90: The Founder

Are you familiar with the chicken or the egg principle? The dilemma is simple. If chickens come from an egg, what laid the egg? Of course, creationists settled this among the religious community in the 1600s by assuming that the first chicken was simply created. Therefore, it didn’t come from an egg.

But…as I’m sure you can imagine, that didn’t answer it for everyone.

A little more recently, scientist Neil deGrasse Tyson solved the question when he tweeted on January 28th, 2013:

Just to settle it once and for all: Which came first the Chicken or the Egg? The Egg—laid by a bird that was not a Chicken

Of course, this didn’t answer it for everyone, either. And thus the question continues as a paradox that we’ll probably never, ever have a universal consensus on.

This dilemma is one that salesman Ray Kroc, who’s played by Michael Keaton in the movie, poses as he speaks directly into the camera. Then we find out he’s posing the question as a part of a sales pitch for a Multimixer. His pitch, basically, suggests that perhaps the restaurant, which we can tell by a sign out front is a place called Griffith’s Drive-In, isn’t selling enough milkshakes because the customers know it takes too long to make them—something that can be fixed with his product.

The unimpressed owner doesn’t buy it.

While that particular opening wasn’t based on a specific event, the purpose of what we see in the movie is to get across the very real fact that Ray Kroc used to sell a product called a Multimixer. And the real Multimixer looked a lot like the device we see Michael Keaton lugging around in the film.

Although the movie doesn’t really mention it, selling the Multimixer was a big risk for the real Ray Kroc. You see, for almost two decades before—17 years to be more specific—Ray sold paper cups for the Lily Tulip Corporation. He made about $35 a week at that job, which comes to about $350 in today’s money. That’s roughly $18,500 a year in today’s salary. So not really much to live on, especially since he had a wife and young daughter to support.

Of course, that’s not all Ray did. He also taught piano on the side, but it still wasn’t enough. So he decided to go all in on the Prince Castle Multimixer, a device that sold for about $150 a pop. That’s about $1,500 today, and while he certainly didn’t see all of that for each sale, his commissions on a $150 Multimixer were quite a bit more than for the cheap paper cups.

According to Ray’s autobiography, the idea of switching from selling paper cups which, while it didn’t make a ton of money, at least was something that had supported the family for the past 17 years was something that his wife wasn’t very supportive of at first. But Ray did well selling Multimixers, so she came around.

Back in the movie, as he’s trying to sell a Multimixer, Michael Keaton’s version of Ray Kroc gets a phone call about a restaurant out in California that wants to buy six Multimixers. Surely that must be a mistake, Ray says, no one makes that many milkshakes. He calls up the place out in California himself to verify, and sure enough, the order was correct.

Actually, Nick Offerman’s version of Dick McDonald tells Ray over the phone—you’d better make it eight Multimixers.

Astonished, Ray practically drops everything he’s doing and drives out from where he is in Missouri to California to see this restaurant owned by Dick and Mac McDonald that needs so many Multimixers.

The basic gist of that is correct, but that’s not really how it happened.

In truth, it was a little more drawn out.

As Ray was traveling around the country selling Multimixers, he’d hear all about how restaurant owners from Oregon to Washington D.C. wanted a Multimixer like the McDonald brothers have in California. Naturally, Ray obliged to sell them the Multimixers, but it also piqued his interest.

Who were these McDonald brothers?

He decided to do a little more digging and found out that the McDonald brothers had a total of eight Multimixers that had been sold to them. So the number is right in the movie, it just didn’t seem to come from a single order.

Still, it was something that amazed Ray. Each of the Multimixers had five spindles, so with eight machines that’d mean they could make 40 milkshakes at once. Granted, San Bernardino, California in 1954 had about 75,000 people living there, but that’s hardly a metropolis like Chicago, St. Louis, Portland, or any of the other restaurants that were getting by fine with just one Multimixer.

So Ray decided to pay them a visit in person. The movie got that part right, although he didn’t drive there. In reality, Ray hopped on a flight to Los Angeles, then drove the 60 or so miles east to San Bernardino.

In his autobiography, Ray recalls not being too impressed with McDonald’s when he saw it for the first time. It was a rather non-descript, small, octagonal building that looked pretty much like any other drive-in restaurant in the mid-1950s.

At about 11:00 AM, McDonald’s opened up and Ray took a seat in his car a little ways off to watch. When the lines started to form, Ray noticed the workers inside McDonald’s picked up their pace and met the impressive demand. That’s when Ray got out of his car to see what the fuss was about. He started by chatting with some of the folks in line and quickly found out that most of the people hadn’t only eaten there before but they were regulars—one of the guys saying he ate there every single day to avoid eating his wife’s cold meatloaf sandwiches.

