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"When I got there," says Kroc, "I saw more people waiting in line than I had ever seen at any drive-in. I said to myself: 'Son of a bitch, these guys have got something. How about if I open some of these places?' " Kroc talked the McDonalds into letting him franchise their outlets nationwide. Over the next five years he organized a chain of 228 McDonald's that even by 1960 were grossing $56 million a year. Kroc collected only 1.9% of the gross from the franchisees, and he had to turn over more than a quarter of that to the McDonald brothers. Dissatisfied, he called the McDonalds in 1961 and asked them to name a price for selling out everything, including the name.
They did—and, says Kroc, "I dropped the phone, my teeth and everything else. They asked me what the noise was, and I told them it was me jumping out of the 20th floor of the LaSalle-Wacker Building. They wanted $2.7 million." Kroc set out to raise it, but every lending institution he approached wanted stock in his franchising company. Kroc had none to give if he wanted to keep control; he had already handed out 38% to partners and lenders, and another 10% to his secretary, June Martino, in lieu of salary (she now lives quietly in Chicago with stock worth some $64 million). Finally, Kroc borrowed the money from a group of college endowment funds at what was then an exorbitant price: 6% annual interest, plus ½% of the gross sales of all McDonald's restaurants. Says Kroc: "The $2.7 million ended up costing me $14 million. But I guess there was no way out. I needed the McDonald name and those golden arches. What are you going to do with a name like Kroc?"
The deal, however, left Kroc admiring nothing about the McDonald brothers but their name. His dislike turned to hatred when they insisted on keeping their flagship restaurant in San Bernardino. Kroc had counted on it to produce much needed cash. Eventually, he opened a McDonald's right across the street, and since he then owned the name, forced the brothers to take their own name off their restaurant. They renamed it Mac's Place, but it did not last long. Says Kroc, with undisguised glee: "I ran 'em out of business."
Capturing the Suburbs. Though the McDonald brothers started some of the chain's technical innovations, it was Chairman Kroc who formulated the nationwide operating policies. He set out to capture the fast-growing suburbs, unlike the chiefs of Horn & Hardart, White Castle and other early fast-food chains, who originally concentrated on downtown locations. Explains President Fred L. Turner, 40, a onetime McDonald's burger frier who now oversees the company's day-to-day functioning: "Our move to the suburbs was a conscious effort to go for the family business. That meant going after the kids. We decided to use television, so we created our own character Ronald McDonald."
Today there are 50 "Ronalds" on contract to McDonald's across the country, making appearances at parades, county fairs and store openings. In addition, one Ronald is stationed permanently in Hollywood to appear in the firm's television commercials. A company survey last year indicated that 96% of American schoolchildren can identify Ronald McDonald, ranking him second only to Santa Claus.