McDONALD'S HISTORY
The brothers decided upon a radical change to reduce expenses and increase profits by increasing efficiency. A central feature of their operation was an industrial assembly line model popularized by Henry Ford, whose techniques had previously been adapted for use in food service by cafeterias, automats, railway dining cars, and at the Howard Johnson restaurant chain. The model included division of labor into simple tasks that could be performed with a minimum of training. This meant that their employees were essentially interchangeable and could easily be shift ed from one task to another. The brothers redesigned the kitchen, making room for larger grills and labor-saving equipment. They created an efficient assembly line to make hamburgers and French fries. This assembly line model provided customers with fast, reliable, and inexpensive food; in return, customers were expected to stand in line and pick up their own food, eat quickly, clean up their own waste, and leave without delay, thereby making room for more customers.
The McDonald brothers were convinced that their target audience was families, so they tried to create an environment that would discourage loitering teenagers, who littered and broke or stole cups, glasses, plates, silverware, and trays. Therefore, they did away with the attractive female carhops, whom the brothers believed were more interested in socializing than in selling burgers. They also did away with the plates, glasses, and tableware, replacing them with disposable paper and plastic utensils.
To implement these ideas, the brothers closed their restaurant, installed larger grills and purchased Multimixers (which made many milk shakes at a time in metal containers; the contents would then be poured into paper cups). To speed this up, the brothers reduced the length of the machine’s arm so that milk shakes could be made directly in 12-ounce paper cups, thus eliminating a process step. Eighty or more shakes were prepared in advance and placed in a refrigerated holding case, thus speeding up the process of fulfilling orders.
This model created a militarized production system that was geared toward teenaged male employees, who were responsible for simple tasks — some heated the hamburgers, others packaged the food or poured the soft drinks and shakes, and still other placed orders in paper bags.
This new model did away with indoor seating and greatly reduced the menu to a few low-cost items, including 15-cent hamburgers, 19-cent cheeseburgers, 10-cent fries, 20-cent shakes, and large and small sodas. The hamburger patties weighed only 1.5 ounces and all burgers came with the same condiments: ketchup, chopped onion, and two pickle slices. In this new self-service restaurant, customers placed their orders at a window and ate the food in their cars. All food was packaged in disposable paper wrappers and paper cups, so there was no breakage or loss due to theft.
The McDonald brothers’ restaurant was octagon-shaped, which was not unusual for Los Angeles at that time. The “McDonald’s New Self-Service System” got off to a rocky start when it was launched in 1948: customers honked their horns and expected carhops to come out and pick up their order. Eventually, they understood the new system and they were attracted by the low prices, fast service, and good hamburgers. The service was speedy: the McDonald brothers claimed that their employees could serve a customer who ordered everything that they had — hamburger, fries, and a beverage — in 20 seconds. Increased volume led to higher profits. By 1951, the brothers grossed $275,000, of which $100,000 was profit. Reports of their phenomenal success spread around the nation and American Restaurant ran a cover story on the “McDonald’s New Self-Service System” in July 1952. The brothers believed that they were ready to franchise their operation, so they began advertising for franchisees. As good as their new design was, the McDonalds believed that they could make an even more efficient operation by changing the layout. They also wanted a more distinctive architectural design to make it easier to spot from the road and to make their drive-in stand out from the hundreds of other similar fast food establishments. Their new model restaurant was constructed with a forward-sloping front; its walls were painted with red and white stripes. Richard McDonald came up with the idea for yellow “golden arches,” which poked through the roof. Under the arches was white tile that implied cleanliness, and lots of glass that made food preparation visible to all.
Before their new restaurant was completed in San Bernardino, the McDonald brothers sold their first franchises based on their new design. Franchisees paid the McDonald brothers a relatively small fee plus a percentage of their sales. Unlike previous food-service franchises, the brothers demanded that every franchise be constructed in the same way as their model and that each outlet would sell exactly the same food prepared in exactly the same way. Their new model had no indoor dining; customers were expected to eat in their cars. A couple of plastic chairs and cheap tables were provided outside for walk-up customers or for those who preferred to eat outside. This model gave McDonald’s a significant advantage over other emerging fast food chains, for it promised consistency, predictability, and safety. However, it was not considered an advantage by potential franchisees at the time because it meant they could not use existing facilities — a criterion not required by other franchisers. By the end of 1953, the brothers had sold only 21 franchises, of which only 10 became operating units (two in Phoenix, Arizona and the rest in the Los Angeles area). Compared to other fast food chains, such as that of Dairy Queen, this was not a great success.