In the movie, after meeting with Nick Offerman’s Dick McDonald and John Carroll Lynch’s Mac McDonald, Michael Keaton’s version of Ray Kroc gets a tour of how McDonald’s is able to make burgers in about 30 seconds instead of the norm for many drive-ins of the time—30 minutes. Impressed, Ray asks the brothers to dinner to learn more about their story.

That second part is true, but Ray didn’t get a tour of the kitchen right away. After being thoroughly impressed with what he saw, Ray introduced himself and immediately hit it off with Dick and Mac, who affectionately called him Mr. Multimixer. They decided to have dinner that night so Ray could learn more about their restaurant.

It’s here, in the movie, that Dick and Mac tell him their story.

And for the most part, the story we hear in the movie is true.

Like the movie says, the McDonald brothers came to California from New Hampshire. They’d done so after seeing their dad get fired from his job at a shoe factory for simply being too old. He wasn’t any use to the factory anymore, who wanted younger employees. As you can imagine, that put a lot of financial stress on the family.

Mac—his real name was Maurice—was determined to not let that happen to him, so he decided to move to California to strike it rich in Hollywood.

By the way, the movie doesn’t really mention it, but Mac was seven years older than Dick.

Shortly after, in 1926, Dick joined his brother in California right after he graduated from high school. But as millions of others who have tried to become rich and famous in Hollywood can attest—their own big break didn’t happen right away.

To make a living, the brothers had an idea to start taking advantage of the increasing rate of cars on the road. Today the idea of a lemonade stand is something we think of kids doing, but they started, quite literally, a juice stand. Freshly squeezed orange juice for five cents a cup.

Remember this was the 1920s. No A/C, no climate control of any sort. Driving the streets in California was a hot, dusty affair. To lure in customers, the brothers put up some bright signs that would catch the eye of passersby on the road who gladly paid for a chance at a fresh, cool drink.

But the stand wasn’t enough to pay their bills. Besides, they didn’t come to California to sell orange juice.

So that’s when, like the movie also correctly explains, the brothers started working at Columbia Studios doing mostly manual labor like setting up lights and things like that.

In the movie, the brothers tell Ray over dinner that they saved up their money working at Columbia until they could buy their own movie theater in Glendora, California. But it was bad timing because that was September of 1929.

That’s true, although that timing isn’t quite right. According to Ray Kroc’s autobiography, it was actually 1932 when the brothers bought their movie theater.

But the result was the same. Starting a business is never easy, but with the country going through the Great Depression followed by World War II, it was even more difficult.

The brothers learned a really important lesson, though, about squeezing more than oranges but rather squeezing their wallets. There would be some days that they only ate a single meal—a hot dog from a small stand by their theater.

According to the movie, that hot dog stand was run by someone named Wylie Reid. I couldn’t find anything to verify that, but it is true that hot dog stand was one of the inspirations for the McDonald brothers starting their own restaurant. After about five years, they decided to pull the plug on their movie theater.

The movie says this restaurant was a hot dog and orange juice stand, which I’m guessing was because of their orange juice stand they had right after moving out to California, but in truth it was a barbecue restaurant.

It was in Arcadia, California, though, like the movie says.

Although, to be fair, the movie mentions the brothers moved their stand to San Bernardino in 1940 and then opened McDonald’s Famous Barbecue.

That’s pretty close to what really happened.

Their restaurant in Arcadia was called “Airdrome”, something they named it because it was right next to what’s now an abandoned airfield in Arcadia known as either the Monrovia Airport or, more formally, Foothill Flying Field.

As you can probably guess, with their background running a theater, setting up lights on a movie set and squeezing orange juice, they didn’t have much restaurant experience. But they had a friend who knew how to make barbecue, so they learned pretty quick.

But as it turns out, selling barbecue by an airfield wasn’t what the brothers had in mind, either.

It’s worth pointing out, though, that the airfield was still pretty popular. In fact, Foothill Flying Field stayed in operation until 1953 and even had a couple movies shot there in its heyday. Oh, and as a fun little fact for you, remember Poncho Barnes from when we learned about the true story behind The Right Stuff? She frequented Foothill Flying Field in the 1930s.

According to the movie, the McDonalds brothers actually packed up the entire building from Arcadia and moved it to San Bernardino.

And that’s true. It cost them about $200 bucks, or about $2,500 in today’s dollars to chop up their wooden, octagonal stand in half and transport it to a new spot they’d gotten in San Bernardino with the help of a $5,000 loan from Bank of America.

