Fish. After twelve years of operation, the fifteen-cent hamburger had come to be cherished as one of our foundation stones. Well, hell! We were in the midst of Lyndon Johnson’s muddle-headed “guns and butter” economy with the war in Vietnam, and even our increasingly sophisticated purchasing operations could not cope with inflation. Some of our people believed we should recommend an increase to twenty cents instead of eighteen. But I came down hard on that one. They argued that customers wouldn’t want to be bothered with pennies, and that it would be harder for our girls and boys to make change. However, if you look at it strictly from the customer’s point of view—which is how I do it, because this guy is our real boss—you see the importance of every penny. And, cripes almighty, going to eighteen cents is a twenty percent increase! Anyhow, I prevailed. We made it eighteen cents, and then we waited anxiously for the sales figures and customer counts to come in so we could compare them to Gerry Newman’s predictions. Gerry had drawn up an economic curve showing a diminishing demand for our product for every cent of increase in price. Past experience led us to expect an initial surge in volume as regular customers came in and paid the higher prices. This would be followed by a sharp drop as customers went to competitors. Then there would be a steady rise as the competition raised their prices and customers came back to us. That’s exactly the pattern it followed. Volume increased twenty-two percent in January, followed by the worst February in many years. Our customer count dropped about nine percent. Would they come back? We were all confident they would, but I did not want to pass the baton to Fred Turner at that moment and make him come from behind. It took almost a year for our customer counts to recover. But 1967 ended very profitably, because the twenty percent price increase on twenty percent of our product added greatly to the income from our company stores. Of course, it didn’t do our franchisees any harm either.

  Another thing we had on the griddle and were watching closely throughout 1967 was our national advertising and marketing plan. This was being developed by Paul Schrage, who had worked on our account for D’Arcy Advertising in Chicago. Fred hired Paul to head our advertising and promotion department after he helped form the Operators National Advertising Fund (OPNAD), which allowed us to launch into national television. OPNAD is supported by a voluntary contribution of one percent of gross sales by licensees and company stores that belong to the program. Operators value highly the national advertising muscle that OPNAD gives them. What small businessman wouldn’t cheerfully give up one percent of his gross to get our kind of commercials and things like sponsorship of The Sound of Music on network television to promote his store? He’d have to be crazy not to. In addition, operators contribute a percentage of their gross sales to an advertising cooperative in their local market. The co-ops retain their own area agencies and run their own campaigns, following guidelines established by the corporation.

  I liked Paul Schrage’s approach, because he was a “detail man” in his field, and he was on the same wavelength as I was concerning the McDonald’s image. For example, a great deal of study had gone into creating the appearance and personality of Ronald McDonald, right down to the color and texture of his wig. I loved Ronald. So did the kids. Even the sophisticates at Esquire magazine loved him. They invited Ronald to their “Party of the Decade” for top newsmakers of the sixties. McDonald’s was chosen to cater the party because we had the “biggest impact on the eating out habits of Americans in the decade.”

  By early 1968 I was ready to hand the baton to Fred Turner, and he took it without breaking stride. As president and later chief executive officer, he pressed ahead with the programs I’d started and came up with some dynamic variations of his own. In a way, this was nepotism, because although I have never had a son, Fred is close to the age a boy of mine would have been, and he has all the desire and aptitude for the business that I could wish. So I’ve often said that I do have a son and his name is Fred Turner. He has never disappointed me. The great growth of th
e company over the last five years has been due to Fred’s planning and vision and the work of Ed Schmitt and the rest of Fred’s team of executives.

  For openers he went gunning to recapture the Canadian market for McDonald’s. Harry had made a deal just before he left the company to license most of western Canada to a man named George Tidball. The Ontario area was licensed to George Cohon, who had been an attorney in Chicago. Cohon’s introduction to us was through a client who wanted to obtain a McDonald’s license. George came to California to talk to me about it, and I was impressed by him. I told him, “Son, the best advice I can give you is to get out of law and into McDonald’s. I think you’ve got what it takes.” As it turned out, his client didn’t get into McDonald’s, but George did. Fred Turner had a high regard for George, too, but he didn’t think he should have all that territory. Fred saw the Canadian market as being very similar to that in the United States, but with far less competition. So he set about buying back these big territorial licenses.

