Cantalupo, Jim 1943–2004

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Jim Cantalupo
1943–2004

Former chief executive officer, McDonald's Corporation

Nationality: American.

Born: November 14, 1943, in Chicago, Illinois.

Died: April 19, 2004.

Education: University of Illinois–Champaign, BS, 1966.

Family: Son of James Francis Cantalupo and Eileen Patricia Goggin; married Jo Ann Lucero, 1973; children: two.

Career: Arthur Young & Company, 1966–1971, staff accountant; 1971–1974, manager; McDonald's Corporation, 1974–1975, controller; 1975–1981, vice president controller; 1981–1985, senior vice president controller; 1985–1987, senior vice president and zone manager; 1987–2002, president of McDonald's International; 2003–2004, CEO.

Awards: CEO of the Year, Whitney Tilson of the Motley Fool investment letter, 2003.

■ James N. (Jim) Cantalupo was brought up in a working-class Chicago family and eventually became an accountant for Arthur Young. He was hired by his top client, McDonald's, in 1974 and worked his way up through the financial ranks to become a zone manager. A no-nonsense, hands-on manager, Cantalupo ran McDonald's International from 1987 to 2002, turning it into a colossus and the very symbol of American global culture. In the final year of his life, after 28 years with the company, he rescued McDonald's from failing sales.

"I LIKE TO WORK": STARTING A NO-NONSENSE CAREER

Cantalupo's father, James, was an optometrist of Italian descent; his mother, Eileen, was Irish American. Cantalupo grew up in military housing projects in the Austin district on Chicago's West Side and from the beginning embodied a very strong work ethic, enormous drive, and a practical approach to life.

He began working part-time after school in laundries and grocery stores, managing one of the latter when he was only 20. He left Chicago to attend the University of Illinois at Champaign, where his hard-nosed practicality guided his decisions. Cantalupo wanted to be an architect but looked first and fore-most at the bottom line, and career opportunities for architects were somewhat limited. There existed plenty of opportunities for accountants; Cantalupo majored where the money lay. In 1966 he graduated with a bachelor's degree in accounting and shortly afterward became certified as a public accountant.

DISCOVERING THE ARCHES: A LIFETIME CAREER

In 1966 Cantalupo began working for the accounting firm Arthur Young & Company in Chicago. He audited a number of companies, one of which happened to be the rising fast-food franchise McDonald's Corporation. Throughout the 1960s McDonald's opened outlets along the expanding interstate highway network and in burgeoning suburban shopping malls. Cantalupo and McDonald's were impressed with each other; McDonald's offered the 30-year-old Cantalupo an accounting position that would double his salary. Cantalupo accepted the offer.

Through the 1970s and early 1980s Cantalupo rose through the financial ranks of the company, eventually becoming a high-ranking inventory manager. In 1985 he became the manager of one of several U.S. McDonald's zones, by which time the company had grown exponentially from 228 outlets in 1960 to 1,500 outlets, mostly in the United States. In the early 1970s the first outlets opened in Canada, Australia, and Japan, followed by the United Kingdom, Germany, and France. By 1980 McDonald's was becoming a global company and Jim Cantalupo one of its most able managers. Between 1985 and 1987 he was posted to various districts and regions, wherein he gained an in-depth look at the company's worldwide operations.

BUILDING A GLOBAL BRAND: PRESIDENT OF MCDONALD'S INTERNATIONAL

In 1987 Cantalupo became president of McDonald's International. He transformed McDonald's from an American company supporting international outlets into a global company based in the United States. According to John Love's history, McDonald's: Behind the Arches, Cantalupo came into office with one main goal: to open as many international outlets as possible. In the early 1990s he had come to recognize "the potential of McDonald's International," which existed thanks to a global infrastructure that by then could "support faster growth in existing markets as well as handle new markets much more efficiently." Cantalupo planned to accelerate that growth.

