Speaker 1: Pushkin with jerky movements.
Speaker 2: A golden droid walks up to the counter of a
Speaker 2: burger restaurant. He turns to his companion, who's lagging behind
Speaker 2: R two D two harry On says Crepo. At the counter,
Speaker 2: c Trepo asks for a Star Wars poster. The smiling
Speaker 2: young server explains that if he buys a large Coca
Speaker 2: Cola for forty nine cents, the posters free. The year
Speaker 2: is nineteen seventy seven, and Star Wars is a sensation
Speaker 2: in the nation's cinemas. Nowadays, we expect any major movie
Speaker 2: to have a tie in with a fast food chain,
Speaker 2: but in nineteen seventy seven that idea was very new.
Speaker 2: The burger restaurant go on, have a guess. I'm going
Speaker 2: to guess that your guess was McDonald's, But no, the
Speaker 2: advert was for burger Chef. You've never heard of burger Chef.
Speaker 2: For a while, it was almost as big as McDonald's
Speaker 2: and in many ways more innovative. Burger Chef had the
Speaker 2: big Chef before McDonald's had the Big Mac. Burger Chef
Speaker 2: had the fun meal before McDonald's had the Happy Meal.
Speaker 2: When McDonald's introduced the Happy Meal, Burger Chef sued, saying
Speaker 2: they'd ripped off the idea where McDonald's had its clown Ronald,
Speaker 2: Burger Chef had a jocular cartoon chef with a chirpy
Speaker 2: teenage sidekick.
Speaker 1: What a surprise prize.
Speaker 3: Only incredib burgable.
Speaker 2: If you'd wanted to get into the hamburger business in
Speaker 2: the United States in the nineteen sixties, you might well
Speaker 2: have chosen to buy a franchise from Burger Chef, not McDonald's.
Speaker 2: And when Star Wars fans flocked to your restaurant to
Speaker 2: buy large Coca colas, you'd have felt pretty happy about
Speaker 2: that decision. If someone had told you that Burger Chef
Speaker 2: was soon to disappear, you might have found that well incrediburgable.
Speaker 2: In the advert, C three PO and R two D
Speaker 2: two excitedly unroll the poster of themselves. Then a chill
Speaker 2: descends as the sound of heavy mechanical breathing fills the restaurant.
Speaker 2: C three PO glances towards the doorway and sees Darth Vader.
Speaker 1: Says, C three, I think we'd better leave.
Speaker 2: In Star Wars, the Rebel Alliance takes on the Empire.
Speaker 2: It's a story of conflict between two ways of life.
Speaker 2: One side cares about self determination, the other side values
Speaker 2: conformity and control. This is a similar story about burghers.
Speaker 2: On one side is McDonald's, on the other side the McDonald's.
Speaker 2: I'm Tim Harford and you're listening to cautionary tales. San Bernardino, California,
Speaker 2: was a fast growing town in the nineteen forties, fifty
Speaker 2: miles east of Los Angeles on Route sixty six, at
Speaker 2: the edge of the Mohave Desert, on the corner of
Speaker 2: fourteenth and East Streets. Dick and Mack McDonald and a restaurant.
Speaker 2: It was a small, octagonal building with a huge parking lot,
Speaker 2: enough space for one hundred and twenty five cars. Waitresses
Speaker 2: known as car hops shuttled back and forth between the
Speaker 2: cars and the restaurant, taking orders, bringing food, returning the
Speaker 2: empty plates. Dick and Mack served a wide ranging menu,
Speaker 2: but their star attraction was the barbecue ribs cooked over
Speaker 2: hickory chips, specially shipped in from Arkansas. The restaurant did well,
Speaker 2: Dick and Mack bought a house on the hill. Once
Speaker 2: a year, they each paid a visit to the town's
Speaker 2: Cadillac dealer to buy a brand new Cadillac, trading in
Speaker 2: the Cadillacs they'd bought the previous year. These year old
Speaker 2: Cadillacs never had many miles on the clock because the
Speaker 2: McDonald brothers never ventured far from San Bernardino. They liked
Speaker 2: it there. Other people liked it too. The town's population
Speaker 2: was growing quickly and its demographics were changing. There were
Speaker 2: more young families with little kids looking for a friendly
Speaker 2: place to eat. But Dick and mack saw that those
Speaker 2: families weren't eating at McDonald's because it had acquired a
Speaker 2: reputation as a CD teenage hangout. The car hops flirted
Speaker 2: with the customers, and those teenage customers were annoyingly careless.
