Requirements :
- product demand
This story happened in 1954.
In the 1950s, the U.S. economy boomed after World War II, and the stock market rose from 1949 to 1957. Living standards improved and the middle class proliferated. During his eight years in office, President Eisenhower vigorously promoted the construction of American highways, turning the United States into a country on wheels. Drive-thru restaurants flourished.
The protagonist, Ray Crocker, was 52 years old. As a milkshake blender salesman, his important potential customers are drive-thru restaurants, so he often eats in drive-thru restaurants as well. The drive-in restaurant is where customers order in the car, the waiter delivers the food, and the guests eat in the car. The drive-thru restaurant is a mixed bag, with a dirty environment, poor service and low efficiency.
One day, her secretary told him that a California drive-thru had ordered six milkshake blenders. Ray doesn't think it's possible, the secretary got it wrong, and no drive-thru needs 6 mixers. He called to make sure the order was real. This restaurant is the first McDonald's in the world, and the owner also increased the order to 8. Ray decided to visit in person.
Ray was shocked by what he saw. Customers queued up to order, many parents brought their children together, and the atmosphere was happy and peaceful. And it's very efficient, it takes about 10 seconds from paying to get the food. There is no need for trays and cutlery, and the papper wrapping can be thrown away after eating, which greatly reduces the follow-up cost of cleaning.
The restaurant's two brothers, Dick and Mike, show Ray around. They told Ray that speed is the secret of McDonald's success, and the method is process management and fine division of labor. For example, in the production process of burgers, the first step is to grill the meat, which is specially responsible for by two chefs. At the same time, the help cook will make a good bread. For each burger, two slices of pickled cucumbers, a pinch of onion, a precise squeeze of ketchup and mustard. There's also the assembly area, where the hamburgers are made. The whole process only takes 30 seconds.
Their entrepreneurial journey is also very exciting, first opening a mobile restaurant, and then opening a McDonald's barbecue restaurant. There are 27 dishes on the menu, but the business is not good and the operating cost is high. Through analysis, Dick found that there are only three varieties that sell the best: burgers, fries and soft drinks, accounting for 87%. Therefore, they cut down the other 24 varieties (did you think of Xibei Noodle Village), changed the delivery to the window pick-up, and used all disposable tableware. That's not enough, their goal is to cut meal prep time from the usual 30 minutes to 30 seconds. Using the tennis court as a proving ground, the duo used chalk to design the layout and flow on the ground of the tennis court, and the dream came true.
High efficiency + pleasant environment + delicious food to meet the American demand for fast food products.
- emotional appeal
But simply meeting product needs is not enough.
The story of Dick and Mike keeps Ray awake, and he sees a huge business opportunity. The next day I went to both of them for the franchise. Who would have thought that the two had already tried, but ended in failure. Because quality control is too difficult, it is difficult to keep the products at the same high level, they can't stand their brand being ruined, and their time and energy are limited, so they give up.
Ray first saw a picture of McDonald's golden arches on the wall of Dick and Mike's office. I also deliberately drove to Phoenix for a field trip.
His manifesto that persuaded Dick and Mike also laid the foundation for McDonald's to meet the emotional needs of the American people. Ray said:
" It doesn't matter if you two don't want to open a franchise. But you want to do it for your country, for America. You know what? I drive through a lot of small towns, and in general they have two things in common, the courts and The church, the church has the cross on the top and the court has the flag on the top. Flags, crosses, crosses, flags. I couldn't stop thinking about this amazing restaurant as it opened. At the risk of desecration. These arches are related to These buildings have a lot in common. There's a cross at the top of the building, what does it mean? It's a place where people gather, decent and healthy people, who share the values that are protected by the American flag. Those that are protected by the beautiful arch, so to speak. The building that surrounds it, more or less expresses the same thing. I'm not just saying, 'It's got burgers in it', it's representing the community, it's representing the family, this is where Americans come together and eat bread. Here I come To tell you, McDonald's can be a new generation of America's church, feeding people's bodies and souls. And not just open on Sundays, friends, open seven days. "
McDonald's, a seven-day family and community gathering place to feed people's bodies and souls. McDonald's represents family. This is the emotional resonance Ray created for McDonald's with customers.
Church cross, court flag and McDonald's arch.
Ray says at the end of the film that the real success of McDonald's is not its efficient system, but its name, " McDonald's, The glorious name, sounds like America ".
