McDonald's - Who started that franchise?

McDonald’s is a global giant in today's food industry and a pioneer in the areas of restaurant franchising, menu engineering and restaurant technology.

But, how much do you know about it’s beginning?

Founded by brothers Richard and Maurice McDonald

The original McDonald's restaurant produced a limited menu concentrating on burgers, fries and beverages. 

Their ‘Speedee Service System’ was a counter-service method and pre-made food production line which established the principles of the modern quick-service restaurant. 

The self-service counter eliminated the need for waiters and waitresses; customers received their food quickly because hamburgers were cooked ahead of time, wrapped, and warmed under heat lamps.

This simple, efficient format allowed for the production of huge quantities of food at low prices, with a basic hamburger cost 15 cents, about half the price charged by competing restaurants.

Franchising the concept

In late 1953, the brothers began seeking franchisees. 

Neil Fox, a Phoenix gasoline retailer, was the first McDonald’s franchise owner and bought the concept for $1,000. 

In the beginning the founders only franchised the ‘Speedee Service System’ itself, but when visiting the Arizona-based franchise the brothers were surprised to see an exact replica of their original business. 

They had expected Fox to name the restaurant after himself, but when he told them he wanted to name it ‘McDonald’s’ the brothers decided to franchise the entire McDonald’s concept, with 21 franchises sold by 1954.

At that point the brothers hired Ray Kroc, traveling salesman, selling milk shake mixers, to be their franchise agent. Kroc was impressed by their operation and pitched his vision of creating McDonald’s restaurants all over the U.S.

Ray Kroc Franchise Buyer On Mc Donalds

Kroc wanted to build a restaurant system that would be famous for food of consistently high quality and uniform methods of preparation, and offered to take major responsibility for setting up the new franchises. 

Kroc returned to his home outside of Chicago with rights to set up McDonald's restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers, who were to receive one-half of one percent of gross sales.

The master-stroke

In 1956, Ray Kroc met Harry J. Sonneborn, a former VP of finance for Tastee-Freez, who offered an idea to accelerate the growth and investment grade of Kroc's planned McDonald's operation -  own the real estate that future franchises would be built on. 

Kroc hired Sonneborn and his plan was executed through forming a separate company called Franchise Realty Corp. which was solely designed to hold McDonald's real estate. 

The new company signed leases and took out mortgages for both lands and buildings, in turn then passing these costs on to the franchisee with a 20-40% markup and a reduced initial deposit of $950. 

The "Sonneborn model" of real estate ownership within the franchise persists to this day, possibly being the most important financial decision in the company's history.

Ray Kroc bought the entire McDonald's business from the brothers for $2.7 million in 1961 - equivalent to around $23mil in 2020.

Right up until he died on January 14, 1984, Ray Kroc never stopped working and his legacy continues to be an inspirational, integral part of McDonald’s today.