The McDonald’s restaurant in San Bernardino attracted large crowds. Many subsequent fast food entrepreneurs visited the San Bernardino site. For instance, in 1952 Matthew Burns of Long Beach, California, invited his stepson, Keith G. Cramer (who owned a carhop restaurant in Daytona Beach, Florida), to fly out to California and visit McDonald’s. The following year, Cramer opened his Insta-Burger King in Jacksonville, Florida, which evolved into Burger King . After a visit to McDonald’s, restaurant owner Carl Karcher of Anaheim, California, decided to develop a fast food chain of his own; he named it Carl’s Jr. Glen Bell of San Bernardino also studied the McDonald’s operation and tried to develop something similar using Mexican-themed food instead of hamburgers. He eventually launched Taco Bell. James Collins, chairman of Collins Foods International, visited San Bernardino, took notes on the operation, and opened up a Kentucky Fried Chicken franchise based on the brother’s design. Numerous others opened up McDonald clones, so that by 1954 many other fast food operations were underway in southern California.
Another visitor to San Bernardino was Ray Kroc, an owner of the Chicago company that sold Multimixers. Kroc had sold Multimixers to many fast food franchisees, including Dairy Queen and Tastee-Freez. This experience gave Kroc a deeper understanding of the fast food business and some knowledge of problems related to franchising. In the early 1950s, increased competition reduced the sales of Multimixers and Kroc needed new outlets. He saw advertisements for McDonald’s and was surprised to find that the McDonald brothers had purchased eight of his company’s Multimixers. In 1954, he visited the McDonald brothers and was astounded by the crowds ordering food.
Kroc saw the potential of the McDonald’s operation. He met with the brothers and signed an agreement allowing him to sell McDonald’s franchises nationwide. In the mid-1950s, franchising consisted mainly of assigning territories to franchisees for huge up-front fees. However, Kroc wanted to control the McDonald’s operations. He avoided territorial franchises by selling one store franchise at a time, thereby controlling the number of stores a licensee could operate. He also required strict conformity to operating standards, equipment, menus, recipes, prices, trademarks, and architectural designs. In 1955, Kroc created McDonald’s System, Inc. and sold himself the fi rst franchise in Des Plaines, Illinois, which he opened in 1955. He intended it to be a model operation that would attract potential franchisees.
Meanwhile, Kroc hired Harry Sonneborn, who had worked for Tastee-Freez and had established its franchising operation. Sonneborn designed McDonald’s Franchise Realty Corporation, which purchased land for McDonald’s franchises and then rented the land to the franchisee. In this way, McDonald’s became one of America largest landowners.The corporation made money off the rental agreements and, if a franchisee violated the agreement, McDonald’s could evict them. Franchisees therefore did basically whatever the parent company wanted. In this way, Kroc controlled the franchise operations, ensuring uniformity, maintaining standards, and generating profits.
By the end of 1959, there were more than 100 McDonald’s operations. The early success of McDonald’s rested, in part, on the managers selected to oversee operations. Kroc’s mantra was “Quality, Service, Cleanliness, and Value,” which he tried to instill into every franchisee. Kroc also believed in training managers. He established Hamburger University, which offered a degree in Hamburgerology. The first class of 15 students graduated in February 1961. Since then, 65,000 managers have graduated from that institution. Kroc had numerous disagreements with the McDonald brothers. The brothers required that Kroc follow their architectural and operational design exactly, but Kroc wanted to innovate. Kroc finally bought out them out for $2.7 million. The buyout included a provision that permitted the McDonald brothers to continue operating the original McDonald’s outlet in San Bernardino. That building burned down and Kroc then proclaimed that his operation in Des Plaines was the first real McDonald’s hamburger outlet. Today, it is a McDonald’s museum.
A significant component of McDonald’s success was the changing demographics in America. Previous fast food chains (e.g., White Tower, White Castle, and the automats) were in inner cities. McDonald’s targeted suburban America, which had begun to rapidly grow after World War II. The suburbs were home to families with plenty of baby-boom children, and residents were dependent upon the automobile. McDonald’s tied franchising to fast food, cars, and families. McDonald’s did everything it could to prevent its outlets from becoming teen hangouts . Kroc expanded upon the policies established by the McDonald brothers by banning jukeboxes, vending machines, and telephones. He refused to hire female employees, until he was required to do so by law. Kroc encouraged franchisees to support local, family-oriented community activities.
