“No business or brand has a divine right to succeed, and the reality is our recent performance has been poor,” chief executive Steve Easterbrook said in a 23-minute video Monday morning. “The message is clear. We are not on our game.”
The company-wide “reset” plan will re-organize the company into four parts: the U.S., “international lead markets” like Canada and France, “high-growth markets” like China and Russia, and the rest of the world, a change Easterbrook said would cut down on bureaucracy. The fast-food joint also plans to cut $300 million a year in costs, though it didn’t detail how that would affect jobs.
The company wants to sell 3,500 corporate-run restaurants to independent owners by the end of 2018, a “refranchising” Easterbrook said would bring in more predictable cash flow and thin the support system needed for corporate stores. That would bring the chain’s franchise count from about 80 percent of total stores to 90 percent, reducing the number of workers it plans to pay an increased minimum wage.
Besides the internal changes, the time-worn chain also said it wants to return “excitement to our brand,” including by launching on-demand delivery via Postmates today in New York City. Mickey D’s also said it plans to win back spurned diners with “a recommitment to hot, fresh food” and a refocusing on its target clientele; at one point, Easterbrook said there would be “less sweeping talk of millennials as if they’re one single group.”
The global turnaround plan comes just two months after Easterbrook, a former head of McDonald’s U.K. division, assumed the throne with promises he would challenge the stodgy burger joint’s conventional thinking.
In nine weeks, he has already presided over several huge shake-ups, including dropping several unpopular items from the menu — including the Deluxe Quarter Pounder, the chipotle barbecue snack wrap and half a dozen chicken sandwiches — to speed up service and make way for other grub, like its “Artisan” grilled chicken sandwich and sirloin burger.
The company is also testing out all-day breakfast in California, and it intends to stop buying chicken treated with antibiotics. The company also said last month it planned to close about 700 of its more than 36,000 worldwide stores this year, twice as many as expected, but raise wages at its corporate-run U.S. restaurants.
The company’s turnaround effort has been struggling even before it got off the ground. Its “Pay with Lovin'” ad campaign, which pushed customers to call their mom or give someone a hug in exchange for free food, was seen by customers and critics alike as an awkward, confusing mess.
The plan’s Monday unveiling, long touted as the spark of the company’s revival, was already fielding criticism that it had underwhelmed. Larry Light, a former McDonald’s chief marketing officer, told CNBC the plan was packed with “glittering generalities but no specifics,” adding, “I’d defy anyone to figure out what they want the brand to be when it grows up.” The company’s stock fell less than 1 percent in early trading.
What’s driving one of America’s most predictable, ubiquitous and traditional burger joints to become such a radical about cleaning house? Most stores have seen customer visits plummet for two years in a row. In the first three months of the year, sales fell about 3 percent and its profit fell 32 percent, far lower than expected. Of course, this being McDonald’s, it was still a big moneymaker, reporting $800 million in first-quarter profit.
McDonald’s sales in Asia plunged last summer after a supplier was accused of shipping expired meat, and sales in Europe have proved incredibly slow. But in its flagship U.S. market, where Mickey D’s makes about 40 percent of its money, criticism has been even tougher, with many accusing the burger giant of offering a stale, bloated menu that promised too much and slowed down service.
The McNugget mega-firm has sought to compete directly with its rivals, rolling out a buttermilk chicken sandwich cribbed from the Southern-style signature of Chick-fil-A, and expanding all-day breakfast to compete with fast-food firms like Taco Bell, with its early-morning breakfast burritos and biscuit tacos.
To fend off build-your-own eateries like Chipotle and Smashburger, McDonald’s has also rolled out a test program that allows customer to design and order a burger via tablet.
McDonald’s remains the king of American fast food: Its $35 billion in U.S. sales last year, industry data show, were more than Burger King, Wendy’s, Taco Bell, Chick-fil-A and KFC combined. But increasingly its competitors are not just other fast-food eateries but heavily hyped burger joints like Shake Shack and Five Guys, which promise “better burgers” at a slightly higher price.
McDonald’s, with 14,000 American restaurants, is also struggling to adapt to the country’s changing eating habits, and diners have led an exodus toward places where they believe the food is fresher, including at “fast casual” kings like Chipotle Mexican Grill and Panera Bread. McDonald’s attempts at winning this crowd — by offering calorie-packed salads and wraps — have yet to boost sales.
The revitalization plan takes some cues from “Plan to Win,” a massive McDonald’s blueprint in 2003 meant to revive the chain after it posted its first quarterly loss in history. That plan, aimed at boosting McDonald’s food, advertising and ambiance, proved to be a phenomenal success: Between 2004 and 2011, the company returned to wild profitability and its stock price quadrupled.
Shares since then have sagged more than 2 percent. But it’s not just customers and investors the chain will have to keep happy, but franchisees, some of whom have grown frustrated by corporate management and upset about the cost of implementing the new changes in their stores.
“Turnarounds,” Easterbrook said on an analyst call last month, are “a little bumpy by nature,” and they “require some bold and decisive decision-making.” In the Monday video, he added, “I’m not interested in average in this business.”