Franchise store :
After signing the contracts with Dick and Mike, Ray faced the next problem, where to find the money.
The banks turned him away. Ray eventually mortgaged his own house, something his wife held dear.
After the success of the first restaurant, McDonald's attracted investment from some of Ray's neighbors and expanded rapidly. But these franchises later confirmed Dick and Mike's concerns. The environment is messy, the management is chaotic, the menu is changed without authorization, and the quality of the dishes is not guaranteed. These investors just want to make money and don't care about brand and quality. Ray terminated his cooperation with them.
Here I would like to talk about how from the perspective of the brand owner, how to successfully replicate the store that has already been successfully operated, and why you should join a brand as a franchisee.
When a store brand is successful, there are basically two ways to achieve expansion, one is to copy operations - open more direct-sale stores, and the other is to recruit franchisees. Directly-operated stores are of course the first choice, self-management, quality and quality will be guaranteed. But at the same time, due to the limitations of capital, resources and energy, the expansion speed is usually slower and the profitability is slower. In the form of franchise stores, franchisees bring funds and resources, and the expansion can be relatively rapid. For example, it is mentioned in the film that three McDonald's franchise stores opened in a month.
As a franchisee, of course, it also has to be profitable. Either the static power and brand effect of the brand, or the existing mature system of the merchant, which can include logistics, operation, finance, service, personnel management and so on. As a brand owner, you can make money by charging franchise fees, royalties, security deposits, etc. But at the same time, it is also necessary to control the franchise stores to prevent problems from smashing their own signs.
Look back at McDonald's. As a brand owner, in the early stage, McDonald's brand effect has not yet formed. At that time, its core competitiveness was to meet customers' product needs and emotional demands, an efficient operation system, extreme quality control and excellent service. If these franchises cannot successfully replicate these core competencies, it will destroy the McDonald's brand. So Ray cancelled the franchise rights of these mercenary businessmen.
Ray's solution to the problem is to find a suitable operator who can guarantee the quality of these franchised stores responsibly.
The first person he found was a Jewish salesman who sold Bibles for a living, and the second was a military veteran who worked as a plumber selling vacuum cleaners and pianos. The people recruited by Ray have something in common, that is, they are struggling to make ends meet, they are conscientious and diligent, and McDonald's is seen as a dedicated career and the only chance for success.
And Lei will help these franchisees take out loans, build stores, provide training, equipment, and operating methods under the McDonald's brand.
McDonald's franchises are finally back on track. The brand effect also came into play, and many people across the country wanted to join.
Profit model :
McDonald's, which appears to have been successful, is not profitable.
At that time, McDonald's charged 1.9% of franchise store sales as a franchise fee, of which 0.5% went to Dick and Mike and 1.4% to Ray. Because operating costs are very high, 1.4% of sales cannot support McDonald's expansion and repay bank loans. For example, it is mentioned in the film that one of the stores pays Ray only $94 a month. McDonald's, or Lei's business is actually making ends meet, that is to say, Lei's own house mortgaged at the beginning is likely to be confiscated by the bank.
Just when the camel was about to be crushed to death, Ray's nobleman Harry Thornburn appeared. Many people may have heard that McDonald's is actually a real estate company, which is what Harry woke up to. Because it is too important, I am quoting their dialogue here as it is.
"The franchise operator finds a location he likes, signs up, usually for 20 years, uses our construction loan, builds the storefront, and starts business, " Ray told Harry .
"You may not know what business you're in," Harry said. " You're not in the burger business, you're in the real estate business. You're not building an empire on 1.4 percent of your hamburger for a quarter, you're in the real estate business. It's about building your empire with real estate for profit. What you should do is buy a lot of land and then lease it out to franchisees. They're bound by terms and they'll lease from you and only you can lease it. This will Two benefits for you, one is a steady upfront income stream, you have income before you make your first burger; the other is greater capital expansion which in turn further stimulates land acquisitions which in turn Further stimulate expansion, and so on and so forth. Land, this is where the value is. It also needs to have, control. Complete control of franchisees, if you can't meet the quality standards, you stop leasing. Overhead Mike and Dick and control. In the end, you have Controlled banks and franchise operators, playing with the palm of the hand."
The strategy worked, and Ray soon started a real estate company called Franchise Reality Corporation. Because the company is independent and has nothing to do with the McDonald brothers and is not under their control. Ray's company is officially profitable and massively expanding.
