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The Origins of Cult-Favorite Fast Food Restaurants: McDonald's

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The New Hampshire-born brothers arrived in Hollywood with $50 and "0" sold.

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By now there's no doubt that Ray Kroc's empire changed America and the world. It's not just the ubiquitous arches, the revolution in retailing, or the remaking of the family diet. There's also the alternative to military life. Since the rise of McDonald's (MCD), aimless young people in need of discipline and regimentation have had a different uniform to put on. Like the US military, McDonald's has gone to unexpected places.

Kroc didn't start it all, and that's probably a good thing-no one ever had a craving for a Big Kroc. It is the McDonald brothers, Richard and Maurice, who deserve credit for the operating principles they brought to the first McDonald's, opened in San Bernadino, California in 1940. The New York Times obituary for Richard describes the brothers' journey:

Born poor in rural New Hampshire, Richard and Maurice (Mac) McDonald migrated to California in the late 1920's, equipped with high school diplomas and the desire to make $1 million before they reached 50.

A number of odd jobs on the periphery of the movie business failed to pan out. In the late 1930's they opened a hot dog stand near the Santa Anita race track in Arcadia, Calif., northeast of Los Angeles.

In 1940, they opened a small drive-in barbecue restaurant in San Bernardino, a growing blue-collar city. Business was brisk, yet after a few years the McDonalds became convinced that they could do better by doing things faster.

In the fall of 1948 they shut down their restaurant, dismissed the carhops, streamlined the menu and began to reinvent the way they would deliver their food.


The McDonalds created the weapons: the streamlined menu, the assembly-line production (a strategy also credited to the White Castle chain), and the self-serve system that ensured fast service and maximum profitability. Kroc was just the general who used those weapons to conquer the world.

It was Richard McDonald who came up with the iconic image that would come to represent the definitive American cuisine -- the Golden Arches. "I thought the arches would sort of lift the building up," he told an interviewer from the Chicago Tribune in 1985. ''Our architect said, 'Those arches have to go.'"

Instead they multiplied. By 1954 the McDonald brothers had sold 21 franchises and opened nine outlets in California and Arizona. That year Ray Kroc, a milkshake machine salesman, became curious about one of his best customers. "I had to see what kind of an operation was making 40 at one time," he said later. After seeing the McDonald's system in action he suggested they take it nationwide. When they balked, he offered to handle the franchising himself.

In 1961 Kroc bought the brothers out for $2.7 million (approximately .01% of McDonald's 2009 annual revenues of $22.7 billion). The 1960s would see new products -- the Filet-O-Fish, the Big Mac -- and new ad campaigns such as "Look for the golden arches," and "You deserve a break today." In the 70s it was the Egg McMuffin -- a game-changer not just for fast food but for consumer behavior in general. In 1979 the Happy Meal turned fast-food restaurants into toy stores, and when Chicken McNuggets arrived in 1980 McDonald's rose to challenge KFC as a purveyor of fast-food poultry.

Global expansion has made McDonald's an American symbol to rival Coca-Cola and the Stars and Stripes. McDonald's can be found in 118 countries and operates over 31,000 restaurants; the daily customer traffic is roughly equal to the population of Italy. In 1994's Pulp Fiction, John Travolta regaled Samuel L. Jackson with the French name for the Quarter-Pounder: "a Royale with cheese." If director Quentin Tarantino had ever gone to India perhaps Travolta would have been heard marveling over the "Maharaja Mac," made with lamb or chicken to skirt Hindu religious constraints. A trip to New Zealand might uncover a McDonald's car wash.

Yet in the past decade the most impressive aspect of McDonald's has been its corporate resiliency. Battered by sagging sales in the 90s, hit by the sudden death of CEO Jim Cantalupo in 2004, battling books and films that have made Ronald McDonald a smiling symbol of myocardial infarction, McDonald's has managed shift corporate strategies and product lines to stay on top.

Easing into Starbucks (SBUX) territory with lattes and frappes, wifi, and warmer, more welcoming interiors, McDonald's has breezed through these recessionary times, reporting same store sales growth of 6.0% worldwide in the third quarter ending 30 September. US same store sales growth was 5.3%.

Since November 2004 McDonald's CEO has been Jim Skinner. He joined the company as a management trainee in 1971 -- after ten years in the US Navy. Those in uniform live to serve.

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