By GREG SARBER
Recent events have reminded me that there are two sides to every story and of an interesting historical parallel.
The McDonald’s fast food chain is one of the largest corporations in the United States, with over 40,000 franchise restaurants worldwide and a market capitalization of over $200 billion. However, it wasn’t always this way, and there was a great deal of controversy about how the restaurant chain got started.
The McDonald’s corporation began with a single restaurant founded by two brothers in California back in 1948. Maurice and Richard McDonald founded a restaurant in San Bernardino to sell hamburgers and milkshakes.
They produced food quicker than their competitors and prided themselves on being able to sell it for half the price and in half the time as other restaurants. They called this their Speedee Service System, and credited Henry Ford with the idea, saying they modeled their restaurant after the assembly line that he created for the automobile industry.
The restaurant was so successful that in 1954, the brothers hired an individual named Ray Kroc to help them franchise their business in other locations. Some franchise restaurants were opened over the next 6 years, but the expansion did not proceed as fast as expected since the brothers were more concerned about operating their existing restaurant than managing a corporation.
Kroc saw the potential, and he convinced the brothers to sell him the franchise rights to McDonald’s in 1961. He paid them $2.7 million, which is equivalent to $32.8 million in today’s dollars. The deal allowed them to keep the ownership and operate the original location independent of the new McDonald’s corporation.
The brothers agreed to the deal, which was very favorable for them at the time, given the lack of success of the initial franchise attempts. They were able to get a significant payoff for their efforts. Had Kroc failed, the brothers still retained their original restaurant and were not taking any financial risks in accepting the deal.
Ray Kroc was able to make a rapid expansion of McDonald’s, establishing franchises around the country. As the new corporation became very successful, the brothers began to complain about the terms of the original deal. They alleged that they had a handshake agreement with Kroc to share profits in the new enterprise with them, but he had failed to do so. Kroc’s position was that no such agreement was made, and that he had treated the brothers equitably, complying with the original contract they had agreed to.
It is impossible to say who was right in the matter, but afterwards, there were hard feelings between Kroc and the brothers.
Some people tell the story of the McDonald’s corporation, and portray Ray Kroc as the villain, but it is impossible to say if he did anything wrong. The brothers were well compensated for the deal they signed, and willingly agreed to it. It was only later did they have a case of seller’s remorse. The complaints the brothers made appeared to be a case of sour grapes.
What does this history lesson have to do with anything? Sorry to leave it there and be intentionally vague.
Greg Sarber is a lifelong Alaskan. He is a petroleum engineer who spent his career working on Alaska’s North Slope. Now retired, he lives with his family in Homer, Alaska. Greg serves as a board member of Alaska Gold Communications, Inc., the publisher of Must Read Alaska.