Logan Reid
The story of how Ray Kroc acquired the McDonald's franchise from brothers Dick and Mac McDonald has been depicted in the 2016 biographical film 'The Founder', starring Michael Keaton. The film portrays Kroc as a ruthless businessman who cheated the brothers out of millions of dollars and drove their original restaurant out of business. While the McDonald brothers focused on quality and simplicity, Kroc was driven by expansion and profit, and it is said that he renegotiated the terms of their deal in his favour. However, the McDonald brothers were reluctant to expand through franchising and some sources suggest that they were not interested in selling franchises themselves, so they gave the job to Kroc.
| Characteristics | Values |
|---|---|
| Year of the visit | 1954 |
| Reason for the visit | To see why the brothers were making so many milkshakes |
| Outcome of the visit | Ray Kroc became the brothers' franchising agent |
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What You'll Learn
Ray Kroc's first visit to the McDonald brothers' restaurant
In 1954, Ray Kroc, a milkshake mixer salesman, visited a small burger café in San Bernardino, California, owned by brothers Dick and Mac McDonald. The McDonald brothers had purchased eight of Kroc's mixers, and he was curious to know why they were making so many milkshakes.
Upon visiting the restaurant, Kroc was impressed by the simple efficiency of the operation. The McDonald brothers had introduced an innovative, efficient assembly-line system of preparing and serving food, which Kroc had never seen before. The restaurant focused on a simple menu of burgers, french fries, and shakes, and Kroc immediately spotted the franchise's potential.
Kroc offered to work as a franchising agent for a cut of the profits, and the McDonald brothers agreed. He then founded McDonald's System, Inc. (later McDonald’s Corporation) in 1955 and opened its first new restaurant in Des Plaines, Illinois. By 1959, McDonald's had opened its 100th restaurant, but Kroc was still not making significant profits. He then set up a system where the company purchased and leased land to new franchises.
Kroc went on to purchase the company outright from the McDonald brothers in 1961 for $2.7 million. He became frustrated with the brothers' desire to maintain a small number of restaurants and their refusal to allow him to make changes to the original blueprint. Despite his pleas, the brothers never sent any formal letters legally allowing the changes. Kroc retained some of the original character of McDonald's while incorporating new elements. He kept the assembly-line approach to hamburger preparation that the McDonald brothers had pioneered while streamlining operations across every restaurant.
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Kroc's business relationship with the McDonald brothers
In 1954, Ray Kroc, a milkshake mixer salesman, visited the McDonald brothers' hamburger restaurant in San Bernardino, California. He was impressed by the efficiency of the operation and the crowds of customers. The brothers had purchased eight of his mixers, and Kroc wanted to see why they were making so many milkshakes. Recognising the potential for a chain of restaurants, he offered to work as a franchising agent for a cut of the profits.
The McDonald brothers hired Kroc as their franchise agent, and he took 1.9% of gross sales, of which the McDonald brothers received 0.5%. Kroc was in charge of granting franchises, and he made the innovative decision to sell single-store franchises instead of larger, territorial franchises. This allowed him to retain control over the franchisees and ensure uniformity in service and quality across all McDonald's locations.
However, Kroc's relationship with the McDonald brothers began to deteriorate. Kroc became frustrated with the brothers' desire to maintain a small number of restaurants and their refusal to allow him to make changes to the original blueprint. He also felt that the original McDonald's stores were poorly run and selling unapproved products. The contract terms required Kroc to request any deviations in operations in writing, which he found frustrating.
In 1961, Kroc bought the company from the McDonald brothers for $2.7 million. The brothers had given him this figure, but when Kroc asked to pay it incrementally, they refused. Kroc was annoyed that they would not transfer the real estate and rights to the original San Bernardino location. After the sale, Kroc opened a new McDonald's restaurant near the original McDonald's, which had been renamed "The Big M".
Despite the conflicts, the McDonald brothers were pleased with the $2.7 million deal, although they were displeased at the lack of recognition they received from the new McDonald's Corporation.
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Kroc's purchase of McDonald's from the brothers
In 1954, Ray Kroc visited a hamburger restaurant in San Bernardino, California, owned by brothers Richard and Maurice McDonald, or Dick and Mac. Kroc was impressed by the simple efficiency of the operation, which rapidly catered to its customers by focusing on a simple menu of burgers, french fries, and shakes. Recognising the potential for a chain of restaurants, Kroc offered to work as a franchising agent for a cut of the profits.
In 1955, Kroc founded McDonald's System, Inc. (later McDonald’s Corporation), and opened its first new restaurant in Des Plaines, Illinois. By 1959, McDonald's had opened its 100th restaurant, but Kroc was still not reaping significant profits. He struggled to bring in enough revenue to make a reasonable profit, let alone generate funds for further expansion.
