Peter Ritchie on growing McDonalds in Australia

Transcript

Brett Kelly:
I’d love to start by thanking Mark Halford for his introduction tonight. Thanks, Mark. One of the points I'd like to echo is that in 1997, I lost my job in an investment bank. I had no idea what I wanted to do. My father gave me two books, and one of those books said, “If you want to do well at anything, meet people who’ve done well, ask them what they’ve done, and then go and do exactly that.”

So, I wrote to 80 prominent Australians. One of those people was Peter Ritchie. At the time, Peter was running McDonald's, and I thought McDonald's was an incredible business. My letter said, “Dear Mr. Ritchie, my name’s Brett Kelly, I’m 22, I’m unemployed, but I’m keen to learn. If you’ll spend an hour with me answering my 11 questions, I’ll compile them into a book and share it with other young people so they can also learn.”

And as it turned out, Peter wrote back and said, “I’d love to do that.”

So, in 1997, I interviewed Peter for my book, Collective Wisdom. It was a huge honour and a huge pleasure to have Peter here today. When I saw his new book come out, I thought, “Right, I’m going to get this book, I’ll read it, share it with as many people as I can, and invite Peter to speak with us today.”

That was 27 years ago that I first met Peter. So to reprise that interview for you all today, and hopefully unearth some new insights, is truly special. So Peter, welcome, and thank you.

Peter Ritchie:
Thank you very much.

Brett Kelly:
So, this morning, I caught up with Peter for a quick chat ahead of our event tonight. I always like to start at the beginning. Where were you born? How many kids in the family? What led you into business? Did you always think you’d go into business? You grew up on the Northern Beaches, you loved your surfing and the beach—how did you come to McDonald's?

Introduction

Peter Ritchie:
Well, that's a long question, but I’ll keep it short. I was born in Moss Vale, actually, not on the Northern Beaches. But my mum and dad moved to the DY area when I was young, so I spent most of my time at DY Primary and Manly Boys High. I still go to reunions regularly from Manly Boys High. My heart is still there, and I’ve got a house down there, as you know.

Brett Kelly:
Yep.

Peter Ritchie:
So, how did I get involved with McDonald's? My mum was always keen for me to do well financially. She’d spent her life struggling with money and didn’t want that for her family. So, she made it clear I had to become an accountant. That’s why I did commerce at UNSW, and it was a great foundation. The Americans, when I first spoke with them, asked, “Why accounting? What kind of background does that give you for business?” I didn’t understand the question—accounting is at the core of business, as far as I’m concerned.

Anyway, I got through commerce and was running a property development company when McDonald's employed W.D. Scott to find someone they could train to be the local CEO. They did this in 1960 in three countries—Australia, West Germany, and Japan—and hired locals to grow the business. I was in my mid-20s, and they wanted someone who was 30, so I lied about my age and told them I was 29 when I was actually just 27.

Brett Kelly:
So, it’s 1970. They offer you the job?

Peter Ritchie:
1969, actually.

Brett Kelly:
'69. What happens next? Do they take you to the US for training?

Peter Ritchie:
Yeah, they took me, along with a guy called Den Vegeta, who you know, and Tony Klauss from West Germany. They put us through the basic Hamburger University training and then told us, “Okay, it’s a race to see who can open the first store.” The Japanese guy got the first store open, but it was a small hole-in-the-wall in the Ginza. It was the right place, though, and it boomed straight away. I opened in Yagoona, and it was a bit of a flop—didn’t matter where I opened, because nobody knew McDonald's. When I told people I was with McDonald's, they’d say, “McDonald Constructions? McDonald Douglas?” Anything but McDonald’s Hamburgers. And I had no money to spend on marketing. It was a hard battle, and people talk about “instant success”—well, it wasn’t like that for me. It took seven years of hard work before we made a profit.

Support and Mentorship

Brett Kelly:
So, what sort of financing and support did they provide you with? You had six weeks of training—that’s a good start.

Peter Ritchie:
Yeah, but it didn’t end there. They kept sending me to the US, and they sent a guy to be my off-sider, who had been the dean of Hamburger University. He was a great trainer, but he didn’t last long. I won’t go into that story. But then Fred Turner, the president at the time, said to me, “You’re it. There’s nobody else.” So, I just kept going, carrying these big losses, and Fred Turner really carried me through.

Brett Kelly:
Fred Turner, of course, is featured in the movie The Founder and is a hugely significant part of the McDonald's story. He’s your direct link to the US, wrote the first operations manual, and encouraged you. What was he like?

Peter Ritchie:
A man of few words. A tough character. Most people were afraid of him, but for some reason, he took a liking to me, and I did to him. He supported me, and I’m so grateful for that. He faced questions from executives in the US who were saying, “Fred, why are we wasting time on a small market in the South Pacific, losing all this money, when we could be opening more stores in Kansas or elsewhere?”

Brett Kelly:
What was his answer?

Peter Ritchie:
Fred didn’t really have an answer. He just knew that if they didn’t get into international markets, they’d be behind the eight-ball. He didn’t try to justify it. He just said, “We’re doing it.” He was the boss.

Brett Kelly:
That’s a good answer.

Peter Ritchie:
Yeah. So, I was riding on his coattails to some extent, but he supported me the whole way. He didn’t get enough credit for taking McDonald's international when it was probably five years ahead of its time. He ground it out and persevered despite those $15 million losses.

Brett Kelly:
You ran McDonald's Australia for the first seven years, accumulating $15 million in losses. At what point did you think, “Okay, this is turning around and we’re on the right track”?

Peter Ritchie:
That’s a great question. People often ask me, “Why didn’t they fire you for continually losing money?” It was emotionally draining to report bigger losses every year. Thank goodness for Fred’s support. My wife says, “The only reason you stuck around was because you refused to accept defeat.” And that’s probably true. By 1977, I hadn’t franchised yet because I couldn’t ask others to put in their money when I wasn’t sure it would work. But by '77 and '78, we had enough stores open, generating some marketing dollars, and we were able to get on kids’ TV. That was the turning point—it wasn’t clear at the time, but the timing was just right.

Brett Kelly:
Did you have the Hamburglar by 1977 or '78?

