By Annie Gasparro
McDonald's Corp. announced plans to restructure its global
business, selling more restaurants to franchise operators and
regrouping overseas markets in different categories to make a more
nimble organization that will cut $300 million in annual costs.
Chief Executive Steve Easterbrook, nine weeks into his tenure,
delivered the news in a video posted on McDonald's website Monday
morning, as he gave the first thorough look at his turnaround plan
for the burger giant.
Mr. Easterbrook said McDonald's, which has some 36,000
restaurants world-wide, plans by 2018 to sell to franchisees 3,500
outlets that the company currently owns. That is an increase from a
previous goal of 1,500 by 2016, and would mean that about 90% of
McDonald's restaurants would be franchised, from about 81%
currently, a change Mr. Easterbrook said will provide more stable,
predictable revenue.
The CEO also said McDonald's will reorganize its global business
starting July 1 under four segments: the U.S., "international lead
markets" such as Australia and the U.K., "high-growth markets" such
as China and Poland, and the remainder in a group called
"foundational markets." The goal is to group together markets that
have similar dynamics and challenges, rather than simply
geographical proximity.
The reorganization will help McDonald's respond faster to
changing consumer needs, Mr. Easterbrook said, and the company
expects the various moves to save $300 million a year in general
and administrative costs, most of which will be realized by the end
of 2017.
Mr. Easterbrook has vowed to reverse McDonald's struggles in
recent years due to changes in consumer tastes and increased
competition in the U.S., as well as food safety issues in Asia, and
economic slowdowns in parts of Europe.
He also emphasized the importance of improving food quality and
customer service, and was blunt about McDonald's challenges and the
need for bold action.
"Our business-model strength is enduring," he said in the
23-minute video. "But no business or brand has a divine right to
succeed. And the reality is our recent performance has been poor.
The numbers don't lie."
"In the last five years, the world has moved faster outside the
business than inside," he said. "I will not shy away from the
urgent need to reset this business."
Still, the details he offered--focused on operational
structure--appeared initially to disappoint investors, who were
widely anticipating Monday's discussion. McDonald's shares fell
nearly 1.3% in early morning trading Monday.
Mr. Easterbrook said the company will conduct a review of its
corporate structure in coming weeks, signaling that some positions
could be eliminated. "Layers of bureaucracy will be stripped away
to allow more nimble decision making and action," Mr. Easterbrook
said. However, he didn't specifically discuss the possibility of
layoffs.
In the U.S., Mr. Easterbrook already has announced several
changes, such as curbing antibiotic use in chicken and testing
all-day breakfast.
"Progress will be bumpy and uneven," he said Monday. "But the
U.S. is now on the right path."
Separately, McDonald's announced it's testing delivery at 88
restaurants in the New York City area through Postmates, a
third-party service that also has partnerships with Starbucks Corp.
and Chipotle Mexican Grill Inc. Postmates also delivers McDonald's
food in Chicago and San Francisco, according to its website, but
McDonald's said it is focused on New York at this time.
McDonald's former CEO Don Thompson said two years ago the chain
was testing delivery in some unnamed markets, especially those
where there are no drive-throughs. Rivals like Burger King have
delivered to New York and other urban areas for years.
Chelsey Dulaney contributed to this article.
Write to Annie Gasparro at annie.gasparro@wsj.com
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