Speaker 2: They kept breaking croc and losing cutlery. Dick and mac
Speaker 2: decided to reinvent themselves. They wanted to come up with
Speaker 2: a different kind of restaurant, one that would be more
Speaker 2: attractive for families, one that would need fewer staff to run.
Speaker 2: They analyzed their sales. In their advertising. They'd always made
Speaker 2: a big thing about their Arkansas hickory barbecue, but they
Speaker 2: had to admit that their barbecue ribs weren't actually that popular.
Speaker 2: Mostly they sold hamburgers, so what had they sold only hamburgers.
Speaker 2: Dick and Mac closed their restaurant for three months and
Speaker 2: completely revamped it. Out with the barbecue pit, in with
Speaker 2: specially designed grills optimized for one job, rilling hamburgers. Out
Speaker 2: with the crockery and cutlery, in with disposable paper cups
Speaker 2: and wrappers, out with the car hops. Now customers would
Speaker 2: line up at the windows of the restaurant to collect
Speaker 2: their food themselves, and they wouldn't have to wait long
Speaker 2: for their food because it could all be efficiently pre made.
Speaker 2: Hamburgers with onions, pickles, ketchup and mustard, boxes of fries
Speaker 2: and pop apple pilies. Wash it down with a soda,
Speaker 2: a milkshake or a coffee.
Speaker 3: That was it.
Speaker 2: That was the menu, simple, efficient quick. The brothers put
Speaker 2: up a sign advertising their speedy service system and reopen
Speaker 2: for business. It went disastrously. Sales were just a fifth
Speaker 2: of what they'd been before. Former customers came by asking
Speaker 2: when they'd go back to how the restaurant used to be.
Speaker 2: Fired car hops said, when you do, can I my
Speaker 2: job back? But the brothers persisted and word began to spread.
Speaker 2: The hamburgers were cheap, just fifteen cents, but they didn't
Speaker 2: taste you. They tasted good. The fries were fantastic, And
Speaker 2: this idea of going up to the window to order
Speaker 2: food instead of having car hops take your order. It
Speaker 2: turned out that one particular type of customer loved that idea,
Speaker 2: little kids. An employee recalls how the kids would walk
Speaker 2: up to the window, clutching a handful of coins and
Speaker 2: place their order, feeling all grown up and independent, with
Speaker 2: a quick glance back to the car, where Mum and
Speaker 2: Dad would smile their encouragement. Before long, the parking lot
Speaker 2: was full again. The ques of the windows were long
Speaker 2: and fast moving. Rival restauranteurs started to wonder how the
Speaker 2: McDonald brothers were serving so many customers so quickly. It
Speaker 2: wasn't hard for them to find out.
Speaker 3: The store was all glass.
Speaker 2: We were in a fish ball, recalls Dick McDonald. The
Speaker 2: whole operation was on public view. All that specialized equipment
Speaker 2: that Dick and mac had had custom made for Lazy
Speaker 2: Susan where twenty four buns at a time could be
Speaker 2: speedily dressed with condiments, the ketchup dispenser that squeezed out
Speaker 2: the exact same sized blob of ketchup every time and
Speaker 2: the specialized staff. Two men doing nothing but fry fries.
Speaker 2: Two more doing nothing but make milkshakes on the multi
Speaker 2: mixer machines.
Speaker 3: We couldn't conceal what we were doing, so we would
Speaker 3: talk to anyone who had questions. They would come in
Speaker 3: with paper and pens and copy the layout, and my
Speaker 3: brother and I would la.
Speaker 2: The brothers answered every question, but some people weren't satisfied
Speaker 2: with sketches of the layout and casual conversations with Dick
Speaker 2: and Mack. They wanted more detail, and they'd pay for it.
