Business World

Sunday 25 September 2016

McDonald's boss serves up a recipe for reinvention

Craig Giammona

Published 05/05/2015 | 02:30

A replica of the first ever McDonald’s franchise in Des Plaines, Illinois. Photo: Getty Images
A replica of the first ever McDonald’s franchise in Des Plaines, Illinois. Photo: Getty Images

McDonald's chief executive Steve Easterbrook is restructuring the restaurant chain into four segments, saying the key to snapping its sales slump is improving operations.

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In a major revamp unveiled by the burger chain yesterday, McDonald's said it will shift more restaurants to independent owners, cut costs and return cash to shareholders.

McDonald's is trying to stem an exodus of customers who are seeking higher-quality food at chains in the US such as Chipotle, or cheaper fare at traditional rivals like Burger King and Wendy's.

Mr Easterbrook, a company veteran, took over McDonald's in March after the company's worst sales slump in more than a decade forced his predecessor, Don Thompson, from the job.

"Our turnaround will be grounded in operations excellence and running great restaurants," Mr Easterbrook said. Investors, though, weren't convinced that the plans will be enough to revive the company's prospects. Its shares dipped in early trading in New York.

Investors may have been looking to know how much debt the company is willing to take on as it returns cash to shareholders, said Will Slabaugh, an analyst at stockbrokers Stephens. "That was something that was missing. They haven't touched on that quite yet."

McDonald's said it plans to return as much as $9bn (€8bn) in cash to shareholders this year through dividends and stock buybacks. The company also plans to reach the top end of its three-year target of returning as much as $20bn (€18bn) by the end of next year.

In another move that may help the bottom line, Mr Easterbrook said McDonald's will shift more of its restaurants to independent owners. The company plans to have 90pc of its locations franchised globally by 2018, up from 81pc today.

Franchised locations are typically more profitable because the company bears less of the cost of operations.

McDonald's is also restructuring its global operating units, putting responsibility for more geographical areas in the hands of certain executives.

"Having clusters of similar markets led by one person will create urgency and speed," Mr Easterbrook said.

Irish Independent

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