6 Things to Expect From McDonald's Secret Turnaround Plan
McDonald's has been promising change for months. Now, the public is about to find out what exactly that means.
On Wednesday, while reporting McDonald's disappointing first-quarter earnings, the fast-food giant announced that it is developing a turnaround plan to improve performance and boost profits. The company will reveal initial details of the plan in less than two weeks, on May 4.
McDonald's needs the change – same-store sales fell 2.3 percent globally, with negative traffic in all major segments, in the first quarter of 2015.
While McDonald's executives were careful not to reveal too much about the turnaround plan, they did drop some hints and reveal new approaches in the company's earnings call. Here are six ingredients that the company will likely mix into McDonald's recipe for a financial about-face.
1. A willingness to try almost anything.
"Progress over perfection" is McDonald's catchphrase moving forward, says CEO Steve Easterbrook. McDonald's size is a strength, but it has also hampered the chains' ability to execute changes speedily across 36,000 locations worldwide. This is, according to Easterbrook, something that has been compounded by the company's own tradition of "conservatism and incrementalism" that encourages slow, cautious change instead of bold, substantial decisions.
The revamped game plan – if it actually represents the new mindset that Easterbrook promises – will therefore take risks, knowing some will fail. That means we can expect to see McDonald's throwing out a lot of ideas on May 4, then seeing what sticks.
2. More reputation repair.
A phrase that Easterbrook repeated many times on Wednesday was "modern, progressive burger company delivering a contemporary customer experience." In addition to being a bit of a mouthful, the phrase represents an intangible part of McDonald's that needs to be fixed: its reputation.
Since Easterbrook became CEO in late January, many of the company's announcements have centered on addressing McDonald's haters' critiques. In March, the chain announced it would begin only sourcing chicken raised with minimal antibiotics. In April, McDonald's announced a plan to raise employee wages at all corporate-owned locations. Expect the turnaround plan to contain at least one subheading focused on changing how customers' perceive McDonald's approach to social issues such as employee pay, health and sustainability.
3. Lots of tech.
McDonald's isn't currently as outwardly tech-obsessed as chains like social media-savvy Taco Bell or the ecommerce-loving pizza industry. However, with plans to finally launch an app this summer, this will soon begin the change.
"We are moving, without a doubt, from a world of mass marketing to a world of mass personalization," says Easterbrook. For McDonald's the app will likely first and foremost be a way to individualize McDonald's for customers, something that the company describes as a driving force in both technology and menu development.
Behind the scenes, expect McDonald's to roll out more tech as well. Kevin Ozan, McDonald's CFO, said the chain "must utilize [its] considerable resources more efficiently." Simplification was a major theme throughout, and new tech could be a major key.
4. McDonald's goes small.
As mentioned in regards to McDonald's new app, the chain is ready to majorly invest in personalization. That doesn't just mean through tech – that also means the menu.
On a regional level, local markets will have the chance to develop local menus, "liberating" their creativity and insights, in the words of Easterbrook. On an even more individual level, McDonald's promises increased customization, such as the Create Your Taste platform. Expect May 4 to offer a more in-depth look at how the fast-food giant will try to understand what different communities and individuals around the world actually want.
5. New menu items.
Easterbrook revealed the company is taking a three-pronged approach, splitting the menu into the core, permanent new items and limited time offerings. The core menu consists of favorites for which McDonald's needs to "reinvigorate consumers' love and demand," such as in the chain's all-day breakfast test. New permanent menu items are necessary to boost sales and change up McDonald's reputation, but also risky as the chain attempts to simplify the menu.
That means that there's a good chance that limited time offerings (LTOs) are about to play a bigger role than ever before in McDonald's strategies. LTOs "provide some fun" for the chain, giving McDonald's the chance to get press for fresh menu offerings – even if it only tests them in select areas, as part of the company's localization plans. Plus, LTOs' constant cycling in and out of the system give the chain the chance to at least appear to be progressing and to gain a better understand of what customers actually want.
6. Behind-the-scenes cuts.
While the evolution of McDonald's menu and tech are more exciting for the average customer, cutting organizational costs may be the chain's secret to boosting profits. New costs are already adding up for McDonald's, and the turnaround plan will likely add more costs.
"The minimum wage cost, as well as all other costs, certainly influences how we look at pricing, how we look at our margins," says Ozan. However, Easterbrook says that McDonald's is looking into stripping complexities and making cuts as far from the consumer as possible. It's not clear where the money will comes from, but if McDonald's wants to a newly lean and nimble business, the money is going to have to come from somewhere within the multi-billion dollar company.