Image source: McDonald's.
McDonald's (MCD +1.35%) CEO Steve Easterbrook assumed leadership of the world's largest restaurant chain in January, and analysts and media watchers have been trying to suss out what the new chief executive means for the future of the Golden Arches. Easterbrook's ascension to the top spot at the Golden Arches after more than 20 years with the company came amid a period of ongoing challenges for the company, promoting curiosity and scrutiny among investors and franchisees as to how the CEO's plan to turn McDonald's into his touted "modern, progressive burger company" will play out.
While many questions persist about how exactly McDonald's will enact and benefit from its turnaround strategy, the company's most recent quarterly conference call shed some light on the direction that Easterbrook and Co. will pursue. These three quotes from that July 23 conference call help tell the story of the new direction at the Golden Arches.
McDonald's CEO acknowledges and aims to change negative perceptions
Easterbrook is tasked with returning McDonald's to global sales growth amid emerging competition and lagging brand strength, and he acknowledged during the call that no single measure would put the company back on the right track. The company's image has been hurt by controversies regarding the quality of its ingredients, treatment of employees, and the overall health profile of its menu, and Easterbrook has indicated that thriving in the restaurant market looks to be dependent on reversing stigmas associated with the McDonald's name.
Here's the McDonald's CEO on the need for a holistic approach to improving the brand:
It's not enough to say that we want to be a modern, progressive burger company. Consumers need to see us that way: shifting deep-seated perceptions, the longer-term proposition. It requires us to move across legacy barriers and embrace behaviors of a true global leader. We have made significant progress in a short amount of time. And I am confident the changes we are making are the right ones and will position us to grow the business profitably for our system and our shareholders for the long term.
Menu additions are coming, but increasing simplicity is top priority
McDonald's has put forth a menu revamp as one of the key elements to its turnaround strategy, and has already reduced the complexity of its offerings; however its statements have at times given cause for confusion. In addition to its stated intentions to reduce the complexity of its menu, the company has also discussed expanding its breakfast offerings throughout the day, expanding its Create Your Taste custom burger platform, and increasing the number of regionally specific offerings.
Easterbrook's comments on the company's most recent earnings call have made it clear that the company is prioritizing improvements to the core menu. Here's the McDonald's CEO on the new menu strategy:
I mean, when we sit here and assess how can you make the biggest difference to the most customers in the shortest space of time, improving our core menu and our delivery of the core menu is clearly the way to go. So, I don't want us to lose sight of the fact that toasting of buns, better searing of beef, taking care of the dressings, and the packaging, and the rest of it, that gets noticed by customers. With regards to, if you like, new product development, I would say, at a national level, we will be looking at, if you like, quality over quantity. It's not about having lots of national LTOs [limited-time offers], because that does complicate the business. It gets confusing to message right. So, we would be looking at fewer higher impact items going out, and our team with Chef Dan and his team are working hard on that. And then you will also see the localized options.
I called out the lobster roll in Boston, for example. That could be much more nimble, shorter term, relevant to the local consumer demographic in taste and flavors. So I think you will see there are two levels. ... It will be calm, measured and higher impact, with fewer items national and then locally, there will be some energy on a local basis. But don't miss out -- honestly, don't miss out the benefit of continually improving our core menu as well.
Easterbrook went on to say that the company is prioritizing a net simplification to its menu and operations, indicating that potential changes, such as offering breakfast items all day, would be accompanied by alterations to increase simplicity at stores.
McDonald's is slimming its workforce to improve the bottom line
At the beginning of August, McDonald's announced that it would lay off some 225 workers, with 135 of the workforce redundancies coming from its Illinois headquarters. This move came on the heels of a 63-person layoff at the company's headquarters at the start of 2015.
McDonald's CEO has indicated that more workforce reductions are likely to follow, stating that the company expects it will have achieved half of its annual target of $300 million net savings on general and administrative expenses by the end of next year, with the goal being fully realized by the end of 2017. Here's Easterbrook on the change in workforce makeup:
The structural changes to our organization and our ownership mix not only better position us for future growth, they will also deliver savings to our bottom line. Earlier this month, we made important changes in our corporate and segment support teams, which included the elimination of some international and home office positions. While these types of changes are never easy, they were right for the business and will result in a leaner, more agile organization that can better respond to market conditions, and most importantly, our customers. The rapid execution of these resourcing decisions is an example of our sense of urgency to reset our business and change the trajectory of our financial performance.
McDonald's is also looking to cut expenses and raise margins by increasing its share of franchised restaurants. Currently, more than 80% of the company's restaurants are franchised, but the McDonald's CEO sees raising the percentage of franchise-owned stores to 90% as central to his turnaround plan.
Easterbrook has his work cut out for him and customers and investors will want to keep watching as McDonald's works to turn itself around.