Kroc's vision was at odds with that of the McDonald brothers, who were content with a small number of restaurants and were motivated to buy and source locally. Kroc, on the other hand, had dreams of rapid expansion. He became frustrated with the brothers' refusal to allow him to make changes to the original blueprint and their lack of response to his pleas for formal approval.
In 1961, Kroc bought the company for $2.7 million, a figure that the brothers provided when pressed for an amount. The McDonald brothers had already retired by this time, and Kroc had to obtain funding for the buyout due to existing debt from expansion. Harry Sonneborn, whom Kroc referred to as his "financial wizard", was able to raise the required funds.
Kroc was annoyed that the deal did not include the real estate and rights to the original San Bernardino location. In response, he opened a new McDonald's restaurant near the original location, which had been renamed the Big M. The McDonald brothers had neglected to retain the rights to the name, and the original McDonald's eventually closed.
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The McDonald brothers' post-sale relationship with Kroc
The McDonald brothers, Richard and Maurice, first met Ray Kroc in 1954. The brothers owned a small restaurant chain based in San Bernardino, California, and had purchased eight Multimixers, which sold at $150 a piece. Intrigued by their purchase, Kroc visited the brothers' restaurant and was impressed by the low prices and efficiency of their operations.
The McDonald brothers hired Kroc as their franchise agent, and he took 1.9% of gross sales, of which the McDonald brothers received 0.5%. However, Kroc soon became frustrated with the brothers' desire to maintain a small number of restaurants and their refusal to allow him to make changes to the original blueprint. Kroc wanted to expand the franchise aggressively, opening new restaurants across the United States and internationally.
In 1961, Kroc bought the company from the McDonald brothers for $2.7 million (worth approximately $28 million in 2024). The brothers were pleased with the deal but became displeased with the lack of recognition they received from the new McDonald's Corporation. Kroc did not credit the McDonald brothers as the founders of McDonald's, and he also refused to give them the original San Bernardino location, which they had renamed "The Big M" as they no longer retained the rights to the McDonald's name. Angered by this, Kroc opened a new McDonald's restaurant near the original location, which caused "The Big M" to close six years later.
Despite the McDonald brothers' apparent passivity in their business dealings with Kroc, they were reportedly pleased with the sale of their company. However, the relationship between Kroc and the brothers deteriorated, and the 2016 film "The Founder" has been criticised for dramatising and distorting their personal and business relationships.
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Kroc's changes to the McDonald's franchise model
In 1954, Ray Kroc visited a restaurant owned by brothers Dick and Mac McDonald in San Bernardino, California. He was impressed by the simple efficiency of the operation, which rapidly served customers by focusing on a simple menu of burgers, french fries, and shakes. Recognizing the potential for a chain of restaurants, Kroc offered to work as a franchising agent for a cut of the profits.
Kroc is known for making several innovative changes to the food-service franchise model. Notably, he sold single-store franchises instead of larger, territorial franchises, which was common in the industry at that time. Kroc understood that selling exclusive licenses for large markets would quickly generate profit for the franchisor. However, he also recognized that this practice would result in a loss of control over the chain's development. Kroc prioritized uniformity in service and quality across all McDonald's locations, and by granting franchisees the right to only one store location, he retained a measure of control over the franchise.
Kroc also created a training program for franchisees, later known as Hamburger University, which was launched in 1961 in Elk Grove Village, Illinois. The program taught franchisees how to run a McDonald's restaurant using new storing, cooking, and serving methods. It also introduced the "three-legged stool" business model, balancing the interests of business operators, employees, and suppliers.
Kroc focused on expanding the franchise, particularly in growing suburban areas, capturing new markets with familiar food and low prices. He opened new restaurants across the United States and eventually internationally, with the first location outside the US opening in Richmond, British Columbia, Canada, in 1967.
In addition to his focus on expansion, Kroc implemented strict operational guidelines to transform McDonald's into a uniform and efficient franchise. He retained some of the original character of the McDonald brothers' business, such as their assembly-line approach to hamburger preparation, while also streamlining operations across all restaurants. He added counter staff to take orders and introduced the iconic mascot, Ronald McDonald, in 1963.
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Frequently asked questions
There is no evidence to suggest that Ray Kroc ever visited the McDonald brothers in a hospital. However, Kroc did visit the brothers at their restaurant in San Bernardino, California, in 1954.
Kroc, a milkshake mixer salesman, visited the McDonald brothers' restaurant after they purchased eight of his multi-mixers. He was impressed by the efficiency of the operation and offered to work as their franchising agent.
Yes, Ray Kroc purchased the company from the McDonald brothers in 1961 for $2.7 million.
