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In this podcast episode, the host discusses the history and impact of McDonald's. The McDonald's brothers opened the first drive-thru in 1940, but it was Ray Kroc who turned it into a global empire through franchising. Kroc's vision and the economic boom in the US in the 1950s were key factors in McDonald's success. The American culture of convenience and processed foods also played a role. McDonald's not only influenced American lifestyle and dietary habits but also had massive economic implications, contributing to employment and GDP. Its standardized processes and global demand made it a symbol of globalization. Welcome back to the Rich Stakers Podcast, stories of world-changing entrepreneurs. Join us today as we dive into the powerful forces of macroeconomics and culture that shaped the birth and rise of businesses and discover how McDonald's, founded by Ray Kroc, not only succeeded but also influenced cultures on both national and global scales. Today, we welcome Davide Perrone, a real expert in the industry, who has recently set up his own fast food chain, Tasty Burritos, taking inspiration from McDonald's business model and history that he studied in depth. I'll let our guest introduce the story of this iconic food chain. Hello, how is everyone? It's a pleasure to be here. Let's dive straight into the story where it all began in 1940 with the McDonald's brothers opening the first McDonald's drive-thru in San Bernardino, California. The true turning point came about in 1948 when they streamlined their operation. They managed to set up a speedy service system, which meant no need for waiters. Burgers and fries in less than 60 seconds. I get you. Basically, it consisted of four assembly line-of-flight restaurants. It was the birth of the whole new fast food concept. But it's not evident to me how the McDonald's brothers were able to create such a global empire. Oh, but it wasn't them. It was Ray Kroc's vision. Actually, it's a curious entrepreneurial story. At first, he was a multi-mixer seller who was struggling to make money out of his product. Then, in 1954, he met McDonald's brothers as they wanted to buy eight mixers at once. Kroc immediately fell in love with the business's efficient and standardized food preparation system. Something major must have definitely gone through his mind at that point. Oh, of course. He understood that he could have changed the food industry if he managed to expand the business model. Oh, looking at the results, Kroc definitely made it. How was that possible? Well, he initially acquired the rights of McDonald's' business, aiming to turn it into a franchising empire to replicate the speedy service system. In 1955, the first franchise was then opened in Des Plaines, Illinois. Surely, he was not making money straight away, was he? No, not at all. Despite his initial expansion, his franchise was based on small royalties paid as a percentage of the product sold. The hamburger used to cost 15 cents, so it was necessary to sell millions of them to make a living out of it. Later, the franchising was fortunately not based solely on the number of burgers sold, but he was able to achieve a steady revenue stream thanks to Harry Sonneboer's help. By implementing his real estate tactic, consisting of purchasing land and leasing it back to franchisees, Kroc became a true real estate tycoon. And what was McDonald's brothers' role at this point? Well, even though the brothers would have rather died than give up their business, in 1961, Ray Kroc's offer of $2.7 million was far too high to be declined. It was the equivalent of today's $28 million. But I mean, they had a romantic feeling towards the burger's lab, so it mustn't have been easy. Yeah, the slob has the best ones ever, they say. So, would you say that Kroc was a Schumpeterian entrepreneur? I have no idea how I knew what that means, but he's the absolute example of a Schumpeterian entrepreneur. As soon as he met their brothers, he spotted an opportunity to build an empire by exploiting the already implemented speedy service system, expanding it through the franchise model. Therefore, he shaped the fast food industry, also considering that this model was then replicated by many other brands. So, we can fully attribute to Ray Kroc the merits of having created such an empire? Of course, but it could be debated if we could also consider the context in which it was developed. What was the context of the USA in the 50s? Well, in that period, the USA stood as the major power untouched by the atrocities of the war. This allowed the country to grow economically, becoming the most prosperous country on Earth. Are you talking about the economic boom? Exactly. The political stability enabled the economy to grow overall by 37% in the decade, mostly driven by a massive public spending, which also impacted the unemployment rate, keeping it very low at around 4.5%. I know that in that period, incomes were rising. Spending and purchases led to the creation of a consumerist society guided by the new bargaining middle class. After a period of restrictions, people were ready to spend on cars, homes, appliances and entertainment. As the lifestyle was mutating, also the eating habits of Americans changed, and people began to eat out for pleasure. And don't forget about suburbanization. Looking for a higher quality of life and more affordable accommodation options, people were moving out of cities. In order to move from suburbs, a car culture arose. By the end of 1950, the car sales quadrupled and 75% of households owned at least one car. This, of course, was accompanied by a robust development of the highway system. Ah, this must be the American dream the world's