Steve Easterbrook has promised to turn the struggling fast food giant around. But can corporate reorganization alone get the job done?
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McDonald's seemed to have big plans in the works when it announced on April 22 that it would be releasing a turnaround plan on May 4. The burger chain has been struggling to reverse falling sales not only in the U.S. but worldwide, and it seemed that only a serious rethink of the business would be enough to get things back on track.
So it came as a surprise when Monday's announcement focused on corporate restructuring, rather than new ideas about food and service. It's those kind of big, new ideas, onlookers had said, that the company needs to fight back against the growing number of competitors that have been stealing market share via better food and service, and trendier store designs.
The central problem is that "McDonald's attraction is declining," said Darren Tristano, executive vice president at restaurant consultancy Technomic. The 75-year-old chain needs to focus on transparency about its food, overall food quality, and health trends, he said.
McDonald's stock closed the day down 1.7%.
While new CEO Steve Easterbrook recognized that consumers are reframing the conversation about food, he focused his initial steps on a corporate reorganization, changing the way the company segments its markets from geographic regions to stages of market maturity. It will also refranchise about 3,500 stores through 2018 — selling off many of the restaurants it owns to third-party franchisees. Easterbrook said this would make leaders more nimble in making decisions and make it easier for restaurants to roll out new initiatives.
McDonald's will also start testing a delivery service in New York City. But the rest was old news. The company said it plans to reverse its losing streak by becoming a faster, high-tech burger chain. In the U.S., it will continue to implement plans set forth months ago, which include customizable burgers, new ways to order such as in-store kiosks and apps, redesigned stores, and improved customer service. The chain has been struggling against falling comparable store sales in the U.S., which still accounts for 40% of the company's operating income.
Yet the plans, which are already being rolled out, will take years to be fully implemented — too long for most restaurant operators. Franchisees so far are not impressed — they had a poor short-term business outlook in a recent Janney Capital Markets survey. "It's hard to believe what McDonald's customers want is to order through kiosks," Tristano said.
Implementing a global turnaround plan may also be difficult as McDonald's also gives up control of thousands of company-operated stores. Brands that aggressively franchised haven't performed as well as those that control their own stores, according to Tristano.
What today's consumers do value is speed and provenance of ingredients. McDonald's recent marketing campaigns have praised the freshly cracked eggs in Egg McMuffins and answered consumer questions on social media about its food, though these early efforts have yet to reverse the decline in comparable store sales. More changes are on the way — McDonald's recently announced that the chicken it serves in the U.S. will be free of antibiotics and is also developing new standards for beef.
Easterbrook said on a call with reporters that the company has laid out a "compelling vision."
"We want to work on those steps in terms of strategy to go from where we are today to where we want to be in the future," he said, and build for next decade. The immediate future, however, continues to look tough for the new CEO.
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