One of those strengths was McDonald’s breakfast menu, and the company faced that strength with aplomb when it announced in 2015 that it would answer customer demand by offering its breakfast menu all day. The All Day Breakfast launch in October of that year provided McDonald’s with some of its best buzz in the Easterbrook era and finally gave the company the sales jolt it desired; 2015 fourth-quarter comparable sales grew 5.7 percent.
Easterbrook says much of McDonald’s turnaround has been designed around the concept of choice—giving customers more choice in what they order, how they order, how they pay, and how they’re served—with the ultimate goal being to bring in more customers more often. After all, the eating-out industry is only growing marginally, Easterbrook says.
“A lot of that growth will come from new units, either new concepts coming in or people expanding,” he says. “Which means, if you really want to grow your business—serve more customers more often—it’s a market share fight. It’s as simple as that. So how do you win that market-share fight?”
The answer? Value menus. At the beginning of this year, McDonald’s announced its $1 $2 $3 Dollar Menu, which features a range of items at each of those price points. The revised menu follows in the wake of McPick 2 (two items for $5) and Dollar Menu & More value menu options, two platforms that failed to create the same excitement for guests as the brand’s iconic Dollar Menu, which was scrapped in 2013.
“We can grow topline sales if we do that solely through average check growth, which could be through product makeshift or through price,” Easterbrook says. “That can give you some short-term results, but the long-term health of our business, the lifeblood of our business, is serving more customers more often. That has really helped us internally move from talking about being customer-driven to actually thinking about being customer-obsessed.”
So far, response to the $1 $2 $3 Dollar Menu has been varied. There’s been the typical grumbling from franchisees who worry a focus on value will eat into their profit margins, and McDonald’s stock price tumbled in March when it was revealed that first-quarter sales were softer than expected.
But Mizuho’s Scott says it’s a long-term play that’s necessary in the fight for quick-service traffic. “If you suck the oxygen out of the room with a value plan, that short-term pain is long-term gain, if that value plan is operated consistently,” he says. “I think [McDonald’s is] making the right moves to suck out the oxygen, in large part because we’ve seen so much pricing action from the high-end, fast-casual segment, and this could be a way to put the knife in the side, especially as the fast-casual industry is starting to roll over.”
Stepping on the accelerator
By 2017, Easterbrook’s Turnaround Plan had already started to take hold; global comparable sales were up 3.8 percent in 2016. But the company acknowledged that between 2012 and 2017, it had lost a potential 500 million customer transactions to its competitors. Something needed to be done to build on the momentum of the Turnaround Plan.
For McDonald’s, that something was the Velocity Growth Plan, which rolled out in March 2017. Easterbrook says the company spent 2015 and 2016 demonstrating its regained footing, but with the Velocity Growth Plan, it aimed to push the brand even further into the future.
“We looked at ourselves and thought, if we’re creating a world-class team to lead a world-class business, does a steady growth plan meet our expectations? And of course, our ambitions are greater than that,” Easterbrook says. “So we challenged ourselves to say, are there additional growth drivers that we can put on top of our traditional growth plan, which would really accelerate growth?”
Those growth accelerators were the Experience of the Future store prototype, delivery in partnership with UberEats, and customer-forward tech platforms like the mobile order and pay app functionality.
The Experience of the Future prototype is perhaps one of the most glaring examples of how McDonald’s is reshaping its business for the future. Originally launched in the Thompson era as Create Your Taste, the touch-screen kiosk ordering platform allows guests the choice of ordering their meals digitally and grabbing a number for their table rather than interacting with an employee. The first iteration launched under Thompson was intended to spotlight customization—customers could select from more than 30 ingredients in building their own burgers. But under the Experience of the Future banner, it has been refined to simply offer guests more choice in the McDonald’s menu (for example, removing pickles from their Big Mac).
The mobile order and pay app, which rolled out nationwide over the course of 2017, offers that opportunity from the comfort of customers’ smartphones. They can then pick their food up at the counter, in the drive thru, or through a new curbside pick-up option.
Easterbrook says one of the company’s struggles leading into the Turnaround Plan was that it had directed most of its technology focus on back of the house rather than on customer-facing initiatives. “We didn’t have that one-on-one connectivity with customers that we know would make us a much more valuable commodity to customers if we understood their behavior,” he says. Some of that connectivity is yet to come, he adds; McDonald’s will move to become a “mass personalization” brand that can, for example, suggest returning guests’ regular orders or even offer relevant sports scores as the guest orders.
