Business

McDonald's CEO Steve Easterbrook pitches turnaround plan

McDonald's CEO Steve Easterbrook says he's stripping away layers of bureaucracy so the company can move faster to keep up with changing tastes.
McDonald's new CEO Steve Easterbrook is tasked with turning around a chain that was once rock solid but is now facing changing consumer tastes. (Robert Galbraith/Reuters)

McDonald's wants to simplify, simplify, simplify — but also add a bunch of choices for customers to avoid growing stale.

CEO Steve Easterbrook said Monday that he will strip away the bureaucracy at McDonald's so the company can move more nimbly to keep up with changing tastes. The overhaul comes after McDonald's saw its profit drop 15 per cent last year, with sales dipping in regions around the world.

"The reality is our recent performance has been poor. The numbers don't lie," said Easterbrook, who took charge of the world's biggest hamburger chain on March 1.

To help make the right changes more quickly, McDonald's said it's restructuring its business into four units led by lean management teams.

The U.S. market, which accounts for more than 40 per cent of operating profit, recently stripped away a level of field oversight and will be its own unit.

Another unit will be made up of established international markets such as Australia and the United Kingdom, and another with high-growth markets such as China and Russia. The countries where McDonald's has a smaller presence will be grouped separately.

Reduce complexity

Already, McDonald's has acknowledged the need to simplify food preparation as well. The company has already trimmed its menu to reduce complexity for workers and make it easier for customers to decide what they want.

Even as it embraces the mantra of simplification, however, McDonald's is eyeing a host of new options to prevent its image from growing stale.

The company is testing an all-day breakfast menu in San Diego and a "Create Your Taste" option that lets people build their own burgers. Janney analyst Mark Kalinowski has also noted the company is testing a scaled down version of that program called "Taste Crafted" that is available at drive-thrus.

And on Monday, McDonald's launched delivery in New York City in partnership with delivery service Postmates. It plans to offer a mobile app in the U.S. later this year as well.

In a call with reporters, Easterbrook said such moves are about offering more choices and not adding complexity.

"This is about being a better McDonald's, not a different McDonald's," Easterbrook said.

Robert Carter of the NPD Group said he believes McDonalds is moving in the right direction.

New ideas quick to market

"They're going to create an organization that's quicker to market with ideas which is the kind of structure need to have in today's fast-changing marketplace," he told CBC News.

Carter likes the idea of revamping the company's internal structure.

"It seems Easterbrook is suggesting there's layers of bureaucracy that need to be removed and I think there's pressure on the large restaurant operators to look at how they get strategy to market quicker, such as new market development, new innovation, customer service strategy," he said. 

He points out that McDonald's risks getting left behind by changing tastes.

"We're dealing with a much more dynamic restaurant consumer who's changing in their taste profiles and they're much more global, so you need to really react quickly in this type of environment," he said.

Larry Light, who served as chief marketing officer of McDonald's between 2002 and 2005 and now runs a brand consulting firm, said Easterbrook offered little in the way of what matters to customers.

"Being more efficient, having less bureaucracy will buy you time, but will not buy you enduring success," he said.

What about the food?

When McDonald's was trying to turn around its business in 2002, Light said it focused on addressing the quality of the food, which had degraded over time. For instance, he said the company had stopped toasting Big Mac buns to speed up service.

Changing that helped the company reconnect with its existing fans.

"Now McDonald's is more concerned about the customers that go to Chipotle," Light said.

McDonald's, based in Oak Brook, Illinois, also said Monday that 90 per cent of its more than 36,200 restaurants around the world will be franchised over the next four years. That's up from 81 per cent, and will mean the company will rely more heavily on franchising fees and move away from the daily work of running restaurants.

The organizational changes will contribute to $300 million in cost-cutting targeted by McDonald's, most of which will be realized by 2017. Without providing details, Easterbrook said the cost-cutting will affect jobs.

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