Monday, May 3, 2010


McDonald's Corporation

Fact File:

Founders: Richard and Maurice McDonald and Ray Kroc.

Distinction: Initiated, and still leads, the global fastfood


Primary products: Burgers, chicken nuggets, fries, and shakes.

Annual sales: $35.9 billion worldwide.

Number of employees: 284,000 in the United States alone.

Major competitors: Burger King, Wendy's, Taco Bell, Pizza Hut.

Chairman and CEO: Jack Greenberg.

Headquarters: Oak Brook, Ill.

Year founded: 1955.

Most Americans can't remember when cigarette commercials were

commonplace on their televisions, just as they can't recall when fastfood

restaurants were not in their neighborhoods. Surprisingly, there's a connection

stems from a business principle that was devoutly practiced by a man who is

almost singlehandedly responsible for the proliferation of these casual eateries

in every corner of the globe.

Some four decades ago, when broadcast ads for tobacco products were

far more prevalent than quickie hamburger outlets, many companies were

hoping for the change to install cigarette vending machines in their lobbies. In

those days, such devices were enthusiastically welcomed as a customer

convenience in any establishmentin

the fanciest steakhouse to the most casual

diner. They also provided a healthy profit for the owner, as well as the

vending company. Why shouldn't they be allowed inside fastfood

upstarts as


The head of the class already was a newfangled burger joint called

McDonald's. It was spreading rapidly across the United States, and the most

ambitious vendors were hot to get their feet n the door. But even if they

managed to reach an official at the firm, they always were immediately

rebuffed. Company chairman Ray Kroc, it seemed, did not want anyone

lingering in his restaurants for a smoke after they had finished their meals.


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The idea behind McDonald's, then as now, was to quickly serve and feed

customers and then get them on their way so the booths could be filled with

those next in line.

Bucking tradition was typical for the iconoclastic Kroc, whose empire

is now as ubiquitous as the nosmoking

sections in restaurants across the land.

While the company's growth has slowed of late, more than 15 years after his

death it oversees 25,000 outlets in 119 countriesand,

with them, controls

almost half of the industry it originated. McDonald's does this, observers

agree, by continually adhering to the underlying philosophy that its founder

championed from the outset: build simple, casual and easytoidentify

restaurants where the service is friendly, the prices are low, and there's no

waiting for tables while someone finishes a cigarette.

The rise of McDonald's, and of Raymond Albert Kroc, is proof that worldchanging

entrepreneurial drive knows no boundaries. Kroc Always had

aspirations to reach the top of his chosen field, but he didn't realize true

success until he reached middle age. In his 20s, after a brief stint as a Red

Cross ambulance driver, he was scratching out a living by selling paper cups

during the day and playing piano for a radio station at night. One of his

biggest cup customers was Earl Prince, who invented a fivespindled

milkshake maker that he called the Multimixer. Impressed by this

revolutionary device, Kroc invested everything he had to become its exclusive

distributor. He dropped the musical gig as well, and over the next 17 years

tirelessly traveled around the country to peddle the machine.

Despite a host of physical ailments that included diabetes, arthritis, the loss of

his gall bladder and most of his thyroid gland, Kroc was effective on the road.

He saw greener pastures ahead in 1954 when he met two brothers from

California named Richard and Maurice McDonald. The pair owned a

restaurant in San Bernardino that was so busy it needed eight Multimixers to

keep up. Kroc, then 52, decided to see what kind of establishment could

generate such demand. He checked the place out and immediately decided it

was time for a career change.

The McDonalds' restaurant was hamburger stand with a twist. Ever since the

automobile first appeared, eateries catering to the motoring public began


in California. The first was A&W Root Beer, which

opened in Sacramento in the 1920s. It was followed by dozens of these socalled


where "carhops" would bind to the parking lots and serve

customers who never left their vehicles. The McDonald brothers joined the

fray in 1940, and within a dozen years their burgerandbarbecue

joint was a

booming teenage hangout. In 1948, though, the pair decided to make the place

stand out by initiating some significant changes. They eliminated their

carhops, dropped their prices, and opened two windows where customers

would place orders themselves from a newly limited menu. The main

attraction. A 15cent

hamburger was always served the same way: with

mustard, ketchup, onions, and two pickle slices.


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This unique approach attracted even more business, and six years later the

McDonalds wee calling on Kroc to supply them with multiple Multimixers.

