McDonald’s Announces Recovery Plan
06 May 2015 --- After months of falling sales and increasing customer apathy, McDonald's incoming President and Chief Executive Officer Steve Easterbrook has announced the initial steps of the Company's turnaround plan, including a restructuring of McDonald's worldwide business and financial updates.
Easterbrook added, "The immediate priority for our business is restoring growth under a new organizational structure and ownership mix designed to provide greater focus on the customer, improve our operating fundamentals and drive a recommitment to running great restaurants. As we turn around our business, we will look to create more excitement around the brand and ensure that we build on our rich heritage of positively impacting the communities we serve."
Easterbrook continued, "The first critical step of our operational growth-led plan is to strengthen our effectiveness and efficiency to drive faster and more customer-led decisions. We will restructure our business into four new segments that combine markets with similar needs, challenges, and opportunities for growth."
Beginning July 1, 2015, McDonald's will operate under a new organizational structure with the following market segments:
• U.S. - the Company's largest segment, accounting for more than 40% of the Company's 2014 operating income;
• International Lead Markets - established markets including Australia, Canada, France, Germany and the U.K., which operate within similar economic and competitive dynamics, offer similar growth opportunities and collectively represented about 40% of the Company's 2014 operating income;
• High-Growth Markets - markets with relatively higher restaurant expansion and franchising potential including China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands. Together these markets accounted for about 10% of the Company's 2014 operating income; and
• Foundational Markets - the remaining markets in the McDonald's system, each of which has the potential to operate under a largely franchised model. Corporate activities will also be reported within this segment.
Easterbrook added, "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. McDonald's new structure will more closely align similar markets so they can better leverage their collective insights, energy and expertise to deliver a stronger menu, service, and overall experience for our customers."
Easterbrook also announced a number of changes at the top, including a newly created President International Lead Markets, President High-Growth Markets and President Foundational Markets. Each of these roles will be fulfilled by existing McDonald’s executives.
The enhancements to McDonald's operating approach will be accompanied by plans to further optimize the Company's restaurant ownership mix, deliver G&A savings and accelerate cash returned to shareholders. Specifically, the Company expects to:
• Refranchise 3,500 restaurants by the end of 2018, accelerating the pace of refranchising and increasing the global franchised percentage from the current 81% to about 90%. This marks a significant step forward from the prior plan to refranchise at least 1,500 restaurants by 2016;
• Deliver approximately $300 million in net annual G&A savings, most of which will be realized by the end of 2017, in connection with the Company's organizational restructure, refranchising strategy, and more stringent discipline around spending throughout the organization; and
• Return $8 to $9 billion to shareholders in 2015 and to reach the top end of its 3-year $18 to $20 billion cash return to shareholders target by the end of 2016.
Easterbrook concluded, "These are exciting and liberating moves for our System, and this is how leadership brands evolve to stay in step with their customers. Meaningful, positive measures of improvement will take time. The most impactful measures of our performance will be through the eyes of our customers. While we continue our efforts to regain business momentum through our turnaround plan and improve sales at our more than 36,000 restaurants around the world, our current performance reflects the ongoing pressures of the business, which we expect to persist through at least the first half of the year. We are taking decisive and necessary action to drive foundational improvements in the business and position the Company for long-term growth."