Peter Ritchie:
Yes, Ronald and all the characters were there, but we hadn’t had much opportunity to expose them. We did store openings with Ronald, but it was tough because there wasn’t much recognition until we got on TV and started exposing Ronald to the kids.

Getting Finance to Grow

Brett Kelly:
So, we were talking about the financing. I thought it was really interesting. You couldn’t get financing here in Australia?

Peter Ritchie:
No.

Brett Kelly:
Can you explain to the guys, like, how did you get this? Because I always think the early stages are so interesting. How did you get the first money, the early money to start growing the stores?

Peter Ritchie:
Well, McDonald's kept lending me money. It took me a while to realise because they were lending it to me at those rates. The highest rate I got money at was 1.42 dollars. I was getting 1.42 Australian dollars for every US dollar. Hard to believe now, isn’t it?

Brett Kelly:
Nice. Nice.

Peter Ritchie:
Yeah. But thankfully, I was smart enough at some point to convert my debt into Aussie dollars. But it was basically loaned money, and they made sure that I had access to it whenever I needed it. The Yanks were shocked by the price of real estate and our labour costs.

Training People & Attending Hamburger University

Brett Kelly:
So in the book, you go on to talk about the training. When did you start your hamburger university or your real efforts at training people?

Peter Ritchie:
There's a story before that. In ’82, we had a recession that was probably as bad as the GFC. Does anyone remember the ‘81, ‘82 recession? Because I had about 40 franchisees, and they all had leased-back finance and were about to go broke. They couldn’t afford their monthly repayments on their equipment. So I thought, “What am I going to do? I’m going to have 40 franchisees going broke publicly…”

So I had to get some funds to buy all the equipment back and re-lease it to them. And I did this on my own… I didn’t have a really capable CFO at that time. I remember sitting at my dining room table in Gordon, where I was living, and I worked out a lease-back deal that they could manage in the short term, and I’d be able to get something fair back for the company. And that’s what we did in the early ‘80s, ‘81, ‘82.

Brett Kelly:
So, was that the first Boston Finance?

Peter Ritchie:
Yeah. Yeah. I couldn’t get a penny from the Australian banks. Got no help whatsoever.

Brett Kelly:
And on the head office balance sheet lent back out to the franchisees?

Peter Ritchie:
Yeah. The FNBB were great, and with the Omni Bank, who came to the party. They had an advantage over the Aussie banks in that they’d seen it successful in the US. The banks here hadn’t seen much success, so I excused them a little bit for that. But away we went, and I bought the franchises back and had to call them Australian facility leases. Any of you guys involved in those? No? No. I made them kind of second-rate franchisees because they didn’t own the business outright. They were just leasees, but there was motivation in that to get them to reconvert and become full franchisees, which worked out for both them and us. So, that went through the ‘80s.

And then it was in the ‘80s when I had two cathartic experiences. Number one I mentioned earlier about leadership. I’d been thrown into leadership roles throughout life. I was captain of Manly-Warringah Surf Life Saving, captain of Australian Universities Water Polo, and captain of a number of second-rate rugby sides. But I’d never given any thought to leadership as such, the process of leadership. Then Brian Finn, who was the managing director of IBM, asked me at a Business Council of Australia meeting, “Pete, will you come and talk to my mid-management people about leadership?” And I just sort of casually said, “Yeah, sure, Brian. When do you want me to do that?” And then I thought, “What the hell do you know about leadership?”

So I panicked and thought, “I better go and talk to some people who’ve obviously thought about it.” What I learned in that experience was that Australians generally aren’t encouraged to think of themselves as leaders. As a result, we’re not taught the skills of leadership. There are some pretty fundamental skills that can be taught and learned, but we’re still not doing it in Australia. Our education system still largely revolves around sitting down, shutting up, and learning. We’re not socialising our young men, in particular, as well as we should. Don’t get me started on that bandwagon, but that was one of the experiences I had in ‘85.

The other experience was I thought, “Okay, we’re making money and the franchisees are making money. I could sit back and let it grow from here,” but I wasn’t happy with the standards we were delivering compared to McDonald’s on our doorstep, even in Singapore. So I said to a bunch of my guys, “We’re going to go around the world and benchmark. We’re going to figure out who we want to emulate and how much we’re prepared to put into it to make it happen.” So we went to Europe and Asia, and the best store in the world was clearly right on our doorstep in Singapore.

We sat there, and I had Charlie Bell, Guy Russo, Bob Mansfield, and my top management team with me. I said, “How can we do this?” Some of them, they’d probably deny it now, but some of them were inclined to say, “We can’t ever emulate this, Pete. Their labour costs are about 1/5 of ours.” And I said, “Well, I’m not prepared to accept that.” And the conclusion was, if we can’t afford to hire that many people, we’ve got to make the people we can afford much more capable. That’s all about productivity, of course. So, how do you get productivity? You train your people better. And that’s what I set out to do.

In 1986, I went to the US with a budget for the year and said, “I want to spend 30% of my total bottom line on additional training.” Keep in mind that this was a company already spending more than Australian standards on training their people. That’s where I started, and 30% was staggering. With Fred’s support, I can give him credit for it, but he didn’t let me see it happen. They said, “Okay. If you think that will work, let’s go.” And they approved the budget for ’86. We spent it all on hiring more people, training them, building our training facility – anything we could do to lift our level of training and make it more effective.

And, can I tell you, was it an instant success? No. But by the end of the year, I was receiving letters – me, the managing director – letters from customers. Can you imagine the motivation it would take to get someone to bother writing a letter to the hamburger place, to tell them how much better their experience was? But I was getting those letters after the first year. That encouraged me. We went on to spend a disproportionate amount for the next five years.

And I should’ve mentioned at the start, McDonald’s has a very, very objective measurement of productivity in the store.

Brett Kelly:
This is really great. So, we were talking about confidence – true confidence comes from deep competence, and deep competence comes from skill progression.

Brett Kelly:
Can you explain how you were tracking skill progression and training it?