raised on about. However, all of this ultimately brought to the onset of a rat race, a term usually associated to a repetitive and exhausting lifestyle, going hand-in-hand with a faster work pace. Aha, the perfect environment for a fast food to spread, eh? Exactly. Think about Europe and how it was doing in the same period. The whole continent was having a very tough time recovering from the war's devastation, trying to navigate the post-war reconstruction. In fact, the US, aiming to stand out as the leader of the world, approved the Marshall Plan. President Truman, in 1948, allocated 13.6 billion to rebuild Europe post-World War II, as well as to impede the spread of communism. And this plan was a success. By 1950, involved countries were back to or surpassed the pre-war production levels. This explains how Europe was focused solely on reconstructing infrastructures, leaving no time and money to spend on growing entrepreneurial ideas. While in the US, the industrial production was directed to consumer goods, responding to the demand of society. In Europe, this trend was absolutely not on the horizon. The main necessity to invest on the iron and steel industry, raw materials and basic necessities. In fact, in 1950, the creation of a European coal and steel community was proposed, laying the foundation for the European Union. So, your point is that lifestyle was pretty different between the two continents. Even the way food was produced and consumed was not the same. Can you elaborate on that? This is a very interesting point. The food culture in the United States was marked by a notable shift towards convenience and processed foods, driven by post-war affluence and technological advancements in food production and preservation. This era increased reliance on canned and frozen products. The period was characterized by a fascination with new gadgets and innovations that promised to simplify kitchen chores and reduce cooking times, reflecting the era's overall enthusiasm for modernization and efficiency. Of course, this was the correct environment for a fast food culture to emerge. So, yeah, you said canned food. McDonald's concept was somehow anticipated by companies like Campbell's that brought to the American tables affordability and convenience that appealed to the American desire for quick and easy meal solutions. What about Europe? In the 1950s, European food culture exhibited significant diversity, reflecting local traditions and agricultural practices. For example, Mediterranean foods focused on fresh, healthy ingredients like oil and vegetables, while Western Europe mixed rich dairy practices and traditional favorites. Despite these regional variations, European food culture collectively contrasted sharply with American food culture during this period. Meals were simpler and slower cooked. People would have hardly accepted McDonald's burgers and fries. That makes sense to me. So, what you're saying is that these various lifestyle habits gave birth to McDonald's. Exactly. McDonald's proved that a specific national culture and its socio-economic environment can allow certain types of businesses to develop. If located in different contexts, for instance in Europe, the same entrepreneurial venture would not have been able to be born and succeed. McDonald's reflects all the characteristics of the breeding ground in which it was born, the USA. However, the opposite is also true, right? Businesses can influence culture as well. Think about how much McDonald's changed and influenced the lifestyle of Americans from then to now. Of course it is. Can you imagine America without McDonald's? Impossible. McDonald's proved an icon for America, and it played a fundamental role in creating dietary habits and determining the average American's lifestyle, as it contributed to the spread of fast food and franchising models all over the US. Other competitors understood the attractiveness of the market and had this phenomenon booming afterwards. Its influence is not limited to the food culture though. Being a giant in the industry certainly has massive economic implications as well. The corporation generates employment for a total of 1.9 million people worldwide and contributes substantially to the US GDP, generating around 76 billion dollars annually. Well, the impact is surely more deep-rooted than that though. Processes are standardized, and every time a new element is introduced, from ingredients to machinery, it is requested and purchased all along the franchise network, creating a huge chain of demand. Since McDonald's is an international company, this demand becomes global. Of course. The impact of such a company has not only been limited to inside the national boundaries, but it pushed towards globalization as well. Indeed, McDonald's became the emblem of globalization itself, as shown by the Big Mac Index. Since the Big Mac production is almost identical and standardized in every country, the famous burger is used by the economists to measure the PPP between different countries, comparing the selling prices of the homonymous item. So, we can say that even if it would not have been possible for McDonald's to be born in Europe, thanks to the spread of franchising and globalization all over the world, it reached the European continents as well. Exactly. Only 20 years later, Europeans started to welcome this business into their lives. Since the new socioeconomic context began to be compatible with McDonald's' value proposition. Wow, that was interesting. Unfortunately, this is all the time we have for today, but that was very insightful indeed. Thank you very much for coming on our podcast today, and we wish you good luck on your tasty burger. My pleasure. Thank you for having me.