Since they weren’t near an airfield anymore, the name “Airdrome” wouldn’t make much sense. So the brothers decided to keep it simple— McDonald’s Barbecue.

But even after all of this, including moving to a bigger town in San Bernardino, their restaurant wasn’t taking off like they’d hoped. That’s not to say they weren’t popular. They were. Their parking lot in San Bernardino was almost always packed full. But it still wasn’t enough to solidify their future—something, if you remember, was a big driver for their move from New Hampshire to California years before.

So, just like the movie says, the brothers decided to take a really big risk. They were convinced they could solidify their future if they catered to drivers. McDonald’s Barbecue at the time was following the same model as a typical drive-in, complete with attractive young girls as carhops.

As a little side note, carhops are still in use today by drive-ins, most notably the fast-food chain Sonic. In the 1940s, though, carhops were almost exclusively pretty young girls because restaurant owners quickly caught onto a common denominator during World War II that most of the clientele for a lot of drive-ins tended to be younger men in the military. So, quite simply, a pretty girl sold more food and that element of sexism flourished even after the war.

Oh, and the term “carhop” itself came from when one of those girls would hop on the running board of a car as a way of claiming the patron inside as their own.

McDonald’s Barbecue was doing well as a drive-in, but the brothers were still barely making a profit. They didn’t seem to think the amount of work they were putting into their restaurant was warranting their return.

But they were convinced the wave of the future was to cater to drivers, just like they had done with the orange juice stand years earlier.

In 1948, the brothers did something no one in business does when they shut down their very successful restaurant and overhauled it in an attempt to make it even more successful. They did pretty much all the things the movie mentions—slimming down their menu to burgers, fries and a drink, and creating an assembly line process to deliver food quickly and with high quality.

That last part was key. You might not really think of McDonald’s burgers as being high quality today, but from all of the research I could find everyone seems to agree that the original restaurant run by the McDonald’s brothers had amazing food—it was only after Ray Kroc entered the picture that quality started being sacrificed for quantity.

But that’s getting ahead of our story.

When they reopened their restaurant as simply McDonald’s, it was a hit!

All of this was something the movie very cleverly explains as the McDonald brothers have dinner with Michael Keaton’s version of Ray Kroc. And while that dinner did happen, from what I could gather it’d seem they went over how their operation worked more at that dinner than the full history of their restaurant. Since, if you recall, Ray didn’t jump to a tour of their kitchen right away like we saw in the movie.

But regardless, the movie is correct in showing that Ray was hooked. He knew there was something special about McDonald’s.

Although, in the movie, it’s Ray Kroc who mentions the idea of franchising to the brothers. According to Ray’s autobiography, it was Dick McDonald who wondered aloud at one of their early conversations who they could get to open similar restaurants. To which Ray replied, “What about me?”

Oh, and the movie is also correct in mentioning that the brothers already tried franchising before Ray came into the picture. The morning after their dinner, the brothers mention there’s five McDonald’s locations. Three in Southern California, one in Sacramento and one in Phoenix.

In truth there were ten other McDonald’s, most in California but with two in Arizona.

Just like the movie shows, though, Ray agreed with the brothers at a rate of 1.9% gross sales from any franchisees he brought on board. Actually, Ray asked for 2% but they said 1.9% sounds better to franchisees because it sounds like a lot less than the full and rounded 2%.

With that and a 10-year contract with the McDonalds brothers, Ray Kroc was no longer in the Multimixer business. At least that’s what the movie implies.

Well, not really. In truth, one of the reasons Ray was so excited about McDonald’s was his idea that he might be able to open a new McDonald’s somewhere and sell them eight Multimixers. So he still saw that as the way he’d make his money out of the deal.

While the movie doesn’t really mention it, a franchise fee for starting a McDonald’s in 1954 was $950, or about $8,600 today. For some comparison, a quick search online shows that the franchise fee today is $45,000—plus building costs and other costs that can get up into the millions of dollars depending on where it’s located.

Back in the movie, the first store that Ray Kroc opens is in Des Plaines, Illinois. One of the first indicators in a change of attitude with Michael Keaton’s version of Ray comes when he calls Dick McDonald to talk about a change to their building design. As the movie explains, the change is to put in a basement. They need that so they can add a furnace—after all, Illinois is a bit colder than California so the building design didn’t have to think about putting in a furnace.

As the movie would have us believe, Dick agrees that they need a furnace but that they need to have their architect look at the proposed changes and make sure it’s done right. Upset at the delay, Ray slams down his phone and ends up just going ahead and doing it anyway.

