McDonalds In Turnaround Bid

McDonalds, one of the largest and top fast food chains, is in a spot of bother and ‘shareholders not loving it.’

The company has shown decline in sales, customer traffic, and diminishing brand appeal over the past year.

Consequently, new President and Chief Executive Officer Steve Easterbrook has announced new plans to turnaround the company.

Easterbrook said in a press release, “Today we are announcing the initial steps to reset and turn around our business. As we look to shape McDonald’s future as a modern, progressive burger company, our priorities are threefold – driving operational growth, returning excitement to our brand and unlocking financial value.”

He further stated that the immediate priority for McDonalds is to restore growth by restructuring the company.

He noted that the company will be restructured along the line of four new segments that combine markets with similar needs, challenges, and opportunities for growth.

These include:

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.

“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 added.

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 our 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.