Speaker 2: Dick and Mack half heartedly put together a package, a
Speaker 2: fifteen page description of their speedy service system, their architect's
Speaker 2: drawings of their building, and a one week loan of
Speaker 2: an employee who knew how everything worked. They'd offer to
Speaker 2: sell you this one off package, but only if you
Speaker 2: absolutely insisted. When one woman asked about it, Dick advised
Speaker 2: her to open a nice little dress shop instead. It
Speaker 2: wouldn't work like that.
Speaker 3: Today.
Speaker 2: Fast food restaurants are often part of big chains and
Speaker 2: run as franchises, and today's franchising arrangements look very different
Speaker 2: from anything Dick and Mac had imagined their long term
Speaker 2: relationships with mutual obligations, support from head office in exchange
Speaker 2: for a percentage of sales, and strict procedures to protect
Speaker 2: the brand. Dick and Mack had no interest in spreading
Speaker 2: their brand beyond the corner of fourteenth and E Streets.
Speaker 2: They assumed that anyone who bought their package would want
Speaker 2: to put their own spin on their ideas. When one
Speaker 2: man from another state said that he'd call his business
Speaker 2: McDonald's two, Dick.
Speaker 3: Was puzzled, what the hell for?
Speaker 2: One day, a wealthy corporation approached the McDonald brothers with
Speaker 2: a proposal. They wanted to hire Dick and Mac to
Speaker 2: open a chain of McDonald's restaurants all across California. Dick
Speaker 2: and Mac discussed it briefly. They hated the idea. Mack complained, We'd.
Speaker 4: Be on the road all the time in motels looking
Speaker 4: for locations. I can just see one hell of a headache.
Speaker 2: Why bring on the headache when they already had a
Speaker 2: lifestyle they enjoyed.
Speaker 4: We were having a lot of fun doing what we
Speaker 4: wanted to do.
Speaker 2: Sure, a chain of restaurants might make them a fortune,
Speaker 2: but what could they do with a fortune. They already
Speaker 2: earned more money than they could imagine how to spend.
Speaker 2: There's only so often you can buy a new Cadillac.
Speaker 2: They didn't have kids to pass a fortune onto.
Speaker 4: We'd be leaving it to a church or something, and
Speaker 4: we didn't go to church.
Speaker 2: The brothers turned the corporation down. One day in nineteen
Speaker 2: fifty four, a man turned up at the brother's restaurant
Speaker 2: and introduced.
Speaker 1: Himself, Ray Kroc, a.
Speaker 2: Salesman from the multi mixer company that made their milkshake machines.
Speaker 2: Kroc was in his early fifties but brimming with youthful energy.
Speaker 1: Kroc asked them.
Speaker 3: Why don't you open a series of units like this?
Speaker 3: It will be a gold mine for you and for
Speaker 3: me too, because everyone would boost my multi mixer sales.
Speaker 3: What do you say?
Speaker 2: Dick and Mac sighed inwardly. Another proposal they'd have to
Speaker 2: turn down. But Ray Kroc wasn't going to take no
Speaker 2: for an answer. Cautionary tales will be back in a moment.
Speaker 2: All work and no play makes Jack a dull boy,
Speaker 2: so the saying goes. Ray Kroc never understood that saying
Speaker 2: surely work is playing. As a teenager, Kroc recalls in
Speaker 2: his autobiography, Grinding it out. He worked in a grocery store,
Speaker 2: a music store, a drug store, and a lemonade stand.
Speaker 3: I got as much pleasure out of work as I
Speaker 3: did from playing baseball.
Speaker 1: To put it in another way, Kroc says.
Speaker 3: Work is the meat in the hamburger of life.
Speaker 5: Kroc got a job as a paper cup salesman. I
Speaker 5: don't know what appealed to me so much about paper cups.
Speaker 5: Perhaps it was because they were so innovative and upbeat,
Speaker 5: but I sensed from the outset that paper cups were
Speaker 5: part of the way America was headed.
Speaker 2: After a long, hard day of pounding the streets selling
Speaker 2: paper cups, Ray Kroc wanted to do only one thing
Speaker 2: more work. He spent his evenings in the studio of
Speaker 2: his local radio station, working as a piano player until
Speaker 2: two am. Kroc's wife never got to see him. She
Speaker 2: wasn't happy. When he describes this in his book, you
Speaker 2: can almost hear his begrudging tone as he responds to
Speaker 2: a prompt from his ghostwriter.
