The 4 Things You Need to Know About McDonald's Turnaround Plan
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McDonald's is admitting the brand has a problem. Now, the company is finally taking concrete steps to fix things.
"No business or brand has the divine right to succeed, and the reality is our recent performance has been poor," McDonald's CEO Steve Easterbrook said in a 23-minute video released Monday explaining the brand's turnaround plan. "The numbers don't lie."
The video contained plenty of buzzwords and big picture plans for McDonald's future, but was lacking in some concrete details on how to boost sales and increase profits. However, Easterbrook did reveal a few big, tangible changes taking place at McDonald's.
Here are four of the most important pieces of the turnaround plan.
1. More franchises than ever before
Franchising "fuels the entrepreneurial spirit that is our engine," Easterbrook said in the turnaround video. If that's so, the company is adding more fuel to the fire.
McDonald's announced plans to boost its percentage of franchised restaurants from 81 percent to about 90 percent by the end of 2018. That will require refranchising 3,500 locations in the next three years. Refranchising is a common solution for struggling restaurant chains, as it quickly brings cash into the company – Burger King's refranchising effort in recent years was one of the most financially successful in the industry, with essentially all locations now owned and operated by franchisees.
"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," McDonald's chief administrative officer Pete Bensen said in a statement.
2. A new structure
This change won't directly affect most customers, but it will have an immense effect on corporate life at McDonald's. Starting July 1, the company is going from purely regional divisions to a new organizational structure with four segments: the U.S., international lead markets such as Australia, Canada, France and the U.K., high-growth markets such as China, Italy and Spain, and foundational markets or the approximately 100 countries that together make up less than 10 percent of the company's operating income. Each segment is comprised of countries with similar needs and challenges, as opposed to geographic proximity, in an effort to boost urgency and speed.
"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 said in a statement.
McDonald's paid a lot of lip service to modernizing and returning excitement to the brand, but didn't offer many concrete details on how the company planned to do so. One tidbit that did come out: the chain is launching delivery in New York City today through a partnership with Postmates. The announcement comes just a few weeks after Chipotle's own announcement that the chain is officially partnering with Postmates for delivery.
Testing delivery is part of a larger McDonald's "experience of the future" effort. The initiative has led to some of McDonald's most exciting tests, including limited all-day-breakfast. The effort to prep McDonald's for the future is, according to Easterbrook, farther along internationally than domestically, with Australia leading the way.
4. Digital hubs go global
"The business cannot ignore what customers are saying when the message is clear," Easterbrook said in the video. "Like I said, the numbers don't lie."
Easterbrook promised the company was entering a more customer-focused phase of development. While the CEO was again vague on some details, one that stood out was the creation of digital hubs around the world. These hubs will feed through the global digital office the chain opened in Chicago in March. In other words, McDonald's evolution in terms of menu and marketing is closely linked to the company becoming more focused on digital.
The company will also concentrate on increased data and analytics, the use of mystery shoppers and "less sweeping talk of millennials as if they are one single group with shared attitudes."