Kroc saw national possibilities in the restaurant's design and quickly made a

deal with the brothers to become their franchising agent. The next year, he

opened his first restaurant in Des Plaines, Illinois. (This building is now a

museum housing corporate artifacts including a Multimixer.) In 1961, when

he was running 228 outlets across the U.S., Kroc bought out the brothers for

$2.7 million. He later told the media he needed the McDonald's name because

a "Kroc burger" just didn't have the same ring. He also said he hoped that one

day he'd operate 1,000 such eateries.

Now in complete control, Kroc stuck with his proven principles. "If you've got

time to lean, you've got time to clean" became one of his favorite sayings, and

he regularly followed through on its sentiments by personally picking up a

broom to sweep floors and parking lots. "The definition of salesmanship is the

gentle art of letting the customer have it your way" was another, which he

regularly offered as an explanation of his business philosophy. The actions

behind these and similar aphorisms helped McDonald's sell more than 1

billion hamburgers by 1963, and the milestone was trumpeted on neon sings

out front. That same year Kroc opened his 500th outlet and introduced the

enduring Ronald McDonald clowninitially

portrayed by soontobe

weathercaster Willard Scottin

a series of TV commercials that ultimately

became as wellknown

as the chain itself.

In 1965, McDonald's went public. (Two decades later, it was named a

component of the 30company

Dow Jones Industrial Average; stock valued at

$2,500 in that initial public offering would be worth about $3 million today.)

Kroc tried to initiate several other restaurant concepts in the following years,

but none caught on. McDonald's continued to flourish, though, and Kroc's

dream of 1,000 locations was realized in 1968. Three years later, his company

made its initial foray outside the U.S. by expanding into Europe and Australia.

When Kroc died in 1984 it had more than 7,500 outlets worldwide.

McDonald's continues to break new ground, and customers eagerly follow

even in places that many would consider unlikely. In 1994, for instance, some

15,000 lined up on opening day at a new McDonald's in Kuwait City. Today,

the overseas network accounts for nearly 60 percent of the company's total

sales and profits. Its 12,500 facilities in the U.S., bolstered in recent years by

the addition of minirestaurants

within nontraditional

venues like WalMart

and Amoco service stations, now account for some 40 percent of this country's



Operations on the domestic front have not been proceeding without problems

however. A combination of market saturation and intensifying competitionfrom

other burger chains as well as those pushing pizza, Mexican food and

fried chickenlimited

new U.S. restaurant openings to just 92 in 1998.

Changing tastes and perhaps even some backlash against its widespread reach

also contributed to flattening sales. But McDonald's continues to fight back

with highly publicized promotions featuring children's toys, often tied to the


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day's biggest movies. Highly focused TV ads, promoting such familiar items

as the Big Mac along with new products like the McFlurrie dessert, also are

deployed. At the same time, recent investments in small pizza and Mexican

chains provide the company with new growth potential. And officials predict

they could still open as many as 10,000 new McDonald's in emerging global

markets in the years ahead.

Just as the company he founded is more than a simple restaurant chain, Ray

Kroc was more than just a businessman. Believing it was critical to give back

to the communities in which he was located, Kroc started McDonald's on a

philanthropic path in 1974when

such actions were few and far betweenby

opening the first Ronald McDonald House in Philadelphia. Designed to

provide families of critically ill children with a comfortable place to stay,

there are now 200 of these worldwide following a 1999 dedication in

Budapest. In addition, the McDonald's Charitable Foundation and Kids

Charities are among its corporate arms responsible for some $20 million in

annual donations.

Two year's after Kroc's death, his widow Joan continued these efforts by

founding the Ronald McDonald House Charities. Since then she has

personally contributed more than $100 million to that cause, in addition to

others focusing on everything from the homeless to nuclear disarmament. In

recent years she also has quietly given $15 million to flood victims in North

Dakota, along with $80 million to the Salvation Army for construction of a

community center in San Diego.

McDonald's hires thousands of older and disabled workers, and hazes

implemented programs to help advance their careers along with those of

women and minority employees. After years of criticism aimed at the litter

that is generated by its products, the company also has been working with the

Environmental Defense Fund to reduce solid waste generation by, among

other things, switching from polystyrene foam to paperbased


Additionally, since 1994, some 8,500 McDonald's have voluntarily become

totally smokefree

environments. And, of course, they still don't have cigarette

vending machines in their lobbies.


