McDonald's president and CEO Steve Easterbrook today announced the initial steps of the company's turnaround plan, including a restructuring of McDonald's worldwide business and financial updates.
"Today we are announcing the initial steps to reset and turn around our business," Easterbrook says. "As we look to shape McDonald's future as a modern, progressive burger company, our priorities are threefold: driving operational growth, returning excitement to our brand, and unlocking financial value.
“The immediate priority for our business is restoring growth under a new organizational structure and ownership mix designed to provide greater focus on the customer, improve our operating fundamentals, and drive a recommitment to running great restaurants,” he adds. “As we turn around our business, we will look to create more excitement around the brand and ensure that we build on our rich heritage of positively impacting the communities we serve."
New market segments established
“The first critical step of our operational growth-led plan is to strengthen our effectiveness and efficiency to drive faster and more customer-led decisions,” Easterbrook says. “We will restructure our business into four new segments that combine markets with similar needs, challenges, and opportunities for growth."
Beginning July 1, McDonald's will operate under a new organizational structure with the following market segments:
· U.S.: the company's largest segment, accounting for more than 40 percent of its 2014 operating income;
· International Lead Markets: established markets including Australia, Canada, France, Germany, and the U.K., which operate within similar economic and competitive dynamics, offer similar growth opportunities, and collectively represented about 40 percent of the company's 2014 operating income;
· High-Growth Markets: markets with relatively higher restaurant expansion and franchising potential including China, Italy, Poland, Russia, South Korea, Spain, Switzerland, and the Netherlands. Together these markets accounted for about 10 percent of the company's 2014 operating income; and
· Foundational Markets: the remaining markets in the McDonald's system, each of which has the potential to operate under a largely franchised model. Corporate activities will also be reported within this segment.
"Our new structure will be supported by streamlined teams with fewer layers and less bureaucracy, and our markets will be better organized around their growth drivers, resource needs, and contributions to the company's overall profitability,” Easterbrook says. “McDonald's new structure will more closely align similar markets so they can better leverage their collective insights, energy, and expertise to deliver a stronger menu, service, and overall experience for our customers."
Segment leadership team appointed
"Our new organization creates a structure under which leadership of McDonald's new segments will be able to more effectively address the common needs of their markets and customers," Easterbrook says. "It is critical that we position our management talent within our new structure in a way that capitalizes on their skill sets. As such, I am pleased to announce the leadership team for our new segments, effective July 1, 2015.”
The leadership team will be:
· Mike Andres will continue to serve as president of McDonald's U.S.
· Doug Goare, currently president of McDonald's Europe, will become president of International Lead Markets.
· Dave Hoffmann, currently president of McDonald's Asia/Pacific, Middle East and Africa (APMEA), will transition to the role of president of High-Growth Markets.
· Ian Borden, currently the chief financial officer of McDonald's APMEA, will assume the role of president of Foundational Markets.
New refranchising target and financial updates announced
"As we restructure our organization and instill greater customer focus, McDonald's turnaround will be governed by stronger financial discipline, faster decision making, and clear management accountability," says McDonald's chief administrative officer Pete Bensen. "This new organization structure will unleash more entrepreneurial spirit and more innovation across our system while bolstering what makes McDonald's a formidable leader in the industry: our incredible network of dedicated franchisees."
The enhancements to McDonald's operating approach will be accompanied by plans to further optimize the company's restaurant ownership mix, deliver G&A savings and accelerate cash returned to shareholders. Specifically, the company expects to:
· Refranchise 3,500 restaurants by the end of 2018, accelerating the pace of refranchising and increasing the global franchised percentage from the current 81 percent to about 90 percent. This marks a significant step forward from the prior plan to refranchise at least 1,500 restaurants by 2016;
· Deliver approximately $300 million in net annual G&A savings, most of which will be realized by the end of 2017, in connection with the company's organizational restructure, refranchising strategy, and more stringent discipline around spending throughout the organization; and
· Return $8–$9 billion to shareholders in 2015 and to reach the top end of its 3-year $18–$20 billion cash return to shareholders target by the end of 2016.
“As part of our business restructuring, we are focused on further optimizing our restaurant ownership mix and expect franchised restaurants to account for approximately 90 percent of our global restaurant base by the end of 2018,” Bensen says. “In conjunction with our refranchising plans, we will take a market-by-market approach, set higher financial screens for markets operating company-operated restaurants, and leverage both conventional and developmental licensee structures across the segments. Our new, more heavily-franchised business model will generate more stable and predictable revenue and cash flow streams and will require a less resource-intensive support structure. Finally, we will continue to evaluate opportunities to further enhance value for all shareholders."
“These are exciting and liberating moves for our system, and this is how leadership brands evolve to stay in step with their customers,” Easterbrook says. “Meaningful, positive measures of improvement will take time. The most impactful measures of our performance will be through the eyes of our customers. While we continue our efforts to regain business momentum through our turnaround plan and improve sales at our more than 36,000 restaurants around the world, our current performance reflects the ongoing pressures of the business, which we expect to persist through at least the first half of the year. We are taking decisive and necessary action to drive foundational improvements in the business and position the company for long-term growth."