San Bernadino and The First McDonald’s Restaurant

Although the original McDonald’s restaurant started in 1940, with a restaurant opened by brothers Richard and Maurice McDonald in San Bernardino, California, the present McDonald’s Corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois, on April 15, 1955.

The brothers were interesting, some would say eccentric, characters who were enthused by the assembly line manufacturing method of  Henry Ford in his car factories and in 1948 they suddenly closed their traditional and popular restaurant for several months and set about applying the principles of mass production to the restaurant industry.

They pared the service back to only the essentials, offering a simple menu of hamburgers, french fries and milkshakes, which were produced on a continuous basis, rather than made to order, and with no alternatives on offer.  This was whole new idea that they called ‘fast food’, which could thus be served to a formula, nearly instantaneously and always consistently.

The brothers reduced labour costs because henceforth there were no waitresses and customers walked to a single window to place and receive their orders.  They made the food preparation area visible to the customers, to exhibit its standards of cleanliness, and they eliminated all plates and cutlery, serving only in paper bags. Their introduction of the ‘Speedee Service System’ established the principles of the modern fast-food restaurant. The original mascot of McDonald’s was a man with a chef’s hat on top of a hamburger shaped head whose name was ‘Speedee.’

Kroc was a multi-mixer milkshake machine salesman, travelling across the country and he was intrigued by an order from the McDonald brothers who had purchased eight of his Multi-Mixers, which to him seemed rather a lot for a small restaurant.  Immediately after visiting the San Bernandino restaurant he became convinced that he could sell mixers to every new restaurant that they opened, and so he offered the McDonald brothers a deal.

Although they were truly innovative the two brothers were not particularly ambitious and were they were satisfied with their one restaurant that provided them with a comfortable life.  But Ray Kroc realised the potential and with much bigger plans proposed a chain of new McDonald’s restaurants and he tried to convince them to expand the operation but eventually became frustrated with the brothers’ lack of vision and their willingness to accept their chain having only a handful of restaurants and he forced them into an agreement.

Because Kroc insisted that he could not show the royalty to the investors he had lined up to capitalize his purchase the agreement was made with a  handshake with split appreciation between the parties .  When it came time to close the deal Kroc became annoyed that the brothers would not transfer to him the real estate and rights to the original unit.  The brothers had told Kroc that they were giving the operation, property and all, to the founding employees.  Kroc closed the transaction and then refused to acknowledge the royalty portion of the agreement because it wasn’t in writing.  The McDonald brothers consistently told Kroc that he could make changes that he wanted but despite Ray’s requests, the brothers never sent any formal letters which legally approved the changes in the chain.  To force the issue Kroc opened a new McDonald’s restaurant near the brothers restaurant (now renamed “The Big M” because they had neglected to retain rights to the name) to force it out of business.

In 1961, he finally purchased the company from the brothers. The agreement was for the McDonalds to receive $2.7 million for the chain (enough to pay each brother $1 million each after taxes) and to continue to receive an overriding royalty of 1.9% on future gross sales  and specifically 1.9% because when negotiating the contract the McDonald brothers said that 2% sounded greedy.