Speaker 3: Looking back on it now, I guess it was kind
Speaker 3: of unfair.
Speaker 1: But in the next breath, he's justifying himself.
Speaker 3: I was driven by ambition. I hated to be idle
Speaker 3: for a minute.
Speaker 2: Kroc had chosen a fast growing industry.
Speaker 3: The ten years between nineteen twenty seven and nineteen thirty
Speaker 3: seven were a decade of destiny for the paper cup industry.
Speaker 2: Still, though, there's always a chance that an even better
Speaker 2: opportunity will come along. In the course of selling paper cups,
Speaker 2: Kroc encounters the multi mixer. This is going to be huge.
Speaker 2: He has to get into the milkshake machine business. He
Speaker 2: quits his steady job at the paper cup company. His
Speaker 2: wife isn't happy.
Speaker 4: You're thirty five years old and you're going to start
Speaker 4: all over again as if you were twenty.
Speaker 3: You just have to trust my instincts.
Speaker 2: He neglects to mention that he's mortgaged their house so
Speaker 2: he can buy into the multi mixer company. When she
Speaker 2: finds out, she's furious.
Speaker 3: She couldn't seem to handle.
Speaker 2: It, Crock recalls sounding slightly bemused. He tells her that
Speaker 2: obviously she'll have to come and work for him in
Speaker 2: the multi mixer business to give him the best chance
Speaker 2: of making it a success. Absolutely not, she says.
Speaker 3: I felt betrayed. I just couldn't believe she led me
Speaker 3: down like that.
Speaker 2: Kroc throws himself into the task of selling multi mixers.
Speaker 2: People are amazed at his energy. At trade events, He's
Speaker 2: up until three am schmoozing clients, then appears at breakfast,
Speaker 2: bright eyed and bushy tailed, eager for a new day.
Speaker 2: What's his secret, they ask? He tells them, I sleep bizarre.
Speaker 2: As I work. In the early nineteen fifties, Kroc notices
Speaker 2: that he's getting more and more calls from people who
Speaker 2: want to buy multi mixers because they've seen them being
Speaker 2: used at a Hamburger joint in San Bernardino. Kroc is intrigued.
Speaker 2: What's so special about this place? He flies out to
Speaker 2: California to investigate. McDonald's isn't yet open when he arrives
Speaker 2: and parks up, and his first impression is underwhelming. It's
Speaker 2: just a small, ordinary, octagonal building. He watches from his
Speaker 2: hired car as the employees file in.
Speaker 3: Are men dressed in spiffy white shirts and trousers and
Speaker 3: white paper hats.
Speaker 2: I like that, He watches as the parking lot fills
Speaker 2: up and long queues form of the window. More and
Speaker 2: more intriguing, Kroc gets out of his car and strikes
Speaker 2: up conversations with the customers. He approaches an attractive young lady,
Speaker 2: a strawberry blonde, and.
Speaker 3: Asks, how often do you come here? Anytime I'm in
Speaker 3: the neighborhood, and that's as often as possible because my
Speaker 3: boyfriend lives here.
Speaker 2: Kroc gets the hint she's a sumed he's a clumsy,
Speaker 2: middle aged pickup artist that he doesn't mind the brush off.
Speaker 3: It was not her sex appeal, but the obvious relish
Speaker 3: with which she devoured the hamburger that made my pulse
Speaker 3: begin to hammer with excitement.
Speaker 2: Kroc peers into the fishbowl, watching the men in their
Speaker 2: spiffy white shirts at work. He's enchanted, so simple, so efficient.
Speaker 2: That night, Kroc lies in bed in his hotel.
Speaker 3: Room, visions McDonald's restaurants dotting crossroads all over the country
Speaker 3: paraded through my brain.
Speaker 2: The next day, he approaches the McDonald brothers with his pitch.
