Ray Kroc: Hero or Villain? Uncovering the Truth Behind McDonald's

Welcome to Great Business Stories.

Today's episode is called Ray Kroc, Hero or Villain, uncovering the truth behind Mcdonalds.

Both myself and Keith had watched and enjoyed the film The Founder, but as everyone knows, Hollywood doesn't always play straight with the facts.

So in today's episode, we dig deep into Ray Kroc and how he and the Mcdonald brothers created the fast food revolution.

What was Ray Kroc really like?

Was he a shyster, a lucky salesman, or a true visionary?

Is he really the villain that the movie made him out to be?

And crucially, did he renege on an agreement to pay the Mcdonald brothers commission on all sales going forward?

I hope you enjoyed this one.

And remember, a new episode is released on the first of every month.

Morning, can I bring everything over here?

Not too bad.

Not too bad, hud.

Today's episode is about Ray Kroc and the founding of Mcdonalds, and it was your choice.

So why did you choose this one?

Yeah, I suppose.

It's an interesting one.

I mean, huge business success story, you know, massive international brands and a somewhat ambiguous foundational story, shall we say.

So I guess for me, I wanted to learn a little bit more around it.

I'd watched the movie The Founder some years ago.

It was kind of interesting.

And I thought, you know, it kind of feels like more scrutiny is required really, of the Ray Kroc story.

But in saying that, I must say that my source is grinding it out, the autobiography of Ray Kroc.

So I guess for me, to scrutiny didn't come from there, I must say.

So it's a book that is reasonably self-serving and I would say glosses over many of the more interesting facts.

So I think in this episode, what would be really interesting is to have varying accounts of the different events as they happened.

What maybe Ray Kroc said that happened or brushed over versus what you found in your undoubtedly extensive research.

Yeah, and it is that ambiguity between what Ray Kroc says, also what's in the movie, The Founder, because I watched the movie The Founder and it was a good movie.

And in a lot of respects, they got things right.

They got the overall story right.

But there was elements that they Hollywoodized a bit, I suppose, painting Ray Kroc as possibly more.

It's hard to say, did they paint him as more of a villain than he was, because he wasn't a huge villain, but they probably put in elements that in my research, I found out wasn't true.

And to give you my sources, obviously, I went through dozens and dozens of articles from various publications, but there was a few in particular.

There was a YouTube channel that has the name Industrial Industries World Radio.

They had a 96 minutes documentary on the history of Mcdonalds, which is really good and really accurate.

And only Monday of this week, I found on their channel as well, they had four and a half hours of dictaphone recordings between Ray and the Mcdonald brothers.

They communicated with each other by sending each other tapes over and back.

And this channel had four and a half hours of those tapes from 1957 and 1958.

Now an awful lot of it was just how the business was running and it was very big stuff, but it gave you a really good flavor as to their relationship and as to how Ray communicates with the brothers and how the brothers communicate with Ray.

So that was very interesting.

And then two other sources, the Atlantic magazine journalist there called Adam Chandler had an excellent piece on Mcdonald.

And then there's a channel called History vs Hollywood where they go back through the movie and fact check this.

But now even that iPhone, they had a few errors in their fact checking, but overall it was pretty accurate.

So that was a good source.

Yeah.

Yeah.

I think he is an intriguing character irrespective of what the larger story is around who is a founder and how do you define a founder.

I guess for me, it's really around this frenetic pace of activity and the scale of the business that was built by somebody who came in and transformed an initial concept.

So even from the book, I guess you're conscious that this is an amazing sales low.

And that's really, I think what summarizes him and his skills and his experience really is he is a sales guy.

He's an amazing sales guy.

Did I come true in your research?

I started off as a sort of an entrepreneur, an opportunistic entrepreneur, but really out of his heart, he's a sales guy.

He is.

And one of the quotes I came across in the articles was that he wasn't a failed salesman.

He was just a salesman who hadn't his upon the big idea, but he was always looking for that big idea.

Of course, the movie, that's one of the elements of the movie that you take a bit of issue with, starts off showing Mike Keaton as Ray Kroc, like the Gill character from The Simpsons, the desperate salesman who was down on his luck.

But actually the history of Ray is quite different and we won't go into everything, but he started off as a salesman with the Lily Tulip Camp company selling cups.

He was about 20 years old and he quickly became one of their very best salesmen.

He signed up Walgreens, which was the largest pharmacy chain at the time.

He became the number one salesman in America.

He became the sales manager for Midwestern.

He was a very, very successful salesman and could afford a new Buick every year.

They had a maid in their house.

So he wasn't this Gill character from The Simpsons that it seemed like.

Yeah.

Who's inspired, I think by Jack Lemmon's character in the line Gary Glenroth.

Gary Glenroth.

I know.

Not the other day where Alec Baldwin tells him to put down the coffee.

The coffee's for closers.

That's for cringe stuff.

But even before that, there's this theme I think of dissatisfaction with the powers that be and the people he had to report to.

I don't know if that came through.

So that's a theme that extends itself right up until the Mcdonalds brothers.

But it was there in the Lily Chulow paper cup company.

It seems to be a theme there that he rises up and becomes increasingly dissatisfied with the powers that be.

People who he's reporting to and have to expand upon that.

I don't know if that could have came through.

But probably we'll touch on it as we go through.

But what really jumped out at me was he was a musician.

You probably came across this as well.

Yes.

And used his musical ability to generate cash.

So he played in vans.

He played on radio stations which were live at that point.

So you'd have to have a live musical interlude or a musical session.

It's all played live which sounds completely terrifying.

And always in forward momentum, jumping between studios, creating opportunities for generating cash and moving forward.

And as you said, when the story really takes off, as we reach him, he's sort of selling paper cups everywhere.

He is.

And you mentioned the music.

He worked so hard.

