McDonald's Corporation
Fact File:
Founders: Richard and Maurice McDonald and Ray Kroc.
Distinction: Initiated, and still leads, the global fastfood
revolution.
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
well?
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
surfacingparticularly
in California. The first was A&W Root Beer, which
opened in Sacramento in the 1920s. It was followed by dozens of these socalled
"driveins,"
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
fastfood
business.
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
packaging.
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
software.
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
demise.
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,
and
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
cable
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
startup
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
consistencyand
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
early
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
Exchange.
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 Monster.com, 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 AOL.com).
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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