Speaker 3: I've been in the kitchens of a lot of restaurants
Speaker 3: selling multi mixures, and I have never seen anything to
Speaker 3: equal the potential of this place of yours. Why don't
Speaker 3: you open a series of units like this? It would
Speaker 3: be a gold mine for you and for me too,
Speaker 3: because everyone would boost my multi mixer sales. What do
Speaker 3: you say.
Speaker 1: Silence? Kroc is puzzled. Has he said something wrong?
Speaker 2: Mac McDonald points to a house on a nearby hill.
Speaker 4: See that big white house with the wide front porch.
Speaker 4: That's our house, and we love it. We sit out
Speaker 4: on the porch in the evenings and watch the sunset
Speaker 4: and look down on our place here.
Speaker 3: It's peaceful.
Speaker 4: We don't need any more problems. We're in a position
Speaker 4: to enjoy life now, and that's just what we intend
Speaker 4: to do.
Speaker 2: Krook is totally throne. He can't comprehend what the brothers
Speaker 2: are saying.
Speaker 3: Their approach was utterly foreign to me. It took me
Speaker 3: a few minutes to reorganize my thinking.
Speaker 2: Once he's reorganized his thinking, Croc suggests they get someone
Speaker 2: else to open restaurants for them. Maybe, they say, but who, well,
Speaker 2: what about me? That year nineteen fifty four, two thousand
Speaker 2: miles away in Indianapolis, another pair of brothers were cooking
Speaker 2: up an idea for a restaurant chain. Frank and Don
Speaker 2: Thomas's family business made fast food equipment, the Easy Way
Speaker 2: frozen custard machine, the Sanny served milkshake machine, and the
Speaker 2: Insta broiler, which flame grilled hamburgers on a conveyor belt.
Speaker 2: They decided to demonstrate their machines to potential customers by
Speaker 2: opening a showcase restaurant. Word got around that the burgers
Speaker 2: and milkshakes in this showcase restaurant were the best in town.
Speaker 2: Trade customers came by to check out the equipment, but
Speaker 2: were even more impressed by the queues of eager locals.
Speaker 2: Just like the McDonald brothers, the Thomas Brothers discovered that
Speaker 2: many wannabe fast food entrepreneurs were in the market for
Speaker 2: a complete restaurant concept. They didn't just want equipment, they
Speaker 2: wanted restaurant plans and working procedures, even a brand name.
Speaker 2: But Thomas's got to work on a concept they could franchise.
Speaker 2: They called it Burger Chef Ray Kroc drives away from
Speaker 2: San Bernardino with a signed contract with the McDonald brothers
Speaker 2: in his pocket and joy in his heart.
Speaker 3: I was fifty two years old. I had diabetes and
Speaker 3: incipient arthritis. I had lost my gallbladder and most of
Speaker 3: my thyroid gland, but I was convinced that the best
Speaker 3: was ahead of me.
Speaker 2: Kroc tells his wife that he's agreed to set up
Speaker 2: a Hamburger chain. He's starting all over again again. She's incandescent.
Speaker 2: I had no time to bother with emotional stress. Though
Speaker 2: I had to find a site for my first McDonald's.
Speaker 2: It wasn't a headache for Ray Kroc to schlep around
Speaker 2: the country, sleeping in motels, assessing the market potential of
Speaker 2: various crossroads.
Speaker 1: He adored it.
Speaker 3: Finding locations for McDonald's is the most creatively fulfilling thing
Speaker 3: I can imagine.
Speaker 2: Are there schools and churches nearby? He hangs out in
Speaker 2: local shops? What are the people like?
Speaker 1: At two a m.
Speaker 2: He sifts through the garbage of rival Hamburger joints. By
Speaker 2: counting the empty meat boxes, they'll get a sense of
Speaker 2: how much business they're do. Kroc obsesses over fast food
Speaker 2: manushie fries, He decrees must be precisely nine thirty seconds
Speaker 2: of an inch thick beef patties must not exceed nineteen
Speaker 2: percent fat.
Speaker 3: Is it any more unusual to find grace in the
Speaker 3: texture and softly curved sill web of a Hamburger bun
Speaker 3: than to reflect lovingly on the colors in a butterfly's wing?
