The Turnaround Plan of McDonald's: A Long Way to Go
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Case Code: BSTR487 Case Length: 16 Pages Period: 2010-2016 Pub Date: 2016 Teaching Note: Not Available |
Price: Rs.500 Organization: McDonald's Corporation Industry: Restaurants Countries: USA, Global Themes: Turnaround |
Abstract Case Intro 1 Case Intro 2 Excerpts
Abstract
In May 2015, Steve Easterbrook, CEO of McDonald's Corporation (McDonald’s), one of the world's leading fast food restaurant companies, announced a turnaround plan to revive the sagging fortunes of the company. This came in the aftermath of several consecutive quarters of sales drop. McDonald's same store sales in the US slipped and the fall was attributed to lower customer traffic, growing competition, and customers' preference for healthy food besides overstuffed menus — McDonald’s had added several new items to its menus in order to bring in new customers. Compared to 2007, 40 new items had been added to the menu by 2015. In several of its international markets too, McDonald's performance was not up to the mark. At the same time, the franchisees who owned more than 80% of all the McDonald's restaurants were staring at complicated menus, falling sales, growing expenses, and dropping service levels.
Easterbrook in his turnaround plan reorganized the business into four market segments which were different from the existing structure where the company operated through distinct geographic segments. In the new structure, the markets were organized based on the maturity of presence in the market and shared characteristics. Thus, they were divided into the US, lead international markets (Australia, Canada, France, Germany, and the UK), high growth markets (China, Italy, Poland, Russia, South Korea, Spain, Switzerland, and the Netherlands) and foundational markets consisting of 100 countries.
Easterbrook planned to increase the franchisee ownership from the existing 81% to 90% by selling more than 3,200 company-owned restaurants to franchisees. At the same time, McDonald’s would also continue to operate restaurants in large, established markets. Easterbrook also announced changes in the menu and ingredients, the launch of made-to- order burgers, and plans to serve the breakfast menu all day long.
There were mixed reactions to the turnaround plan from analysts, observers, franchisees, and customers. While some said the changes would lead to savings and future growth, others thought it would foster easier collaboration among different markets. At the same time, there were a few who said that the main problem that McDonald’s was facing - the quality and variety of food it served and changing the consumers’ perception - remained unaddressed. Franchisees said that menu upgrades called for more investment and service could slow down further to accommodate the changed menu.
With the turnaround plan being implemented in July 2015, it remained to be seen if it would revive the sagging fortunes of the fast food giant.
Issues
The case is designed to help the students:
- To understand the impact of a dynamically changing competitive environment
- To recognize the need to understand customer requirements and bring about appropriate strategy changes
- To identify the measures needed to contain the downward spiral of a company in trouble
- To retain customers in the face of growing competition and changing preferences and perceptions
- To understand how competitors’ strategies impact business decisions
Contents
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Plan to Fix
About McDonald's
Trouble on the Menu
International Markets
The Turnaround Plan
What Next?
Exhibits
Keywords
McDonald's, Turnaround, turnaround strategies, decline; evaluation of a turnaround plan; Steve Easterbrook; market segments; franchisee; competitive strategy; restructuring
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