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America Online Inc.

Fact File:

Founders: Steven M. Case.

Distinction: Opened cyberspace to the masses worldwide.

Primary products: Internet access, online content and related


Annual sales: $6.886 billion.

Number of employees: 12100.

Major competitors: AT&T, Microsoft, Yahoo!

Chairman and CEO: Stephen M. Case.

Headquarters: Dulles, Va.

Year founded: 1991.

Those who cannot accept the future as envisioned by Steve Case have never

been shy about ejecting the man and his ideas. Such behavior dates back to at

least 1980, when the recent college graduate boldly proclaimed that cable

television would be the onestop

information medium of the future. He was

roundly rejected by every firm in the business to which he sent a resume,

including the new HBO channel created by a rising Time Inc. executive

named Gerald Levin. Case, in fact, could not get his foot in the door until he

refined his thoughts on technology and consumers during stints outside the

industry at Procter & Gamble and Pizza Hut.

Armed with a new understanding of his own goals and the electronic tools

becoming available to achieve them, Case resumed his quest and ignored the

naysayers. He refashioned an online video game company into one of the first

interactive computer networks, although most observers doubted it would fly.

He would set up shop in a nondescript suburb near Washington, D.C., and

drew derision from the hightech

digerati on both coasts. He went public in a

triumphant IPO that led to seven twoforone

stock splits in seven years, but

financial people were always skeptical of his abilities. He took on major

competitors as his gained validity, and observers consistently predicted his


Today, of course, Case's America Online got the last laugh. With more than

23 million subscribers, it is the world's top provider of online services by a

huge margin. It owns its biggest former rival, a popular Web portal and the

omnipresent browser software developed by a cyberpioneer,

and a diverse

array of other sites and products. Its 15,000 chat rooms, ubiquitous email,


Instant Messenger utilities, and worldclass

sources of information and news

are now offered in seven languages, available in 15 countries, and delivered

over telephones and televisions in addition to computers.

And, if that weren't enough, at the beginning of the millennium Case


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announced an historic $172 billion merger with entertainment goliath Time

Warner that promised to make AOL the world's undisputed media leader.

Among other things, it also elevated Case to the head of HBOthe


channel that rejected him 20 years earlierand

placed him above its former

head on the new organization chart.

The first online services bean appearing in Europe a little more than a dozen

years after Steve Case was born in Honolulu. At the same time he and Brother

Dan were forming "Case Enterprises" which sold everything from seeds to

personalized Christmas cards with help from a neighborhood paper route. The

beginnings of an interactive world were forming at the hands of governmentowned

telephone agencies striving to promote local computer networks. A

few daring newspaper publishers around the globe soon followed with early

electronic editions accessible through television terminals. This development

didn't escape Case's attention until years later when, as a student at Williams

College, he became interested in the fledgling cable TV industry. Case saw a

synergy, as the potential convergence would come to be called, and decided to

make it his life's work.

In a surprisingly prescient projection that has since been reproduced in

numerous publications, Case predicted in his 1980 resume that "innovations in

telecommunications (especially twoway

cable systems) will result in our

television sets (big screen, of course!) becoming an information line,

newspaper, school, computer, referendum machine, and catalog." Potential

employers like HBO refused to bite, so he put his marketing skills to work at a

couple of major consumerproducts

companies while learning all he could

about both consumers and products. When he bought a Kaypro computer in

1982 and discovered how much further this technology could advance his

ideas, he switched gears and accepted the chairman's position at a Control

Video, a debtridden


that planned to help computer users

communicate with each other. After several shakeouts Control Video was

reconstructed in 1985 as Quantum Computer Services, and within halfdozen

years had secured deals to provide general online service for machines made

by Commodore, Tandy, Apple and IBM. In October 1991, with 156,549

members, its name was changed to America Online.

Growth was exponential from the start as the personal computer became

increasingly commonplace. Five months after its revamping, AOL took

advantage of the climate and went public on the NASDAQ market, raising an

incredible $66 million. The good times wee hardly over, of course: Stock

splits over the next seven years made an initial $10,000 investment worth

approximately $6.8 million. Case, who owns or has options on nearly 31

million shares, saw the value of his holdings increase to $1.8 billion by early

2000. Despite competition from heavy early hitters such as CompuServe,

owned by H&R Block, and Prodigy, owned by Sears and IBM, America

Online continued to pick up steam. By the end of 1993 it exceeded 500,000

members and tallied $40 million in revenues. But the real boomas

well as the


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real challengeswas

yet to begin.