Within a decade of his first encounter with the McDonald brothers, Ray Kroc revolutionized fast food service. By 1963, McDonald’s was selling one million burgers a day, and this was only the beginning. The company began advertising nationally in 1966, the same year that McDonald’s was first listed on the New York Stock Exchange. Kroc’s model for success was emulated by virtually every new fast food local, regional, and national operation in America. McDonald’s symbolized success and it generated huge profits. Kroc had originally envisioned 1,000 McDonald’s operations in the United States; when he died in 1984 at the age of 81, there were 7,500 McDonald’s outlets worldwide.
Promotion and Children
McDonald’s national promotional campaigns have been a significant reason for its success. Its slogans, such as “You Deserve a Break Today” (which Advertising Age rated as the top advertising campaign in the twentieth century) and “Two All-Beef Patties, Special Sauce, Lettuce, Cheese, Pickles, Onions On a Sesame Seed Bun,” became national hits. According to Eric Schlosser, author of Fast Food Nation (2001), McDonald’s expends more on advertising and promotion than does any other food brand.
In the 1950s, few major companies in America targeted their advertising toward children. The conventional wisdom was that children did not have money (which was true); hence, they targeted adults who brought the children into stores. Kroc had targeted the middle class families with children in the suburbs, but learned that children had pester power; studies indicated that children determined where many families ate, and children did like fast food establishments. It was a place where they could chose what they wanted to eat. Kroc set out to make visits to its outlets “fun experiences” for children. And Ronald McDonald was selected as the company’s national spokesperson in 1966.
The McDonald’s outlet in Chula Vista, California (near San Diego), opened the first McDonaldland Park in 1972. In its two-day grand opening, 10,000 people came to visit. This proved to be such a success that McDonald’s began opening bright-colored Playlands for children, complete with playgrounds and mythical characters. The company has also tied-in much of its marketing with major children’s motion pictures. McDonald’s Happy Meals, inaugurated in 1979, package the food with toys; as a result, McDonald’s became the world’s largest toy distributor. By 1980, the millions of dollars expended on child-oriented television advertising and local promotions had succeeded: 96 percent of American children recognized Ronald McDonald, second only to Santa Claus. As advertisers later pointed out, brand loyalty begins with children, and advertising targeted at children today is intended to create such loyalty for future payoffs.
Kroc’s success encouraged the growth of other fast food chains, which readily adopted McDonald’s methods. The competition also innovated, and McDonald’s needed to keep up with them. In 1967, Burger King launched a newly designed restaurant with indoor seating. This challenged one of the basic tenets of McDonald’s model, which stressed eating in the car. But by the 1960s, the novelty of eating in the car had worn off. It was also uncomfortable on hot and humid days, as well as on extremely cold during the winter. Indoor eating areas permitted year-round climate control and customers greatly appreciated Burger King’s new model. McDonald’s reciprocated by developing a new model with indoor seating, which it inaugurated in 1968.
Initially, McDonald’s had intentionally not constructed outlets in major cities. With the newly designed stores, it was possible for McDonald’s to do so, which they did beginning in 1972. Several chains developed drive-thru windows, including Wendy’s, Jack in the Box, and Burger King; McDonald’s began installing drive-thru windows in 1975. Today, drive-thru windows generate about 50 percent of McDonald’s sales.
New Product Development
To keep ahead of the competition, McDonald’s also regularly developed new products. It diversified its menu beginning in the 1960s. The Big Mac with its two patties originated with a Pittsburgh franchisee, who was trying to create a competitive product to Burger King’s Big Whopper. It was released nationally in 1968. The Egg McMuffin debuted in 1973. By 1977, McDonald’s were serving complete line of breakfast sandwiches and biscuits for eating on the run. Other innovations include the Quarter Pounder, the McBLT and the McLean Deluxe, a 90-percent fat-free hamburger, which failed. In 1983, McDonald’s introduced Chicken McNuggets consisting of reconstituted chicken delivered frozen and then reheated before serving.
