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Before receiving his Hamburgerology degree, the licensee must lay out an average of $150,000, at least half of it in cash. For that, he gets to lead a life regimented by Ray Kroc and subordinates. To begin with, the licensee has little choice of where he will operate. Headquarters executives pick out all the sites, buy (or sometimes lease) the land, arrange for construction of the store, and rent it with equipment to the licensee for 8.5% of gross, plus a 3% annual franchise fee. "We're just like the Mafia; we skim it right off the top" jokes a financial officer. In the beginning Kroc sold territorial franchises, but now a licensee buys only the right to operate at a specific address for 20 years; when the license expires, he must put up another $150,000 or so for a new one.
The licensee gets some latitude in selecting which local promotions and public service projects to bankroll, but no choice whatever as to whether to be a do-gooder or not. Community service is a Ray Kroc obsession, and every McDonald's licensee is expected to spend a generous portion of profits on it. Headquarters gives each licensee a thick book of suggested promotions and constantly prods him to come up with new ones on his own. In New York's Harlem, Lee Dunham, one of McDonald's 60 black licensees, serves free hamburgers to unwed mothers every Saturday; in Chicago this summer licensees had carnivals on their parking lots to raise money for muscular dystrophy research. Throughout the country, McDonald's managers often rush free food to disaster sites, as local outlets near Roseville, Calif., did after last April's ammunition train explosion.
Careers Abandoned. Oddly, in a chain with McDonald's passion for standardization, licensees get neither food nor supplies from Oak Brook. Restaurants buy their own, mostly through regional cooperatives, though naturally the purchases must meet rigid headquarters specifications. The basic hamburger patty must be a machine-cut, 1.6-oz. chunk of "pure" beef — that is, no lungs, hearts, cereal, soybeans or other filler — with no more than 19% fat content, v. 30% for some competing ham burgers. The 3½-in.-wide bun must have a higher-than-normal sugar content for faster browning.
McDonald's outlets have enough massed buying power — they purchase 1% of all the beef wholesaled in the nation — to line up steady supplies at stable prices in all normal times, and Oak Brook will help out in a pinch. Headquarters executives are currently buying up live steers with "contributions" levied on licensees, who get the meat back in the form of patties. McDonald's chiefs figure that they have corralled enough steers to get the company through the current beef shortage and avoid a price boost when the ceiling comes off retail beef prices this week.