Peter Ritchie:
Well, by the book. You’ve all got a copy of the book, so you can read it, but it’s pretty simple. We don’t do it. That’s something we do not, still do not, do well – and that’s review performance in McDonald’s and Australian business. McDonald’s does it well. They have two or three annual reviews through the year for all their employees. And so, in the book, I say you should do it at least twice a year, I reckon, a performance review. But I sum McDonald’s training up with three words: detail, structure, and tracking. The detail is the way we break the functions in the store down into step-by-step processes. And Mark is a real expert at that because he was almost the dean of Hamburger University. He worked there and trained people in that method.

Brett Kelly:
You can be accused of creating robots, as I have been.

Peter Ritchie:
Exactly. You take a level of initiative away from your people when you tell them to do it this way, use these words, et cetera, et cetera. But what I found was that, very quickly, they get to use their own words and inject more self-confidence into it. And you produce leaders, as I’m delighted to say, McDonald’s Australia have continued to produce, who go on to run McDonald’s worldwide, just because they’re so super confident. And what do I mean by that? Well, they know it. They know it, and they know that you know it too. And it just fosters a great deal of – sometimes you might call it too much self-confidence. We call American kids precocious sometimes, but I don’t think you can be too self-confident. And it’s the self-confidence that makes, or is the material for, leadership in my book.

Brett Kelly:
So share that with us. I found that very interesting. Your sense of people taking leadership but needing to be self-confident, but that confidence needing to be clearly grounded in deep competence.

Peter Ritchie:
Well, it starts with those basics they’ve been taught. The six steps of service. The first step is greeting the customer. Well, we don’t do that anymore. And I say to businesspeople, break your functions in your business down into simple steps that you can clearly communicate, and they will follow it. Not only will they follow it, but they’ll probably help you improve it. So that’s the start. And you take them through that, and then you have them checked off by a third party. So, they’ve had it confirmed that, yeah, it wasn’t just the boss’s opinion, but somebody else has looked at it and said, “Yeah, you are capable of that. Don’t worry about it. You know it.” So that’s the checking off, the reviewing sort of thing. And that’s the structure you follow through. Like our operations manuals are that thick. And that’s the sort of detail that’s all the way through them. And every crew member that comes to McDonald’s and works for a couple of years or more has been through that in detail. And they’ve been checked off – checked off by some third party.

So, it’s no wonder they’re supermen and women. And we’ve got a woman in the States at the moment who’s likely to be the next president. We’ve had people running... Well, Anthony Martinez, who’s the CEO here now, has just come back from running South Korea. We sent Andrew Gregory, the previous CEO here, off, and he’s running worldwide franchising from the headquarters. And Charlie Bell, of course, ran the company and was president of the company. And that’s not a sample, that’s just a pretty typical picture.

Brett Kelly:
Yeah. So, you credit the observation that Australia’s wage rates were three times the cost of the US. And so, in order to get comparable productivity, you were going to have to train people. And Fred Turner obviously understood the argument and signed off on 30% of profits every year, just invested into training.

Peter Ritchie:
And that’s not a sample, that’s just a pretty typical picture.

Brett Kelly:
Yeah. So, you credit the observation that Australia’s wage rates were three times the cost of the US. And so, in order to get comparable productivity, you were going to have to train people. And Fred Turner obviously understood the argument and signed off on 30% of profits every year, just invested into training.

Peter Ritchie:
Well, not every year. We did that the first few years.

Measuring Productivity

Peter Ritchie:
Well, let me go back to the measurement of productivity. We were able to measure for even a 15-minute period in the stores, the number of customers we serve, and we're able to compare it to the number of labour hours that are used for that same 15 minutes. And you can see there’s no currency involved in it or anything, it’s just numbers and numbers. And on that measurement, in 1985, we were at the bottom of the world. We were in the bottom 5% of the world. In 1991, we became number one in the world, five years of investing in. And that’s... I mean, I’m getting emotional when I tell you that.

Brett Kelly:
Massive change.

Peter Ritchie:
Yeah. It just says so much about the capability of young people if they’re given the right environment, the right training, and right leadership. And I’m not taking credit for that, it’s just that I stumbled on it. And to tell you the truth, when I said we’ve got to get to that point, I didn’t have any real sense that we could do it, I just said, that’s where we’ve got to be.

Brett Kelly:
So, you are in that restaurant in Singapore. There’s yourself, Bob Mansfield, who became chairman of Telstra, CEO of some great companies, Guy Russo, and Charlie Bell, who ended up becoming the CEO of all of McDonald’s, the first non-US president of McDonald’s. You’ve got guys like Mark Halford and Ian Gartner as your juniors. What was it that... How did you know who were the people that could really take this thing forward in a world-class way? How did you choose these people or identify them?

Peter Ritchie:
Well, they identify themselves actually, because as you make them more and more confident, they stand out amongst their peers and to their superiors, to their bosses. And there’s no magic, there’s no magic in it. They’re just, they’re more competent and they know it, and they know that you know it too. So they’re looking for career growth. Luckily, I was able, because we kept growing, I was able to keep promoting them. And that was the greatest joy for me, being able to keep people growing and challenging. And I actually said to my top people, “Don’t worry, we won’t run out of opportunities for you. I will find something for you if we do.” And I kept sending people around the world, like Charlie went and ran marketing in Europe for a number of years, and that was only because he had no real training in marketing, but he was confident enough, he did know the business. He had a fantastic instinct for the business, as did Guy Russo. So I just added to that confidence, that awareness that they already had, that instinct that they already had.

Hardest Moments of Building McDonalds Australia

Brett Kelly:
So, you start... In 1970, you get to 1991, so now you’ve got some cash flow and you’re profitable. What were the hardest moments in that first decade of trying to build this? Share with us the really hard stuff.

Peter Ritchie:
Oh, well, the hardest stuff was closing the Canberra stores, for instance. And that was... And I’ll tell you about closing a lot of Brisbane stores too. That was just a fight with the unions, because I went to the Retail Traders Association here in New South Wales when we were about to open the first store. And I said, “We’re going to operate under the shop assistants award. Tell me what I need to do.” And they said, “Oh, well come down. And it’s nearly 5:00. We’ll go down to the pub and you can meet the union guys and talk to them,” because the retail industry is 100% unionised. And I said, “Stuff that,” and I really meant it. So I never went to meet them. And I had Barry Egan, the secretary of the union, poke me in the chest saying, “I’m just going to give you so much help that you’ll be happy to send me a monthly cheque for union dues.” And that’s how it was for me for a long, long time. They’ve gotten to a more amicable arrangement at the moment, but I don’t like it.