Speaker 2: Well, yes, Ray, it kind of is. Kroc works obsessively
Speaker 2: to recruit franchisees. He opens hundreds of McDonald's restaurants, but
Speaker 2: he's only just keeping ahead of Burger Chef. In nineteen
Speaker 2: sixty seven, the Thomas Brothers decide to cash in. They
Speaker 2: sell Burger Chef to a mega food conglomerate. The new
Speaker 2: owners have big ambitions to leave McDonald's in the dust.
Speaker 2: Cautionary tales will be back in a moment. Burger Chef's
Speaker 2: new owners promptly commission a snazzy new logo to refresh
Speaker 2: the brand's identity. They introduced the fun Meal and a
Speaker 2: whole cart of kid friendly cartoon characters to interact with
Speaker 2: their jocular Chef and his teenage sidekick. There's the Witch, Cackleberger.
Speaker 4: You that traffic over the airport was murder?
Speaker 3: Or what brings you in tonight?
Speaker 1: Cackle Berger?
Speaker 2: Yeah, the Vampire count Fang BURGERA.
Speaker 5: I'm happy?
Speaker 1: What're you going to forget?
Speaker 4: At Burger Shape.
Speaker 2: And the Magician the Great Burgerini. Then came the Star
Speaker 2: Wars posters. Burger Chef seemed to be on top of
Speaker 2: its game, but other decisions the new owners had made
Speaker 2: were putting Burger Chef on course to hit disaster in
Speaker 2: under twelve parsecs. Those posters were covering up the writing
Speaker 2: on the walls. Why did McDonald's succeed and Burger Chef fail.
Speaker 2: There isn't one simple answer, but a big part of
Speaker 2: the story involves the tension at the heart of the
Speaker 2: franchising relationship and the heart of the Star Wars movies,
Speaker 2: between the individual's urge for self determination and the organization's
Speaker 2: desire for control. In his book An Introduction to Franchising,
Speaker 2: Leicester Business School lecturer Robert Webber calls the franchising relationship
Speaker 2: a kind of halfway house between being an employee and
Speaker 2: a fully standalone business. Like any entrepreneur, a franchisee puts
Speaker 2: their own money on the line. In the nineteen sixties,
Speaker 2: buying a McDonald's or a Burger Ship franchise would have
Speaker 2: cost you around ten thousand dollars. That's about one hundred
Speaker 2: thousand in today's terms, a lot of money, and that's
Speaker 2: before you make all the other investments in setting the
Speaker 2: restaurant up. A franchisee is going to be highly incentivized
Speaker 2: to work hard to get that money back, much more so,
Speaker 2: perhaps than a salaried corporate employee. It's easy to see
Speaker 2: why chains like McDonald's and Burger Chef latched onto franchising
Speaker 2: as a quick way to grow. Franchisees brought money and motivation,
Speaker 2: But what's in it for the franchise e. That's no
Speaker 2: mystery either, says Robert Webber. The greatest benefit to any
Speaker 2: hopeful franchisee is that the business model and commercial concepts
Speaker 2: have been tried and tested. We've seen what would be
Speaker 2: entrepreneurs wanted from McDonald brothers and the Thomas brothers. Information,
Speaker 2: What equipment should I buy? How should I organize my workers?
Speaker 2: That kind of guidance is worth paying for. Dick and
Speaker 2: mac McDonald assumed that everyone who bought information from them
Speaker 2: would want to use it in their own way, give
Speaker 2: their restaurant its own name, experiment with their own menu.
Speaker 2: Ray Kroc's vision of franchising was completely different, as one
Speaker 2: early franchisee found out when Kroc visited his store and
Speaker 2: snapped at an employee to clean his fingernails. Don't you
Speaker 2: start telling my help what to do, the franchisee told Kroc,
Speaker 2: or I'll tell you what you can do. Kroc was
Speaker 2: furious the way he saw it, his franchisees weren't just
Speaker 2: buying information, they were buying reputation, and the only way
Speaker 2: to maintain reputation was to make sure every single franchise
Speaker 2: z was upholding the same standards. In his book McDonald's
Speaker 2: Behind the Arches, John F. Love writes that Kroc demanded
Speaker 2: much more control over the system than other franchisers did.