  That was a pretty bold move. Stockholders might question the wisdom of licensing an area and then, two years later, buying it back for much more money. But Fred believed strongly in the potential of Canada, and he didn’t let the possibility of adverse criticism slow him down. I thought, “That’s my boy!”

  McDonald’s Canada is now one of our fastest growing and most lucrative markets. George Cohon is president of McDonald’s of Canada, and his operators have the spirit of frontiersmen. They’ve achieved an average of a million dollars in sales for all their stores, which puts them well ahead of the United States.

  There was one other thing I had to do to set the situation in the Chicago office straight, and that was to ask June Martino to retire. It was a tough thing for me. June was a wonderful person, and she had been a tremendous asset to the organization. But she was part of the old regime, and her approach would no longer work. June had the same deal Harry Sonneborn got. She held onto her stock, however, and it made her extremely wealthy.

  I see June from time to time. She’s an honorary director of the corporation, and she does some good work for McDonald’s in the Palm Beach area. One thing June and I will always have in common is a love for McDonald’s.

  When I went back to California, I was looking forward to spending some time sitting in the sun instead of hammering away on the day-to-day direction of the company. I wanted to think about the business less—maybe eighteen hours a day instead of twenty-four—and I wanted to dream up future developments for McDonald’s. But a strange mood came over me when I got out there. I was restless and even more irritable than usual. Maybe it was a sort of premonition of the big change that was about to occur in my life.

  The western region operators had scheduled their convention in San Diego, and they invited me to address them. Well, I thought, sitting in the sun could wait till another time. This was a very exciting period for McDonald’s with a new president at the helm, a couple of dynamite additions to our menu coming up in the Big Mac and hot apple pie, a new style of architecture for our buildings, new uniforms, and the opening of our beautiful new campus for Hamburger U. in Elk Grove.

  Damned right I’d talk to them! The more I thought about it, the more excited I became at the prospect. There’s nothing more fun for me than rubbing elbows with a bunch of operators and talking shop. But there was one couple listed on the advance registration sheets that particularly interested me—the operators from Winnepeg and Rapid City, South Dakota, Roland and Joni Smith.

  14

  I hadnt seen Joni for five years when we met at the Western Region Operators Convention in San Diego. Truthfully, I didn’t expect to be hit by the same wave of emotion that had bowled me over before. But that’s exactly what happened.

  My suite in the hotel had a grand piano and a fireplace and bar. I brought Carl Eriksen along from the Los Angeles office to drive my new Rolls-Royce and tend bar for parties in the suite. He hadn’t bargained to be chaperon for Joni and me but, happily, that’s the way it turned out. I attended a small dinner party the first evening of the convention, and Joni was there with her mother and Rollie. I made sure that Joni sat right next to me: “Rollie, you sit down there at the other end,” I said. Everyone tittered. They thought I was kidding. Little did they know. And when I made my after-dinner speech about how I had attained all I’d ever wanted in life except one thing, little did they suspect that the missing element—all I needed to make life complete—was sitting there at that very table beside me. They probably thought I was referring to some staggering sales record or having Colonel Sanders become a McDonald’s licensee or some such thing.

  But Joni knew.

  I knew she knew.

  And she wasn’t frowning. Man! I felt like a teenager on his first date. As I finished my little talk I could see that everyone was just going to get up from the table and depart—the evening was over. Well, not, by God, if I could help it!

  “Come on, all of you,” I announced. “We’re going up to my suite and have some piano music and drinks.”

