Special Report | June 2015 | By Bruce Horovitz

At McDonald’s, the Fix Is On

Company’s restructuring plan aims to do more with less.
QSR leader McDonalds updates brand image and market strategy to stop sliding sales.
New McDonald's CEO Steve Easterbrook has been tasked with reversing the company's recent slump. image used with permission.

There’s one McDonald’s restructuring story that still hasn’t been told.

I know it hasn’t been told, because it happens to be mine.

While it might not seem that a rather silly, personal anecdote that’s more than half-a-century old can help in the complex restructuring of a company that did $35 billion in U.S. sales last year, I beg to differ. In fact, I’d wager that this childhood memory could rank among the most pertinent pieces of restructuring advice that McDonald’s executives could hear—and that includes from those high-priced investment bankers.

So here goes: Some 55 years ago, my entire family was utterly enamored with McDonald’s. My father loved the burgers. My mother loved the fries. And my two sisters and I loved the romantic notion of getting out of the house, piling into the car, and ending up at a restaurant in the suburbs of Cleveland that actually welcomed kids. So, with near-religious Sunday devotion, we made our weekly mecca to McDonald’s, where burgers and fries were both 15 cents and we never drove away disappointed.

But one day, Dad discovered there was something he loved just as much as McDonald’s burgers: the fried chicken sold at the local Red Barn fast-food chain that was next door. Suddenly the Sunday trip to the fast-food joint required a two-step tango. That’s because there was one thing for which Mom refused to compromise: McDonald’s fries. While Dad parked at McDonald’s and walked over to Red Barn for fried chicken, Mom would walk into McDonald’s, usually in her snappy Sunday sandals, to get an order of fries for herself and burgers for the rest of us. Never mind that Red Barn sold burgers and fries, too. Mom only wanted McDonald’s fries. And we— particularly Dad—only wanted McDonald’s burgers.

Fast-forward, if you will, to 2015.

McDonald’s suddenly finds itself in the middle of a controversial restructuring. What’s controversial isn’t the need to restructure, which just about everyone agrees that it does need to do. Its same-store sales have been down for six consecutive quarters and net income fell 15 percent last year. At the same time, the company’s relationship with its franchisees is arguably at or near an all-time low. What’s controversial is the actual list restructuring steps the McDonald’s plans to take.

McDonald’s will also refranchise 3,500 restaurants through 2018, bringing its total percentage of franchised restaurants to 90 percent from 81 percent globally.

CEO Steve Easterbrook, who can still count on one hand the number of months he’s been steering the colossal ship, announced the first steps to the turnaround plan in May in a 23-minute video that arguably raised as many questions as it answered.

“I will not shy away from the urgent need to reset this business,” said a stern-sounding Easterbrook, who is a marketing man by trade. He then vowed to strip away layers of management and do a better job of quickly responding to customers and their changing tastes.

But what Easterbrook went on to announce were restructuring steps that seemed less designed for customers or franchise owners as much as for another demographic, says John Gordon, principal and founder of Pacific Management Consulting Group. “Most of his comments were just Wall Street talk,” Gordon says.

For one, Easterbrook said the company would be restructured into four market segments: the U.S.; international lead markets (Australia, Canada, France, Germany, and the U.K.); high-growth markets (China, Italy, Poland, Russia, South Korea, Spain, Switzerland, and the Netherlands); and foundational markets (the remaining markets in the McDonald's system).

At the same time, Easterbrook announced, McDonald’s will also refranchise 3,500 restaurants through 2018, bringing its total percentage of franchised restaurants to 90 percent from 81 percent globally. The restructuring is expected to save the company $300 million annually by 2017, according to the company.

But Gordon says the refranchising could actually have an opposite effect. “It decreases the amount of skin the company has in the game,” he says. “It’s a favorite play for restaurants that get into trouble.”

This is hardly the first time that McDonald’s has tried to regroup on the Big Scale.

Way back in 2003, during its most famous and, arguably, most successful attempt to restructure, former CEO Jim Skinner helped to develop the so-called “Plan to Win.” Although it may sound more like a super-secret play you’d find on the gridiron, it was instead a relatively simple but concrete plan to win back customers through a laser focus on improving the service, food, and ambience at all McDonald’s locations store by store.

Skinner discussed the essence of that restructuring plan in a 2010 interview with QSR, when he called it the critical “moment of truth”—that is, the moment an order arrives for a customer at the drive-thru window or front counter.

“We spend millions of dollars on marketing, but when I screw up your order at the front counter or the drive thru, its all lost, because you dont care how good our last commercial was,” Skinner said in the interview.

Things change.

McDonald’s now has more than 35,000 units around the globe and, by some counts, the number of items on its menu—accounting for various sizes and combinations—is just shy of 200. McDonald’s doesn’t yet sell chicken on the bone, a la the former Red Barn chain, but it’s got chicken sandwiches up the kazoo, not to mention wraps, salads, espresso drinks, and, now being tested in some locations, kale.

“McDonald’s used to pride itself on serving the best burgers and the best fries,” says Roy Bergold, the former chief creative officer at McDonald’s, who retired 14 years ago after overseeing the company’s advertising and marketing for nearly three decades. “Now it’s convinced that because KFC serves a chicken sandwich, it has to, as well.”

But it doesn’t. Yes, Easterbrook has recently begun to slowly winnow the menu. But there’s a lot more to be trimmed, say industry consultants. Earlier this year, McDonald’s began to reduce the number of Quarter Pounder with Cheese offerings from four to one. Premium Chicken Wrap offerings were cut from three to one. And Snack Wrap offerings fell from three to one. That’s hardly made a dent, but you’ve got to start somewhere.