Speaker 2: If you bought a McDonald's franchise, you'd be sent to
Speaker 2: Hamburger University, where you'd be drilled in French fry thickness
Speaker 2: and beef patty fat content, though possibly not bun silhouette appreciation.
Speaker 2: After that, you'd get regular visits from Kroc's henchmen, who'd
Speaker 2: make sure you were following every instruction in the hundreds
Speaker 2: of pages of the operating manual. For example, pick up
Speaker 2: McDonald's litter within a two block radius of the store.
Speaker 2: One franchisee who'd been neglecting this duty had a Kroc
Speaker 2: henchman march into his office with an armful of empty
Speaker 2: cups and wrappers.
Speaker 1: He dumped them on the.
Speaker 2: Franchise's desk and yelled, how can you let this stuff
Speaker 2: go on your neighbor's lawn. That's the sense in which
Speaker 2: franchisees are more like employees than other entrepreneurs. If you're
Speaker 2: running an independent business, nobody's going to nag you about
Speaker 2: how often you mop your floor. In setting up its
Speaker 2: operating system, says John Love, McDonald's displayed no particular genius,
Speaker 2: just tenacity. They developed standards and enforced standards. As logical
Speaker 2: and basic as that sounds, it was a revolutionary concept
Speaker 2: in food franchising. McDonald's achieved a consistency of service that
Speaker 2: no franchised system had ever before attained. At Burger Chef,
Speaker 2: when the new owners proudly unveiled their snazzy new logo,
Speaker 2: they expected the franchisees to pay to change the signs
Speaker 2: on their restaurants, but their franchise agreements didn't say they
Speaker 2: had to.
Speaker 1: Some did, some didn't.
Speaker 2: Then the new owners announced the new interior design concept
Speaker 2: and asked the franchisees to refit their restaurants. Some did,
Speaker 2: some didn't. Then they changed the logo again. At one point,
Speaker 2: Burger Chefs around the country had four different designs of
Speaker 2: sign and restaurant. Ray Kroc had understood the vital importance
Speaker 2: of consistency and conformity. Burger Chef had not In nineteen
Speaker 2: eighty two, the new owners of burgersh Chef sold off
Speaker 2: the struggling chain to Hardy's. A few stubborn franchisees persisted
Speaker 2: with their version of the Burger Chef brand. The last
Speaker 2: closed their doors in nineteen ninety six. Burger Chef's demise
Speaker 2: shows the biggest downside of buying a franchise. As lecturer
Speaker 2: Robert Webber puts it, the individual franchisee will have virtually
Speaker 2: no power over the most important policy decisions that will
Speaker 2: influence his or her business. Those decisions might be brilliant,
Speaker 2: like the Star Wars tie in, or they might be stupid,
Speaker 2: like the multiple rebrands. Buying a franchise, says Weber, is
Speaker 2: like getting married after a short courtship. But if it
Speaker 2: is a marriage, it's not an equal one. The individual
Speaker 2: franchisee has a hat as much decisions as Missus Kroc.
Speaker 3: Ray.
Speaker 2: Croc's obsession with conformity was driving McDonald's to new heights,
Speaker 2: but Kroc faced a constant source of frustration. The contract
Speaker 2: he had signed with Dick and mac McDonald had been
Speaker 2: so impressed with their San Bernardino restaurant, so eager to
Speaker 2: get the rights to franchise it. He hadn't thought the
Speaker 2: contract through. It said, he needed the brother's written approval
Speaker 2: for major decisions, and they could never be bothered to
Speaker 2: provide it. They were too busy admiring the sunsets.
Speaker 3: The McDonald brothers were simply not on my wavelength at all.
Speaker 3: I was obsessed with making McDonald's the biggest and the best.
Speaker 3: They were content with what they had.
Speaker 2: Besides, he has no choice but to buy the McDonald
Speaker 2: brothers out of their contract. He asks them to name
Speaker 2: their price. Dick and Mac discuss what their contract is worth.
Speaker 2: It gives them the right to half a percent of
Speaker 2: all McDonald's revenue, and at the rate McDonald's is growing,
Speaker 2: the sums involved are soon going to be vast. In
Speaker 2: a few years, they might have who knows five million.