The articles that I read talk about him getting up at 7 in the morning, working selling cups until half five in the evening, going straight from there to the radio station where he played music up until 8 o'clock, came home for dinner, went back to the radio station, worked till 2 o'clock in the morning and then back up at 7.

And as a result, it put a big strain on his relationship with his first wife and he had a daughter with that first wife.

And I suppose, how could they have any relationship if you're working those kind of hours?

So he was extremely dedicated.

And as we mentioned, did very, very well.

That issue with coming up against management and I suppose people who he fought against.

I didn't see it really as I didn't read his book, so I wouldn't have.

But what I did see was this pattern of him making bad deals and then getting really pissed off with the people who made the deals.

When they kind of turned around and said, well, no, you got to pay for this or you know.

Yeah.

Held them to account for what he committed.

Yeah.

Yeah.

So the first deal he did, he was selling paper cups for 17 years, doing very well for himself.

And then he came across a guy called Earl Prince.

And Earl Prince had come up with this revolutionary milkshake mixing machine called the Multimixer.

It had five spindles.

I think initially it had six spindles, but then they reduced to five spindles.

And this was revolutionary because all milkshake mixing machines up to then only had one spindle.

Ray could see the potential in this.

But instead of going on his own, he brought it to Lily Tulip, his employer.

They said, yeah, we'll become the sole distributor first, signed the contract.

And then Lily Tulip headquarters said, no, we're a paper cup company.

We're not going to get involved in this.

But Ray really wanted this.

He said, I'm going to take it on.

But instead of Lily Tulip giving him the contract or just letting him go off and do it by himself, they said, no, we're holding on to 60%.

You can have 40% and we'll give you $6,000 as startup capital.

And this was a terrible deal for Ray.

He even knew it was a terrible deal called as a satanic deal.

But he went ahead and signed the deal anyway.

Yeah.

I don't think he probably had to cash himself either.

So he was reliant on that startup capital.

So he did the deal with the devil.

But I mean, out of necessity would say as much as anything else.

Yeah.

And he did very well, at least in terms of sales.

They were selling about 5,000 units a year.

And I looked at the prices, they were selling for $150, which back then was the equivalent of about $3,000 today, which means they were turning over around about 15 million.

Now, I'm sure the bulk of that was going to Earl Prince who was manufacturing them.

And then Ray was getting his fork said cook, but he had to pay his secretary and offices out of that.

But he, of course, wanted the whole shebang.

So they came to an agreement where he paid 12,000 upfront.

So he remortgaged his house and the remaining 56,000 would be paid over five years.

But the timing was really bad because World War II broke out.

Copper was needed to make these multi-mixers and it was restricted during the war.

So he couldn't send multi-mixers during the war.

But again, testament to his ability as a salesman during the war, he sold this milkshake mixer called Malteplenty and he must have been doing okay because he managed to pay all the remaining 56,000 during the course of the war by selling this milkshake powder.

So did he mention much about that in the book?

No, not really.

I think he's just a born survivor.

He didn't come from, well, it's a self-made man, he comes from a reasonably comfortable background.

So what you see is somebody with that zeal and that drive to survive and create and keep the lights on really.

I mean, you mentioned either talk or the dictaphone tapes.

And again, if anybody has the time, it's worth listening to a few of them.

I wouldn't recommend listening to all four and a half hours.

There's a difference between Ray and the Mcdonald brothers.

Ray is such a talker.

He'll go on for 20 minutes, whereas the Mcdonald brothers and their transcripts or their dictaphone would say about two or three minutes of very precise, you know, this is what we're doing.

This is how we're doing this.

Ray will go on and on and on.

He definitely had the gift of the gab.

Yeah.

We have a very much a Didenwolf sales guy and Ray Kroc, I think as well.

The other thing to bear in mind here is what a milkshake was sort of at this point in time.

So milkshake used to be flavored milk.

And then increasingly around the time that this multi-mixer device was becoming popular, it was a concept of having frozen milk.

And it more became to resemble the milkshake of today.

So the milkshake originally was just cold milk with a splash of flavoring in it.

So it was this thick sort of ice cream product as we come to understand it today.

And then obviously that required a different type of mixing and combining out the flavors and the different ingredients.

And that's where the multi-mixer came in.

So it was in that process of, of trying to move towards all of the nation.

And that's why the five spindles were so important because it was a booster to productivity.

You didn't have one person behind the counter.

Pinch of this, you know, a bit of sugar, a bit of flavoring, splashing, shake it up, let it go cold with the ice or whatever you're talking about.

We need a beginning of an automation in, in these milkshake partners.

Yeah.

Well, I mean, it must have been a fantastic product because after the war, he now had full ownership of the product and started selling it by 1948.

The figures I have was that he was selling about 8,000 units a year.

But then come the turn of the 1950s, the business started to slow down.

And part of it was due to the mass migration of people from towns and city centers out to the suburbs.

And as a result of that mass migration, the soda fountain, sorry, the soda fountain business in these town centers started to close down.

Walgreens stopped having soda fountains in their establishments.

And also there was increased competition from cheaper selling multi-mix type machines that were doing exactly the same as what the mixer was doing.

So business was slowing down.

And it was at this stage in 1954 that as was in the movie, realized that there was this one small restaurant in San Bernardino that had ordered eight of his multi-mixers.

So they were producing 40 milkshakes at a time.

And he thought, I have to see this because no other restaurant bought eight multi-mixers.

I want to give a little step back there because this brings us to the Mcdonald brothers, I suppose, who have to be, because Ray wasn't the first person or business to come across the Mcdonalds.

They had featured in 1952.

They featured on the front cover of the trade publication, American Restaurants, because they had revolutionized the restaurant business with their restaurant in San Bernardino very quickly.

And the movie does a good retelling of their story.

There were two brothers who were seen to be joined at the hip because they mapped every place together.

Dick was definitely the creator and the innovator.

Mac or Maurice, he was more the manager type guy, the operations manager.

They started off working as stagehands in Hollywood.