Maybe that’s how it happened. But Ray Kroc’s autobiography would say something different. When Ray called the McDonalds brothers and asked if he could put in a basement with a furnace at his first location in Des Plaines, their reply was that of course he could. Ray asked for a registered letter approving the change, something that his contract with the McDonalds said he needed. They said just go ahead and do it, they didn’t need the letter.

Even the McDonalds brothers lawyer didn’t seem to help. When Ray’s lawyer asked the McDonalds’ lawyer what he should do if they don’t provide an official letter saying the change was alright, it was swept under the rug as Ray’s problem, not the brothers’.

Of course, that’s from Ray’s side of the story. Unfortunately, neither of the McDonalds brothers wrote an autobiography or really documented things nearly as well as Ray Kroc did.

So, we only have one side. As they say, history is written by the winners.

Something else the movie doesn’t really mention was something that Ray Kroc claimed to have been a major source of friction between him and the McDonalds brothers early on. You see, according to their contract, the ten McDonald’s restaurants already in business could keep their names but any other stores opened in the U.S. had to go through Ray.

Well, as it turns out, after getting the Des Plaines McDonald’s off the ground, Ray found out that the McDonalds brothers had sold the rights to an ice cream company in Cook County, Illinois—right where Ray was working to build up his own McDonald’s as per his agreement with the brothers.

That didn’t make Ray too happy, and he ended up having to spend $25,000 to get the rights back from the ice cream company. That was $25,000 that, according to Ray, he didn’t have to spend at the time—he was in major debt at that point, mostly living off money made from selling Multimixers and dumping all of that into McDonald’s.

Now we haven’t really talked about this aspect of the movie much at all yet, but it’s clear from the storyline of the film that all of this was putting a lot of stress on Ray’s marriage. That would be to Ethel, who’s played by Laura Dern in the movie.

And that whole strain on the relationship was true. Although if you remember, I mentioned Ray and Ethel had a daughter. The movie doesn’t mention her at all, but her name was Marilyn and she was born in 1924, two years after Ray and Ethel were married.

With all of the travel, business and obsession with work, Ray and Ethel’s marriage strained to the point of divorce in 1961.

In the movie, a lot of this strain is also brought on by the presence of another woman. That’d be Joan Smith, who’s played by Linda Cardellini in the film. In the movie, Joan is married to Patrick Wilson’s character, Rollie Smith, when Ray meets her. The latter wants to become a McDonald’s franchisee, and after meeting Joan, we see a late night phone call between the two where Ray starts talking about how it’s a shame that others can’t think big like Joan does. As viewers we get the idea that Ray is talking about his wife Ethel there, while Joan thinks the same issue of her husband Rollie.

The specifics of the conversation were made up, of course, but that general sense is pretty accurate—but it’s not the full story.

You see, Joan Smith was a real person and she really was married to a man named Rollie when Ray met her. Although Rollie wasn’t the steakhouse owner that we saw in the movie. According to Ray’s autobiography, the fact that they were both married was one of the reasons they had to ignore the spark they both felt when they met for so long, but it’d seem that was delaying the inevitable.

In 1961, Ray Kroc divorced Ethel after 39 years of marriage when he realized that he was falling for Joan. In the divorce, Ethel got the house, car, the insurance—just like the movie shows—Ray gave Ethel everything he had—except for McDonald’s stock. Oh, and she also got $30,000 a year for the rest of her life.

So Ray was single now, but Joan was not.

While he was waiting for Joan to get divorced, Ray fell for actor John Wayne’s secretary, a woman named Jane Dobbins that he had met through a mutual friend.

In 1963, only two weeks after meeting Jane, Ray married her. But that didn’t last for real long. In 1968, Ray divorced Jane and in 1969 finally married Joan—who he remained married to for the rest of his life.

We haven’t talked about him yet, but back in the movie there’s moment when Harry Sonnenborn meets Ray Kroc. And it’s a bit of a revelation for Ray. Harry is played by B.J. Novak in the film. After reading through his ledger, Harry tells Ray that there’s a big problem: You don’t seem to realize what business you’re in.

“You’re not in the burger business,” Harry tells him. “You’re in the real estate business.”

That particular scene was made up for the film, but the basic gist was correct. It was Harry’s idea that McDonald’s shift their focus from being a burger restaurant and instead look at becoming a real estate company.

That’s when McDonald’s really started to take off. Harry’s idea was to convince land owners to set up a subordinate lease on their unused land. Basically, the land owners were agreeing to let McDonald’s act like the owners of the land so they could lease it out to franchisees. The land owners, then, would get whatever they agreed to in the deal. So the benefit for the land owners was that they’d be able to turn vacant land into a revenue stream without doing much work—McDonald’s would do it all.