So in Canberra, would you believe the union down there said, “These aren’t jobs that are suitable for young people. We’re ruling that adult rates of pay only in Canberra.” And I said, “Wait a minute, this has been done all over the world by 15-year-olds and nah, nah, nah.” And so I said, “Well, I’m going to have to close the stores because we can’t go here losing money.” And I had a plan in mind, I was going to franchise them and let the little Aussie battler be the bloke who fought with the union, which I did effectively cut along story short, and he never heard from the union again when he reopened the stores.

Brett Kelly:
So when they weren’t company-owned, when they were franchisee-owned.

Peter Ritchie:
Yeah. So I had a little aggressive guy who took them on in Canberra, and he did a good job.

Brett Kelly:
And sorted them out.

Peter Ritchie:
Yep.

Brett Kelly:
Did you think that you could get McDonald’s to where you got it from ‘70 to ‘95? Did you think you could make that progress? When did you know that the tide had turned and you could?

Peter Ritchie:
Yeah, it’s probably by ‘91, probably.

Brett Kelly:
20 years in at this point?

Peter Ritchie:
Yeah.

Brett Kelly:
So you’re starting to feel a little bit more relaxed around 20 years.

Peter Ritchie:
Yeah. That’s funny, but it wasn’t fun for me.

Brett Kelly:
No. No. No. So the overnight success took about 20 years?

Peter Ritchie:
Yeah. Yeah.

Brett Kelly:
And at that point, you’re thinking, okay, now did you... there are over 1,000 McDonald's stores now in Australia. At that point, did you think, “Right, I can see 1,000 stores in the future,” or?

Peter Ritchie:
No, I never got that optimistic. I used to say 200.

Brett Kelly:
Yeah, was the maximum number.

Peter Ritchie:
Well, no, I didn’t say the maximum because I didn’t want to over-promise. I’m a great believer, I’m a great believer in equity, I should’ve said that right at the start. That’s how I came to talk Fred into selling us 10% of the business here, because I think equity is, if I was starting a business or had a small business, I would always give some equity in some way. Not give it, but make it available. Yeah.

Offering Ownership of McDonalds Australia

Brett Kelly:
So share that story in more detail. So, when did you have the idea to go to McDonald’s and ask to buy 10% of Australia? So Australia was 100% funded by and the equity owned by head office.

Peter Ritchie:
Yep.

Brett Kelly:
But what year was it that you thought, “Right, we better get hold of some of this”?

Peter Ritchie:
It was probably late ‘80s. And I had... I'd been moving down that track before I hired Steve German, who’s a CFO, who was magic. I had a CFO who was just a bean counter. And you don’t want a CFO who’s just a bean counter, you want a CFO who’s an innovator. So that’s some advice I’ve given business owners over the many years, and I’m a total believer, and it’s worth whatever you have to pay, the bloke who is your CFO.

Brett Kelly:
Well, we’re talking about Harry Sonneborn, who in the book Grinding It Out by Ray Kroc on McDonald's, he was the CFO that would... I went through the book and I highlighted every time he was mentioned, and he made such a... The accountant in the place made such a dramatic difference to the business.

Peter Ritchie:
Yeah. Yeah.

Brett Kelly:
So you come up with this idea to buy 10% where?

Peter Ritchie:
Yeah. Well, what I wanted was the feeling of ownership. And it probably came from me personally. I was there running the show and didn’t have any equity. And so it was probably a bit selfish on my part, but I knew it would benefit the company employees if I were able to offer them some too. And ultimately, interesting story, ultimately, when I did offer it to my top 100 people, not all of them took it up.

Brett Kelly:
I know all about this. Guys, when we IPOed Kelly Partners in 2017, I personally gave every employee 1,000 shares. After two years, we realised that half of those people hadn’t actually logged in to claim the shares nor the dividends that went with them. So sometimes you think ownership’s really important to people, and then other times you’re a bit shocked. So you went to the 100, you say, “Hey, here it is.” What was the take-up rate?

Peter Ritchie:
It was probably 90%. It was pretty high, but it shocked me that there were 10% who were saying, “No, thanks.”

Brett Kelly:
And did they have to buy it?

Peter Ritchie:
Yeah.

Brett Kelly:
And with today’s cash or over time or how was it?

Peter Ritchie:
Today’s cash. Today’s cash.

Brett Kelly:
So they had to turn up with some cash.

Peter Ritchie:
Yeah.

Brett Kelly:
Some people said, “I’d rather buy,” I don’t know, “a Porsche.”

Peter Ritchie:
Yeah, a new car or something. Yeah. I might’ve been naive expecting 100%, but... and because the dollars were significant... 300 grand.

Brett Kelly:
Okay. So just for anyone that listens to this episode, one of our clients and great friends was one of these people—26, borrowed 326,000, probably on about 30,000 a year at that time. So that’s real money. Was it a local commercial bank that lent it, or did you line up some finance for the guys or they had to go and find it?

Peter Ritchie:
No, I think we might’ve put the word out to the banks that we were not guaranteeing it in any way, but it’d be good if they lent the money. They didn’t always jump to my advice though.

Brett Kelly:
Yeah. So the top 100 execs buy in. And I remember in 1997, and it is... and I credit Peter with very much giving me part of the idea around our structure, was that you had relayed that you’d done this with these guys, and that the wealth that they grew gave them the opportunity later to become franchisees and gave the company the ability to grow because there was capital there to invest in stores.

Peter Ritchie:
Yeah, a secondary effect, yeah. What I wanted was business cards saying part owner. And I insisted that they get, if they bought shares, they were a part owner, and I wanted them described as not just marketing manager, but part owner.

Brett Kelly:
Okay. So you stayed as CEO until what year?

Peter Ritchie:
2000 and... Oh no, ‘97, ‘90... I just had to get out the way. I had too many young people so I became chairman, yeah, for five years until 2002. And then I said, “They’re going to run past me if I don’t get out of the way.”

Brett Kelly:
How do you feel at that point? So at this point, you’re 55? You’ve been there 32 years, built this baby. How many stores?

