SYSTEMIC:

Herb Washington bought his first McDonald's restaurant in 1980. He was 29, young by McDonald's standards; a husband hoping to be a father, as the company preferred; a graduate of Michigan State University and Hamburger University. Washington had been a sprinter, nearly qualified for the 1972 Olympics, and later signed with the Oakland A's as a "designated runner." He lasted just a year, but it was a good year. The team won the World Series, and Washington earned about $100,000 all counted. That's how he paid for the restaurant.

When McDonald's decided he was ready, it also decided where he would go. For a decade, McDonald's had been recruiting Black men--and a few Black women--to own restaurants in Black neighborhoods. Civil rights activists demanded it. Black entrepreneurs wanted it. And company executives knew it was necessary to keep the business growing. Some of the restaurants were new, many had been owned by White operators who wanted, or were advised, to sell. White residents were abandoning cities for the suburbs, and so were White McDonald's franchisees. McDonald's itself wanted to stay. Washington was told his McDonald's would be in Rochester, N.Y., in a poor Black and Hispanic neighborhood, next to a public housing complex called Fight Village. Other Black operators called these "hood restaurants." Washington didn't know that yet.

But he knew enough about McDonald's to understand that turning down the offer would be a mistake. Getting into the system, as everyone calls it, is competitive. Buying restaurants is competitive, and no one gets into the system to own just one. He was excited to join more than a hundred other Black operators at a company that seemed to offer opportunities they were denied elsewhere. He was going to climb, he was going to lift, he was going to get rich.

His excitement didn't last long. The restaurant, on the corner of Clifford and Clinton avenues in downtown Rochester, was new, its economics untested. McDonald's owned the building--as it almost always does--and Washington, like all operators, paid rent plus a service fee to the company, based partially on sales. This model provides McDonald's revenue that doesn't account for the costs of running the restaurant, the debt most every owner takes on, or any unexpected problems. "We're just like the Mafia; we skim it right off the top," a McDonald's executive had joked to Time magazine in the early 1970s. No one ever said anything like that in public again, but it's one reason people still say that McDonald's doesn't sell burgers, it sells real estate.

McDonald's was optimistic about the potential of restaurants that served mostly Black customers. They were regarded as "super-users." Washington's restaurant fell short right from the start. Sales were expected to reach more than $1 million a year but came in at about $700,000. McDonald's misunderstood the demographics of Rochester's downtown, he said. Many of his customers received public assistance and didn't have a lot of disposable income. His staff couldn't upsell. Purchases spiked at the start of the month and plummeted at the end. The crack epidemic was taking hold. There were fights in the restaurant; he kept baseball bats around like they were spatulas.

After the first year, his was the lowest-volume restaurant in the region. That, he said, was devastating. When a restaurant is struggling, McDonald's can help by lowering the rent. But Washington didn't know to ask for assistance, and he said no one suggested he try. Instead he relied on an Urban League program that paid as much as half of the salaries of his younger employees.

The next year, McDonald's offered Washington a second Rochester store next to another public housing complex, Fight Square. He didn't hesitate to buy it. And a few years later, he took on a third. He had figured out a management system of his own.

He'd also figured out what a lot of other Black operators had. Life would be a little easier, and his bottom line stronger, if he could buy some restaurants in the suburbs, where, generally, the customers were White and better off economically, and the McDonald's franchisees were, too. Washington was friendly with one who wanted to sell three restaurants. Before McDonald's even knew the restaurants were on the market, he'd made a deal. That was probably a miscalculation. The company has the first right of refusal, which means a regional manager can prevent any sale between operators. That's what happened. "McDonald's can say, 'Oh no, we want these stores in those hands. It's that simple," Washington said. "McDonald's overrode the deal and then sold the restaurants to a White owner." McDonald's acknowledged that it didn't approve the sale. "After losing the stores, I felt betrayed," Washington said. "I felt discriminated against. I felt that if I was White, the deal would have gone through."

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