March 30, 2020
McDonald’s: The Origins of a Fast Food Empire

McDonald’s: The Origins of a Fast Food Empire

McDonald’s is a real estate business. That might sound surprising:
After all, who hasn’t at least once in their lifetime indulged in the glorious experience
that is a Happy Meal? You might know McDonald’s as that fast food
chain that sells hamburgers and fries, but trust me, it goes way deeper than that. That’s why, this week on Behind the Business
we’ll be looking at the world’s second-largest restaurant chain, McDonald’s. Few things sound as Irish as the name McDonald. It’s an interesting name: the ‘mac’
part means son, while Donald comes from a Gaelic name that means ‘Ruler of the World’. Very ominous, right? The two ‘world-rulers’ that we’re interested
in are Richard and Maurice McDonald, two brothers from New Hampshire. In the 1920s they moved to California, where
they started a movie theater and a hotdog stand, but they eventually went bust when
the Great Depression came around. Their first big success came in 1940, when
they opened a barbecue joint in San Bernardino. Now at the time, virtually all restaurants
were mom-and-pop establishments, with their own unique taste and cooking methods. Drive-ins with roller skating waitresses were
all the rage back then, but they weren’t particularly efficient. You had to wait half an hour to get your order,
and half of the time they got it wrong. The McDonald’s barbecue was no different,
and although it did turn a profit, the brothers knew they could do better. They realized that most of their income was
coming from just three products: hamburgers, french fries, and coke, and after running
the place for 8 years, the brothers decided to make a radical makeover. They dropped most of their menu to focus on
their best sellers, and then they redesigned the entire kitchen around that. The cooking process started to look like an
assembly line, which allowed the brothers to fill customer orders in as little as 30
seconds. They abandoned the drive-in concept in favor
of a walk-up counter, and they stopped using cutlery and dishes entirely, replacing them
with disposable paper packaging. In an instant, their restaurant became a sensation,
drawing in attention from across the country. One of the people they attracted was this
guy, Ray Kroc. He was a natural-born hustler, who at the
age of 15 had lied his way into serving as a Red Cross ambulance driver during WW1. Interestingly enough, he served alongside
Walt Disney in France, but they didn’t really keep in touch after the war. Like most people from the postwar years Ray
had worked dozens of jobs: jazz pianist, radio DJ, paper cup salesman, you name it. In the early 1950s he was travelling cross-country
trying to sell expensive milkshake machines, but he wasn’t really doing a good job at
it. One day in 1954, however, he got an order
for 8 of them, and it was from none other than the McDonald brothers. When Ray made his way to San Bernardino, he
fell in love with their restaurant and immediately offered to franchise it. By that point the McDonald brothers had already
opened over 20 franchise locations, but none of them were doing as well as the original
restaurant: The lack of oversight made maintaining quality
impossible. The brothers decided to give Ray a shot, and
boy did he deliver. He handpicked only the best franchisees and
ran his operations like an army drill. In the span of just 6 years Ray built 100
McDonald’s restaurants, while the McDonald brothers were basically managing their own
joint. Ray eventually grew tired of them:
they’d reap 0.5% of all sales for doing nothing while roadblocking Ray’s suggestions
for improving the franchise. To cut them out, Ray figured out a brilliant
strategy. He’d buy the land all future restaurants
would be built upon, and then he’d lease it to his franchisees. This way Ray got to keep almost all of the
profits from the business, while leaving the McDonald brothers empty handed. Of course, the brothers weren’t very happy
at that, but there wasn’t anything they could do, and in 1961 they finally agreed
to sell their franchise to Ray for $2.7 million. With the brothers out of the way, Ray stepped
on the accelerator, implementing all the changes he had wanted like redoing the logo and creating
a mascot. He also expanded the menu, adding the Filet-O-Fish
in 1965 and the Big Mac in 1968. That same year Ray celebrated opening store
#1000, and adopted the modern iteration of the golden arches logo. Throughout the next decades McDonald’s would
keep expanding, and not just in the US. They pioneered breakfast fast food with the
introduction of the Egg McMuffin in 1972. They also added stuff like Chicken McNuggets
and the Happy Meal, which would eventually make them the world’s largest toy distributor. By 1988 they had 10,000 restaurants, and although
Ray was no longer alive, the company kept on growing without him. Thanks to their iconic Hamburger University,
the McDonald’s franchise had some of the best-trained managers in the fast food industry. This allowed them stay one step ahead of competitors
like Burger King and Wendy’s. Since then, McDonald’s have continued expanding
their menu into what we know today. In 2006 the franchise underwent its first
major redesign since the 1970s, adopting the so-called “Forever Young” design, which
features dining zones with comfortable sofas and armchairs. Interestingly enough, today McDonald’s isn’t
the world’s’ largest restaurant chain: That title goes to Subway, who have almost
45 thousand locations compared to 37 thousand for McDonald’s. The company itself owns only 15% of them,
the rest being franchised out. The restaurants ran by the company account
for 2/3rds of its revenue, but that’s not the whole story. In reality, it costs way more to run your
own restaurant than it does to sit back and collect rent. In 2014, for example, company-operated stores
generated $18.2 billion, but McDonald’s got to keep only 2.9 billion. In comparison, out of the $9.2 billion coming
in from franchisees, the company kept 7.6, a stunning 80%. So even though McDonald’s seems to be flipping
burgers, in reality they’re playing Monopoly instead. Thanks for watching and a big thank you to
all of you out there who are supporting us on Patreon! If you liked the history of McDonald’s feel
free to subscribe for more and to check out the full Behind the Business playlist for
the interesting stories of other big companies. Once again, thanks a lot for watching, and
as always: stay smart.

