Secret history of how McDonalds brothers lost millions (2024)

They have just overhauled the company to try to save its future, but McDonald's has a past that is far from savory either.

Daily Mail Online can reveal that the restaurant chain was forged on a poisonous row between the two founders and an entrepreneur who was so angry he called them 'every kind of son of a b**** I could think of'.

Ray Kroc tore into Richard and Maurice McDonald when they demanded $2.7 million for their company in 1961.

He said that he 'hated their guts' and was 'so mad I wanted to throw a vase through a window' because he felt they had tried to make him fail - and were now ripping him off.

Kroc paid the money and enacted revenge by building a McDonald's right next to their last remaining restaurant and driving them out of business.

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Creators: Brothers Richard 'Dick' and Maurice 'Mac' McDonald set up the first restaurant of the chain which would conquer the world - but sold their idea and lost out on millions

Rival: Ray Kroc outside one of his franchises holding a hamburger and a drink. He had offered a deal to the McDonald brothers to franchise their success but their relatives say he cheated them

Boast: The scale of McDonald's success meant it also made billions of dollars - but the McDonald brothers saw nothing like the estimated $305 million their deal might have netted them in 2012 alone

Relatives told Daily Mail Online that Kroc also cheated Richard and Maurice McDonald - who was so torn up he later died of heart failure - out of their 0.5 per cent royalty which would have been worth $15 million a year by 1977.

By 2012, according to one estimate, that stake would have made them a staggering $305 million a year.

When Kroc died in 1984 at the age of 82 his personal fortune was estimated at $500 million.

When Richard McDonald died in 1998 having outlived his brother he left a will of just $1.8 million - and spent his final days in a humble three-bedroom suburban home.

The McDonald brothers were effectively the fast food equivalent of the Winklevoss twins, who claim that Facebook founder Mark Zuckerberg stole their idea for the social network.

The details emerged in the week that McDonald's unveiled its new plan to turn around falling sales by cutting $300 million of costs and increasing franchising.

In an interview with Daily Mail Online, the brothers' nephew Ronald McDonald said that Kroc took over the business because he was all about 'ego, ego, ego'.

He then set about rewriting history to ensure that he was described as the founder - and not the McDonalds.

Ronald said: 'It was all ego. Why else would you put a bust of yourself in every store? Why would you put your name on the placemats?

'We weren't as rapacious or as greedy. Ray Kroc just wanted more and more.

'Name me one other American corporation where an employee became the founder.'

Role: Michael Keaton will play Ray Kroc

The story of how the deal was made is set to play a key part in a biopic of Kroc starring Michael Keaton in the lead role

The film has already been tipped for an Oscar even though it has not begun filming yet.

Surprisingly, McDonald's has said it will not move to stop what is expected to be a warts-and-all depiction of Kroc, a high school dropout from Chicago who became a brash and utterly ruthless milkshake salesman.

He once said of his business rivals: 'If any of my competitors were drowning, I'd stick a hose in their mouth and turn on the water'.

Another of his sayings was: 'The definition of salesmanship is the gentle art of letting the customer have it your way.'

But it is his relationship with the McDonald brothers that is arguably the most interesting part of the whole McDonald's story.

First: The was the drive-in which started the McDonald brothers' success. They set it up to sell hickory-smoked BBQ but it was burgers which became best-sellers, brought to waiting customers by bellhops (front, center)

Value: McDonald's initial business model was to tempt families with low-cost food - something which has never changed. At the time they were under-cutting competitors significantly

It begins in New Hampshire where Richard and Maurice were born to Scottish immigrants and realized they wanted more for their lives when they saw their father working in a shoe factory.

They moved to California in the 1930 and had jobs in film-set stands before opening their first McDonalds restaurant in San Bernardino in 1940.

Their eureka moment came when they got rid of the car hops who brought the food to waiting customers and made people drive up to two service windows.

They also modeled the kitchen like a factory, reduced the size of the menu and brought in paper plates and cutlery so they could get rid of the dishwasher.

