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Why Did Ray Kroc Come from America and not from Mysore, India?

One cannot think well, love well, sleep well, if one has not dined well. – Virginia Woolf

How does a café in the South of India and the history of McDonald’s help us to understand big ideas about economic development related to family business and property rights?

I ran up expenses of $7 for this research (breakfast in India and a film from Amazon). I will need a pretty convincing answer to these questions before I can contemplate submitting the expenses claim to our eagle-eyed and skeptically prudent Head of Operations.

What is a Masala Dosa?

In the south of India such as question is more likely to provoke indignant controversy rather than a dictionary definition. Imagine asking a New Yorker ‘what is a hot dog?’. The constituent properties of a Masala Dosa differ from town to town, and each locale remains convinced of the authenticity and perfection of its own variation. South Indians, particularly those from the state of Karnataka, are passionate about Masala Dosa, crave its warming, greasy, stomach-filling goodness, and are highly skeptical that a good Masala Dosa can be made by anyone else or anywhere else. This is not just home-cooked food; this is food that has to be cooked in or close to a South Indian home.

The wrapping of a Masala Dosa is a kind of crispy pancake made with a fermented batter (ingredients including parboiled rice poha, and some variety of legumes, usually black gram or chickpeas). The pancake may be flavored with chili to give a morning spicey jolt. Inside the pancake is a generous dollop of potato or onion curry. A globule of ghee (highly clarified butter) is dropped on top to ooze buttery goodness into every pore of the hot pancake. Alongside is a small dipping bowl or spreading lake of chutney or sambar.

There is no delicate or polite way to eat a Masala Dosa; don’t try this with flapping shirt sleeves, dangling wrist jewelry, or a delicate aversion to wiping one’s mouth with the back of your hand. The process is easy enough in writing, i) break off a chunk of pancake (only ever with fingers), ii) scoop up a mouthful of potato curry from the interior, iii) dip in the bowl of sambar or chutney, eat, and iv) repeat.

I repeated steps one to four until I transitioned from the left hand to the right-hand picture; and below that we can see the intrepid researcher alleviated of pre-breakfast hunger pangs and looking joyous and satisfied in that way perfected by reserved (slightly repressed) Englishmen.

One of the most famous Masala Dosa cafes is Vinayaka, Mylari, in the town of Mysore (also known as Mysuru) in South India. The café was opened in 1938 in a small building. During the next 86 years, Mylari acquired the building next door to offer slightly more seating space.

Mylari doesn’t have a long menu, there are a few variants of the Masala Dosa staple, as well as steel tumblers of South Indian coffee and cups of water. Spared of the necessity of considering an extended menu, the Masala Dosa is always cooking and appears on one’s table minutes after sitting down. There is always a queue at the door and patrons eat and pay quickly before being replaced in their seats. Masala Dosa is a vegetarian dish so it doesn’t deter the 40% of Indians who identify as vegetarian. The steel crockery is functional, the Masala Dosa is served on a banana leaf that can be easily disposed of.

Mylari was both belch-inducing and something of a puzzle. Why was a business that was so durable and successful – try Google searching ‘Mylari, Mysore’ – based on a model that so obviously works, is still so small?

To learn more, I watched the 2017 film ‘The Founder’ directed by John Lee Hancock. The Founder told the story of Ray Kroc, who while not the founder of Mcdonald’s took the idea he observed in a single restaurant, and melded it with the concept of franchising to outrageous global success.

In 1954 Ray Kroc was a travelling milkshake mixer salesman from Illinois. Bound by the time-pressured schedule of a salesman, Ray ran into constant dining dissatisfaction. As he pulled into drive-in diners Ray had lengthy waits for waitresses on roller-skates amid the competing noisy and crowded claims of teenagers in other cars, it was hectically unpleasant, and food orders were frequently delayed or went astray. In 1954 Ray Kroc had a similar experience to myself seventy years later.

Ray was intrigued by an order for 6 milkshake mixers, how he wondered, could a diner ever need to make 30 milkshakes simultaneously? He funneled coins into a payphone to query the order and whilst barely able to hear his prospective client over the noise of the busy McDonald’s diner, he was requested to bump up the order to 8 mixers. Intrigued Ray diverted his path to explore the milkshake-abundant puzzle for himself.

Arriving at the McDonald’s restaurant in San Bernadino, California, Ray joined a long queue, which moved forward at a surprisingly good pace. At the counter, Ray was puzzled by how quickly his meal arrived. Ray was still wedded to the idea that food was cooked only after an order had been placed. Puzzled again at the absence of crockery or cutlery Ray was informed that he could eat his food anywhere, on a park bench, in his car……the burger tasted good too.