Peter Ritchie:
Yeah. I don’t remember how many stores exactly, but my wife told me it was too early that I still loved it too much. And actually when I do talks about it now, I apologise because I still use the term “we”, we are doing this and we are doing that. It’s because I love the company still, despite all its faults. But in my opinion, it was the right time. I could’ve hung on, no question about it. But I actually learned a little bit from Fred, because Fred made himself chairman and then senior chairman. And that’s stretching it a bit, when you do that. And he actually started making a fool of himself because he didn’t really know what was happening and he’d beat around and try to contribute. And I said, “I’m not going to be like him.” So I learned really right to the end, I learned from him.

Ronald McDonald House Charities

Brett Kelly:
So can you share with us where did Ronald McDonald House Charities come from and when, and where did the big idea come from?

Peter Ritchie:
Well, the big idea, everybody knows, dates back to the Philadelphia Eagles. Ray must have seen a story about one of the top players at the Philadelphia Eagles who had a kid who was being treated in the local hospital in Philadelphia and needed to be right there at the hospital all the time. And they had no accommodation for him. And Ray threw his support behind providing him with accommodation. And they realised from that experience that it was in constant demand, and we found all over the world. And so I took it for granted when I had the time and effort and we had the ability to spare people to do it that I’d started Ronald McDonald House.

So I went to the Royal Alexandra Hospital for Children to see a bloke called John Yu, who was the CEO. And I said, “John, we’ve got this house concept, and do you need it? Would you like me to help you establish one here?” And I got rejected out of hand, just out of hand. And so I just went away with my tail between my legs. And no more than six months later, I saw a little ad in the Sydney Morning Herald from two of the oncology doctors down there at the Kids’ Hospital and they said, “We need this sort of help. We need to have people who are being treated to be able to walk home and come back.” And so I said, “That’s exactly what Ronald McDonald House is.” Well, away we went. And it’s been so too emotional for me. I just get overwhelmed by the heroism of the kids, how they just take it for granted that this is their life. So, I had to stop going there as much as I wanted to at the start. But we built a beautiful house just up the road in Pima Bridge Road for that hospital. And then we went on from there to build Westmead, and now we’ve got, 18 in Australia.

Brett Kelly:
There’s 18 houses. There’d be a couple of thousand rooms across those houses. At least the new one in Perth is enormous.100% occupancy every night.

Peter Ritchie:
Yeah.

Brett Kelly:
So for anyone who hasn’t seen them here in Australia, they’re amazing. You can go and get involved and feed the kids. I’m with you. I love to support them, but I find it very difficult. I’ve had a sick child, I find it very difficult to go near because it’s very stressful to see a sick child. That’s probably good grounding. So you finish up, what do you do then? 55, you’re a young man?

Peter Ritchie:
Yeah. Well, I started getting offered boards, so I was already on Channel 7 board. Let me think of the order of that, because Channel 7 and Westpac both came to me and said, “Would you be on the board?” But Westpac couldn’t put me on the board because I was already on the board of 7 and they couldn’t own the media, they’d foreclosed on Christopher’s case. And so it was a bit of an involved procedure there. But then I got involved with Packer, and he used to call me up and say, “Pete, can you come over? I want to talk to you about something.

Brett Kelly:
So this is good. For people who are listening, Kerry Packer was for a long time, certainly most of my life, Australia’s richest man and the biggest media proprietor in Australia. Owned the biggest television station, the biggest magazine empire.

Peter Ritchie:
The most successful television station, that’s for sure. Yeah. So he rings me up and says, “I want to talk to you about something.” I kept going to his office. And I’m walking over there. Each time, I’m thinking, “Wait a minute, you are the customer, he should be coming to you.” But I didn’t, I kept going to his office.

Brett Kelly:
He hadn’t done the training, the basic training.

Peter Ritchie:
And I'll tell you something I haven't told many people, but I got there this day, and he had the bloke who was running World Series Cricket with him. They'd just been to the movies at HOYTS where we had a store. And he said, "We bought hamburgers to go in and watch the movie, and they wouldn’t let us in with the hamburgers." And he went on and on about how much it cost him. In the end, I got my wallet out and put $20 on his desk and said, "There’s your money back, Kerry." And he took it, I think. I never stuck around to check, but he said, "What we need to do is really change this place, Westpac." I wasn’t on the board then, but I was about to join, and he knew it. So I said, "Yeah, it does need dramatic change. It’s evident to everybody." So I more or less indicated that I was on his side.

So then the first meeting I attended, he comes in and the first thing he does is put a motion of no confidence in the chairman on the table. And there I am, I’ve told him I’m on his side – what do I do? The chairman said, "Alright." It’s a big board, way too big, and half of them shouldn’t have been there, but that’s by the by. The chairman said, "Well, we better sort this out before we go anywhere. We can’t go anywhere." So, on my right was Sir Llewellyn Edwards, the Premier of Queensland, and then one of the partners in Freehills. And those two voted before me, and they both said no, they wouldn’t support this. I said, "Kerry, I’ve told you I’m on your side, and I am in principle, but this is not the way to do it." And started a discussion, tried to start a discussion about how it might be done.

And next thing I hear is a crash. He’d picked up his board papers, slammed them on the table and stood up and said, "I’m out of here." There were only three people out of 14 who had voted around the table. To this day, I haven’t worked out what numbers he thought he had. I think he thought he was going to get overwhelming support, but he walked out. Then he had another board member, the chainsaw, he used to call him, Al Dunlap. And the chainsaw is still sitting there, not knowing what to do. And this is way off the topic, isn’t it? I’m sorry.

Brett Kelly:
This is a good story. So for anyone who knows Australia's corporate history, Westpac’s the second-largest bank in Australia. It was going to go broke. He brings in his guys, yourself, Al Dunlap.

Peter Ritchie:
Yep. And apparently, Packer made $300 million out of it. He just sold out, got out, sent us a letter of resignation straight away, and sold his shares, but he made $300 million, so he didn’t do too badly out of it.

Brett Kelly:
Now, were you there when they brought Bob Joss in from Wells Fargo in the US? Were you part of the recruitment?