Labor costs plummeted, sales soared and customers could not get enough of their 15c burgers and delicious 10c fries. Soon the brothers made $350,000 a year and split profits of $100,000, or about $1million in today's money.

'What a goddam rotten trick! I needed the income from that store...eventually I opened a McDonald's across the street from them, which they had renamed the Big M, and it ran them out of business

Ray Kroc, on what he did when the McDonald brothers kept their original store after their deal

Kroc went to meet the McDonalds when he heard word of their operation and he liked what he saw so offered to be their franchise manager.

Their original deal was that Kroc got 1.9 per cent of gross sales from franchises and of that the McDonalds would get 0.5 per cent.

But tensions boiled over soon after Kroc opened his first restaurant in Des Plaines, Illinois.

In his book: 'Grinding it out; the making of McDonalds', Kroc does not hold back in his assessment of the McDonald brothers.

Kroc writes that they were 'obtuse, utterly indifferent to the fact I was putting every cent I had into the project'.

He chafed at having to send registered letters to the brothers every time he wanted to change something from their original restaurant's design.

This proved impossible for every minor alteration, of which there were many, right down to how the potatoes were stored.

Kroc felt that 'it was almost as though they [the McDonalds] were hoping I would fail'.

Kroc writes that developed 'bristling suspicion' of the brothers that turned into outright contempt when he negotiated the deal to buy the company from them in 1961.

What happened next depends on who you ask.

In his book 'McDonald's: Behind the Arches' business author John F Love says that Richard and Maurice were paranoid about paying taxes, so sold up.

He says that they chose to do a deal with Kroc because they did were tired of paying a 50 per cent income tax rate on their earnings - Kroc's money would be taxed as capital gains at 25 per cent.

The brothers also worried that if they died it would leave their families with a huge tax bill, so decided to take the deal and live a comfortable life, even if it meant forgoing great riches.

In his account Kroc wrote that Richard McDonald justified the high price by saying he and his brother had worked seven days a week for thirty years.

Kroc wrote: 'Very touching. But somehow I just couldn't seem to work up any tears of pity.'

Full replica: The first Ray Kroc franchise is preserved as a museum in Des Plaines, Illinois

McMemorial: The restaurant in Des Plaines, Iowa, which was the first opened by Ray Kroc as a franchise. It is now a museum of how the franchise began, although the McDonald brothers had actually sold other franchises

Want fries with that: The McDonald's museum shows how the success of the original McDonald's was based on keen pricing and a limited menu - values the company continues to use

In 'Behind the Arches', Love writes: 'Kroc had a sincere admiration of their entrepreneurship and in the early years the relationship was close….but the renegotiation of the contract had finally turned the Kroc-McDonald relationship icy cold.'

Kroc considered the deal 'grossly unreasonable' and was 'really upset' that the brothers made him pay cash.

But he wanted readers to believe that it was a 'extremely successful deal' and that 'all concerned were happy'.

That is, until the brothers insisted on retaining their original restaurant in San Bernadino, which was making about $100,000 a year at the time.

Kroc said that their demand 'stuck in my throat like a fishbone'.

He wrote: 'What a goddam rotten trick! I needed the income from that store...eventually I opened a McDonald's across the street from them, which they had renamed the Big M, and it ran them out of business.'

Counting burgers: The practice of keeping a precise tally of the number of burgers sold goes far back in McDonald's history. This branch at Joliet, Illinois is still there

Advertising: This was local advertising used to raise the profile of the branch in Joliet, Illinois

In fact it was just a block away, and it took him six years to drive it out of business.

'But that episode is why I can't feel charitable or forgiving toward the McDonald brothers,' he wrote.

'They went back on a promise, made on a handshake, and forced me into grinding it out, grunting and sweating like a galley slave for every inch of progress in California.'

Love says that Kroc said at the time: 'Hell, I guess the deal is off.'

Kroc later told the author: 'I closed the door to my office and paced up and down the floor calling them every kind of son of a bitch there was. I was so mad I wanted to throw a vase through the window. I hated their guts.'

