The primary difference between Kroc and the McDonald brothers is their entrepreneurial focus. The brother primarily focused on the quality of their product and consumer satisfaction. While they wanted to grow eventually, they wanted to develop at a pace they could control because they had a well-run business. In contrast, Kroc was more concerned about exponential business growth and profits. He realized that the burger joint was a gold mine and pushed the brothers to grow beyond their comfort before he freed himself from the initial contract by creating new franchises under which the brothers had no stake.
I strongly believe that selling out to Ray was wrong. Getting $2.7 million seemed good at the time, but it was counterproductive. The initial deal highlighted a $950 franchise fee with a 1.9% service fee and 0.5% to the brothers and the remaining to Ray Kroc. However, the joints were bringing in substantial revenues annually on franchising McDonald’s. While their amount wasn’t small, their 0.5% would have been giving them extensive profits if they had not sold out to Kroc. The McDonald’s brother’s royalties would have amounted to a couple hundred million by today’s standards. Conversely, I understand their hesitance to deal with a power-hungry individual who would have dragged them through the mud with legal issues and led them to abandon their principles governed by offering quality products and customer satisfaction.
The franchisees made money depending on their stores’ success. They made money from the revenue from offering services and the overall sales. Generally, they made money from the remaining amount they were left with after clearing overhead costs from the profits. The overhead costs in ‘The Founder’ included paying for equipment, supplies, staffing, and the location of the franchise. When franchisors collected the fixed and percent fees, the remaining amount was the profit they took home or further invested in McDonald’s.
Kroc made money through the real estate business. Upon inception of the Realty Corporation, Kroc and Sonnerbon would locate sites, buy them on a contractual basis for a while and show the landowner the vision they represented, after which the landowner would lower the interest to fit a building loan. He would then obtain bank loans to finance the store for franchise owners, lease the buildings to them at a fee over the total, and the percentage rent would kick in at a percentage of sales over a previously determined base. This method proved useful to Kroc since the initial agreement benefited the brothers and the franchise owners and left Kroc to fend for himself as he bore the costs. Therefore, unlike franchisees who made money from the remaining money after deductions, Kroc made money through his real estate method.
After watching the film, I do want to say that yes, it somewhat changed my perspective on McDonald’s. Kroc represents the business values depicted by most multi-national companies and monopolies where capitalism is the purest virtue, and any other factors and casualties are irrelevant. His self-help texts resemble unfounded clerical texts, bold while also cynical. Despite his blatant opportunism, he assumes he’s the model of idealism. Since Kroc built his success on the sweat of the McDonald’s brothers and stole their ideas and their name in the name of “persistence,” it creates a negative perception about the ethical principles and standards that govern the franchise, much like trying to understand the tech monopoly across the globe. Still, while the movie left a bad taste in my mouth, I will find myself ordering a quarter pounder and a shake.
References
Hancock, J. L. (2017). The Founder. Written by Robert Siegel.