Then during the Great Depression, they opened up a movie theater.

They ran that for seven years.

But while they're running the movie theater, they saw that the guy selling hot dogs outside was always busy.

So they opened up their own hot dog and burger joint beside a racetrack.

That's right.

They did a barbecue place as well, I think.

It might have been Mcdonalds famous barbecue or something.

But that's when they moved.

They moved from the racetrack to San Bernardino and they opened up Mcdonalds famous barbecue.

And it was the best business around.

They were doing great.

But Dick was such an innovator, even though they were doing such good business, he looked at the business and thought, we can do better.

Now there were some societal changes happening around this time as well.

After World War II, there were more women in the workforce.

As a result of that, the women weren't at home to cook all the time.

So you started to see the development of these time-saving products like frozen chips, reviews, yes he does.

And Dick was looking at that and realizing that the current restaurant business was very slow paced.

Their business was a car hop business, whereby you pull up a car, car hops or waitresses would come out, take your order, and then it would take about 20 minutes later for your food to come back.

So he was looking at the way society was changing, seeing that Americans were in more of a rush.

He thought we got to speed up this process.

We got to make this better.

And he really did revolutionize the business.

It was fascinating the things that he did.

And again, the movie does give a very good summary of what he did and how he revolutionized the business.

He looked at the Ford Model T assembly line for inspiration.

He also saw that most of the business was coming from burgers.

So he decided to decimate the menu and just cut it down to nine items, hamburgers, cheeseburgers, fries, shakes, drinks.

He saw that the car hops were also a big, big strain on his labor costs.

They were costing, I think labor was about 35 to 40% of their overall cost, which is the norm for the business back then.

By cutting the waitresses, he could reduce his labor costs by 17%.

And also by cutting the idea of having no cutlery, because you didn't have to have anybody washing all the cutlery.

Massively reduced the labor costs and then he did some really innovative stuff.

Like he could see that the condiments were placed on burgers very slowly and there was no consistency.

And he remembered from his youth, he loved these things called peppermint patties, which are these little chopped patties.

So he went undercover as a journalist and went to a candy factory to see how they were putting the chocolate so evenly on these patties.

And he found that they were using this funneled instrument.

So he went home, got a product designer to design his own funnel that he could use then to put ketchup and the mustard consistently and quickly on the burger bun.

So very revolutionary stuff.

He used bigger grills.

He installed a bank of infrared lamps to keep the french fries hot.

He installed a microphone so that they could hear to customers.

And the net result was that instead of waiting 20 minutes, he only had to wait a minute.

And because the labor costs were so low now, he could charge very, very low prices for his food burgers, 15 cents, cheeseburgers, 19, fries, 10 cents.

And of course as well, there was no tips.

So this made it offer cheaper and quicker.

And he called it the speedy service system.

I'm sure Ray mentions this a lot in his book.

He, it's a funny one actually, because he sort of acknowledges his own scale in detecting just how good this was.

As opposed to paying how much to, or recognizing just how revolutionary it was.

It's more like when I walked in and I saw how they did this and this and this, I saw the opportunity and I saw the potential of this scale.

There isn't in fairness, a huge acknowledgement of the innovation, I would say.

Has he scaled up?

There's little kind of subtle digs at how unscalable some of the concepts are and the further innovation he had to bring to us in order to make them more scalable.

So it's like, yeah, they're fantastic.

And I was great to see them.

But in order for it to really scale, I had to do this, this and this.

So there's a lot of me, me, me, I, I, and this book, as you can imagine.

Not that the airbrushes the guys out.

Yeah.

Far from it, particularly when things become a little bit acrimonious later on in the story, it certainly doesn't airbrush out.

But I think that early one was, I, I acknowledge the opportunity here, but wasn't I a great guy for spotting it?

I see, but undercuts that, that narrative, I suppose, is that first of all, he wasn't the first to acknowledge it.

They were on the cover of the American restaurant magazine in 1952.

And as a result of that cover magazine, loads of people from around America who were in the food business, went and visited Mcdonalds and they were quite open about how they ran their business.

And the guys who started Burger King started this in 1953, after visiting Mcdonalds in 1952.

It was initially called Instaburger, then morphed into Burger King.

So an awful lot of the franchises that's opera that opened up after that, did so on the back of having seen what the Mcdonalds done.

So Ray wasn't, he might paint himself as, I was the only one who.

Saw this.

So they had some licensees, haven't they, of the concept?

They did.

They did.

Because the thing about it was that when they got on the cover of American Restaurant Magazine and when they had other restaurateurs and business people visiting them, they realised, okay, there's real potential in this and we should franchise it.

But they did it in a very loose manner.

It was a one-off fee where you could buy the blueprints for their restaurants and there was a 15-page description of their speedy service and they did a week's training.

But in return for that, they didn't even expect their franchise, their franchises to make even the same food as them.

Or they didn't even have to call it Mcdonalds if they didn't want to.

So it was very, very loose.

They did have a franchise manager called Bill Tansey who ran into a health problem.

He signed up, I think, 20 franchises and it resulted in nine restaurants.

And just as a side note, the third restaurant that was built, the third franchise ever, was in a place called Downey, California.

And it was the first one to have an archers.

And that's the only original Mcdonalds still standing.

So if you saw the movie and you saw the first Mcdonalds with the archers and the beautiful red and white tiles on the outside, that's still in existence in Downey, California.

So if you Google that, you'll see that it's a real retro movie piece of architecture.

So, so yeah, so the San Bernardino one wasn't sort of preserved an aspect for all the world to see them.

Was that kind of scrubbed out of if it's well, I mean, we'll, we'll get to that, I think, because that comes as a result of the deal that Ray did when he bought the brothers out.

That's a little bit further down the line because you were saying Ray's timing was, was very good.

He came at just the right time.

But in fairness, Tim, I do think he had spent 30 years in the business and he had a very, very good, he was smart in certain ways, especially when it came to the food industry.