Globalization
McDonald’s opened its first Canadian outlet in 1967. Its success convinced Kroc that McDonald’s should aggressively expand to other countries. It has continued to expand abroad ever since. McDonald’s opened its first Tokyo outlet in 1971, followed by Australia and European countries. By 1988, McDonald’s had established itself as one of France’s most popular fast food operations. By 1994, McDonald’s maintained more than 4,500 restaurants in 73 foreign countries. Today, McDonald’s has more than 30,000 restaurants in 121 countries. McDonald’s operates more than 1,000 restaurants in Japan alone. The most popular restaurant in Japan, measured by volume of customers, is McDonald’s. The world’s largest McDonald’s is operated near Red Square in Moscow, where a Big Mac lunch costs the equivalent of a week’s paycheck for the average Russian. Yet, this McDonald’s serves 40,000 people every day. McDonald’s boasts more than 546 restaurants in China — one of which overlooks Tiananmen Square in Beijing. About one-fourth of McDonald’s outlets outside the United States are owned by local franchisees.
McDonald’s faced numerous problems when it expanded its American model abroad. In America, it was understood that customers would stand in line to place their order, which was not necessarily a tradition that existed in other countries. McDonald’s model was based on customers paying before they received their food, which, of course, is quite the reverse in restaurants, even in the United States. Customers were also expected to eat quickly and leave so that other customers would have room to sit and eat. In other countries, eating is not necessarily a “fast” activity. Hence, McDonald’s had to educate customers and it had to localize its operations.
When McDonald’s opened outlets in new countries, most customers were unprepared for the experience. James L. Watson in his Golden Arches East: McDonald’s in East Asia (1997) pointed out problems confronting McDonald’s. McDonald’s employees were trained to smile at customers, which was standard practice in the United States, but this raised suspicions in Moscow and China where it was not the custom for food service employees to smile. Most first-time customers had no idea of what a hamburger was or how it should be consumed. McDonald’s had to expend resources to educate customers. In most countries, customers easily adapted to the McDonald’s experience but in other countries, McDonald’s changed its procedures to fit in with local customs. In Rio de Janeiro, Brazil, McDonald’s hired waiters and served champagne along with its hamburgers. In Caracas, Venezuela, hostesses seat customers, take orders, and deliver meals. In Taiwan, Hong Kong, and Beijing customers are attracted to McDonald’s because of its uniformity and egalitarian atmosphere. In Korea, employees seat customers at tables occupied by others. However, some of McDonald’s traditional practices have been rejected in some countries. For instance, the assumption that customers will eat and leave quickly has been reversed in East Asia, where many consumers have concluded that the “fast” in fast food refers to delivery of food, not its consumption.
In addition to efficiency and reliability, McDonald’s is also appreciated for its hygienic procedures and cleanliness. People in Asia with disposable income who can eat at McDonald’s have now rejected street cuisine due to the fear of food poisoning, adulteration, and unsanitary conditions. McDonald’s employees wear uniforms and are constantly cleaning the restaurants.
Problems and Issues
Despite this success, McDonald’s and other large fast-food chains have faced numerous problems. The most serious problem identified by managers at McDonald’s were rising labor costs, the high employee turnover rate, and the lack of reliable workers. Fast food is based on low salaries for employees. To keep salaries low, McDonald’s and other fast food chains have intentionally engaged in anti-union activities. In addition, companies have consistently lobbied government and legislative agencies against increased minimum wages and worker benefits. A related problem is the high turnover rate for workers experienced at many McDonald’s and other fast food chains. Some McDonald’s outlets’ turnover rates approach 300 percent per year. In part, this is caused by the low pay workers receive and the view (instilled by the company) that employment at McDonald’s is mainly part-time so that the company does not have to pay employee benefits, overtime, or increase wages due to longevity of service. When McDonald’s was growing quickly during the 1950s and 1960s, it had an almost inexhaustible supply of young workers due to lack of other opportunities for employment and the baby-boom teens who came of age at that time. Teenagers were more impressionable and more manageable than older workers. When the baby-boom bulge began to decline, McDonald’s was obliged to seek nontraditional workers. The company shifted from its all-male workforce and began hiring women and teenaged girls as a result of federal antidiscrimination laws and its need for good employees. Then it began hiring recent immigrants, the elderly, and the handicapped. Th is has meant that more training and supervision are required. Another solution was to adopt more automation and touchscreen computerized cash registers that made counter-duty easier.
In part because of McDonald’s success, the company has been criticized on a variety of issues and it has frequently responded positively to meet criticism. When the company was criticized in the 1960s for the lack of African American managers of its restaurants, McDonald’s made an effort to recruit more African American franchisees. When it was charged with promoting junk food, the company began selling salads, reduced the fat content of its hamburgers, and changed the way it made its French fries.
