McEmpire – how a random man became the owner of a large Corporation and a billionaire

I like watching biographical movies and I have recently come across McEmpire.

The post is a spoiler of the movie so if you are going to watch it, don’t read it 🙂 In my opinion the movie is very worth watching if you are interested in biographical and business topics. The film describes the history of McDonald’s restaurants and shows how ultimately the owners of the entire company are not its originators i.e. the brothers Richard and Maurice McDonald, but a man who one day comes to sell them mixers…

The McDonald brothers started the business with the opening of the movie theater in 1929, but it turned out to be a complete flop. Then they open a hotdog shop, but the city has few inhabitants and they don’t earn coconuts.

They want to move their business to a bigger city, San Bernardino, but they cannot afford the new premises. They come up with the idea of transporting their wooden place by truck, which they do.

San Bernardino first McDonald's restaurant

It is 1940 and the brothers are opening a place for motorized. Customers drive up their cars, and waitresses on roller skates deliver the food.

They earn good money, but there are many problems with this business. There is a 30-minute wait for the food, waitresses are often wrong in the orders and deliver dishes that customers have not ordered, and the drive-in model attracts a not-so-desirable clientele – teenagers and hooligans. In turn, the costs of running such a restaurant were enormous due to the large number of employees and broken and lost dishes .

Drive through McDonald's restaurant

The brothers come up with the idea of reducing the number of dishes from 27 to just 3: burgers, fries and drinks. These three products account for 87% of sales and they focus on them.

In addition, they resign from waitresses and replace them with self-service They change traditional dishes into paper disposables. They remove cigarettes machines and gaming machines that attracted mob.

The most important change, however, was the reduction of meal delivery time from 30 minutes to 30 seconds. This required a complete overhaul of the way the restaurant operates. They decide that the delivery of meals has to work like a conveyor belt.

The brothers drew up a proposal for the new arrangement of the kitchen elements on the tennis court and brought the workers there and made them pretend to be serving meals. They also checked if there were any collisions and how much time the client waited for his dish.

After many hours of trying, they manager to find the optimal solution. They close their previous restaurant (some thought they were crazy to close a profitable business), they commission a kitchen to their special order, and try again. It wasn’t that easy right away, they had to go through some problems.

Eventually, however, the idea is accepted. After 19 years of running a business, finally what looks like a present McDonald’s restaurant is being built.

In 1954, they are visited by Ray Kroc, a 52-year-old mixer salesman. He is surprised that the brother ordered as many as 8 of these mixers and asks for a tour of their restaurant.

Ray Kroc deals with various business ideas all his life, but none brings greater success. Now he is proposing to the McDonald brothers to add him to their company and jointly develop the restaurant all over the United States.

The brothers say that they’ve tried the franchise, they opened a few restaurants in other cities, but they didn’t catch on. They couldn’t control these restaurant well enough. The quality of service was definitely worse, other dishes were introduced to the menu and these places were eventually closed.

Ray Kroc with McDonald's restaurant

Ray finally persuades the brothers to allow him to join the company. His sole purpose is to develop the franchise. 1.4% of the profits from each restaurant would go to Ray, and 0.5% to McDonald brothers.

After a lot of different problems , the idea is finally caught on. Ray Kroc opens more places but at some point he runs into financial problems. 1.4% of the profit is insufficient for rapid business development.

He tries to negotiate a deal with McDonald brothers but he fails to do anything. The brothers are also reluctant to any suggestions for changes in the restaurants suggested by Ray.

Finally, by chance he meets Harry Sonneborn, who is employed as a vice president of finance at Tastee-Freez restaurant.

He looks through Ray’s ledgers in detail and analyzes his business model. He makes Ray realize that by earing 1.4% of McDonald brothers’ profit for every burger worth 15 cents he will never be able to significantly expand the business. In addition, he makes him realize that the main industry in which McDonald’s operate, is not burgers at all but ….real estate.

Until now, it was the McDonald’s restaurant franchisee who took out a loan for the construction of the building and leased the land for 20 years from the landowner. Ray, in turn, conducted a training, provided the entire process of running the restaurant and the secrets of its operation.

Harry urges Ray to let McDonald’s by the land for the restaurants and lease it to the franchisees.

This will give him more capital for development, which will allow him to buy more land. It will also give him control over the franchisee, whom Ray may terminate the contract if he does not meet his terms.

Thanks to this he will also have control over the McDonald brothers who may have control over everything what is happening inside the restaurant and may not agree to any modifications inside, but they will not have any power over the land that is under the restaurant.

Harry Sonneborn will become the first president and CEO of McDonald’s Corporation in the future.

Ray establishes a new company to buy plots of land and give them back to the franchisees. When the McDonald brothers find out about it, they threaten him with breaking the rules of their contract – any changes require their consent. Ray makes the brothers aware that he is not changing anything at the restaurant and that he did not need their consent to start a new company.

Ray develops more properties very quickly and eventually becomes the landowner in 17 states. The McDonald brother, on the other hand, still run their one place in San Bernardino.

Ray becomes so bold that he eventually breaks the rules of the contract and introduces a powdered milk shake to all the restaurants . He tells his franchisees that the first place was the place that he opened as a franchise in 1954 and he does not mention the McDonald brothers or the restaurants they opened earlier.

The McDonald brothers are threatening a lawsuit but Ray replies that he will destroy them with court fees and they will not be able to pay.

In the end he offers to buy a company from them and all the rights to the McDonald’s brand. The brothers agree not believing that they can do anything else in that situation.

Each of them receives $ 1 million , and additionally $ 700, 000 is spent on taxes. The brothers can still run their restaurant in San Bernardino but under a changed name “The Big M”.

They were also supposed to receive 1% of the company’s profits on a regular basis, but this was only confirmed by a handshake and was never included in the contract. The witness of this agreement was the McDonald brothers’ nephew. The brothers never received a cent from it, but they never spoke about it in public either.

Ray eventually opens a McDonald’s restaurant in San Bernardino, and the McDonald brothers go bankrupt after a few years.

Restauracja Big M w San Bernardino

McDonald’s is one of the world’s leading real estate owners today.

Today, 1% of profits would be nearly $ 100 million a year .

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