Happy Diwali and Prosperous New Year (samvat 2075)
Below is the small gift – my notes on book McDonald’s Behind the Arches ( Link here ). One of the key thing about the book is author, John F Love, he didn’t work in McDonald’s nor was he commissioned by McDonald’s to write this book , meaning one gets unbiased and original view of author. Below are some interesting tidbits notes from the book
- Ray Kroc drew no salary or expense money from McDonald’s until 1961, while it was setup sometime by Maurice brothers in 1940, Ray Krock took it over sometime in 1954/55.
- When he hired Schindler at salary of $12000, which was all that Ray himself was making from Prince castle sales. (110). (he was doing 2 jobs at same time, one paid and other unpaid).
- Potato secret how to make best French fries, they spent $3mn on researching.
McD along with mammoth furnace company help design first commercial rooftop heating and air conditioning equipment capable of handling small industrial loads.
Focus on documenting process, review and improve. Turner essentially converted running restaurant from an art to mngt science – Turner first drafted 15pg manual later on it became 38pg later on 75 in 1958, later on 200 in 1961 and 750 pg. - Ray Kroc was pretty fastidious for cleanliness and hence emphasis on Clean restaurant.
- McD sold burger at beginning at 15cents, that was very cheap by those days standard and people viewed it as cheap quality. Ray Kroc would be very angry and frustrated because of that, post opening of Hamburger University that changed.
Everybody was making money except Ray kroc – store sales 200,000 in 1950s, but McD got only 2800, of which $1000 went to McD brother, while franchisee was making 40,000. Enter harry Sonneborn, decided sub lease real estate strategy.
Sonneborn hired boylan ex-IRS guy who could show good financial statements. Future rental income as assets. - If company already has debt, its easier to get more very interesting concept by then CFO – page 185.
- Started advertising when restaurant chain hardly did anything more than pamphlets, newspaper insert and direct mail, company did TV ad. Pushed franchisee to spend 2.5% on promotion, later increased to 4% .
- Focus on charity, forcing franchisee to spend on local charity to generate promotion and branding.
- Slowly switching to full-fledged ad on radio by one local guy, which eventually went national and originator didn’t get any royalty – everybody is partner.
- Ray had shifted to West coast LA/California, there he build different kind of McD , which shifted looks of McD from pure drive in to restaurants.
- During one time lot of food packaging company like general Mills acquired fast food chain like burger chef, without raising complexity of running such business – this was amazing time, just like how we witnessed every other company getting in to IT during 1999-2000 or real estate in 2007-08.
- One of the best mistake McD was firing off entire real estate staff who scouted for new store place, instead company hired free lance broker and that’s was most stupid decision. Due to which lots of unprofitable store came online then those were shut at later date.
- General Mills wrote off $75mn, more than how much McD earned in a decade.
Structure of both businesses is different, packaged food production is centralized so is quality, customer is acquired through ad, while production & quality is decentralized in McD. One is B2B and other is B2C. - At one time McD decided to have company owned company operated stores, but then changed strategy to keep it at 33% of total strength.
- McD had unwritten rule of not hiring females for store, shocking.
- McD never signed contract with any supplier.
- McNuggets chicken fast-food invented by McD , KFC took 3yrs to come up with similar product even thought they were chicken product company.