Selling franchises and reorganising foreign markets might not be enough to turn things around
|CHICAGO
EVER since Steve Easterbrook took over as the boss of McDonald’s in January, analysts and investors have been awaiting a big plan for a turnaround. Don Thompson, his predecessor, had seemed unable to steer the world’s biggest fast-food chain in the new direction needed to respond to evolving consumer tastes and fiercer competition. Mr Easterbook has already announced several changes for the American market, the company’s biggest and most lucrative, such as a gradual end to its use of chicken raised with antibiotics. But all eyes were focused on the stronger stuff—which Mr Easterbrook unveiled on May 4th with a 23-minute video announcement.
The new plan features many sensible ideas, but for the most part he seems to be focused on catching up with rivals, rather than charging ahead with innovative menu items or an original strategy for what is one of the world’s most widely recognised brands. He is planning to sell 3,500 of around 36,000 McDonald’s restaurants worldwide to franchisees by 2018; that means nearly 90% of McDonald’s restaurants will be franchised. Thanks to the franchisees’ regular royalty payments, that should provide more stable revenues. For similar reasons, Burger King has already sold off all but 50 of its more than 7,000 restaurants in America, and Wendy’s is aiming to own only 5% of its restaurants by the middle of next year.
Mr Easterbrook also announced a reorganisation of the firm into four divisions from July 1st: they will be America; “international lead markets”, such as Britain and Australia; “high-growth markets”, meaning China and a few others; and the rest will go under “foundational markets”. The idea is to group markets with similar challenges and consumer trends, rather than lumping together those that simply happen to be in the same geographical area.
The refranchising and reorganising, along with more stringent fiscal discipline, are supposed to cut the food behemoth’s costs by an annual $300m. McDonald's is also planning to return $8 billion-9 billion to shareholders this year. But Mr Easterbook did not explain how he is planning to fund these share repurchases. Will it be by taking on more debt or selling real-estate holdings—or are there further strategic changes in the pipeline?
“The reality is our recent performance has been poor. The numbers don’t lie,” Mr Easterbrook conceded. Global sales at comparable restaurants (those that have been open for at least 13 months) have fallen for the past four consecutive quarters, while in America they have fallen for six quarters in a row. Though it makes several steps in the right direction, Mr Easterbrook’s much-ballyhooed plan failed to persuade analysts and investors that he is about to reverse that decline any time soon. By the end of the day of the announcement, his firm’s share price had fallen by 1.7% on the New York Stock Exchange.