And I think all those years in the business, he had a very good idea as to what worked, what didn't work, he had very strong opinion.

And he knew when he saw the Mcdonalds business, I think it just hit him like a thunderbolt.

This is this, this is a concept, it's just the right time.

It's the perfect concept.

And he was 52 at this time.

I have a quote from him.

I don't know if the quote is from his book or is from an interview, but this is what he says about when he went into the Mcdonalds for the first time.

He said, I can't pretend to know what it is.

Certainly, it's not some divine vision.

Perhaps it's a combination of your background and experience, your instinct, your dreams.

Whatever it was, I saw it in the Mcdonalds operation.

And in that moment, I suppose I became an entrepreneur.

I decided to go for growth.

He just knew this is this.

This is the big one.

But then I guess this was his ultimate sales stand in terms of his ultimate deal.

It's to sell himself to the Mcdonalds.

Yeah.

And how does he present the message?

Briefly.

In a word, you know, he's almost selling to the reader saying how great a deal this was for the brothers.

So it's quite a hands-off deal.

They got a percentage of royalties.

I think maybe half a percent of the gross.

But I think a big innovation here that Ray brings is its firm focus on standardization of the product.

So you were saying the original franchisees were free to sell and create whatever they wanted.

Not with Ray Kroc.

Everything was controlled down to all of the menu items.

The whole concept, everything was locked down.

This is a salesman and a details guy, it must be said.

He's super attention to detail, fanatical about the customer and really enforces that.

So this isn't a loosey goosey sort of franchise like the original one.

This is really a Bible level of detail that just gets built up into a handbook for franchisees.

So this guy is Mr.

Details really.

He is.

He is.

And what's really good about the tapes and he probably writes about it in the book, but in the tapes, you can actually hear him talking about that in such detail and continuously.

It's like a mantra with him, this idea that they all have to be the same.

And there were two other things that he keeps on talking about in the tapes.

And then it's what separated them out from other franchises because there were other franchises coming out at that time.

There was Dairy Queen, AST.

Fries, Burger King was growing.

But the three things that really refocused on that differentiated them from the other was first of all, the type of person that he recruited.

He was very, very particular that he wanted them to be hardworking.

Ideally, in the tapes, he said, we don't want any more people who just have a good character and money.

That wasn't enough.

They were the initial franchisees that he got.

But then he said they have to be hardworking.

They have to have no other businesses.

They have to be willing to get their hands dirty in the business.

And he was very particular about the type of person he got for a franchisee.

Yeah, actually, the other thing is he wanted them to be married.

Oh, did he?

I didn't get that.

So his attitude was, it's buy one, get one free.

So if I buy the husband, I get the wife, or if I buy the wife, I get the husband.

So he felt he was getting two people who were deeply committed and invested in it.

So he always tried to meet the partner of the principal franchisee.

Very good.

The second element that differentiated Mcdonalds from the others was that he treated and saw the franchisees as partners, not as customers.

And he'd been in so many businesses throughout his career.

He could see the way the text, more or less, their franchisee.

He called them rackets on the tape.

He said they charged franchisers high royalties and milked them for every little thing from commissions on royalty and toilet paper.

And he was saying, you know, these people talk to each other.

And if you are a bad franchisee, other people would be telling you, don't get into business with these guys.

Whereas if you're a good franchisee, which she wanted to be, where you treat your franchisee like a partner, they start spreading the word.

And that was one of the key elements that helped McdOnalds grow because the franchisees who he was getting on board were having success.

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Thank you.

And you mentioned their fee.

They were only charging 1.9%, whereas other franchisers at the time were charging 4-5%, and they had a $950 upfront fee.

That's right.

Just on the fee thing very quickly, the split was Ray was getting 1.4% and the McdOnalds were getting 5.5%.

And now in the intervening time, I was looking at McdOnalds these days.

Now they charge a 5% commission on gross.

The $950 is now $45,000.

And overall you need about $500,000 at least to get involved with the McdOnalds.

But that 1.4% really started to hurt Ray.

And we get into that because he wasn't able to cover all his costs, he wasn't making money.

And it's interesting, actually, he didn't have a stranglehold on the suppliers to the franchisees.

I guess he was building a network so he couldn't centralize control of things like, you know, burger buns or potatoes.

So he worked with suppliers and developed supply lines, but kind of got out of the way and allowed the franchisees to have direct relationships with the suppliers and buy from them.

So he didn't say, this is what a burger needs to look like.

And these are the ingredients.

But he did get in the middle of that and tack the franchisee for the privilege of the suppliers.

Yeah, that may have changed, obviously, in terms of scale later on where it becomes centralized, but initially in the early days, they were free to source their meat from different suppliers and the same for bread, et cetera.

So really interesting sort of, to your point, I guess, it wasn't a sense of taxing them for every particular transaction that happened through the business.

They would make their own choices as long as they maintained that standard quality and value, obviously.

Yeah.

And that was his mantra, wasn't it?

These four words, quality, service, they need us and value.

They were the four words that he tried to enforce.

And the key was, again, this all tied into the socio-economic situation in America.

There were a lot more people with cars now.

People were driving across America and an awful lot driving on vacation.

And he wanted the Mcdonalds in New York to serve the exact same food as the Mcdonalds in California.

Because when people are traveling, they put more faith in a brand that they know, rather than with a local restaurant that they have no idea what they're serving or what they're like.

So this conformity and this idea that every restaurant has the exact same, in terms of the food that they serve, was key to their expansion.

So he was very, very visionary.

And it was a real heartening, when you listen to the tapes again, enforcing that conformity was biggest bugbear and the biggest annoyance.

And it used to drive him enough because an awful lot of these owners, they saw themselves as independent business people, even though they were part of a franchise, but they were investing a lot of money.

And they didn't like being told sometimes what to do.

And it drove him to frustration, trying to get them to do exactly as he wants them to do.