After all that turmoil there was one final sting in the tail - the 0.5 per cent of gross sales the brothers had been getting as a royalty payment.

Kroc makes no mention of this in his book at all.

According to Ronald McDonald, however, Kroc had promised them that they would keep it but said that he had to keep it out of the contract because it would mess up his accounts.

They all shook on it, but once the paperwork was signed he changed his mind. Ronald claims that Kroc used the brothers' claim on their original restaurant as a way to justify his actions.

Ronald said: 'It was just Ray's way of getting out of his agreement. He had to find a way out.

'Mac ended up taking it really hard. He died of heart failure. Richard just didn't want any problems for his family.

'He knew there would be problems. He told me: "I think I have enough money, it's not worth dying over. I watched Mac being torn up until the point the point that he died and I don't want that for myself."'

After taking over McDonald's, Kroc oversaw a period of staggering expansion.

Publicity: Flyers advertising the value at McDonald's were used to generate custom - with adjectives laid on thick. Coffee was 'steaming hot', root beer 'delightful' and french fries 'golden'

Current image: The Golden Arches are known around the world. Such is their success that one estimate suggests that if Kroc had stuck by his handshake deal with the McDonald brothers, the or their heirs would have made $300m in 2012

It has become the stuff of legend in the fast food industry, and could hardly have been fun for the McDonald brothers to watch.

After 22 years in business the new company made its first billion dollars, a feat that IBM took 46 years to achieve.

By 1983 sales were $9billion a year and by 2012 they had reached more than $61 billion

In a revealing admission in the book, Kroc says: 'If they [the brothers] had played their cards right, that 0.5 per cent would have made them unbelievably wealthy.'

Ronald said that in public Richard never criticized Kroc because he wanted to keep the peace and protect his family.

That mean that, in an interview with the Wall St Journal in 1991, Richard said he sold because 'taxes were killing us. We weren't kids anymore. We had three homes and a garage full of Cadillacs, and we didn't owe a dime to anyone.

'I have no regrets. Yachts on the Riviera were not my style at all.'

Richard however also described how every year he was sent a copy of the McDonald's house newspaper talking about 'Founder's Day'.

It included a tribute to 'founder Ray Kroc' with no mention of the McDonald brothers.

Richard told the Wall St Journal: 'It really burns the hell out of me'.

And now: McDonald's unveiled its latest products, three sirloin burgers, this week, amid concern about its flatering performance and a pledge by its new chief executive to do better

When Richard McDonald died his total estate was just $1.8million, not exactly poverty, but nothing like what Kroc would go on to earn.

The will shows that the bulk of Richard's money was in investments, including $20,000 worth of McDonald's shares.

The home he was living in was humble, a three-bedroom split level property in Bedford, New Hampshire, on a quiet suburban street worth $284,000 in today's money.

He collected coins and amassed a $2,100 collection including some Franklin Mint silver bars and a money clip with a $10 gold piece from 1881.

Yet it is his McDonald's memorabilia that is the most poignant of all and his in his will describes it as an 'extensive collection' which includes several albums of photos.

Inside his office there was a framed copy of a 1973 Time magazine cover called 'The Hamburger Empire', a large McDonald's black cup and saucer and a 'McKids' McDonald's doll.

Richard kept a commemorative pin set called: 'McDonald's celebrates its first 100 countries' and items on the stand in the office included several McDonald's ashtrays and a small yellow toy plane with the company's logo on it.

Also listed was an engraved gold-plated spatula used to cook McDonald's 50 billionth burger, which the will says is worth $100.

McDONALD'S: THE ARCHES WHICH HAVE MADE IT EVERYWHERE

From a barbecue stand in a California street, McDonald's is now the world's largest fast-food chain. Its latest full results, published in 2014, show it has 36,258 restaurants.

Inevitably most - 14,339 - are in the US, but there are few countries without one, and even fewer where the company is not interested in setting up, with Afghanistan and Zimbabwe on the official target list for franchises.

