Jesse York: Insights on McDonald’s Turnaround Efforts – USA Today
USA Today article features quote from Jesse York on the fast food giant’s struggles as it moves forward with its latest turnaround efforts.
Wall Street isn’t lovin’ McDonald’s (MCD) latest turnaround effort as its new management team attempts to revive the world’s largest fast-food chain.
Shares closed on Monday down 1.7% at $96.13 after CEO Steve Easterbrook — two months into the job — announced the chain will speed “refranchising,” which means converting company-owned stores to franchises.
Easterbrook said 3,500 stores will be refranchised as part of what he termed an “urgent need to reset this business.” McDonald’s previously had said it would refranchise at least 1,500 restaurants by 2016. That would mean 90% of the chain’s more than 36,000 locations worldwide would be franchised by 2018 — up from 81% now.
Expanded refranchising will bring “more stable and predictable cash flow,” Easterbrook said.
And he said McDonald’s will restructure its business into four areas: U.S.-based stores; international lead markets (including Australia, Canada, France, Germany and the U.K.); high-growth markets (China, Italy, Poland, Russia and four other nations); and foundational markets (10 other countries).
Easterbrook said the changes, along with a more customer-focused approach and moves to improve actual and perceived quality of the food, should result in $300 million in net annual savings by the end of 2017.
“The reality is our recent performance has been poor,” he said. “The numbers don’t lie.”
The Oak Brook, Ill.-based chain in April reported first-quarter comparable sales down 2.3% and revenue of $5.96 billion, short of the $6.02 billion analysts expected.
The quarterly results were more of the same for McDonald’s, which for nearly two years has seen its share price slide and same-store sales slump in the U.S. market and abroad. Easterbrook, 48, the former chief brand officer, took over as CEO in March from Don Thompson.
The declines come as McDonald’s tries to compete with old rivals, such as Burger King, and newer ones, such as Chipotle and Panera.
Jesse York, a director at restructuring consultancy Conway MacKenzie, said streamlining the company and shifting more stores to franchises makes sense. But menu issues remain, he says.
“McDonald’s still struggles with an unwieldy menu and lacks a clear message to customers vs. all of the specialty fast-food and fast-casual restaurants that have come to be in the last decade, offering simple menus with a clear focus on doing one or two things well,” York said.
Longtime McDonald’s Vice President Jerry Langley, now an executive in residence at the University of Notre Dame’s Mendoza College of Business, says Easterbrook’s moves are positive for the company.
“Like most large companies, McDonald’s has been through down times before and always comes back with a revised strategy to address the market at the time,” Langley said. “Steve Easterbrook is addressing a major issue for the company — the menu complexity and its impact on customer service — and, given time to implement, I think we’ll see positive impacts.
“I also like his restructuring of the organization. It will allow management to focus on the existing large markets that make up the majority of revenues, as well as doing special things to focus on the smaller and developing markets that have different needs. Nothing “major” here — just redefining how they do business, with the customer in mind.”