The Economist – Takeaways from McDonald’s remarkable comeback

CHRIS KEMPCZINSKI It’s not oversized. One year after his tenure, CEO of McDonald’s is a lean 52 year old who runs a marathon. So it’s hard to believe he eats McDonald’s meals twice a day, five days a week. “Some days I spoil it, some days I’m careful about what I eat, but I eat a lot of McDonald’s,” he admits in an interview. Certainly he is ashamed of many of his best customers. On average, the top 10% of Big Mac Binger visits restaurants one-fifth as often as he does.

Perhaps he is making up for the lost time. Unusual for a McDonald’s boss, he is not a business person. He attended 2015 when McDonald’s was hired by his predecessor Steve Easterbrook when he was on the verge of meltdown. It was plagued by attempts to compete with innovative American startups such as Chipotle and Shake Shack. The site was shabby, despite offering hundreds of items on the menu that many customers couldn’t get. Critics called it a social parasite, paying low wages and promoting obesity. Kempchinsky admits that it suffered from arrogance. His mission under Mr. Easter Brook in 2015 was to shake it off from complacency.

What followed was the lesson of corporate revitalization that could have made Easter Brook a megastar. CEO He wasn’t fired last year because he had a consensual relationship with an employee. (McDonald’s recently sued him for concealing other sexual relationships and wants to regain great rewards.) Still, Kempchinsky is sticking to the program. Unlike many new bosses who are keen to destroy the legacy of their shameful predecessors, on November 9, he announced a new strategy based on work that has recently begun. In the midst of a pandemic, it offers its own valuable lessons. Don’t waste the crisis.

The seeds of McDonald’s resurrection began with a surprisingly simple decision that was easy to make a mistake. Go back to basics. Since 2015, the company has reduced the array of menus it offers, focusing on price and quality. Re-committed to Ray Kroc’s beloved business model, increasing its franchise share last year from 82% in 2015 to 93% (about 39,000 restaurants). Streamlined its vast international business and sold control of restaurants in China and Hong Kong. The result was impressive. McDonald’s overall sales exceeded $ 100 billion last year. The operating margin was thinner than most restaurant patties, swelling to 43%. And the stock price soared. Since 2015, its market value has almost doubled to $ 160 billion.

As the financial base recovered, we turned to investing in the future. But, contrary to intuition, I probably benefited from not being in a hurry. According to San Diego-based restaurant consultant John Gordon, franchise models make it difficult to move quickly and it’s important to build consensus. Test new ideas in the local market before proposing to franchisees around the world. Ownership of the land beneath the franchisee’s restaurant has given joint interest to the franchisee and co-investment in technology upgrades. Not only does this help attract customers by strengthening the brand, but it also supports the value of the land. In recent years, McDonald’s and its franchisees have invested heavily in the installation of kiosks for touchscreen orders and other improvements such as two-lane drive-through. Last year, the company acquired a technology company that helps personalize drive-through experiences, making the largest acquisition in a few years. The overhaul may have cost the franchisee a lot. However, in the process of the covid-19 pandemic, they began to benefit.

This is due to the surge in sales in recent months, especially in the United States, as McDonald’s took advantage of the crisis to accelerate the pace of change. Due to the closure of many restaurant interiors, we have relied on the development of digital, drive-through and delivery initiatives. All of these facilitate a more “contactless” experience, which we believe will last longer than a pandemic. I recall Croc’s saying, “We are not a hamburger business.” We are in show business, “said Travis Scott and other superstar rappers with customized menus that captivated customers. In addition, old-fashioned favorites such as Big Mac and Quarter Pounder are at the center of the menu, simplifying the kitchen and speeding up customer service. Over the next two years, we expect the long-awaited digital loyalty program to drive sales growth and maintain margins at high levels in 2019.

Kempchinsky has many challenges left. When it comes to food, McDonald’s lags behind when it comes to chicken sandwiches and plant-based products. Soon we promise a crispy chicken sandwich and a non-meat Mac plant. The former is essential to catch up with competitors such as Chick-fil-A.A.. According to the company, marketing is shifting from sales to promoting as a community-centric brand, but not everyone likes a pious tone. “Social Justice Warriors currently runs McDonald’s Corporation, which has nothing to do with the sale of Big Macs,” said one franchisee quoted in an analyst report. McDonald’s faces two proceedings from former and current black franchisees, alleging racism by pushing them into poorer areas. It refutes the accusations.

From Big Mac to Big Data

Its ubiquity means that McDonald’s is often in the news for the wrong reasons. But as a corporate turnaround, it’s a compelling story. Instead of suffering a technical onslaught like many physical store chains, it has become a digital pioneer. Instead of crouching in the middle of a pandemic, it embraced a new way to do business. Despite Mr. Kemptinsky’s baptism by fire, even the transition of leadership was the best the industry has seen in the last few years, says investment firm Bernstein’s Sara Senatore. He should not be scrutinized about his frequency at the lunch counter. So far, he has won all the quarter pounders he can eat.