So far there are striking parallels between Mylari 2024 and McDonald’s 1954, that is where the experience diverged. I sat back in greasy contentment and resolved to write a blog. Not so Ray Kroc! Intrigued, Ray spoke to the brothers (Maurice and Dick McDonald) who were running McDonalds and got a full tour. He saw the minimal disposable packaging which saved washing up, the production line efficiency making identical burgers (onion, two gherkins, ketchup, mustard, and a burger patty cooked in slightly under three minutes), the relentless focus on a few items (burger, fries, and soda), and the mantra of grill to counter in 30 seconds. McDonald’s was a “symphony of efficiency’.

The two brothers had briefly tried to franchise the concept but retreated, concerned about quality control. Ray was adamant he could do better and went into business with them, their name and concept was combined with Ray’s entrepreneurial drive to franchise the model. The concept worked and was a multi-million-dollar business by the end of the 1950s, and by 2024, according to the McDonald’s company website, there were 36,000 restaurants in more than 100 countries.

What made the difference? Mylari expanded next door in 86 years and over similar decades McDonald’s was franchised to tens of thousands of global locations.  

The film makes much of the personality and entrepreneurial drive of Ray Kroc. Ray visits every new franchise to taste the burger, in one scene Ray witnesses badly cut lettuce and an untidy burger, and takes the offending item to harangue the franchise owner on a golf course. Another scene has Ray impressed by the intriguing entrepreneurship of a Jewish man selling Catholic bibles and hires him on the spot to run a franchise. Ray was obviously important but could we really argue that Mylari has been starved of entrepreneurs for the last century? Over the 2000s for example India ranks third on the global list of countries for establishing offshore unicorns (a start-up worth at least $1 billion).

One possibility is a cultural one – the importance of family businesses in India. A business founder may be happy to allow relatives (usually male) to run branches of a business because a kind of informal family franchising can work on the basis of trust. A son or nephew will follow instructions given by an older male relative and trust relations are sustained by frequent interaction at family gatherings. Relatives don’t cheat each other in business when they have to meet regularly at family gatherings and would face the risk of being ostracized from the family business and family social networks. The model can work and save on the cost of hiring lawyers and writing expensive contracts but any expansion through franchising will be limited by the number of male relatives a family has. India leads the global rankings, in that 79% of Indian GDP is produced by family businesses. Can this cultural attachment to family explain why the Mylari-McDonalds puzzle?

Not really!

I was more surprised to see how in the cutthroat world of US corporate takeovers, bankruptcy, and competition, the family business still survives so resolutely. Around 54% of US GDP is produced in family businesses. Less than India but still an awful lot of enduring family influence in the boardroom. While McDonald’s was franchised to strangers and once Ray Kroc stepped down, he was replaced by Fred Turner (no relation) as CEO of McDonald’s in 1973. By contrast the Ford Motor Company in 2024 still contains three members of the Ford family (William Clay Ford Jr., Alexandra Ford English, and Henry Ford III).

Another possibility is a more economic one that focuses on the ability to protect property rights and enforce contracts through an accessible legal system. Perhaps Mac and Dick McDonald were on to something when they worried about the impact of franchising on quality control? The McDonald’s franchises are done through contracts, whereby new franchisees lease land from McDonald’s and run a restaurant according to company specifications. Famously a Big Mac burger and fries should taste the same at every restaurant in the world –  a question widely discussed on social media. McDonald’s is not about quality control; this is quality CONTROL!!!

A well-functioning legal system is needed to ensure franchising works. For Mylari the problems are evident. India is famously poor at protecting intellectual property rights, as a very obvious example restaurants duplicating Mylari’s name and menu have proliferated across Mysore. Google Maps first sent me to an imitation Mylari restaurant. According to data from the World Bank Doing Business project, enforcing a contract through the legal system in India and the US costs around 30% of average incomes in both countries, but in 2019 it was a much quicker process in the US (444 days on average) than in India (1,445 days).

We haven’t really solved the puzzle; the McDonald’s story is not one where all-concerned abide by fair and lawful contracts. As portrayed in ‘The Founder’ Ray Kroc gradually eased the McDonald brothers out of the company with ruthless and unprincipled efficiency. When Ray formally bought the brothers out in 1961 a handshake promise to continue the existing practice of paying 1% annual royalties was ignored. By the 2010s this would have been netting the brothers $100 million annually. In a final indignity, once he had bought the company Ray required the brothers to change the name of their original restaurant, he opened a new McDonald’s next door and drove the brothers to bankruptcy.

Why did Mylari grow by local imitation and McDonald’s by successful franchising? Of the two answers I contemplated over the post-Dosa steel tumbler of coffee I am most tempted by the story of good institutions in the US (property rights and contract law). But the story does seem to suggest that good institutions are not enough. Good institutions need to be combined with the ruthless driving entrepreneurial genius of a ‘just-about law-abiding’ visionary like Ray Kroc. We still haven’t really answered the question, why did Ray Kroc come from America and not from Mysore, India?

More pertinent to my own situation, why did Mylari inspire me to write a blog based on a $7 expenses claim, and McDonald’s to inspire Ray Kroc to create a billion-dollar personal fortune?

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