On the other side, Harry figured out how to charge the franchisees enough to cover their own mortgage and overhead costs while still making a profit.

Lastly, the franchisees were able to own their stores and turn a profit using the McDonald’s name and formula that was still revolutionary in the late 1950s. Sure, the fast-food restaurant that would eventually become Burger King started in 1953, but they didn’t really start to expand until much later.

McDonald’s was turning into a moneymaking machine for everyone involved.

Going back to the movie, at the end of the movie Michael Keaton’s version of Ray Kroc basically forces out the McDonalds brothers, who eventually agree to a $2.7 million buyout.

That’s true, even down to the amount—$2.7 million, or $1 million for each of the two brothers after taxes were paid. That was in 1961, so if you recall that was the same year Ray divorced Ethel. $2.7 million then is about the same as $22 million today.

Not too bad, but certainly not the level of money that McDonald’s was worth.

Oh, and the movie was also correct in showing that Ray Kroc didn’t hold true to the agreement of 1% of company profits in perpetuity.

But something the movie doesn’t really mention is Ray’s side of that. Again, history being written by the winners, we don’t really know how much of this is actually true but it’d seem that the original McDonalds brothers refused to fulfill part of the deal when they sold their rights to Ray Kroc. Namely, that original restaurant they started in San Bernardino—they refused to give it to Ray.

So, in turn, Ray refused to give them their percentage of McDonald’s profits. Today, that’d be well over $100 million a year compared to McDonald’s earnings today at 0.5% for each brother.

After selling out their rights in 1961, Ray Kroc went onto continue with the claim that he was the founder of McDonald’s, something that we see shown in the movie.

Oh, and as a fun little fact, in 1974 as Ray’s involvement in the day-to-day operations started to dwindle, he turned to a different industry as he bought the San Diego Padres baseball team.

In 1977, Ray’s autobiography was released and that same year he stepped down as president of McDonald’s and moved into a senior chairman role that removed him from most of the goings on at McDonald’s.

That Ray Kroc considered himself the founder of McDonald’s was something that confused a lot of people who knew the true story—something that Ray himself didn’t seem to hide in his autobiography. It’s not like he ever pretended like the McDonalds brothers didn’t exist; and yet he continued to refer to himself as the founder of McDonald’s.

After Ray Kroc stepped down as president in 1977, he was replaced by the grill operator turned businessman, Fred Turner. In the movie, Fred is played by Justin Randell Brooke.

In 1984, Ray Kroc passed away at the age of 81. He never changed his story about being the founder.

As for the McDonald brothers, unfortunately the movie is pretty accurate in depicting what happened to them.

Some of Mac’s relatives have since gone on record to say that this failure to secure the percentage of McDonald’s profits were a major contributing factor to the heart attack that took his life in 1971.

And yes, McDonald’s did force them to change the name of their original restaurant—so it was renamed to The Big M—but a new McDonald’s opened up block away and in 1967, The Big M went out of business.

As for Dick McDonald, he would end up moving back to New Hampshire. He was credited, as the movie shows, as being the one who came up with the idea for the golden arches, as well as being the one who grilled the very first hamburger at a McDonald’s restaurant.

But then, in 1991, Fred Turner changed the official story of McDonald’s by changing their Founder’s Day that formerly honored Ray Kroc as the founder to honoring Ray alongside the two McDonald brothers. As Fred explained the change in an interview at the time, the McDonalds brothers were the founders of the concept while Ray Kroc was the founder of the company that developed the concept into the largest food service organization in the world.

After Ray Kroc’s death, Joan spent the remainder of her years as a philanthropist.

She started by trying to donate the San Diego Padres to the city of San Diego. But that’s against Major League Baseball’s rules, so she just sold it and went about the process of giving away their fortune. In 1997, she donated $15 million dollars to the region of Grand Forks, North Dakota to help with recovery efforts after they suffered what’s called the Red River flood—the worst flooding they’d had since 1826. That money was given anonymously until a journalist managed to track down the source, which led her to admitting it was her.

There were always small donations here and there—well, small for a billionaire, I guess—but then in 2002 she donated $1.6 billion dollars to the Salvation Army. Yes, that’s billion with a “b”.

Joan Kroc died on October 12th 2003, and in November, her estate followed through with one of her final wishes—to make another donation. This time it was in the amount of $225 million dollars to National Public Radio—NPR. That singlehandedly increased NPR’s budget for 2004 by 50%.

In fact, if you’re listening to this then I’m going to go out on a limb and assume you’ve heard some of the great podcasts put together by NPR.

NPR launched their very first podcasts in August of 2005, an area of expansion that was possible thanks to the donation from Joan Kroc.