McD at 35: unparalleled success; clouds on the horizon

Nation's Restaurant News, August 27, 1990 by Charles Bernstein, Allen J. Bernstein, David Q. Mahler

McDonald's at 35: Unparalleled success; clouds on the horizon

OAK BROOK, Ill. -- McPizza, McShuttle, McCycle, McStop, McJobs, McPaper.

These and a bevy of other McTerms have become a significant part of the American vocabulary on the 35th anniversary of milk shake salesman Ray Kroc's founding of McDonald's Corp.

Kroc, at 55, and his first grillman, Fred Turner, at 21, had a vision of what McD could be. But through the late 1950s they wre concerned only with fighting a desperate financial-survival battle for their handful of old-style red-and-white tile units. Eventually, they succeeded beyond their wildest dreams.

Many chose to believe a Harvard Business School mid-1950s extensive study, which proved beyond any doubt that a fast-food franchise concept like McD could never succeed as a chain in America.

The same doubts have emerged in every decade in different forms as cynics enjoy a continuing field day predicting that the chain's success simply can't continue.

McD's systemwide sales will top $18 billion (almost one-third of it from overseas business) this year and its combined assets will exceed $9.5 billion. It has achieved 101 consecutive quarters of year-to-year earnings and revenues increases since it went public in 1965.

Its annual $750 million advertising budget (including $450 million for television) makes competitors tremble and represents the most advertised brand in the world. Some time this year McDonald's will sell its 80 billionth burger.

Among the chain's awesome statistics:

* An estimated 96 percent of the U.S. population between ages 16 and 65 has eaten in McDonald's at least once, and two-thirds of that age group visits at least once a month.

* The oldest McDonald's buildings are two 13th Century ones located in Shrewsbury, England, and Freiburg, West Germany.

* The most northern McDonald's is in Fairbanks, Alaska, and the most southern, in Christchurch, New Zealand.

* Character recognition for Ronald McDonald is second only to Santa Claus among children ages 4 to 7.

* Sesame seeds served annually on all Big Mac buns weigh 3,500 tons.

* McDonald's prepares at least 2 million pounds of french fries daily.

* McDonald's annually selects the players for and sponsors an all-American high school all-star basketball team, whose alumni include Michael Jordan of the Chicago Bulls, Magic Johnson of the Los Angeles Lakers and Isaiah Thomas of the Detroit Pistons. McDonald's also is a sponsor of the U.S. Olympic Committee, the U.S. Gymnastics Federation and numerous other sporting events.

* This chain is so dominant that it is, in effect, an entire industry and, until recently, eschewed industry conferences and associations.

* The main limitation on any McD product rollout is the huge demand on the supply lines for the thousands of units. McD literally can make or break a supplier with these decisions.

"We have so much power that people love to hate us," said Sally Klein, a dissident stockholder from Maine who pinpointed the role that the No. 1 chain plays as a national scape-goat, too. This is why Philip Sokolof, the anti-cholesterol, anti-fat advocate from Omaha, Neb., was able to gain national exposure in his advertising campaign zeroing in against McD.

Actually, McD is the most responsible company in terms of leadership on environmental issues, recycling, energy conservation, employment of the handicapped, minority hiring and franchising, community service, and fast-food nutritional advancements -- although the latter point is disputed by competitors and some trade sources.

In essence, as chief financial officer Jack Greenberg put it, "McDonald's has become a part of the fabric of American life."

This reality is confirmed by the 300,000 persons owning McDonald's stock, the 500,000 families that are involved in McDonald's Little League baseball teams, and the many who have been halped by the over 100 Ronald McDonald Houses providing shelters for families of seriously ill children, to say nothing of the 22 million customers (18 million in the U.S.) who dine at the 11,500 McDonald's worldwide each day, and the new McDonald's that opens somewhere an average of each 13.5 hours.

During the 1980s, McD's total sales tripled and its stock appreciated, via five separate splits and a rising stock price, from $43.50 per share to a worth of $345 per share. McD managed to pay an increased 1990 dividend for the 15th straight year.

McD is where it is today because of its unswerving straight-line approach to the basics of the business. It did not go into distribution at all as others did, instead maintaining a complete concentration on restaurant operations. It did not go into the real estate business either, despite periodic reports that, "McD really makes its money in real estate." And it did not fall into the diversification trap of so many others, although Kroc dabbled a bit in the late 1960s with a few pie shops and toyed with other ideas.

Most of all, McDonald's is loyal to its customers, employees and suppliers. In the early days, key suppliers backed McDonald's with a handshake rather than a contract and by extending credit whenever needed. Nowadays, McD reciprocates by remaining faithful to most all the same suppliers. This mutual loyalty has led to a stability unknown to any other major chain.