Franchising is at the heart of its operations.

In the US in 2014, sales were $4,351 at company-operated outlets, and franchise revenue was $4,300.

Expansion outside America - which began in 1967 in Canada and Puerto Rico - has made the brand a by-word for American capitalism.

The impending collapse of Communism was symbolized by the opening of a Moscow branch to huge public enthusiasm in 1990, while in France dislike of the English-speaking world was once symbolized by a radical farmer trashing a McDonald's.

Controversy has never been far away: from accusations of aggressively pursuing tiny businesses for copyright infringements to questions over the ingredients of meals.

Currently its biggest problems appear to be changing tastes and the emergence of new competitors, from Shake Shack to Chipotle, which have harnessed them.

In total 1.9 million people work for McDonald's and its franchises worldwide, putting it second to WalMart as the biggest private sector employer in the world.

And while uniformity is the key to its success, almost every international iteration of the chain offers different products.

French McDonald's serve beer, there are no Big Macs in India, where the majority of people have a religious prohibition on eating beef, and a quarter of Israel's McDonald's are fully kosher.

Kroc meanwhile went on to live a very comfortable life and moved to a huge house in Beverly Hills, followed by an even bigger one in San Diego where he bought the San Diego Padres baseball team.

After his death his wife Joan inherited his fortune and became a philanthropist, giving $1.6 billion to the Salvation Army and $225 million to National Public Radio.

By that point the McDonald's version of how the company was founded involved just one man: Ray Kroc. If you believe the official version on the McDonald's website, the business was founded in 1955, the year that Kroc opened his first restaurant in Des Plaines, Illinois.

But by that stage the McDonald brothers had been serving happy customers from their first outlet 15 years. On the McDonald's website there is also a piece about the 'Ray Kroc story' - and the only mention of the McDonald brothers is buried in the interactive timeline.

The 'Our Story' homepage says: 'Can you imagine a world without the Big Mac? Or Chicken McNuggets? Or Happy Meals? Luckily, back in 1954, a man named Ray Kroc discovered a small burger restaurant in California, and wrote the first page of our history.'

The multinational sticks to that position robustly.

A spokesman for McDonald's told Daily Mail Online: 'Ray Kroc's story is compelling, so we're not surprised Hollywood wants to dramatize it for the big screen.

'The historical facts of his journey to success are in his autobiography and other non-fictional accounts of McDonald's.'

The spokesman added: 'Ray Kroc was the founder of McDonald’s Corporation'.

But asked if the makers of the film had been in touch to get his side, Ronald McDonald laughed.

He said: 'That would be like Jay Leno called David Letterman and asking for advice. McDonald's hates me.'

The lesson from the history of McDonald's seems to be one that could have come straight from Ray Kroc's mouth: 'History is always written by the victors.'

Secret history of how McDonalds brothers lost millions (2024)

FAQs

How did the McDonald's brothers lose their business? ›

1961: Kroc buys out the McDonald brothers for $2.7 million (worth approximately $27.7 million in 2023). The brothers keep their original restaurant, which they renamed Big M. Kroc later opens a competing McDonald's nearby that drives them and the first-ever McDonald's out of business by the end of the decade.

How much money did the McDonald brothers get from Ray Kroc? ›

Kroc eventually decided he wanted control of the company entirely, Kroc bought the company in 1961 for $2.7 million, calculated so as to ensure each brother received $1 million after taxes. on November 27, they made the choice to shut McDonald's down temporaryily.

What is the biggest mistakes of McDonald Brothers in their business activity? ›

In summary, the McDonald brothers made the mistake of not protecting their business legally. They did not have a written agreement with Ray Kroc and were not able to maintain control of the business. They were also not able to keep up with the demands of the franchising model, which ultimately led to their buyout.

What finally happened to the McDonalds brothers using their name again and any royalties? ›

Kroc's San Bernardino McDonald's put the Big M out of business within a few years. Unable to prove their handshake deal, the brothers never received their royalties. Today those royalties would be worth over $100 million per year! Today McDonald's is one of the largest real estate holders in the world.