100 thoughts on “McDonald’s: The Origins of a Fast Food Empire

  1. Apologies for the mistake near 0:32. The name McDonald is Scottish, not Irish (although the parents of Richard and Maurice were from Ireland).

  2. Randomly spotted James Street in Liverpool as the plot of land at 3:54 and had to comment. This was literally the view I saw every day last year on my way to work. Liver building can also be seen in the background.

  3. Just think of it, although McDonalds was established by some McDonalds brothers around 1950, it was really their order of 8 milk shake machines, that caught the attention of the salesman of those machines, Mr. Croc, and it’s through some kind of a franchise and landlord situation of the ground beneath those restaurants, that changed McDonalds into a worldwide success.

  4. the map at 5:44 is wrong there are 8 McDonalds just in Belgrade not to mention all of Serbia,the first one opened in 1988.Also i know there are McDonalds in Hungary too.

  5. 5:53 The maps says that bolivia and paraguay doesnt have mcdonalds and them say paraguay only have mcdonalds and bolivia has more subway than mcdonald stores.

  6. Imagine if they never ordered 8 milkshakes machines?? I makes me believe that a that a regular people choices can change the world

  7. Funny how the 80s packaging looks so much worse than the other decades. When I was a kid (early 90s) they had those funny tiny spoons for stirring coffee. They looked like they were designed for snorting cocaine.

  8. You skipped the part where he (Ray) promised them royalties on a handshake deal and never followed through and he didn't let them keep managing their own joint and forced them to change their name and go out of business essentially.

  9. I still usually get the McDonald’s Big Mac Meal for ether lunch or dinner sometimes im addition an M&M’s McFlurry

  10. Watching the movie made me appreciate how the brothers focused on quality. It's as if they mixed In N Out with Chick Filla.

    Also the same way they were so willing to switch to powdered ice cream, makes me wonder when did they switch to this fake meat they serve.

  11. the move from styro-foam to plastic recycle was a monumental move for Mcdonalds I am very loyal to Mcdonalds for this move our country is behind years in styro-foam recycling technology for styro-foam..

  12. When I hear McDonald's, I don't think if burgers and fries. I think of chicken wings. Because the McDonald's here sells wings.

  13. Ray Kroc did not create anything. He stole most his ideas including owning the land of his Franchisees all the way to the Happy Meal which was created and introduced by Burger Chef. The sad thing about the story of McDonalds is the same the world over. After all the using of people and their ideas the only thing left are the lies that the USERS try to put forward in an effort to legitimize the money that is rightfully others. The big boys in silicone valley has some of the same type of history. After all is said and done the only thing left are the lies they hope people will believe about them while hoping everyone ignores the truth. In the end all the money they gained by the pain and suffering that was caused means nothing and the lies become a perversion of reality.

  14. Ray crock didn't want the filet of fish he wanted a grilled piece of pineapple replacing a burger patty instead , and had to have the big mac forced on them by a Pittsburgh franchise

  15. I think it would have been even more interesting if you could have mentioned how it expanded globally. I am a food scientist and have worked for OSI Group, which is a private company in Chicago. OSI grew alongside McDonald’s since they were providing most products as it grew, which is why the McDonald’s HQ is in Chicago.

  16. You are supposed to get the same Big Mac in Tokyo as you do in NYC. That is until a minimum wage 50 IQ SAVAGE MONGREL puts their hands on it. Then you just get what you get. I don't have that problem. I'm vegan. Yep, you just got vegan bombed!🐸😎

  17. Everyone is welcome to India.
    Here you can eat Vadapav, india's favorite fast-food and it's quite cheaper and healthier than Mc-Whatever-It-Is.

  18. 5:29 made me realize that after the 2000s, I pretty much stopped going to McDonald's altogether,I didn't realize the bag changed

  19. What if Ray Kroc see the film "Mac and Me" that heavily promote McDonald's he will take that chance of big hit fir that film

  20. I just been to a mcds recently. They are in a desperate need to rehaul their menu and burger sizes. I prefer carls jr or in ans out any day over it.

  21. Ok so at 5:43 the map shows paraguay with NO McDondalds and the next maps shows it ONLY has mcdonalds? kill urself kid

  22. Mcdonald uses vegetable oil to cook their food right?? The UK Telegraph reported in a front page article that vegetable oil such as canola are cancer causing, according to new research. Mcd needs to change their oil to something healthier such as coconut, rice bran or palm oil.

  23. I'm curious about the original location of McDonald's because that only 30 mins away but being born and raised nearby , now at almost 40 years of age … this is my first time breathing of this.

  24. The McDonalds brothers were bought out for $2.7 million in the 1960s. Don't feel too sorry for them. If they invested it in Warren Buffett's Berkshire Hathaway at the start, they would be even richer.

  25. My grandpa was asked to help open McDonald's in Canada
    His name is George Scott and there are lots of cool stories from hi m

Leave a Reply

Your email address will not be published. Required fields are marked *