McDonald’s restructures into four segments

Published May 5, 2015

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Craig Giammona New York

MCDONALD’S chief executive Steve Easterbrook is restructuring the restaurant chain into four segments, saying the key to snapping its sales slump is improving operations.

The company would also shift more restaurants to independent owners, cut costs and return cash to shareholders, Easterbrook said yesterday.

McDonald’s is trying to stem an exodus of customers who are seeking higher-quality food at chains like Chipotle or cheaper fare at traditional rivals such as Burger King and Wendy’s. Easterbrook, a company veteran, took over McDonald’s in March after the company’s worst sales slump in more than a decade forced his predecessor from the job.

“Our turnaround will be grounded in operations excellence and running great restaurants,” Easterbrook said.

Investors, though, were not sold that the plans presented yesterday will be enough to revive the company’s prospects. McDonald’s shares fell 1.6 percent to $96.25 (R1 159) at 8.49am in New York.

Investors might have been looking for an update on how much debt the company was willing to take on as it returned cash to shareholders, said Will Slabaugh, an analyst at Stephens.

“That was something that was missing,” he said.

“They haven’t touched on that quite yet.”

Cash return

McDonald’s said yesterday that it planned to return as much as $9 billion in cash to shareholders this year through dividends and stock buybacks. The company also plans to reach the top end of its three-year target of returning as much as $20bn by the end of next year.

Despite the lack of detail on debt, Slabaugh said that the company still appeared to be “headed in the right direction”.

In another move that may help McDonald’s bottom line, Easterbrook said McDonald’s would shift more of its restaurants to independent owners.

The company plans to have 90 percent of its locations franchised globally by 2018, up from 81 percent.

Franchised locations are typically more profitable because the firm bears less of the cost of operations.

Mike Andres will continue to lead the company’s US segment. Doug Goare, currently in charge of McDonald’s Europe, will be president of the new international lead markets, which comprises Australia, Canada, France, the UK and Germany.

Dave Hoffmann, the president of McDonald’s Asia-Pacific, Middle East and Africa unit, which it calls APMEA, will lead the high-growth markets group.

That segment includes China, Italy, Poland and Russia, among others. Ian Borden, currently the chief financial officer of the APMEA unit, will be president of the foundational markets group, which includes about 100 countries.

The reorganisation of the group will also entail cutting $300 million in annual general and administrative costs by the end of 2017.

“Having clusters of similar markets led by one person will create urgency and speed,” Easterbrook said. – Bloomberg

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