Peter Ritchie:
Yeah, I was on the committee that selected Bob. And he’s still a good mate. What I should tell you about that is, and this is a reflection on Australian boards and the job they do at planning succession, because there were no Aussies on the shortlist of six that we had. One Kiwi, no Aussies. So we were stuck with an American who fitted in pretty well, Bob, to be honest about it. But I said, "Where are the up-and-comers in the organisation?" There weren’t any. There weren’t any. And I’m not sure that it’s any better now. I can’t really comment accurately because I don’t know, but I haven’t seen any sign of a great push from underneath in any of the banks. That’s another topic in itself. Where was he? Where was I when I started that story?

Brett Kelly:
Well, I was asking you, so post-McDonald’s, you’ve done your chairmanship, you go… what happens to a young 55-year-old? You go on boards. These are great boards, these are amazing experiences. What was your continued involvement with McDonald’s?

Peter Ritchie:
Yeah. I purposely, because of the lesson I’d learned from Fred, avoided it. I said to the CEOs that came after me one by one, "I’m not going to ring you. I’m happy to help and I’ll have an annual lunch with you or something like that." In fact, they used to sell, they still do sell, a lunch with me as an annual fundraiser for Ronald McDonald House. They raise a few thousand just selling lunch with me. And I always enjoy that too, of course. But that’s practically my only involvement on an ongoing basis. But that’s by my choice. I don’t want to ever be in a position of second-guessing the CEO. It’s not my thing.

Brett Kelly:
So you kept your equity in the business. When you got some, did you end up getting to roll it up into listed shares?

Peter Ritchie:
No, I just had a good holding of McDonald's shares. In fact, Ray Kroc, for one of his birthdays, he gave a lot of the senior people around the world, including me, shares as his own present to us. So I had those shares too. But I eventually sold. I saw the company going in ways that I didn’t think were right. And when you can’t influence, you get out.

Brett Kelly:
So were you around at the IPO of McDonald’s?

Peter Ritchie:
No. That was '64 or '65.

Brett Kelly:
So that was before you?

Peter Ritchie:
Yeah.

Brett Kelly:
And so they’re doing Australia. They’re funding a decade of losses as a public company. With all of your experiences in so many of these businesses, what’s your observation of what it took for the leadership to grow internationally as a public company funding losses for nearly a decade?

Peter Ritchie:
Yeah. Well, McDonald’s was a cash cow. It was just, cash was pouring out of our ears. And so… You’re thinking selfishly, aren’t you? You’re thinking about growing your business.

Brett Kelly:
I’m just thinking. So Fred Turner grew globally very early. And the conventional wisdom would’ve been, "We’ll wait until there’s no growth where you are before you grow out of where you are." But when you look at the great entrepreneurs, they understand that growing your people, you need to grow the business to grow opportunity for your people, which I think is the sense that he had.

Peter Ritchie:
Yeah, and I think… Yeah. And he knew very much how important that ability to promote people and keep them challenged by holding out promotion possibilities to them. So he knew how important that was. But I’ll tell you something that you might benefit from. He was always wrestling with how restrictive the reporting was. And as you know, in the US, it’s quarterly. And he hated making short-term decisions just to make the quarterly report look better. He hated that. We used to sit at the back of a fishing boat and work out how many billion it would take to buy the company off the market. In the end, we could have done it. We could’ve raised 9 billion to buy it off the market, but we never did. It was probably too late for us. He should’ve got younger people involved to… Yeah.

Brett Kelly:
So it’s interesting. So Charlie Bell, you have Charlie in the business, he goes on to become the CEO and president globally, and dies very young. You got to send him to Europe. And if, just thinking through the business, if the business hadn’t been a global business, the local MD wouldn’t have had anywhere to send him.

Peter Ritchie:
No.

Brett Kelly:
And he would’ve been too early to be the CEO.

Peter Ritchie:
Yeah.

Brett Kelly:
And he would’ve potentially lost him to the business.

Peter Ritchie:
And that was a dilemma that I ran into because I used to talk to Fred about going and doing a regional manager’s role in the US. The problem for me was there was nothing to come back to. So, I just put myself aside and didn’t worry too much about that, but I was able to promote, like Guy Rent, who ran China. He had 1,000 stores 20 years ago in China.

Morphing McDonalds Australia

Brett Kelly:
So it’s very interesting, the career path now. So, as you said, Andrew Gregory was the CEO of Australia for people to understand. He is running 1,000 stores here, and now he’s running global franchise operations from Chicago for the whole system. But in the absence of that opportunity, there’d be nowhere for him to go. And he’s quite a young man, 45 or 47, or not an old man.

Peter Ritchie:
Yeah. But McDonald's is finding, and I talk in the book about morphing, because McDonald's is changing so much that I'm confident there'll be opportunities that will arise for someone even like Andrew, who you might say has peaked. But if he hasn't peaked in terms of his ability, there will be places for him. I know.

Brett Kelly:
So share with us this idea of morphing. So in the book, you talk about training, you talk about entrepreneurial spirit and you talk about morphing. What's this morphing idea for people that haven't seen it yet?

Peter Ritchie:
Well, I use the term morphing because it's more than just change. It's becoming something else. And it happens in McDonald's without... perhaps without us even recognising it, McDonald's is people in the system without even recognising it. We're just so good at reacting to customer demand, being flexible and trying things. And there's an example in the book that I quote, I think I quoted in the book, in the late '80s, McDonald's Canada fell in love with pizzas, and they thought they could be everything to all people and, "We'll put pizzas in our stores." And the company took it up. They said, "Oh, the Canadians tried it and threw their rose-coloured glasses, kept boosting it, saying how wonderful it is." And so I stood up at a leadership meeting and said, "It'll never work. It's, McDonald's aren't pizza people. And if we start to try and tell our customers that we are, they won't believe us. We've got to concentrate on what they know we are, and that's hamburger specialists." Anyway, McDonald's put pizza, $20 million worth of pizza cooking equipment into every store in the US and Canada. It lasted six months.

Brett Kelly:
Six months.

