McDonald's to reorganize units, boost franchises in turnaround

Mumbai: McDonald's Corp's new chief executive officer said that he would reorganize operating units, sell more restaurants to franchisees and cut costs in a bid to turn the fast-food chain into a "modern, progressive burger company."

The much-anticipated video announcement by CEO Steve Easterbrook left investors hungry for specific details on how the world's biggest restaurant chain would improve food quality and speed up service. "I will not shy away from the urgent need to reset this business," said Easterbrook, who took the helm on March 1, following one of McDonald's most dismal years on record.

Shares were down 0.6 per cent at $97.24 on the New York Stock Exchange as investors digested the news. The stock had dropped nearly 2 percent in premarket trading. "Judging by the immediate investor reaction, there appears to be more of a 'prove it' sentiment among investors, rather than an full embrace of Mr. Easterbrook's plan," Miller Tabak & Co analyst Stephen Anderson said in a client note.

Easterbrook said McDonald's will sell 3,500 restaurants to franchisees by 2018, taking global franchisee ownership to 90 percent from 81 percent. McDonald's prior plan called for selling 1,500 restaurants to franchisees by 2016. He vowed to remove "cumbersome" management and scour the business for inefficiencies. Those moves are expected to result in about $300 million in net annual savings, most of which will be realized by the end of 2017.

Easterbrook also said McDonald's would return $8 billion to $9 billion to shareholders in 2015. McDonald's currently organizes its business around major geographic markets: the United States, Europe, and Asia/Pacific, the Middle East and Africa (APMEA).

Easterbrook said the new segments will be organized around business similarities. The US market, which accounts for more than 40 percent of McDonald's operating income, will continue to be led by Mike Andres.The new "international lead" market will include Australia, Canada, France, Germany, and the United Kingdom, which make up a total of 40 percent of McDonald's operating income. The unit will be led by Doug Goare, current president of McDonald's Europe.

Dave Hoffman, current president of McDonald's APMEA unit, will lead a new "high-growth" market that includes China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands. Those countries account for about 10 percent of operating income. The "foundational" market includes the remaining countries where McDonald's operates. It will be run by Ian Borden, currently APMEA's chief financial officer.