Due in large measure to Case's fanatical insistence on simplicity and


the computer savvy public's growing passion for chatting

online, membership doubled during the next eight months, and then doubled

again in a little over eight more. By the time AOL's ranks swelled to 4.5

million at the close of 1995, its reach was felt well beyond the socalled


adopters who initially embraced the online world. After it was recognized as

"Best Consumer Online Service" by publications like PC Magazine and

Family PC, growth came even more rapidly. AOL capitalized on it the

following year by inaugurating its first efforts outside the U.S., adding service

in Canada, the U.K., Japan, and France. A million new members kept joining

every five months, and AOL moved from NASDAQ to the New York Stock


Naturally, the ride was not destined to remain so smooth. AOL prospered by

providing consumers with unusually safe and incredibly easy access to the

brave new world of cyberspace, as well as original "content"chat

rooms, email,

news, stock quotes, shopping and the like. But with total online

participation reaching 13 million in 1996, the stakes increased and so did

competition on all fronts. Adversaries from CompuServe to newcomers on the

upstart World Wide Web battled for cybertravelers

with equally useful and

attractive features, while access providers shifted from pricing by the online

minute to unlimited flatrate

connections to attract newcomers. AOL stretched

its resources to the limits to keep up. Resultant technical problems surfaced

regularly, as did charges of underhanded marketing and persistent overbilling.

Investment bankers also convinced Case to ease off in deference to his notable

lack of people skills, and he reluctantly handed over the CEO reins to a

confidence named Jim Kinsey.

Compounded by personal problems that led to the breakup of Case's 11year

marriage, AOL's walls seemed to be crumbling. Customers, though, refused

to give up on it. The service kept adding more and better features, and

membership kept climbing–reaching 8 million in January1997 and 10 million

the following November. Three months later, AOL announced it was buying

rival CompuServe. In less than a year it also purchased Netscape, made a

critical ecommerce

alliance with Sun Microsystems, and saw its subscriber

base exceed 14 million. Before 1998 was over, AOL also was added to the

S&P 500 Index.

Suddenly, the critics stopped sniping. It was obvious, even to the most

skeptical, that Case and his ideas had finally become accepted.

America Online has thrived in the evolving online world mainly because the

calm, confident Case has always kept his focus on the customer. Since

retaking the CEO role, he has demonstrated an ability to react more

effectively than his competitors to the industry's constant changes. With AOL

traveling in a positive direction in 1999, he shifted a longheld

strategy and

began relying more on outside sources to provide members with unique


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content. This was embodied by a deal he made with Oxygen Media, the firm

run by a highprofile

group that includes Oprah Winfrey and Nickelodeon

creator Geraldine Layborne, to develop a new women's site. It additionally

was reflected in an agreement he linked with popular online employment Web

site, making it the exclusive poster of job listings on AOL.

The Netscape purchase was also completed in 1999, as was the acquisition of

Internet Chat Company Mirabilis –giving AOL control of three of the mostvisited

destinations on the wide open Web (Net Center, ICQ and

Its hot Instant Messenger utility surpassed 45 million users, and it launched

service in Hong Kong as well as a Portugueselanguage

site for Venezuela and

Brazil. Finally, as the year came to a close, it announced a deal with WalMart

to provide Internet access to customers of the giant retailer.

But the biggest news of all came on January 10, 2000, when Case announced

his historic merger. His dreams would come true later the year in December

2000, when U.S. antitrust authorities gave AOL the okay to buy Time Warner.

They gave a number of conditions, such as having Time Warner open up its

cable lines to competing cable providers; ensuring consumers have a wide

choice of content. The resultant AOL Time Warner–worth about $290 billion–

would produce books, music, movies, and other products for distribution over

broadcast networks, cable TV, theaters, and the Internet. Offices would be

relocated from AOL's in Dulles, Va., to those of Time Warner in New York.

And Case would become chairman of the new company while Gerald Levin –

the former HBO leader who had ultimately risen to the top of tits parent

company–would serve one step below him as chief executive.

After two decades, Steve Case and his ideas had made it to the top.

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