And this led him actually to in 1959, he borrowed 1.5 million to build 10 Mcdonald owned restaurant.

And I was going, when I was reading this, I was like, why did he want to build 10 Mcdonalds?

The 1.5 million that he borrowed, I think did it eventually end up costing him, oh yeah, he gave 22.5% or 22.25% of Mcdonalds stock in return for that 1.5 million.

And I was going, why was he so intent on this?

But in the tapes, he explains that he had to build these 10 restaurants so that he could show all franchisers, if you go by the rule book, if you run your restaurant exactly like these 10 restaurants are doing this, you will see how profitable you can become and how well established and how well regarded these restaurants are.

And that's the reason he built those 10 restaurants and gave away 22.25% in return for the 1.5 million.

And I think, I think one of them, maybe had the seller in it that ultimately became Hamburger University, which is another.

I think so.

So it was this educational and training program for franchisees.

So he showcased sort of upstairs how it would operate and downstairs what the theory and what the bigger vision was and what the standards he was setting were in terms of education, et cetera.

Yeah.

Which again is the key to Mcdonalds success.

This idea of conformity.

He was so focused on that, that he was willing to give away such a huge chunk of the company.

And you know, you look at it and you finally go, that was created to give away that amount.

But then you look at the success of Mcdonalds around the world and how you can get the same burger in Australia as you can in America.

And it was all down to this singular focus that Ray Kroc had on getting those kind of standards across the board.

So it was very, very impressive.

But of course, one of the things that was happening during this time was that we alluded to is 1.4%.

He was growing the business and as he grew the business and he tried to enforce these strict standards, he was hiring supervisors, he had offices.

But this 1.4% wasn't able to pay for all this.

And I suppose one of the good things about this 1.4% that it forced him to think, okay, I'm not making money out of this.

How am I going to make money out of this business?

And his one of his first employees was a guy called Harry Sonnenberg, who was a vice president of finance that came from Tasty for another franchise.

And he was a bit of a financial quiz and he was the guy who came up with it.

And I think Ray does credit him in the book as coming up with the idea that they need to get into the land business.

They need to own the property that's where the restaurants are being built so then they can rent them back to the franchises.

And that's where the real money comes from.

And does he give Harry a lot of credits in the book?

I wouldn't say a lot.

I don't think it's fair to say that anybody gets a huge amount.

I think what we'll just see later on is, you know, a hardening of...

Well, I think what he gives him credit for is being like him in terms of also being a detailed guy.

It's a very sort of veiled sort of credit.

And, you know, we got on so well because he's so like me and he has many of the skills that we have.

So you can imagine this book probably doesn't really stand up to much scrutiny, but it's entertaining if you take it from that perspective, I suppose.

He does credit him, but then of course there's some weird public debt to it.

There's a little bit of a falling out between the two guys.

And that's the other thing about Kroc, what you see is just sort of impatience and temper.

It comes through in Mcdonalds.

And it also comes through the famous incident when he got involved personally in the baseball world.

I'll fill you in on that one in a few minutes as we get to it.

Yeah, because the rental part of it, as I said, was key to Mcdonalds business.

And if you look at Mcdonalds revenues up to this day, 65% of their revenue comes from rent.

So as they're getting huge asset there as well.

Yes.

Yeah.

Yeah.

And not only that, yeah, even from the money side, they'll get 65% of their revenue, but it also ensures that the tenants conform corporate policy to the loop, the field, everything, because you're the landlord.

And if they don't comply by the strict standards that you're putting in terms of how to run the restaurant, they'll lose their tenancy.

And you just get another.

I think that just in a three year contract or something, I thought, which is terrifying when you think about it.

But yeah, on anecdotes, sorry, he was talking about hot dogs.

And he said, as long as I lived, there will never be a hot dog sold in Mcdonald.

So he'd go around sort of making sure that there was no sign of them anymore, particularly in the early days, because he couldn't understand actually what went into them.

But does anybody understand what goes in?

Yeah.

So he said, there's no way I'm going to sell something if I can't even describe what its ingredients are.

And as a side note as well, he was also involved in menu development.

So you might have heard about the Hula Burger.

Did you?

Yes.

So the Hula Burger is this idea of a piece of pineapple with some cheese on it.

And he thought, yeah, this is the next big thing.

And this was his sort of personal passion project.

And he wanted to push this across the line, of course.

And it was trialed in a few stores and didn't really work.

But they moved, of course, beyond the hamburger.

But it wasn't into the Hula Burger.

But you know, the idea for the Hula Burger, just to cut in.

No, but the thing for the Hula Burger was because a guy in Cincinnati, his sales every Friday were tanking.

And the reason was because Cincinnati was a big Catholic city.

Oh, I thought that was a bit of a fish.

It was, it was.

So he wanted to sell fish on a Friday.

Ray was like, Ray was saying, I'm not having fish stinking up my restaurant, but your man kept on leading Fred Turner, I think, who is the Ray's right hand man.

And they came up with the development of the Fillet-O-Fish.

But Ray then thought, okay, well, if you're going to go with the Fillet-O-Fish, I'm going to go with my own thing.

And I bet you my thing will win.

So he came up with the Hula Burger.

And then they decided to try both of them on the one day and launch both of them just in one restaurant on a Good Friday.

And it might mean the Cincinnati restaurant.

But they put both of them in the one restaurant on a Good Friday, the Hula Burger versus the Fillet-O-Fish.

And the end of the day results were like the Fillet-O-Fish about 350 sales, the Hula Burger about four sales.

So that was the end of the number.

What I will say is, well, it's another little subtext in the book.

The Fillet-O-Fish was a roaring success.

Apparently what transformed was the fillet-o-fish was adding a slice of cheese.

That was his idea.

I read the Steve Jobs book at the moment, the Walter Isaacson.

It's been a long time to read it.

But just when you talk about him taking credit, that seems to have been Steve Jobs' MO was to take credit for nearly everything.