  They all came, including Joni and Rollie. He didn’t stay long even though everyone was having a good time singing and laughing it up. Joni told him she was going to stay for a while. After a couple of hours, she and I were the last ones left except for Carl. He puttered around the place cleaning up and looking uncomfortable. I didn’t want him to stay. But I wasn’t prepared for the kind of stink it might cause if he left; so I told him to hang around. Joni and I talked and talked, and I lost all sense of time. I knew her husband would be madder than hell. But I didn’t care, because Joan told me she was ready now to get a divorce regardless of what her family might say. She was ready at last to marry me, regardless of what gossips might say.

  Beautiful!

  Sleep was out of the question. Even after Joni left about four o’clock in the morning and Carl stretched out on the couch and was snoring like a buzz saw, I was spinning around like a top out of control. Then I remembered that I had to give the opening address to the convention that morning. I went into the bathroom and looked at myself in the mirror. Ouch! I put some eyewash in my eyes and took some Alka-Seltzer. Then some more eyewash. Then some aspirin. I couldn’t remember what the hell I was going to say at the meeting.

  Looking out from the rostrum at that huge crowd of operators as the meeting opened a couple of hours later, I still didn’t know what I was going to say. All I could think of was that Joni and I had agreed that we would meet as soon as possible in Las Vegas, where we would get our separate divorces. I don’t know what I said that morning, but I was told many times afterward that it was the most inspiring talk I ever gave.

  Jane and I were supposed to be leaving on a world cruise. Joni had asked me to go through with it and break the news to Jane gently during the three months we would be gone. Okay. I thought I could handle that. But fond as I was of Jane, the more I thought about being away from Joni that long, the more impossible it became. First, I decided I would get off the boat in Hong Kong. Then I changed my mind and made it Acapulco. Then, by God, it was the Panama Canal. Finally, I said to hell with it, I would not go on the cruise at all.

  I didn’t want to hurt Jane any more than was necessary, but I had to have a divorce. Immediately! I took care, though, to insure that she would be financially secure. Jane still lives in our Beverly Hills home, and I continue to see some of her relatives who are long-time McDonald’s operators.

  I had bought a ranch in Southern California in 1965 with the intention of turning it into a center for McDonald’s seminars and headquarters of the philanthropic foundation I had started the same year. It was a marvelous location, and I built a large lodge that had a spectacular view of the mountains surrounding it. Joni and I were married there, in front of the massive stone fireplace, on March 8, 1969.

  At last I felt like a complete person. Now, I told myself, I could take life a little easier and enjoy it. I was finished grinding it out.

  But business is not like painting a picture. You can’t p
ut a final brush stroke on it and then hang it on the wall and admire it. We have a slogan posted on the walls around McDonald’s headquarters that says, “Nothing recedes like success. Don’t let it happen to us or you.” I wasn’t about to let it happen to me. Fred Turner was doing a fine job of running the company, as I had known he would, but there were lots of areas that needed my attention.

  In many corporations when the top guy moves up it’s to a figurehead role. He becomes chairman of the bored. Not me. I admit that I no longer jump into the fray in administrative sessions and yell and pound on the table. That’s for Fred and his executive staff. I’m content to sit back and listen and play Big Daddy, giving my opinion when it’s asked. However, I am the chief guy when it comes to new product development and real estate acquisition. These are areas for which I have always had a special knack. I always enjoyed them most, so work is even more fun for me now than before I stepped up. I continue to look to the future of McDonald’s and consider new menu items and new property in the light of overall corporate development. What I see in the future is unlimited possibilities for McDonald’s—even more than existed for us ten years after I started the system. And now we have the talent and the financial resources to follow up on every business opportunity that presents itself. Fred has a top management team headed by Ed Schmitt, who became president and chief administrative officer in January 1977. He and his staff understand what makes the cash register ring and how to take care of the customer. That, of course, was always Fred Turner’s strong suit as president. Fred has always been an operations man at heart. In January 1977, Fred was made chairman of the board. The board gave my chair another spin up to senior chairman. It is impossible to foresee what the new opportunities for McDonald’s will be, but they are certain to come as the country grows and new social and economic needs take shape. Change has been our history, and you can’t consider our growth without taking into account the context in which it occurred, an America in which tremendous social changes were taking place.