Peter Ritchie:
Yeah, but we were good at it. So, customers don’t even remember that anymore. And a lot of the people in the system don’t. It was in, proved to be ineffective and gone. And that’s what McDonald's is really good at, trying things. And when they don’t work... getting rid of them. And they've done that pretty constantly over the years. Positively, they have added product. And without going too far, the Big Mac, for instance, is an idea stolen from a competitive chain called Bob's Big Boy in the Central West of the US by a franchisee who tried it and said to McDonald's or Ray Kroc or Fred Turner, one of the two, "This thing, this thing sells." And they hopped on the bandwagon and now it's ours.

Brett Kelly:
It's a $7 billion product.

Peter Ritchie:
Yep.

Brett Kelly:
So, were you around when the McMuffin was introduced?

Peter Ritchie:
No, because we were late in getting into breakfast, yeah. I used to say, "Australians won't eat breakfast out," to Ray or Fred, "Australians won’t eat breakfast out like they do in the US." And until I went to Canada and my... the outsider up there, said... I said, "Do Canadians eat breakfast out like the Americans do?" And he said, "I don't know whether they eat it, but they buy plenty of it." That was enough for me. I said, "We've got to do it." So, that was late in the piece though. The product was pretty well invented and decided upon by that time.

Brett Kelly:
So, that was a franchisee. I saw a video recently in Chicago at a meeting where they played the video of the gentleman that had designed the McMuffin maker. And he cooked it up and he'd made his little steel egg maker, and he got Ray Kroc to come and served it to him and said, "What do you think?" And he said, "Yeah, I liked it." And he said, "Okay, I'll take that." And he took it back to head office and started engineering it, which I just thought was such credit to him to just see an idea that had come from somebody and adopted.

Peter Ritchie:
Yeah, but Ray had a record of investing in bad products. He did. One of his favourites was a Hawaiian burger, but it was just pineapple. There was no beef. It wasn't a hamburger as such, it was just a slice of grilled pineapple on a bun. And it bombed like a lead balloon, of course.

Brett Kelly:
So we were talking at dinner. When did you meet Ray Kroc and what was he really like?

Peter Ritchie:
Yeah. I met him when I first arrived there because he was still coming to the office on a regular basis for my training. And I knew him for 14 years. So he died at 84 and I'd met him at 70. So did I get to know him really well? No, but well enough. And what his magic was that he had the ability to convey his enthusiasm so effectively that he'd get the franchisees up, giving him a standing ovation when he'd said three sentences. And I'd be wondering, "Wait a minute, what's he said?" And they're all up giving him a standing ovation. And I said to Mark earlier, "You know, what he'd really used to tell them was he was going to make them all rich." And everybody loves to hear that, don’t they?

"Back up the truck"

Brett Kelly:
So share with us the "back up the truck" story. I found that very fascinating.

Peter Ritchie:
Back up the truck. Well, I wasn’t there but one of the early conventions when he was having fights, and they did fight a bit with their franchisees, and I talk in the book a lot about that. There's a natural tension that you want there because it's beneficial. But McDonald's too often in the US let it get to a legal argument stage. And at one of the early conventions, he gets a cart. I think it was a couple of Brink’s. The armoured trucks, backs them onto the stage. And so all the money is there. He said, "Now..." He said, Ray said, "Now, tell me you want your money back. Well, come and get it now. Here it is. It’s..." He had—

Brett Kelly:
Did anyone take the money?

Peter Ritchie:
No. No. No. Not that I’m aware of anyway.

Brett Kelly:
So how does... So at the time he retired, he would’ve been 75-ish.

Peter Ritchie:
Yeah.

Brett Kelly:
I think he died at around 76 or so.

Peter Ritchie:
No, he died at 84.

Peter Ritchie:
But he was pretty debilitated to the end. He had a 75th birthday party, and Lee and I got an invitation from him, and I thought that's nice, symbolically inviting us to his birthday party. And so I sort of dismissed it. And next thing, he sent the airline tickets. So we went to Chicago for a 75th birthday party, and we arrived there on the Saturday, went to the party Saturday night. We're sitting around the piano with him at 4:00 AM with him playing. And at 6:00 AM, we went and had a shower and went to the breakfast thing that he had at some other club in Chicago. And then later that afternoon, we got back on the plane to come home.

Brett Kelly:
So he was obviously a very energetic, enthusiastic person.

Peter Ritchie:
Yeah.

Brett Kelly:
How was it that he brought Fred Turner through, who was so much younger and so different?

Peter Ritchie:
Yeah. Well, Fred was an attention-to-detail man, which Ray wasn't, and Ray knew he had that deficiency. So naturally, he added his own... Well, he added the skills that he didn’t have. That’s about all I can tell you about. I should have talked more personally to Fred about what it was like working with Ray right at the outset. But they had half a dozen franchisees right from the outset too. So you had to take that into account. Ray had... Well, it took over from the McDonald's brothers, they'd already franchised, and Ray had to sort of keep them happy and then start another bunch of franchisees in Chicago. And I said to him, "Where'd you recruit your first franchisees?" And he said, "Oh, a couple of the blokes at the golf club."

Brett Kelly:
And did you, in grinding it out, he then talks about how the country club guys wouldn't go to the stores, wouldn't take responsibility, and wouldn't drive performance. So he got these young blokes, geared them up to 100%, and said, "Off you go, and I'll make you millionaires." And he did, and off he went.

Peter Ritchie:
Yeah. He learnt that having a bit of money was bad for them, and they started spending it on big cars and things like that, while the business was suffering. That's what he mentions in the book, I think. He always emphasised that it’s all about serving each customer, one by one, in the store. That’s where our success lies. The best franchisees are the ones who are in the store all the time. It’s hard work. I mean, the franchisees who are really grateful to me now, because they say I brought them the business, I say, "The truth is, you worked so hard, so you’re responsible for everything you’ve made." It’s tough running a seven-day-a-week business.

Brett Kelly:
Yeah. So when you look back now, you answer a small ad in a paper—how do you think about your career as you look back?

Peter Ritchie:
Well, it was 1969, and they gave me the 1969 annual report of McDonald's. I was sitting in W.D. Scott’s waiting room, looking at this hamburger company from the US that I’d never heard of. And they’re saying, "We want to hire someone to be the CEO in Australia. Are you interested? We want to run you through some tests." The only reason I stuck around was that I wanted to see how I went in those tests.