In order to understand McDonald's current profit model, I deliberately checked McDonald's 2019 annual report. According to the annual report, by the end of 2019, McDonald's had opened 38,695 restaurants in 119 countries around the world, including 36,059 franchise stores, accounting for 93% of the total number of stores. The overall revenue in 2019 was 21 billion US dollars, of which directly-operated stores accounted for 9.4 billion, and franchise stores accounted for 11.7 billion; and operating costs, direct-operated stores were 7.7 billion US dollars, and franchise stores were 2.2 billion US dollars. That is to say, if it is purely profit, franchise stores are the main source of McDonald's profit.
Ray Crocker :
Next, let's talk about the protagonist of the story - Ray Kroc.
At the beginning of the story, Ray's career development was not successful. He was ridiculed by many people for selling wax cups, folding machines, multi-purpose blenders, and even the milkshake blender he was making at the time. He fell asleep every night on alcohol and listening to chicken soup for the soul. But he didn't give up.
His first wife said to him that you can slow down, enjoy a little life, have leisure time, hang out with friends. She asked Ray: When will you be able to fulfill your request? Ray replied: Frankly, probably always.
As mentioned earlier, it was difficult to persuade Dick and Mike to sign a franchise contract, but Ray was turned away by the bank and had no start-up capital. He eventually mortgaged his house, the thing his wife held dear. He must have known that it would be the fatal blow to their marriage, but he was desperate.
For Ray, the best relationships are teammates. The so-called teammates, my understanding is that first of all, you must be in the same battle field, that is, you must have the same interests. If you want to end the field together, you are all game players.
Not surprisingly, Lei divorced his first wife and married Joan, the wife of a franchisee. The woman who came up with the idea of using milkshake powder instead of ice cream to save operating costs, talked to Lei on the phone in the middle of the night to discuss that McDonald's could serve the thousands of spectators next to the stadium.
This is Ray Crocker: persistent, insatiable, ambitious, and a little crazy.
After the signing, the contradiction between Ray and the McDonald brothers gradually surfaced.
First, the work styles are inconsistent, with Ray pursuing speed while Dick and Mike are cautious. Ray wanted sponsorship money for a Coca-Cola ad, which Dick and Mike refused, believing it was outside of McDonald's core philosophy, and it was unseemly, and they had absolutely no interest in rude business.
Ray calls his store the No. 1 McDonald's, which makes Dick and Mike very unhappy with him.
McDonald's capital chain is tight, and Ray's house may be confiscated by the bank. When Ray proposed to change the terms of the contract, Dick and Mike finally realized that they had put a wolf into the chicken coop.
In order to reduce operating costs, Lei suggested using milkshake powder instead of ice cream to make milkshakes, which can save operating costs and halve the time to make milkshakes, while maintaining the same good taste. Strongly rejected by Dick, saying you can't order a milkshake without milk. Ray insisted.
Ray renamed his company "The McDonald Corporation" and started using McDonald's golden arches as a trademark. This also led to the complete breakdown of the relationship with Dick and Mike.
Ray is a businessman, Dick and Mike are closer to craftsmen.
"The mall is like a battlefield. Dogs eat dogs, people eat people. If my competitor falls into the water, I'll walk over and put a hose in his mouth. Can you do that? "
" I can't and that's not what I want, " Mack said .
Dick and Mike settle with Ray because they can't afford the high legal costs.
One of the permanent clauses in Dick and Mack's request was to spin off 1 percent of the company's annual earnings. You won't get funding unless you stop the contract, Ray said, a clause that's a deal-breaker in the eyes of financial institutions. With a handshake as a promise, Ray promised Dick and Mike an annual 1% royalty, but never delivered.
At the end of the film, a person who does not have McDonald's in his name has the right to use the name and intellectual property rights of McDonald's. And McDonald's brothers Dick and Mike, their stores can no longer be called McDonald's or any literal variant.
Finally, what have I learned from watching this video and analyzing this business case?
First of all, a good product must not only satisfy product needs, but also make customers emotionally resonate.
Second, find core competencies or success models that can be replicated at scale. For McDonald's, two things stand out the most:
- For restaurants, it is an efficient operation system, extreme quality control and excellent service.
- For the company, the land is leased to franchisees, and the profits from the lease are used for brand expansion.
Third, at critical moments, there must be guidance from nobles.
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