McDonald shake up

McDonald’s plans global shake-up to boost falling sales

The chief executive of McDonald’s admitted on Monday that the world’s largest burger chain is “not on our game” as he announced sweeping changes designed to revitalise the company.

Steve Easterbrook, a Briton who took over as chief executive on 1 March, said he would “return excitement to our proposition and brand” (and you can watch his plans in this 23-minute video).

“The reality is our recent performance has been poor,” Easterbrook admitted. “This is a global turnaround. We have to modernise our approach and run the system differently.”

What’s gone wrong?

The struggling fast food company has suffered one of its worst years on record, with month after month of falling sales. “The reality is our recent performance has been poor. The numbers don’t lie,” said Easterbrook, said in a statement about his turnaround plan.

The numbers continue to fall in the US amid “vicious” price wars with rivals Burger King and Wendy’s and increasing sales at other fast food chains like Chipotle, The Guardian reports. Even the company’s heavily-advertised promotions, including allowing randomly selected customers to “pay with lovin'”, failed to boost sales in the US.

It faces rising competition, too, from higher-end chains such as Chipotle, Panera Bread and Shake Shack, which went public in January by positioning itself as a burger chain with better-quality ingredients.

Its business in Asia, where it nets a quarter of its global revenues, has also been hit by a number of health scares, says The Economist. Sales slumped in China after it was revealed that McDonald’s had been using expired beef and chicken, and customers in Japan reported finding pieces of plastic and even a tooth in their meals. “Geopolitics has not helped” either, with a number of outlets in Russia temporarily shut down in apparent retaliation to US sanctions.

In January, McDonald’s announced it was installing Easterbrook as chief executive, replacing Donald Thompson, who was unable to reverse sliding sales. With 36,000 outlets in more than 100 countries, the chain has been under pressure from falling customer traffic, with sales falling 2.4% in 2014 to $27.4bn.

Putting things right

The creators of the famous “Big Mac” said the chain would probably tweak core menu items, citing a March announcement to limit chicken raised with antibiotics, which Easterbrook said had been popular with customers. The company vowed to become more transparent in response to concerns about food quality.

“There are perceptions and there are misperceptions out there,” Easterbrook told an analyst conference call. “Consumers’ tastes are changing … and therefore we’ve got to be seen to be moving with them.”

The measures unveiled on Monday were billed as the first step in a turnaround.

Easterbrook highlighted the need to establish McDonald’s as a “modern, progressive burger company”. He said he would prod employees throughout the system to push “little more quickly and a little more accurately” to improve the dining experience.

Among the bigger changes, the US fast-food burger giant said its overseas markets will be organised by their maturity within the McDonald’s system, rather than by region. Its current structure splits markets outside its home US market into Europe, Asia-Pacific, the Middle East and Africa.

McDonald’s “international lead” segment will unite mature markets such as Australia, Britain, Canada, France and Germany, “which operate with similar economic and competitive dynamics”.

The “high-growth” segment will be those with higher expansion potential, including China, Italy, Switzerland, Russia and South Korea. Remaining regions will go into the “foundational” markets unit.

The new system will enhance communication between McDonald’s officials in Australia and markets such as Britain, with which it has more in common than a closer regional market, such as China.

In addition, McDonald’s said the company would franchise 3,500 restaurants by the end of 2018, lifting the share of franchised units — those not owned by the company — from 81% to 90% worldwide.

Easterbrook said he became a strong believer in franchising after growing the model in Britain from 35% to 65% franchised restaurants within five years.

“That was just a really strong contributor to driving energy in the ownership and accountability,” he said.

Source: AFP, The Guardian