If franchisees had their druthers, the next item out the door would be the Espresso drinks, says Richard Adams, a former McDonald’s franchisee who is now a franchisee consultant and founder of Franchise Equity Group.

“From what I hear, they don’t even sell enough drinks from the machines to keep the electricity running all day,” Adams says.

What’s more, the espresso machines are costly and require an enormous amount of set-up time and maintenance, he says.

Instead of doing more with more, McDonald’s needs to learn to do more with less and take some pressure off the franchisees, consultants say.

There are some changes in the C-suite that the company hopes can start to ease that pressure. This month, former White House spokesman Robert Gibbs was hired as global chief communications officer, while Silvia Lagnado was named global chief marketing officer. A new marketing program reintroducing the Hamburglar and leveraging “New Girls” star Max Greenfield in commercials launched in hopes of bringing in more Millennials.

To be sure, the problem isn’t just at McDonald’s, but much of the fast-food industry, Bergold says. “Everybody is trying to do everything,” he says. But the most successful companies are laser-focused on being the very best at just a few things, he says. “You have to avoid the temptation to do everything.”

Bergold (who was a columnist for QSR for several years) still loves McDonald’s. “It’s the most wonderful company to work for that you could imagine,” he says. “Every day, for 32 years, I couldn’t wait to get to work.”

Still, he says, it needs to refocus on the family. “When I was there, we said to ourselves that we’d focus on being the best family restaurant chain serving burgers and fries,” he says.

Which brings us back to that Sunday drive that Mom, Dad, my two sisters, and I took weekly from our suburban home in Shaker Heights, Ohio, to the McDonald’s hamburger stand that had just opened about 20 minutes away in nearby Warrensville Heights. On the drive, Dad was thinking about the burgers. Mom was thinking about the fries. And we kids were in the back seat thinking about fun.

Burgers. Fries. And fun. So simple.

Sounds like a plan—maybe even a restructuring plan.


What happened lately toMcDonald's is that not only same store sales slumped but less green fees intheir Franchisees / DL's /JV's pockets. This is worrying due to the fact thatcost of doing business has evolved over the years be it rising cost of buildingstores, interior finishing and design perspectives, new equipment to addressspace issues for expanding menu and new equipment for new menus, all at a paceMcDonald's requested but could not cap the spending influence sending anoutrage of three folds cost per store comparing to its previous models amongstit Franchisees / DL's / JV's.YOY rising cost wasfuelled by continues innovation from the corporation and Capex requirementsfrom Franchisees / DL's / JV's without the need to sit back and measureoutcomes, even with its in store operations great strides were achieved interms of context and material development not even any QSR company on earthwill be close to in the next decade, but all didn't help due to more is needed philosophy, crew and managers in the storesfelt the pressure and could not cope, the solution was additional peopleincentives locally, nationally and globally and this in turn didn't have anyimpact due to its dilution as to its frequency.At this pace and the evergrowing direct demand to all partners McDonald's will soon arrive to adevelopment grid lock that will take years to unlock and rebuild again.Don Thomson tried hard toreverse the down trend sales impact, the main reason of being unsuccessful isthat Jim Skinner did grow the business, but the acceleration of growth werewith long strides that bought much gain since 2003.The cycle reached to anend during Don's tenure and could not be recovered due to its maturity and thecontinuously changing QSR landscape in the last 6 years.Focusing on the Plan to winshould be with a different spirit, Don tried to evolve in the PTW the sixnuggets but it needed time to nurture, though the six nuggets plan is stillintegrated with today's business strategies.Todays focus shouldshift our discernment from Plan to winto a Plan that wins, our storesshould be versatile and less cluttered, our menu should be relative and lesscopied, our people should be better trained, paid and appreciated and lessmanipulated by every store manager nightmare of cutting labor costs due toFranchisees / DL's / JV's wanting to save more in operating costs to make upfor loss of profits resulted from an ideology of changing our faade increasingour Opex but keeping menu prices low and taking it on the crew/ managers paychecks.A holistic revamp isrequired allowing every crew to feel the real partnership even as young as 16till 75, bond emotionally with them and scale the learnings globally,innovation should continue at a scale Franchisees / DL's / JV's areanticipating and willing to support in a relaxed financial environment,evolving training and contents of ROIP should be halted to calibrate globallyso people can connect to improve outcome, In my humble opinion I think Steveshould focus on the people that matters most in our business our crew andmanagers.The success of Ray Krocwas due to an affirmative stand he took towards his competition and relentlesslykeeping not only his brand NO 1 but his people as well.

I'll throw my .02 in as a customer and having owned two restaurants. Their food is terrible, you want to fix sales how about serving the burgers hot, not ice cold or at best lukewarm. I now travel for a living, and sometimes McDonalds is it. I cannot count how many stores I have been in, only to find my ordered food not even at room temp. Buns still frozen and cheese that is right out of the fridge along with cold fries. This now seems to be the norm at their stores. I now avoid them like the plague, even if I am hungry enough to eat my own boot.As far as the authors take on this hot mess called McDonalds, I agree, get back to basics. Are they a burger joint or not? I could care less about fancy coffees, I like mine black. I miss the days when they made their burgers on the old flat grill, along with using real old fashioned cottonseed oil and beef tallow to cook their fries. Any how... McDonalds has already lost me...

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