Under Cantalupo, McDonald's International grew by an astounding 35 percent annually. According to Andrew Serwer of Fortune magazine, the company went global with a vengeance. Before Cantalupo took over, annual international sales amounted to $3 billion, producing revenue of $1.8 billion, or a little over a quarter of company revenues; these figures were brought in by 2,600 outlets in some 40 foreign countries. By 1994 4,700 McDonald's International outlets were grossing $11 billion, for net revenues of $3.4 billion, or fully half of all company revenues. Cantalupo ultimately had charge of over 17,000 restaurants in 160 countries upon his 2002 retirement. The one-time Chicago grocer had forged McDonald's International into the most powerful service franchise on the planet and a symbol of the new global economy—and of American globalization as well.

Thomas Friedman of the New York Times developed his Golden Arches Theory of Conflict Prevention based upon Cantalupo's achievement. Friedman sampled McDonald's cuisine from Beijing to Cairo to Jerusalem; he noted in The Lexus and the Olive Tree that not only did the food taste the same everywhere but "no two countries that both had McDonald's had fought a war against each other" (2000). Friedman took his rather whimsical theory seriously enough to present it to some of Cantalupo's executives in Oak Brook. They agreed with his premise, which underlined the perception that globalization made war more difficult.

CANTALUPO'S THEOREM: HOW MANY MACS DOES A COUNTRY NEED?

In 1994 Cantalupo boasted that he was seizing the global marketplace. He turned McDonald's into a global brand in a class with Coca-Cola, the difference being that McDonald's represented a service, not just a good. What Cantalupo was truly exporting, many argued, was a way of life—one that, a few anti-American and anticapitalist intellectuals notwithstanding, millions wanted.

Cantalupo focused the greatest expansion in the countries seen to be potentially the most receptive to the McDonald's appeal, which were selected on the basis of Cantalupo's Theorem. The theorem answered the question, How many Mc-Donald's outlets can be built in a given country? Cantalupo first divided the population of the given country by 25,000—there was one McDonald's for every 25,000 people in the United States in 1994. He then multiplied this "people ratio" by a second figure, the "income ratio," which was the per capita income of the country divided by $23,120—the American per capita income. The resulting figure was the "penetration potential."

According to this formula, as of 1994 Japan, the numbertwo market after the United States, afforded the highest market potential of 6,100 new outlets; Of other Western countries, Germany could handle 3,235; France, 2,237; Canada, 1,023; and Australia, 526. China, Russia, and India could open 784, 685, and 489, respectively. South Africa, Colombia, and Pakistan, none of which had a single McDonald's in 1994, could carry 190, 79, and 90, in that order. By the time Cantalupo stepped down in 2002, in most countries only half of this "penetration potential" had been realized.

Each targeted country presented a different challenge. France presented a long history of strong unions, cultural sensitivity, and labor unrest. Germany had strong governmental restrictions on discounts and special promotions. The more McDonald's became a symbol of Americanization, the more consideration of this too became a factor. Mineral water might be put in a French outlet, kosher beef in an Israeli one, and no beef in an Indian one, and restaurants might close five times a day in Egypt and Jordan; but Cantalupo was only willing to bend so much in compromising McDonald's basic formula, which assumed that people the world over wanted the basic American menu. To a large extent the massive success of Mc-Donald's International demonstrated that Cantalupo was right. In Fortune magazine, he remarked, "People are more the same than they are different. I don't think our food is seen as American; it's seen as McDonald's" (October 17, 1994).

Cantalupo's growth strategy involved several stages. In stage one Cantalupo's staff would spend 18 months hashing out details concerning locations, real estate, construction, personnel, business law, and host-government relations. In Canada, Britain, Australia, and Europe, McDonald's operated and expanded via wholly owned McDonald's subsidiaries. In Asia Cantalupo worked through joint ventures such as the highly profitable Japanese operation of Den Fujita, which used the McDonald's logo, returning 50 percent of the profits to Mc-Donald's. In Islamic countries such as Saudi Arabia, Cantalupo was reluctant to risk capital and merely licensed the company name to local providers who would follow McDonald's specifications.