McDonald’s has been accused of causing harm to the environment, specifically for its use of polystyrene foam for its coffee cups and food containers for Big Macs and Quarter Pounders. Polystyrene is a plastic that is not easily biodegradable, and McDonald’s was the world’s largest purchaser of it. McDonald’s responded by creating an alliance with the Environmental Defense Fund to make McDonald’s more environmentally friendly. The company switched from polystyrene to paper products and it encouraged recycling. The Environmental Defense Fund has estimated that since 1989 McDonald’s has eliminated 150,000 tons of waste by requiring its suppliers to use improved packaging. In addition, the company has purchased more than $4 billion of recycled materials for its own operations. As a result of its environmentally friendly programs, McDonald’s has received a good deal of positive press coverage.
McDonald’s has also been criticized for its influence upon its suppliers. The logic for this is simple: McDonald’s is the largest purchaser of beef in the world and it has some responsibility for the practices of its suppliers. In the 1980s, for example, McDonald’s was specifically charged with destroying the rainforests in Brazil because the company’s suppliers in that country were reportedly burning down rainforests to create grazing land for cattle supplied to McDonald’s. The company changed its suppliers (specifically refusing to purchase beef from Brazil) and has made substantial contributions to environmental groups to help save the environment. McDonald’s has also been attacked for the inhumane conditions at feedlots and slaughterhouses of some of the company’s meat suppliers. For example, Eric Schlosser’s Fast Food Nation: The Dark Side of the All-American Meal (2001), maintains that as a result of practices followed at McDonald’s and other fast food chains, meatpacking is the most dangerous job in the United States and that practices followed at meatpackers “facilitated the introduction of deadly pathogens, such as E. coli 0157:H7, into America’s hamburger meat.” When McDonald’s fi nally required that its ground beef be certified as safe, the company’s suppliers acquired the equipment necessary for better testing.
McDonald’s has also been criticized for its major influence upon potato growers; the company’s annual orders for French fries constitute 7.5 percent of America’s entire potato crop. Potential concern for genetically modified organisms (GMOs) encouraged McDonald’s to state that it would no longer purchase genetically altered potatoes in the United States. Because McDonald’s largely buys from local farmers, it does not use genetically modified foods in European markets due to restrictions imposed by European Union and national laws.
McDonald’s has also been charged with causing adverse affects on local cultures and businesses around the world. McDonald’s success abroad has caused deep resentment in people who see the company as a symbol for the United States and who believe that McDonald’s expansion threatens local culinary traditions. In France, radical farmer José Bové demolished a McDonald’s restaurant nearing completion, and similar actions have occurred in other European countries. McDonald’s has pointed out that many of its foreign operations are locally owned and most products used in McDonald’s are produced in the country where the restaurant is located.
Studying McDonald’s has also become a hot academic topic, and many popular works have tried to dissect its success and examine the company’s influence. Among the more famous studies are George Ritzer’s "The McDonaldization of Society" (1993), which examined the social effects of McDonald’s in the United States, and Benjamin Barber’s Jihad vs. McWorld (1995), which used McDonald’s as a global symbol for modernization. Dozens of other works have examined McDonald’s worldwide impact.
In other countries, McDonald’s is often viewed as an American symbol, and it has both gained and suffered as a consequence. McDonald’s outlets have been trashed, bombed, and boycotted due to policies of the U.S. government. On the other hand, at other times and in other places McDonald’s has been considered a modernizing force that has improved the local culinary conditions.
By the end of the twentieth century, one out of every eight American workers had at some time been employed by McDonald’s. Studies proclaim that 96 percent of Americans have visited McDonald’s at least once. McDonald’s serves an estimated 22 million Americans every day and has expanded even more rapidly abroad. In 1994, McDonald’s operating revenues from non-U.S. sales passed the 50 percent mark. McDonald’s is one of the world’s most famous brand names and the company has become an icon for efficient and successful business that is ingrained in popular culture throughout the world. McDonald’s is the largest purchaser of beef, pork, and potatoes and the second-largest purchaser of chicken. It is one of the largest owners of retail estate in the world, and it earns the majority of its profits from collecting rent, not from selling food.
By Andrew F.Smith in "Encyclopedia of Junk Food and Fast Food", Greenwood Press, USA & UK, 2006. Excerpts p.170-177. Adapted and illustrated to be posted by Leopoldo Costa
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