The delivery partnership with UberEats, meanwhile, has been the biggest cultural change for McDonald’s in the last few years, Easterbrook says. He and other members of the senior team had been so inspired by their travels to international locations that they decided delivery was something the company needed to embrace. Rather than wait for the perfect solution, he says, McDonald’s dove right in, with leadership trusting they would learn quickly.
The delivery rollout was aggressive. What started as a 20-store test in Miami in January 2017 expanded to more than 7,000 restaurants in 21 countries at press time, including 5,000 in the U.S. (UPDATE: In McDonald's Q1 earnings call, Easterbrook reported that 11,500 restaurants now offer delivery. “Whilst we continue to expand the base of participating restaurants, we are working closely with UberEats and our other partners to optimize the model … building awareness, trial, and more frequent repeat orders … and, most importantly, customer and courier satisfaction,” he said on the call. “In most of our major markets, delivery is already a meaningful contributor to overall comparable sales.”)
“I think that’s probably the best example of how we rallied the broader system just to embrace an opportunity and go hard at it, rather than the slightly more methodical, incremental way that perhaps we would have done in the past,” Easterbrook says. “It still doesn’t mean we’re perfect, but we’re better now than we were a year ago, and we’ll be better in a year’s time than where we are today, because we continued to improve and learn as we go.”
McDonald’s is still in the midst of the Velocity Growth Plan, but Easterbrook says “the early signs are encouraging.” At the beginning of 2018, the company had updated about 3,000 U.S. locations to the Experience of the Future design and was on pace to update almost 4,000 additional locations this year. Nearly all U.S. locations will feature the new prototype by 2020.
“We’ve still got a lot of legs to actually get done what we’ve laid out in the Velocity Growth Plan,” he says. “But I’d be lying if I didn’t tell you that a small number of us have begun to think what’s over and above that. And I think that’s what people expect out of leadership.”
The ever-faster pace
Last year offered the starkest evidence yet that Easterbrook had done the seemingly impossible: He’d successfully drawn up the blueprint for a massive McDonald’s turnaround. Global comparable sales were up 5.3 percent in 2017, and comparable guest counts were positive for a full year for the first time since 2012.
Mizuho’s Scott says Easterbrook managed to turn McDonald’s from a brand that reacted to broader consumer changes into one that could anticipate them.
“Him coming in and saying, ‘Why aren’t we doing this? Why aren’t we making the changes that customers want?’ was more of a change in the way they approach business—getting on the inside track of some of the customer-focused items that they in the past may not have really focused on,” he says.
Perhaps the most important stakeholder to this success is McDonald’s global network of franchisees, which is only growing larger. One of the core tenets of the Turnaround Plan was a refranchising initiative in which McDonald’s planned to increase the share of its locations that were franchised from 81 percent of the system to more than 90 percent. It aimed to refranchise 4,000 restaurants by the end of 2018 but completed the goal a year ahead of schedule, thanks partly to a transaction involving locations in China and Hong Kong.
While the refranchising allowed the company to save about $300 million in general and administrative expenses, CFO Kevin Ozan also said at the completion of the initiative that it brings McDonald’s closer to the customers and communities and “creates a better opportunity to unlock their full growth potential.”
Indeed, as with most other quick-service brands that are mostly franchised, McDonald’s is run at the ground level by a vast group of men and women who operate as small businesses. This isn’t lost on Easterbrook, who says franchisees are “everything about the turnaround” and that they “want to be brought on that journey.” McDonald’s ability to succeed at this massive turnaround, he adds, is much higher with their buy-in.
“The reality is a strategy can be fantastic, but if you don’t execute it well, it becomes worthless,” he says. “I’ll always say that an 80 percent perfect strategy executed 100 percent is way better than a perfect strategy executed at 80 percent. And the execution happens at the restaurant level, the vast majority through our franchisees.”
He says his job, along with that of the senior-level management team, is to focus on the long-term plan for the company while the owner-operators focus on the short- to medium-term. To accomplish that, it’s critical to keep an eye on where the customer is today and where the customer is going in the future.
“The world is moving at an ever-faster pace, and today’s the slowest the world’s ever going to move, but today is also the quickest it’s ever moved so far,” he says. “That’s just the conundrum we have.”
No pressure, right? No, actually—at least, not according to Easterbrook. If you get the best out of the people around you, he says, then you’re doing the best you can. And at McDonald’s, it’s the best the company has been in a long, long time.
“If I was to use a baseball analogy, we’ve probably just rounded first base,” he says. “I’m excited about what’s to come.”