In stage two Cantalupo would deploy the McDonald's brand. In Love's book he boasted, "The McDonald's name and what we stand for opens a tremendous number of doors" (1995). The Golden Arches came to symbolize not just a company but an entire culture. Governments supported McDonald's due to its long-term perspective and because they recognized that Cantalupo was "selling a system and not a trademark" (1995). At one time the company opened three stores a day around the globe.

Some believed that the McDonald's product, service, and management philosophy were not simply American but were calculated to Americanize host countries—triggering the outrage of French nationalists such as Jose Bove. In 2000 Bove pillaged a McDonald's outlet in southern France; the fact that his fellow citizens were flocking to the hated symbol of cultural imperalism in greater numbers than any other Europeans enraged him. Part of Cantalupo's management strategy was, somewhat paradoxically, to make his symbol of globalizationcum-Americanization as self-sufficient and home-grown as possible in the host country. Native managers eventually replaced Americans; the beef and chicken would be raised within the country in question.

BUILDING MCWORLD AND BURYING MARX IN THE GLOBAL 1990S

The 1990s provided tremendous opportunities for Cantalupo, who accelerated his global expansion into high gear. The collapse of Soviet communism fully opened doors that Cantalupo had already been making plans to walk through. In 1988 an agreement had been signed permitting the construction of a score of outlets in Moscow. Thirty thousand Russians lined up on January 31, 1990, when the country's first McDonald's opened. Within a year the outlet had served 15 million customers. McDonald's, serving hamburgers not far from Lenin's tomb, was in Russia to stay and to reap every possible advantage.

Russian success prepared Cantalupo for the next step: entering China. Cantalupo saw long-term potential there for up to eight hundred outlets. While perhaps only 150 million Chinese could then afford a Happy Meal, by the time a McDonald's network was in place from Manchuria to Yunnan, the projected market would be 300 million strong. On April 23, 1991, Cantalupo opened the first Chinese McDonald's near one of the busiest intersections in Beijing. During the China venture he displayed his legendary toughness as a manager. In spite of appeals from his meat supplier, who could not meet his deadlines, Cantalupo refused to move the opening date back a single day, knowing that the firm's brand was at stake. The huge outlet, with almost 30 cash registers set up to handle the expected volume, opened on schedule and served 40,000 on the first day.

Poland came next, in June 1992. Customers flocked to the Warsaw outlet, as did potential employees, who worked much harder than their American counterparts; in a country in which the average annual income was $2,000, a "McJob" was something to be desired, not scorned. Within a year Cantalupo oversaw 20 Polish outlets, and he hoped to establish one hundred by 1998. Poland was a classic example of how Cantalupo was able to use the McDonald's brand in entering new countries with minimal risk. As Love's book quoted him: "We can go in with just one restaurant to test a market from a cultural standpoint, to judge local acceptance, and to determine growth rates" (1995).

At first encouraging the self-sufficiency of McDonald's in each country, by the mid-1990s Cantalupo was integrating global purchasing and other operations. McDonald's Corporation began supplying outlets with foodstuffs, allowing them to cut purchasing costs and to slash menu prices in countries with low incomes, preemptively undercutting potential competitors. In the early 1990s Cantalupo was full of optimism for McDonald's International. The period up to 2010 promised to be very exciting and he saw no limits. Additional regions of anticipated expansion included Spain, Italy, Mexico, Brazil, Indonesia, Taiwan, and Hong Kong, as well as Africa and the Arab world.

Cantalupo's triumphal expansion and his experience in cross-cultural management and global integration and purchasing appeared to make him the prime candidate to succeed Michael Quinlan, who had served as the McDonald's CEO from 1987 to 1998. However, in 1998 the board chose the chief financial officer Jack Greenberg to be Quinlan's successor. Greenberg was a financial man, not a burger man, and purchased a number of unrelated businesses seeking to expand McDonald's into other areas.