Speaker 2: Mac says to Dick.
Speaker 4: What the hell can we do with five million that
Speaker 4: we can't do now?
Speaker 2: The brothers decide to ask Ray Kroc for a round
Speaker 2: million dollars each after tax. That's about ten million in
Speaker 2: today's money, and far less than they could have got
Speaker 2: if they'd stuck with their contract. Later, Dick McDonald is
Speaker 2: asked if he regrets selling up, not at all, He shrugs.
Speaker 3: Would have wound up in some skyscrapers somewhere with about
Speaker 3: four ulcers.
Speaker 2: Dick and mac McDonald cared about money, but they only
Speaker 2: cared up to a point. Dick remembers struggling through the
Speaker 2: Great Depression and thinking to himself, how marvelous it would
Speaker 2: be never to have to worry about making rent. Having
Speaker 2: achieved that, the brothers cared more about sunsets and cadillacs
Speaker 2: and the freedom to do what they wanted with their restaurant.
Speaker 2: They looked at their community changing and decided to take
Speaker 2: a risk on reinventing themselves. They dreamed up new ideas
Speaker 2: that were so successful they changed the world. The McDonald
Speaker 2: brothers succeeded on their own terms, but in the world
Speaker 2: they helped create. It's become much harder to do what
Speaker 2: they did. Open a restaurant with an experimental concept today,
Speaker 2: and you have to compete with the finely honed operations
Speaker 2: of multiple franchising juggernauts who've all learned lessons from McDonald's.
Speaker 2: According to figures quoted by Robert Webber, independent businesses are
Speaker 2: ten times more likely to fail than franchises. It might
Speaker 2: be romantic to open your own dream restaurant. The pragmatic
Speaker 2: choice is marrying Ray krop. Just as Ray Kropp is
Speaker 2: about to sign the deal buying Dick and Mac out
Speaker 2: of their contract, he notices something missing. The deal doesn't
Speaker 2: mention the brother's original restaurant in San Bernardino. Surely that
Speaker 2: must be included. Oh no, say Dick and Mac. We've
Speaker 2: already promised to give that to two of our loyal employees.
Speaker 3: Oh a goddamn Ratten Trick, I screamed like hell about him.
Speaker 2: Once the deal is signed, the old employees, of course,
Speaker 2: can't call their restaurant McDonald's anymore.
Speaker 1: They give it a new, unique name, The Big.
Speaker 2: M Ray Kroc opens the McDonald's right across the street
Speaker 2: and drives them out of business. This script relied on
Speaker 2: John Love's book about McDonald's Behind the Arches and John
Speaker 2: McDonald's book about Burger Chef Out. For a full list
Speaker 2: of sources, visit Timharford dot com. Cautionary Tales is written
Speaker 2: by me Tim Harford with Andrew Wright, Alice Fines, and
Speaker 2: Ryan Dilly. It's produced by Georgia Mills and Marilyn Rust.
Speaker 2: The sound design and original music are the work of
Speaker 2: Pascal Wise. Additional sound design is by Carlos san Juan
Speaker 2: at Brain Audio. Bend A Dafhaffrey edited the scripts. The
Speaker 2: show features the voice talents of Genevieve Gaunt, Melanie Guttridge,
Speaker 2: Stella Harford, Oliver Hembrough, Sarah Jupp, Massaa Munroe, Jamal Westman
Speaker 2: and rufus Wright. The show also wouldn't have been possible
Speaker 2: without the work of Jacob Weisberg, Greta Cohne, Sarah Nix,
Speaker 2: Eric Sandler, Carrie Brody, Christina Sullivan, Kira Posey, and Owen Miller.
Speaker 2: Cautionary Tales is a production of Pushkin Industries. It's recorded
Speaker 2: at Wardhore Studios in London by Noria Barr and Lucy Ry.
Speaker 2: If you like the show, please remember to share, rate
Speaker 2: and review. It really makes a difference to us and
Speaker 2: if you want to hear the show, add free to
Speaker 2: sign up to Pushkin Plus on the show page on
Speaker 2: Apple Podcasts or at pushkin dot fm, slash plus