Ray Kroc – Economipedia

Ray Kroc (1902-1984) was an American businessman. After being a merchant of blenders, he joined the McDonald brothers with the goal of expanding the popular restaurant chain. Although the idea for McDonald’s restaurants was not his, Kroc did manage to make the hamburger chain achieve spectacular growth.

There is a great controversy about whether Ray Kroc was a great entrepreneur and businessman or a simple swindler. It is true that he took advantage of the Richard and Maurice McDonald business model to amass a fortune with the famous McDonald’s restaurant chain.

However, despite the questioning, Kroc managed to expand a restaurant model that has transcended beyond US borders. The standardization of processes and products in restaurants and his successful business strategy have made Kroc one of the great entrepreneurs of the 20th century.

Arrival of Ray Kroc at McDonald’s

Ray Kroc was born in 1902 in Oak Park, Illinois (United States). At the time of the First World War he was trained as an ambulance driver and coincided with Walt Disney himself (who had not yet achieved fame). Later he launched himself into the business world, working as a commercial in the sale of paper cups.

His journey through the business world led him to found Prince Castle Sales, a company dedicated to sales, in which he marketed mixers without much success. However, his great triumph would come from the hand of McDonald’s, when in 1954 he arrived at a restaurant in San Bernardino, California.

Ray was supposed to sell some mixers in that restaurant. However, seeing the business model of the brothers Richard and Maurice McDonald, he was impressed by the standardization of processes, the speed and the quality of the hamburgers that, by the way, were sold at very affordable prices. That same night, a restless Kroc discovered that he had to expand that business model.

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Initially, the McDonald brothers rejected Kroc’s proposal to expand the business through a franchise system. But finally they reached an agreement in exchange for them (McDonalds) receiving 0.5% of sales revenue.

McDonald’s expansion

Kroc quickly got to work, selling franchises and implementing the speedee system in restaurants that had given the McDonald brothers such good results.

Thanks to this system, it was possible to sell standardized and quality products. Thus, the franchisees had to make the investment in the corresponding restaurant and commit to using the processes of the McDonald’s chain. In fact, Kroc himself opened his McDonald’s restaurant in 1955, in the state of Illinois.

McDonald’s hamburger joints were opening all over the country and the brand was becoming known. However, despite the fact that the company was growing at a good pace, the relationship between the McDonald brothers and Ray Kroc was not without tensions. And it is that the modest pretensions of the McDonald brothers (who prioritized quality above all else) collided with Kroc’s desire for business growth.

Ray Kroc’s growth strategy would take a turn when he met financier Harry S. Sonneborn in 1956. With the aim of achieving higher returns and more income, Sonneborn proposed that Kroc take ownership of the real estate on which he owned McDonald’s chain restaurants were erected. All this led Kroc to create the company Franchise Realty Corp, dedicated to the real estate sector.

In this way, Franchise Realty Corp acquired the land and transferred the cost of the lease to the franchisees, obtaining a substantial return for each restaurant that was opened. By 1960, McDonald’s had more than a hundred restaurants and the control power of the McDonald brothers was beginning to fade.

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Without a doubt, Sonneborn’s financial strategy was decisive in the growth of McDonald’s. In fact, the value of the land that McDonald’s owned came to exceed 45,000 million dollars in the balance sheets of the fast food company.

Ray Kroc takes over

Kroc wanted to continue expanding the McDonald’s franchise, and to do so, he needed full control of the company. His only option was to come to terms with Richard and Maurice McDonald.

Finally, in 1961, they agreed to sell the company in exchange for 2.7 million dollars and 0.5% of restaurant sales. But, since neither the McDonald brothers nor Kroc wanted to declare before the tax authorities, they settled the sales percentage agreement with a simple handshake. Over time, with no written record of the deal, Kroc refused to pay the McDonald brothers their 0.5% of sales.

McDonald’s, beyond the United States

With Kroc at the helm, McDonald’s growth continued at a phenomenal rate. The golden arches were becoming ubiquitous throughout the United States, with McDonald’s restaurants offering standardized service at low cost.

McDonald’s even built a restaurant across from the original establishment of the McDonald brothers, who had changed the name of their establishment to The Big M. As a result, Richard and Maurice McDonald had no choice but to close what was the original restaurant. from McDonald’s.

In turn, McDonald’s brand strategy continued, emerging in 1963 the well-known and emblematic clown Ronald McDonald, who was a symbol of the fast food company. Two years later, McDonald’s went one step further and went public.

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Another milestone took place in 1968 with the landing of the Big Mac hamburger, which reached unprecedented heights of popularity. Moreover, the so-called Big Mac index is used as an indicator to measure purchasing power in different countries.

McDonald’s was not only a national company, but by the end of the 1960s its restaurants were present in hundreds of countries. In fact, the company had gone on to become one of the 30 strongest public companies in the United States.

Upon his retirement in 1974, Ray Kroc had made McDonald’s the largest fast food company in the world. After leaving the restaurant industry, Kroc bought the San Diego Padres baseball team. For his part, his wife Joan was in charge of allocating significant amounts of money to philanthropic causes. Finally, in 1984, Ray Kroc passed away in San Diego, California.

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