So I did an IQ test and a personality test sort of thing. And I don’t even know how I went, but I must’ve done alright. At the time, I was working for Sid Fisher, managing one of his building projects, and was doing pretty well. I knew Harry Triguboff when he had his business out of his pants, that sort of thing. My wife and I were driving home over the Spit Bridge, and she said, "You met with that guy from the US today." I said, "Yeah, I think he’s going to offer me a job." And we had a brief discussion between the Spit Bridge and Manly, where we lived. "Would we do it?" we asked ourselves. We didn’t have kids then, just footloose and fancy-free. Would we do it if he rang and offered me the job in the morning? That was the extent of our discussion. Then, she came to the US and they put her through Hamburger University too. So, she’s got a Bachelor of Hamburgerology, as well as her master's degree.

Brett Kelly:
But what did she say? So you're driving there, you've done this interview. What was your wife’s attitude? Because often, it’s the wife who plays a very key role in making these decisions.

Peter Ritchie:
Well, she was supportive of me, and that was her role at that point—very much so, though that changed over time.

But we found, when recruiting franchisees, we always involved the partner. And it was often the case that the partner turned out to be the stronger one, or at the very least, we knew their strength would be crucial for the franchisee. Some of the strongest blokes you might imagine who applied were really solid on their own. But what reassured us most was knowing that their partner’s strength was going to support them.

If I were franchising from the start again now, I’d always take that approach, because it’s vital that you don’t go home to someone who's anti the business. That would be just unacceptable, wouldn’t it?

Brett Kelly:
Yeah. The level of commitment required to build a business is a whole-of-family effort.

Peter Ritchie:
Yeah. It’s got to be a team effort.

Brett Kelly:
Yeah. I know from our business, the kids understand. If the phone rings, I’ll take a call. They don’t interrupt. They just get it, “Yep, Dad’s call, and we keep doing what we’re doing.” They’re older now, so 19, 17, and 12, and they know. When they were little, my wife would say, "You do work quite often."

Brett Kelly:
Well, I’ve really enjoyed our discussion tonight. I’m conscious of time. I did want to share a quote, and then I think we’ve probably got a roving microphone. If anyone’s got a question for Peter, I’d be keen to get those asked. I just wanted to share this quote. There are a couple of quotes here that we pulled together. These are some quotes from Peter: "Accept total responsibility for building the spirit of your team. Don’t blame the company or its traditions for any shortfall." And I really liked this second one, which was, "Be the leader your people want. Maintain a degree of separation. Don’t become just another squabbling sibling," which I thought was great. And the last one: "Commit to making your people the smartest in the industry to help them grow as individuals."

And the last lesson I’d like to share was when I was 22, interviewing Peter. There was one overwhelming thing he said that I remembered. He said, "Brett, you can’t go any faster than the organisation you're working in." I later rephrased that to, "You can’t be a winner working for a loser." But it was so true. I looked at my boss when I went back to these firms, and I worked in three more firms. I looked at my boss and thought, “This guy doesn’t want to get up early, doesn’t want to stay up late, doesn’t want to do anything.” And you can’t go faster or further than the leadership in the organisation will allow you to. It just struck me. And when the opportunity came for Scotty to ask me to start a firm with him, I thought, “Well, I might as well do that, because I know I’ll go faster than this fella who I’m trying to encourage to run his business better.”

That was incredibly instrumental and helpful. So I’d love to throw it open. I think we’ve got a mic somewhere. If anyone’s got a question, there’s a gent with his hand up there. Let’s get some questions.

Peter Ritchie:
Can I... Well, that’s coming, can I just talk about those two quotes? The first word in the first quote is "accept." What I’ve found is that, so often, people who are supposed to be leaders haven’t really accepted the responsibility.

Brett Kelly:
They’ll take the remuneration but not the responsibility.

Peter Ritchie:
No. And they’re ready to shift the responsibility onto someone else. So, if you’re going to be the leader, really take it on, accept it. Then, recognise that the staff are watching you all the time. They watch you like hawks. So behave like the leader. What do you think they want the leader to be? Maybe you don’t know what they want the leader to be. Find out, and then be that leader.

Brett Kelly:
Did you meet the McDonald brothers?

Peter Ritchie:
Yeah. I met Dick and Mac McDonald, both of them, at one of the early AGMs. It must’ve been in 1970 or ’71. And I make the point in the book that there was no animosity that was evident to me between Ray and the McDonald brothers, because he’d actually—although the movie and the book imply that... the movie, not the book, implies that he doubted them on royalties, but he didn’t. He bought them out of the royalty. He paid them millions of dollars in the early ’60s to buy them out of their royalty. And it wasn’t handled well, and he didn’t really handle it well afterwards either because he sort of didn’t quite make fools of them, but pointed out how much more they’d be getting if they’d stayed in for the royalty. If I were them, I wouldn’t have reacted well to that sort of thing, but that’s what he did a bit. But yeah, by the time I met them, they were probably in their 60s and pretty happy with life in California.

Brett Kelly:
So the money they got paid for the system was the equivalent of a couple of hundred million dollars. And in those days, that sort of money in California bought you a pretty good lifestyle.

Peter Ritchie:
Yeah.

Brett Kelly:
So they didn’t have any desire to have 38,000 restaurants. I think they were probably living their best life.

Peter Ritchie:
Yeah. Mark just showed me a letter from Dick McDonald to Ray Kroc saying, "Well, lad, you’re doing a good job of running the business, etc." So that’s an interesting piece of evidence that there wasn’t animosity; there was no animosity there.

Brett Kelly:
Well, it's been a terrific opportunity to catch up with someone who's done so much with their time and made such a difference to so many other people. The McDonald's system globally, I would say to Peter before, is that it has got so much to recommend it in terms of how to run a business well, how to do the basics in a world-class way, which is really the sort of art of life. And so it's been a special thrill to have Peter here tonight. I want to thank everyone for attending.

Most people just have no concept of the difference other people can make in their lives. And Peter's experience made a difference in my life. And so I wanted to hold tonight so that we could pass it on to other people and I'd have the opportunity to publicly thank him. And so we've been able to do all of those things, so it's been a great success. Thank you, Peter.

Peter Ritchie:
Thank you, everybody.

--End of transcript--