The Long Road to Revival for McDonald's Corporation

Steve Easterbrook became CEO of McDonald's (MCD 1.32%) in Jan. 2015. Upon taking the job, he announced new efforts to revitalize the company, which failed to impress ... anyone. But almost two years later, he has actually executed on that turnaround, which has impressed investors -- enough to boost results at the company while pushing the share price as much as 30% higher.

In this clip from the Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Sarah Priestley paint the scene for Easterbrook's first months as CEO and the difficulties of making measurable changes at such a huge organization

A full transcript follows the video.

This podcast was recorded on Aug. 30, 2016.

Vincent Shen: Our first company is McDonald's, now led by Steve Easterbrook, who's been at the helm for about 20 months at this point. Sarah, what is Easterbrook's story? Let's start with that. How did he get to that position? We'll go from there.

Sarah Priestley: Steve Easterbrook started January of last year. He's pretty young. He's only 49. He's been working at McDonald's almost since he left college. He started in 1993. He attended Hamburger U, which is the internal training program. He headed McDonald's U.K. and then went on to head international, and left for a brief period of time to CEO for PizzaExpress and Wagamama, in the U.K., which I know that you're not familiar with. But if you envision, if you will, a mix between Chipotle and Olive Garden that's kind of what you've got. It's a step above fast casual, because it still has table service, but it's in that realm.

Shen: So, he's obviously spent many years with McDonald's -- pretty much his entire career except for that short hiatus of just two or three years. Prior to Easterbrook taking the role, I think a lot of people who follow McDonald's, in general, who see headlines ... Comparable restaurant growth at the company was trending downward into negative territory across a lot of its major markets since 2012. The brand was losing, I think, a lot of its luster among consumers and investors. Competition in the restaurant industry was definitely very intense. You had fast-casual entrance, in general, among the big incumbents. 

So, Easterbrook takes the job. What do you think, at the time, were the biggest issues on the docket that he needed to address?

Priestley: Well, I think for anybody coming into this position, it's the scale of the company. The company is so huge that any change they make has to be pretty impressive to move the needle. To just give you a very brief idea of how big the company is -- they once considered including blueberries in one of the menu items. In one day, overnight, they looked at buying one third of the U.S.'s capacity for blueberries. It's a massive company. Anything they do really has to be quite huge.

Then, I think you touched on a couple of the issues. There was definitely a lack of consumer favorability toward the brand. And you even saw this in the restaurants, they started to get a little bit degraded. And then, I think, competition from fast-casual companies. We've mentioned already Chipotle. And also, generally, the environment is moving much more toward healthy eating options, which they didn't cater to very well.

Shen: Sure. With that context, there's definitely been a lot of initiatives that he has kicked off, or things he has put into place to start what you call the turnaround. The stock's definitely bounced back quite a bit, I'd say, from the approximately $90 per share that it was trading at in January 2015 when he started. We can get to that a little later, I really want to focus more on the qualitative side. What do you think were the things that worked and didn't work? In general, what did he kick off since taking the reins, essentially?

Priestley: He started these initiatives. At the end of this year, they're going to transition from these turnaround plans to a more long-term progression. It's interesting, when he announced the turnaround, Forbes called the video in which he released it spectacularly awful. It was called a yawnfest. And the stock actually fell 2%. So you can see, initially, there wasn't very much support behind what he was saying. My personal feeling on this is that Steve Easterbrook happens to be British. I feel like we are not particularly good at show business and showmanship, and I think that's probably why his presentation was lacking a little bit feeling behind it.

Shen: Sure, like that pizzazz.

Priestley: Absolutely, which you are all very good at. So, some of the things that he started, I would split it up into four different sections. There was a general shake-up. He looked at efficiencies, better care of employees, all driving toward a better customer experience.