Did the McDonalds brothers ever get compensated? ›

The brothers astonishingly agreed to a “handshake” deal whereby they would receive royalties of 1% of the revenues Kroc would make, in perpetuity. Unsurprisingly, this handshake deal was never honoured and the brothers were not able to prove it.

Who owns McDonalds now? ›

McDonald's Corporation is a publicly traded company, which means that it is owned by its shareholders. As of 2021, the largest shareholders of McDonald's Corporation include institutional investors such as The Vanguard Group, BlackRock Inc., and State Street Corporation.

Was Ray Kroc a billionaire? ›

By the time of Kroc's death in 1984, McDonald's had 7,500 outlets in the United States and in 31 other countries and territories. The total system-wide sales of its restaurants were more than $8 billion in 1983, and his personal fortune amounted to some $600 million.

What would Ray Kroc be worth today? ›

At the time of Kroc's death, his personal estate was estimated at $500 million. Less than 20 years later in 2002, Ray Kroc's personal estate was worth more than $2.3 billion dollars.

How much did Joan Kroc inherit? ›

The third wife of McDonald's co-founder Ray Kroc inherited nearly $500 million when the burger magnate died in 1984, and willed around $3 billion upon her own passing in 2003.

Why is Kroc not making enough money? ›

Kroc is not making enough money off the franchises because by contract he only gets 1.4% of the profits. This is not covering his expenses and he is not breaking even. Kroc wants to renegotiate his contract with the McDonalds brothers. He calls the brothers to renegotiate.

What problems did Ray Kroc have? ›

Kroc faced numerous challenges in the early days of McDonald's, including financial difficulties and resistance from franchisees. But he persevered, staying true to his vision and working tirelessly to overcome obstacles.

Does McDonalds use powdered milkshakes? ›

McDonald's milkshakes are made with a soft-serve ice cream mix, which consists of dairy, sugar, and a "proprietary blend of ingredients." A specialized machine is used to incorporate air, giving the blend a creamy and thick consistency without the need for much real dairy.

Did Ray Kroc buy out the McDonald brothers? ›

In April 1955, Kroc launched McDonald's Systems, Inc., later known as McDonald's Corporation, in Des Plaines, Illinois, where he also opened the first McDonald's franchise east of the Mississippi River. In 1961 Kroc bought out the McDonald brothers.

How much money did the original McDonald's brothers make? ›

Soon the brothers were making $350,000 per year and splitting $100,000 in profits (roughly $1,000,000 today). Then in 1954, they put in an order to the Prince Castle Sales Division in Oak Park, Illinois. They had no idea where that order would eventually lead. Ray Kroc was born on October 5, 1902 in Chicago.

Does the McDonald's family still get royalties? ›

Today, the McDonald family no longer receives royalties from the fast-food chain. Instead, their wealth stems from the proceeds of the stock sale, which was reportedly valued at over $1 billion at the time.

Why did the McDonalds brother lost control because of Ray's new business? ›

Answer: The brothers actually made a very damaging deal with Ray Kroc, since Kroc ended up breaking the terms of the deal by opening up his own real estate company by naming it Mcdonalds, the name he stole from the Mc brothers, and leasing lands to franchisees where only he took a part of the profit of their sales, ...

Why did the McDonald brothers not want to franchise? ›

Why were the McDonald brothers against Kroc's idea to franchise? They were against it because they did not want the quality of their food to go down at different locations.

What happened between Ray Kroc and Harry Sonneborn? ›

Kroc had insisted on continuing expansion whereas Sonneborn was conservative with the view that the country was heading into a recession and put a stop on constructing new stores. Kroc took his title afterwards.

Where are the McDonalds brothers today? ›

Maurice McDonald died from heart failure in Riverside, California, on December 11, 1971, at the age of 69. Richard McDonald died in Manchester, New Hampshire, on July 14, 1998 of a heart attack, at the age of 89.

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