Not that he wasn't an amazing designer and genius, but one of the gripes that most people working at the lab was that he always took credit for their ideas.

You know, success, success as many for others, but failure is an orphan, isn't it?

Yeah, that's it.

That's it.

All right.

There was an orphan, I think.

Yeah, they transformed into this mega corporation that in terms of property holdings, but that's it, ends up right.

So they had to go on sort of a fundraising exercise and growing the corporation more.

They did.

And I didn't get much on that other than the fact that he had to raise a lot of money when it came then because while all this was going on, the tapes that I listened to showed that there was a very good respect for each other between the McdOnalds and really they'd share jokes with each other.

They'd tell stories with each other, to each other.

They talked business, but obviously that relationship started to deteriorate as they were, seemed to move at a lot slower pace than Ray did.

And Ray was really, he was in such a hurry because you got to realize he was 52 when he, when he came across Mcdonalds.

He'd been looking for a big opportunity all his life.

And this was his big opportunity.

And you can tell in the tapes that he was in such a hurry all the time and the Mcdonalds seemed to be holding him back.

So come 1961, they had 228 locations by this stage.

And he really just turned around to Mcdonalds and said, look, I want to buy this operation outright.

I just, I just want to run it myself.

And he asked them how much and they said $2.7 million because that would mean that the $0.7 million would pay off their taxes and both Dick and Mac would get a million each.

And that in today's money equates to 28 million.

So that'd be 14 million each.

So that was huge, huge money.

Huge for Ray.

Didn't have that amount of money.

Ray was really at this stage.

People think, Oh, 228 locations.

They must be booming.

They weren't growing rapidly, but cash wise, they were in deep trouble.

It's such an extent that Ray wasn't even able to pay Harry or his right-hand woman, a lady by the name of June Martino.

He wasn't able to pay them properly.

June, he gave June 10% of the Mcdonalds company.

Did it say in the book how much Harry got in terms of stock in the company?

But if June got 10, I'm guessing Harry must have got 10%.

He got more than that, I think.

I can't remember.

But he got more than that for sure.

Yeah.

So he was committed to this company.

They must have been to be willing to take stock instead of, you know, proper pay.

So it was growing, but he didn't have a lot of money.

And when the Mcdonald said 2.7 million and they said, and we want it all upfront, not in installments again, Ray apparently went ballistic and was very insulted by the fact that they had made this demand on him.

Both he managed or Harry managed to raise the money from 12 foundations and institutions like Princeton and the Ford Foundation that are now known in Mcdonald's lores, the 12 apostles, the 2.7 million that eventually ended up costing with interest and all that ended up costing Ray 14 million.

But he paid off the brothers anyway.

And that's, this is, this is a theme as well.

I suppose in the early days, there's sort of borrowing and then becoming a lender.

So they borrowed from some of their suppliers as well.

So from some of their suppliers, they, they went around and got some investments, essentially loans, more than investment actually.

So it wasn't in exchange for stock.

And we pay.

So that growth and that speed must have been of concern to the more conservative, Mcdonalds brothers, I suppose, as well.

So he was always living on the edge, really, on a frenetic pace.

And then into the minutiae of the business, from finding sites to, you know, not so secret shopping and inspecting franchisees, to meeting prospective franchisees, must have been a crazy time.

If most, and that's what I get from the tapes as well, the Mcdonalds didn't go at the same pace as Kroc at all.

They seem to be pretty happy running their San Bernardino restaurant.

And I looked at the figures like in 1958, Ray is talking about their revenue.

And their revenue was 11 million.

So out of those figures, out of that 11 million, the two Mcdonald brothers got 55,000, which back in 1958 was the equivalent of 600,000.

So they made in that year, 600,000 just from sitting back and doing nothing.

Whereas Ray made the equivalent of 1.5 million for doing all the work.

He had five supervisors out checking restaurants at this stage.

He had offices, he had a secretary, and he had to pay all his out of the 1.5 million.

And by the brothers were sitting back and collecting 600,000 for doing nothing.

So they, I'd say, were quite happy to sell out to Ray.

And they were getting all these dictaphone tastes where Ray was writing and going on and on and on.

I'd say they were quite happy to sell out to him at the time.

But it does lead us to one of the big controversies in the movie.

And in the movie they say that as part of the deal, Ray agreed to continue to pay them the 0.5% commission or royalty.

And it was, the deal was done in a handshake and Ray then reneged on it.

And, you know, obviously in the book Grinding It Out, Ray probably makes no mention of that at all.

Unsurprisingly, that doesn't come up.

No, I looked into it, Keith, and it doesn't come up anywhere.

The only person who has made this claim is a nephew of Dick Mcdonalds, who is funnily enough called Ronald Mcdonald.

I'm not joking.

And he's the only one who has made this claim.

Now, Lisa Napoli wrote a very, very well researched book called Ray and Joan, on Ray and his third wife.

And after the founder came out, she was interviewed many times and she said, there's no basis to this at all.

Ray didn't renege on the 0.5%.

He paid them the equivalent of $28 million to get them out of the business complete, including getting their royalty fee.

And they are more than happy to do that.

John Love has a book called Mcdonalds Behind the Arches.

No mention of Ray reneging on the deal as well.

Now, the nephew, Ronald Mcdonalds, he didn't want to make a public issue out of this.

That's why it was never mentioned.

In my research, that's pure nonsense because Dick, while he was a private enough guy, he did do many interviews over the years.

And he did have a gripe with Ray, but it wasn't about any reneging on the commission.

His only gripe with Ray was that Ray claimed to be the founder of Mcdonalds.

And in an interview that he did with The Wall Street Journal in 1991, Dick Mcdonalds, in relation to selling Mcdonalds, he said, I've no regrets.

Yachts on the Riviera were not my style at all.

And he proudly showed a copy of the $1 million check that he got from Ray.

