Big cost cuts on the menu
McDonald’s attempts to turn around falling sales started in earnest yesterday, with new chief executive Steve Easterbrook unveiling a three-year strategy to save the business $300m (£198m) annually within the next three years. Net income fell 15 per cent last year.
McDonald’s new chief executive has admitted that the world’s largest fast-food chain must improve if the business is to turn around one of the worst periods in its 60-year history.
Customers have shunned its restaurants over complicated and uninspiring menus, its US workers have hit out at low pay, and rivals have won more business through new innovations – sending McDonald’s sales down every quarter since October 2013.
Steve Easterbrook, who became the first British-born boss of the company earlier this year, hopes to turn the tide as he unveiled a major overhaul of its divisions yesterday and launched cost cuttings across the group.
He said: “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 and … I will not shy away from the urgent need to reset this business – how we think, how we take decisions, how we organise, how we respond to customers and their changing needs, and how we galvanise against competitive threats.”
Plans include opening 1,000 restaurants a year across the world and saving $300m (£198m) a year by increasing the number of franchises instead of company-owned restaurants.
However, the biggest change is in how the company is structured, with divisions previously on geographical lines. Instead, there will be four divisions – the US, international lead markets, high-growth markets and foundational markets.
Mr Easterbrook said running the business by geogra- phy was commercially illogical, and said the new structure would see more than 80 per cent of sales coming through the US and international lead markets divisions.
He highlighted the UK – which falls into the lead markets category alongside Canada, Australia, France and Germany – for particular praise, revealing that sales have risen for the past eight years and calling it McDonald’s “major market pace-setter”.
“The UK has strong alignment among franchisees, an emphasis on food quality and progressive employment practices, insightful market analysis and is effective in defining and quantify- ing attractive segments for growth,” he added.
Previously, the UK business formed part of the North West Europe division and was run by Jill McDonald who was recently poached to become chief executive of the car and bike specialist Halfords.
Savings will also come from increasing the number of franchises from 81 percent to 90 per cent of the business, although franchisees must be persuaded that sales will grow.
McDonald’s annual net income fell 15 per cent to $4.7bn (£3.11bn) last year. It also faced protests in the US over pay, with workers striking and pressure groups calling for boycotts.