"TIME FOR A TRIP TO THE WOODSHED": CANTALUPO'S STYLE AS TURNAROUND CEO

The global prosperity of the 1990s gave way to the global recession and jobless recovery of the early 2000s. The Bush administration's War on Terror and invasion of Iraq as well as its general foreign-policy approach all fed a worldwide upsurge of anti-American sentiment. An organized antiglobalization movement often singled out McDonald's as a target of animosity and negative publicity. Outbreaks of mad cow disease in Britain and Canada and a mad cow scare in the United States futher cut into McDonald's profits. On top of all this, consumers were beginning to desire leaner fast foods and were starting to turn away from McDonald's toward Wendy's and other competitors. The rust on the Golden Arches had actually begun to appear in the mid-1990s, when the American market had become saturated and company growth and profits were increasingly concentrated in Cantalupo's foreign operations.

Cantalupo himself was disillusioned by his failure to be named CEO and retired from McDonald's International in 2002. The retirement did not last long. The McDonald's board of directors quickly grew disenchanted with Greenberg; when in the last quarter of 2002 the company posted its firstever quarterly loss, the board replaced Greenberg with Cantalupo, effective January 1, 2003.

In the half century of the company's history Cantalupo was the fifth McDonald's CEO. As he remarked in USA Today, he knew his company was in trouble: "When I took this job, some people sent me condolences instead of congratulations" (December 23, 2003). His planned remedy for the company was simple: go back to basics. People were deserting McDonald's because they wanted healthier food and healthier service. Cantalupo planned to give the customers what they wanted, as well as to provide clean restaurants, prompt service, and warm food. He would sell off Greenberg's acquired businesses, which ate up time and profits. In April 2003 Cantalupo introduced the Premium Salad Line. He and the Australian-born Charles Bell, his chief operating officer, set up the company's first global marketing campaign, with the slogan, "I'm lovin' it."

Cantalupo, a tough and demanding manager, became an even tougher and more demanding CEO, though he remained personal and involved. His motto was "time for a trip to the woodshed." His hands-on, no-nonsense style stemmed partly from his Chicago roots and partly from the regimented Mc-Donald's culture itself. Bell told the USA Today, "Jim and I don't get stressed. We give stress" (December 23, 2003). In the age of the Internet, Cantalupo relied on frequent face-to-face meetings with regional, divisional, and national heads. He and Bell would walk into Chicago area outlets unannounced, often finding dirty bathroom floors and toilets, cold food, and rude, slow service. When they did, the local manager was in serious trouble: "When I see something wrong," said Cantalupo, "someone's gonna hear about it" (December 23, 2003). When Jan Fields, president of the Central Region, told Cantalupo it would take her 18 months to revamp her 4,300 stores, Cantalupo demanded she do it in six. Cantalupo was far from a tyrant, however. He posed the harshest questions in the gentlest way, and his strong people skills allowed him to gently persuade those under him to make the most difficult decisions and perform the most difficult tasks.

Under Cantalupo, sales in early 2003 rose by one-third. Profits at first continued to decline, but by the third quarter had risen by 12 percent. Most of the company's turnaround came in the United States. Sales continued to slump in Europe, Latin America, and especially Asia and Africa. By the end of 2003 Cantalupo was being praised in a number of journals for having sharply turned McDonald's around. Some, such as the consultant Whitney Tilson, deemed him to be CEO of the Year. Others were not so optimistic, insisting that some of the changes had actually been initiated under Greenberg and that the company benefited from a weakening dollar.

In Cantalupo's mind 2004 would be very important. By 2005 he hoped that the company would be growing at a steady rate of 5 to 6 percent. Never again, though, would McDonald's overextend itself by opening three thousand outlets per year. Cantalupo's plan—to turn McDonald's around and then resume his retirement in 2006 or 2007, turning the reins over to Bell—was to be interrupted. On April 19, 2004, Cantalupo had a sudden heart attack and died that day. The board chose Bell as his successor; there was little question that the flamboyant Australian would continue to follow the course Cantalupo had charted for the company.

See also entry on McDonald's Corporation in International Directory of Company Histories.