And so he was, and then the same interview, he very publicly said, but you know, he wasn't right when he said he was the founder.

So the idea that he wasn't against speaking against Ray in public was nonsense.

So yeah, and maybe it's, it's because he labored a point so much in the book.

He does seem to be fair.

Yeah, he's hard.

He's a hard negotiator, and he's a very, very effective salesperson.

Both.

He's not a sharp dealer.

He's not, you know, obviously the book doesn't deal too much with the Mcdonalds, but it's hard to believe a day be so naive to do a deal on a handshake.

Yeah, and I think it would be an affront to Ray Kroc to have his integrity impugned.

If he had caught a whiff of that sort of suggestion, I think he would have dealt with it in the book.

Yeah.

And your thing about they would have been stupid enough to do it on a handshake.

Nothing they'd done up to then would suggest that they would do anything on a handshake.

Their initial franchise deal with him was very, very detailed from their side.

He had to send registered letters to them, apparently, to get changes made.

So these guys were meticulous.

And when you listen to the tapes as well, they are very precise, very concise.

They would not have done a handshake deal.

And as you said, the only source is Ronald Mcdonalds.

And I don't think it holds water at all.

No, no.

And the other side of that deal, though, there was another story from Ray's side where he said that the brothers reneged on their agreement to give him the San Bernardino restaurant as part of that deal.

But again, I didn't find any proof that that was actually part of the deal.

I would say it was just a case of Ray assumes that he was getting the San Bernardino and was very annoyed when he realized he didn't get it.

Yeah, that annoyance is clear in the book.

He does deal with that in the book.

All right.

Yeah.

Yeah.

He can spell out the terms of the deal, but he was livid when it didn't come as part of it.

Yeah.

And he subtracts his legitimacy as the founder when the original one's knocking around.

Is that why he was so annoyed that he didn't have it?

Yes, because he wanted to ask.

I mean, if he couldn't call the original, how can he claim to be the founder then?

But yeah, he doesn't call himself anything.

He doesn't call himself the founder in the book.

He just lays out his achievements and lets you reach your own conclusion, I guess.

Yeah.

And in the book, or at least in an article, an interview he did with Time magazine, he claimed then that as a result of this idea that they reneged on the deal, that their San Bernardino restaurant was part of the sale, that he forced them to remove the Mcdonalds name and he ran them out of business by opening a Mcdonalds nearby.

But this was in an interview he did with Time magazine.

And as a result of that interview, Dick Mcdonald wrote a letter into Time magazine that I read and Dick Mcdonald said, that's not true either.

Dick Mcdonald and Mac Mcdonald had actually retired from the business two years before they did the sale to Ray of Mcdonalds.

And Dick says that they removed the arches straight after signing the deal.

And he said that the operation had been handed over to long-term employees and they continued to run the operation for another seven years after the deal had been done.

Though again, this idea of Ray, I suppose he wants to give the impression that he is a tough man to deal with.

This is what he did.

But look, he is a tough man to deal with because there's one anecdote that his nephew gives and his nephew is on the Kroc side.

This was Ray Kroc's nephew in the interview he gave in a podcast.

And he talks about how his grandfather, who was Ray's brother-in-law, so his grandfather married to Ray's sister, they were early franchisees in Mcdonalds, but they owned their own Mcdonalds restaurant, they owned the land it was on, very successful Mcdonalds restaurant.

And after a few years, the levies broke nearby and the Mcdonalds got flooded.

So they went to Ray and Mcdonalds and asked them for a loan on commercial basis so that they could repair the Mcdonalds.

Ray refused to give them a loan.

He wanted to buy the restaurant because he didn't like the fact that they owned the land that it was on.

And they were like, no, this is a great business, we're not telling it to you, but he wouldn't give them the loan.

And he was going, he was willing to see them slows down rather than give them the loan.

They eventually go, it's the bank and the bank gave them the money so they could keep it open.

Now this was his own, Ray's own sister and her husband.

Yeah.

Because I think it makes the same sister who became sick and then he was involved, he set up a number of philanthropic sort of endeavours and was involved in charities and one of the charities related to the sickness his sister had.

Maybe that was the difference this year.

Yeah.

I don't know how many brothers or sisters he had, but yeah, I mean, he was quite ruthless, but I do think you're right.

He talks an awful lot in the tapes about ethics and I don't think, I just don't think he would have done the brothers out of that royalty.

I think, you know, when he did a deal, he stuck by it.

You even saw every deal he did, even if he didn't like the deal, he still harried through the deal.

He still did what he was meant to do, but I'm not sure if he was.

I don't think, and as I said, there's no evidence, but just getting back to the business.

So by 1965, they had more than 700 restaurants in 44 states.

And that year as well, they became the first fast food restaurant to close.

The stock was issued at $22 a share within weeks of that $49 a share.

And Ray became a multimillionaire.

And the reason they went public, as far as I can see, but maybe he'll have a different story in the book, is that there were a lot of franchises by this stage.

Kentucky Fried Chicken had a thousand outlets by 1965.

You had Burger Chef, you had Burger Kings.

So he wants to raise the money to really expand Mcdonalds as quickly as possible and get it to a level where they were the biggest franchise operation in the US.

Yeah, 100%.

Yeah, that's it.

Yeah, and put a lot of money into advertising in 1967 or 1966.

Ronald McDonald made this for public appearance.

I think he came out first in 1963 at the initial Ronald McDonald.

I had a little scrimmage.

Oh, it's like a tramp.

He's got a paper cup for a nose.

I know he's going to trade.

Luthor is dead as well, I think.

Yeah, yeah, he's like a mix between a scarecrow and some sort of tramp and a clown.

It's certainly, you know, you're terrifying the children who are.

But he realized the children were the vital element.

And that's why they continued with Ronald McDonnell.

They were fined him.

And in 1966, the sort of more modern day, yeah, it has appeared.

These were in advertising as well, I guess.

