OAK BROOK, Ill. – For McDonald’s Corp. the road leading to a “modern, progressive burger company” is lined with change.
CEO Steve Easterbrook announced the first steps in McDonald’s turnaround plan. Easterbrook previously said he intends to make the fast-casual giant into a customer-centric burger business that delivers a contemporary dining experience.
“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,” Easterbrook said in a statement. “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.”
The first critical step is restructuring the business. Beginning July 1, McDonald’s will operate under a new organizational structure. McDonald's new market segments are:
US: The company’s largest segment accounting for 40 percent of McDonald’s 2014 operating income.
International Lead Markets: established markets including Australia, Canada, France, Germany and the United Kingdom which collectively represented 40 percent of the company’s 2014 operating income.
High-growth Markets: China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands which accounted for about 10 percent of McDonald's 2014 operating income. These markets have higher restaurant expansion and franchising potential, according to the company.
Foundational Markets: The remaining markets in the McDonald’s system which the potential to operate under a largely franchised model. Corporate activities will be reported under this segment, the company noted.
With the new segments come leadership appointments:
• Mike Andres will continue to serve as president – McDonald’s US;
• Doug Goare was appointed president - International Lead Markets. He currently serves as president - McDonald's Europe;
Dave Hoffmann, currently president of McDonald's Asia/Pacific, Middle East and Africa (APMEA), named president of High-Growth Markets; and
• Ian Borden, currently CFO of McDonald's APMEA, was named president - Foundational Markets.
“Our new organization creates a structure under which leadership of McDonald's new segments will be able to more effectively address the common needs of their markets and customers,” Easterbrook said. “It is critical that we position our management talent within our new structure in a way that capitalizes on their skill sets.”
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Under the new business structure, stronger financial discipline, faster decision making and clear management accountability will govern the business, said Pete Bensen, chief administrative officer of McDonald's. Additionally, the company plans to shakeup its restaurant ownership mix by refranchising 3,500 restaurants by the end of 2018. By the end of the initiative, McDonald's expects franchised restaurants to account for approximately 90 percent of McDonald's global restaurant base, an increase from 81 percent.
“In conjunction with our refranchising plans, we will take a market-by-market approach, set higher financial screens for markets operating company-operated restaurants, and leverage both conventional and developmental licensee structures across the segments,” Bensen added. “Our new, more heavily-franchised business model will generate more stable and predictable revenue and cash flow streams and will require a less resource-intensive support structure. Finally, we will continue to evaluate opportunities to further enhance value for all shareholders.”
By refranchising restaurants, McDonald's expects to deliver $300 million in net annual G&A savings, and to return $8 to $9 billion to shareholders in 2015. The company expects to reach the top end of its three-year target of $18 to $20 billion returned to shareholders by the end of 2016.
“These are exciting and liberating moves for our system, and this is how leadership brands evolve to stay in step with their customers,” Easterbrook concluded. “Meaningful, positive measures of improvement will take time. The most impactful measures of our performance will be through the eyes of our customers.”