Commentary

New Big Cheese At Mickey D's

Steve Easterbrook, who returned to McDonald’s as global chief branding officer in June 2013 after brief stints at the top of UK-based chains Pizza Express and Wagamama, will take over as CEO in Oak Brook, Ill., on March 1. Don Thompson resigned yesterday after fewer than three years at the helm of the world’s largest fast-food company. Stock shot up 3.4% in after-hours trading.

“Steve is a strong and experienced executive who successfully led our UK and European business units and the board is confident that he can effectively lead the company to improved financial and operational performance,” Andrew McKenna, non-executive chairman of McDonald’s board of directors, said in a statement announcing the changes.

“The 47 year old, who grew up in Watford, received widespread praise for turning around McDonalds’s UK business after taking over the arm in 2006. He was subsequently made president of McDonald’s Europe,” reports Andrew Trotman in the Telegraph. “However, he shocked the company in 2011 when he ended an 18-year career at the fast-food giant” to take the CEO position at Pizza Express.

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“Even at a young age, he was a McDonald’s fan, telling the Guardian in 2008 …” how he would “‘jump on the Met line to get the tube into Harrow,’” writes Business Insider’s Lisa O’Reilly in a profile of the graduate of Durham University. He’s also a Watford FC “fanatic,” according to his hometown newspaper. 

“We used to go off with three or four quid in our pocket,” Easterbrook told the Guardian. “That would cover our train fare, mooching around Harrow, and going to McDonald's. It was the first time I had shakes and fries.”

That’s a key problem in a nutshell. Kids, and recent kids, aren’t hopping the rails to get a bite out of a Big Mac nowadays.

While it is the largest burger chain in the U.S., with about 14,200 outlets, McDonald’s “has struggled to stay relevant with Millennials — people in their 20s and 30s who have shunned the one-size-fits-all model of traditional fast food,” points out Bloomberg’s Craig Giammona, with Chipotle and other fast-casual restaurants eating their lunch, so to speak.

“The students in my classes don't even think of going to McDonald's. They've been taught not to go there since they were kids,” Christopher Muller, professor of hospitality at Boston University, tells Bruce Horovitz in USA Today. “[Easterbrook’s] challenge is immense. He's got a whole generation that wants nothing to do with McDonald's.”

Not that Thompson wasn’t trying.

“To turn around the U.S. unit, the company is shelving some menu items to reduce complexity, creating a build-your-own sandwich platform and focusing its advertising its efforts on stressing the quality of its food to consumers,” reports CNBC’s Katie Little. “It's also doubling down on its digital efforts as restaurant technology becomes an increasingly large focus in the industry.”

In addition, McDonald’s “plans to open fewer stores this year and pare capital investment to $2 billion, the least in more than five years,” reports Hiroko Tabuchi in the New York Times. It has also raised prices for many items in its “dollar menu” and reduced “value meal” promotions, Tabuchi writes, but “analysts warned that those changes were unlikely to bring about a turnaround anytime soon.”

Even though Easterbrook was on Thompson’s team, “it doesn’t mean the two men share the same approach,” Bill Smead, CEO of Smead Capital Management, tells the Wall Street Journal’s Jason, Ilan Brat and Annie Gasparro. “I think Don [Thompson] just wasn’t inspiring the franchisees or people around him in the way that they needed to be,” said Smead, whose firm owns about 168,000 McDonald’s shares.

“McDonald's is mired in a months-long financial slump; its sales and profit figures missed Wall Street forecasts in every quarter of 2014, points out Peter Frost in Crain’s Chicago Business. Last week, the company reported earning $1.1 billion in its most-recent quarter, down from $1.4 billion in the same period a year earlier. Revenue was off 7.3%

McDonald’s also promoted Pete Bensen to the new position of chief administration officer yesterday. He had been SVP/CFO and will report to Easterbrook. Kevin Ozan, currently SVP/corporate controller succeeds Bensen with an EVP/CFO title. 

“It's tough to say goodbye to the McFamily, but there is a time and season for everything,” said Thomson, 51, in the company’s press release. “I am truly confident as I pass the reins over to Steve, that he will continue to move our business and brand forward.”

Not to quibble with the affable Thompson but investors and franchisees will be looking for more than continuation.

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