And here's Spender in advertising boats in terms of branding and then disseminating the material to support the local franchisees for them then.

So that other maniacal attention to details or control over brand assets, would allow them to be used to develop the local franchises and supporting them with nationwide campaigns.

They were very innovative.

They were spending, as I said, 1967, it was $2.3 million, which is unheard of for the fast food industry, a national campaign.

And again, using Ronald McDonald as the centerpiece within six years, 96% of American children were familiar with Ronald McDonald.

And he said, at the time, if you have a dollar to spend on marketing, spend it on kids, because they bring in mom and dad, which seems normal for now.

But back then it was very, very innovative as well.

Yeah.

They wanted to grow and have their own families and their own kids.

So very smart.

Very smart.

But then a year after, and I know we spoke about this briefly last week, this is 1966, Harry Sonnenberg believed that there was recession due and he called a halt to Mcdonald expansion plan.

And this caused a big fallout in headquarters, didn't it?

Yes.

And headquarters were in Illinois, but Ray was, I think in California at this time with sort of a second headquarters.

And then there was these factions starting to emerge and you had the chairman, it was Ray having his faction.

Then Sonnenbaum, who was the CEO with his faction.

So it was, it was almost starting to become inevitable that there will be a clash.

And he said in 1967, Harry left the business and Ray took control, which was somewhat inevitable and arguably a positive thing in terms of doubling down and focusing on growth.

I mean, it comes down to that appetite for risk as well.

So in recessionary times, I guess there's value to be had in real estate and better deals to cut.

And at this stage then, I think, or maybe a little bit later, there's this picture of Ray Kroc in a helicopter and airplanes flying around looking for sites, looking for good locations for new stores based on traffic and housing developments coming up.

So just must have been a frenetic sort of pace of living and life.

But I read a quote from Ray where he said it was the happiest time for him.

It was his creative juice of starting really igniting as when he used to be flying around in helicopters, looking for the best places for his franchise operations.

And he got a real big kick out of that.

And at the same time, then he's turning to marriages.

So by this stage, he's probably heading into his third marriage.

Yeah.

You touched on Anjali, his ultimate loves.

I think she'd been involved in the business as well.

They were both married at the time.

And so it's frantic professional life and frantic personal life.

Yeah.

And just a side note on that, that Ray's nephew, he did take issue with the portrayal of Ethel, his first wife, as being unsupportive.

He said she was very supportive and the wider family did not take kindly to the way that Ray divorced her and also portrayed her then later on as being this unsupportive wife.

He said it was quite the opposite.

But yeah, so they expanded rapidly throughout the 70s.

Then that's when they opened up into Australia, Asia, Europe, and it continued to grow after that.

He very much with hands off.

I think he retired in 1973 from the business.

One interesting thing that I found, and I couldn't with all my research find any more on this.

I wanted to mention it in the book, Keith.

This is the paragraph that I found.

It said, even after Mcdonalds as well established, Kroc still tried, often with dismal results, to move forward with upscale hamburger restaurants, German tavern restaurant, pie shops, that even Dean Park didn't hear about the German tavern, Riesebelle, and the upscale hamburgers.

Yes.

So, and then in actual fact, I think they tried to replicate their concept in core Mcdonalds as well, where you could have gourmet ingredients built sort of on demand before it got on the way, the fast service.

Yeah.

And then of course, he bought a baseball tee.

Yeah.

Does he go into that thing?

Yeah.

So that's the volatile temporary.

He bought them.

That was the anecdote I want you to circle back on.

He bought a team, the San Diego Padres.

So his wife told us he was buying a religious order.

And he said, I bought the Padres.

That's what he says in the book.

He rang her and said, I've just bought the Padres and she was appalled thinking he bought some religious order.

But he went to watch one of the games.

They were dismal.

And he stopped over and grabbed the announcer's microphone.

And in front of the whole audience of both his team and the competing team, he read the guys personally, name by name, a riot act, and it resulted in a dick chat coming out from the official body for baseball saying that only official anointed announcers could come over the wire.

So he was a tough, demanding person.

Of course, then there's the other side achievements like Ronald Mcdonalds house and his charity work.

You know, quite a story of this recently late starter who got a late lucky break in life and made the most of it and had a singular vision on a drive to get it done.

And God help anything and anyone who got in his way really, that's it.

And when I was thinking about this, just to wrap it up, I was thinking like the story of McDonald, it obviously couldn't have happened without Mcdonalds, the instigator.

They created this, revolutionized the fast, the restaurant business and creates the foundation for the fast food business.

But a business like Mcdonalds could only have come about as a result of Ray Kroc.

As you said, he came to it so late in life.

And I think that was part of the reason why it grew so quickly because he realized this is this and I'm 52 and I am just going to run with this and go hell for Heather.

And he did.

And whatever about other elements of his character, he wasn't perfect by any means.

And he had a temper, Leith Annapoli actually in her book mentions that he was a functioning alcoholic.

And that's his wife Joan, when he died, set up and put an awful lot of money into rehabilitation centers and into addiction clinics and that kind of thing.

But he really did achieve so much in his, how was this, he was 52 when he first came across him.

He died in 1984, so in his 29 years since meeting the Mcdonalds, he achieved a huge amount.

He really did.

So you got to do that.

Yeah.

And ultimately, who was the last laugh?

I mean, if we look forward in a hundred years time, the Mcdonalds name has gone to outlast the Kroc name.

We're going to know who Ray Kroc was, arguably.

So who was the last laugh?

And then the final little story that somebody told me a long time ago, when I first started kicking around the story, it was when they developed the concept for the Big Mac, they thought this is iconic.

Let's name it after one of the brothers.

So thankfully they picked the right brother to name it after, but we'll end on that now.

But look, a great story and yeah, a good one to choose for the episode.

I've got another great one.

I'll share with you later on today.

It's going to be a cracker.

All right.

Listen, good to talk to Keith.

Cheers.