Don Thompson is out, Steve Easterbrook is in. Come March, Thompson will find himself out in the cold after sales at McDonald’s fell for the first time in 12 years under his watch. The new man in charge takes on the top job at a troubled time for the fast-food chain, which is facing battles in all directions. Here are some of the pressing challenges Easterbrook will need to address.
Winning back customers who have fallen out of love with McDonalds
Once loyal McDonald’s customers have had their heads turned by its more up-market fast-food rivals such as Shake Shack, Five Guys and Chipotle. Easterbrook will have to work out a way to reignite the customer’s love affair with the Big Mac.
Young people in the US are taking their custom elsewhere. The number of 19-to-21-year-olds visiting McDonald’s once a month has fallen by 13% since 2011, according to food analysts Technomic, while the number of 22-to-37-year-olds visiting is flat.
As McDonald’s sales figures go into reverse, sales at Chipotle Mexican Grill are soaring. Shake Shack meanwhile has transformed from a single hot dog stand in Manhattan’s Madison Square Park a decade ago into a 63-strong chain operating in nine countries. It is preparing for a stock market floatation that will value the company at $568m (£374m).
Taking on Burger King for low-income customers
At the other end of the spectrum, McDonald’s needs to make sure that it can still attract low-income customers, rather than losing out to its traditional rival Burger King. Burger King has served up better results recently, which the chain has partly put down to its focus on price and success of its value menu range.
Tackle the negative pr by paying staff more
McDonald’s has a reputation for paying its staff poorly. The company has been hit by protests from workers, many of whom earn the minimum wage despite being with the company for years. Shareholder activists last year called for the salary of outgoing chief executive Don Thompson to be cut, citing the chain’s poor performance and the massive gap between his wages and those of the average McDonald’s worker. At a time when it is losing customers, the company could really do without the additional bad pr.
Sort out China, where it has been rocked by food safety scandals
Steve Easterbrook will need to make a concerted effort to clean up McDonald’s reputation on food safety, which has taken a battering following scandals in China. Last summer, a supplier to the chain’s restaurants in China was accused of supplying rotting meat and falsifying meat expiry dates. Local media showed workers apparently caught on camera at the supplier in question, Shanghai Husi Food, claiming to use out-of-date beef and chicken in products destined for McDonald’s and KFC kitchens. There was a near three week shortage of meat products in some of its Chinese restaurants after it suspended orders from the supplier.
The company is still dealing with the fall-out from the situation. Sales in Asia Pacific, Middle East, and Africa fell by 4.8% in the final quarter of last year on a like-for-like basis, stripping out the impact of restaurants open for less than a year. McDonald’s said the drop was “primarily due to the lingering impact of the supplier issue on sales and profitability in China, Japan and certain other markets”. While it is having a clear and quantifiable impact on financial results, the cost to its reputation could be greater.
McDonald’s has also been hit by food safety concerns in Russia - apparently politically motivated as the US company is caught up in Russia’s dispute with the West over Ukraine. About half of McDonald’s 450 restaurants in Russia were put under government investigation.
Get ready to take on investors
Easterbrook will be under pressure from investors to turn things around quickly. Activist investors alarmed by the company’s poor performance are likely to give the new chief executive a hard time from word go. Activist fund Jana Partners took a stake in McDonald’s in November, while shares jumped a month later on speculation that one of the most determined activists, Bill Ackman intended to buy a stake and shake things up.
Slim down the menu
In a bid to be all things to all men and offer healthier alternatives to burgers and fries, some argue the menu has got too complicated. Bigger menus have made kitchen operations more complex, giving some customers a longer wait for their fast food fix.
Read the history books
Dust down those history books, for McDonald’s has been here before. In the early 2000s the chain experienced similar problems. Back in 2003 it reported its first quarterly loss since going public in 1965. Jim Cantalupo, the then chairman and chief executive, said at the time: “The world has changed. Our customers have changed. We have to change, too.” Management did turn the company around, so will history repeat itself?
