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Mon 4th May 2015 - McDonald’s Easterbrook sets out turnaround plan
McDonald’s Easterbrook sets out turnaround plan: McDonald's chief executive, Steve Easterbrook, has announced the initial steps in the company's turnaround plan, including a restructuring of the company's worldwide business. He plans to move 3,500 restaurants from managed to franchised by 2018, meaning franchise sites will account for 90% of the total number of company restaurants, up from the current 81%. Previously the company planned to refranchise 1,500 sites. Easterbrook, who argued that the world “had changed faster outside the business than inside it” in the past five years, said there would be $300m of cash savings each year by the end of 2017, while the company would still be opening 1,000 restaurants a year. In a video describing the proposals, Easterbrook cited the UK as a model of where the company’s turnaround should head, with eight years of sales and earnings growth, and "best-in-class" market segmentation. He also reported that the company is beginning a delivery trial in New York today. Easterbrook said: "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. The immediate priority for our business is restoring growth under a new organisational structure and ownership mix designed to provide greater focus on the customer, improve our operating fundamentals and drive a recommitment to running great restaurants. As we turn around our business, we will look to create more excitement around the brand and ensure that we build on our rich heritage of positively impacting the communities we serve."
New market segments established
Easterbrook said: "The first critical step of our operational growth-led plan is to strengthen our effectiveness and efficiency to drive faster and more customer-led decisions. We will restructure our business into four new segments that combine markets with similar needs, challenges, and opportunities for growth."
Starting 1 July, McDonald's will operate under a new organisational structure with the following market segments:
United States – the company's largest segment, accounting for more than 40% of its 2014 operating income;
International lead markets – established markets including Australia, Canada, France, Germany and the UK, which operate within similar economic and competitive dynamics, offer similar growth opportunities and collectively represented about 40% of the McDonald'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.
Easterbrook said: "Our new structure will be supported by streamlined teams with fewer layers and less bureaucracy, and our markets will be better organised 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."
Segment leadership team appointed
"Our new organisation creates a structure under which leadership of McDonald's new segments will be able to more effectively address the common needs of their markets and customers," Easterbrook said. "It is critical that we position our management talent within our new structure in a way that capitalises on their skill sets. As such, I am pleased to announce the leadership team for our new segments, effective July 1, 2015. Mike Andres will continue to serve as president, McDonald's US. Mike is a progressive, strategic thinker with the vision necessary to capitalise on the opportunities in the US market. Doug Goare, currently president, McDonald's Europe, will become president, international lead markets. Doug is an exceptional leader with strong management and operations experience and a deep working knowledge of McDonald's business. Doug is ideally suited to oversee the talented teams in place across this established group of markets as they work to improve their performance. Dave Hoffmann, currently president, McDonald's Asia/Pacific, Middle East and Africa (APMEA), will transition to the role of president, high-growth markets. Dave is a results-oriented leader with outstanding experience building the brand in emerging markets like China. He is uniquely qualified to lead this new segment in pursuing the tremendous opportunities that exist for McDonald's across this group of markets. Ian Borden, currently the chief financial officer, McDonald's APMEA, will assume the role of president, foundational markets. In this role, Ian will be responsible for maximising the potential of these approximately 100 markets that represent about 10% of the company's operating income. Ian brings very broad geographical and functional expertise to this role having worked in Canada, Europe and APMEA in various finance and operations leadership positions."
New refranchising target and financial updates announced
McDonald's chief administrative officer, Pete Bensen, said:  "As we restructure our organisation and instil greater customer focus, McDonald's turnaround will be governed by stronger financial discipline, faster decision making and clear management accountability. This new organisation structure will unleash more entrepreneurial spirit and more innovation across our system while bolstering what makes McDonald's a formidable leader in the industry: our incredible network of dedicated franchisees."
The enhancements to McDonald's operating approach will be accompanied by plans to further optimise the company's restaurant ownership mix, deliver savings in general and administrative expenses and accelerate cash returned to shareholders. Specifically, 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," Bensen said.
• Deliver approximately $300m in net annual savings on general and administrative expenses, most of which will be realised by the end of 2017, in connection with the company's organisational restructure, refranchising strategy, and more stringent discipline around spending throughout the organization; and
• Return $8bn to $9bn to shareholders in 2015 and reach the top end of its three-year $18bn to $20bn cash return to shareholders target by the end of 2016.
Bensen continued: "As part of our business restructuring, we are focused on further optimising our restaurant ownership mix and expect franchised restaurants to account for approximately 90% of our global restaurant base by the end of 2018. In conjunction with our refranchising plans, we will take a market-by-market approach, set higher financial screens for markets operating company-operated restaurants, and leverage both conventional and developmental licensee structures across the segments. Our new, more heavily franchised business model will generate more stable and predictable revenue and cash flow streams and will require a less resource-intensive support structure. Finally, we will continue to evaluate opportunities to further enhance value for all shareholders. These are exciting and liberating moves for our system, and this is how leadership brands evolve to stay in step with their customers. Meaningful, positive measures of improvement will take time. The most impactful measures of our performance will be through the eyes of our customers. While we continue our efforts to regain business momentum through our turnaround plan and improve sales at our more than 36,000 restaurants around the world, our current performance reflects the ongoing pressures of the business, which we expect to persist through at least the first half of the year. We are taking decisive and necessary action to drive foundational improvements in the business and position the company for long-term growth."


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