McDonald’s new CEO drove turnaround plan hated by franchisees
INTERNATIONAL - The new chief executive officer of McDonald’s Corp. is a Harvard MBA who played a critical role in the revamp of the fast-food chain that has turned the stock into a Wall Street darling.
But what Chris Kempczinski isn’t is a guy who once flipped burgers -- and that doesn’t exactly endear him to owners of McDonald’s franchises. Already upset over bearing the burden of the costs from that makeover, they may be one of his biggest challenges as he takes over from Steve Easterbrook, who was fired as CEO on Sunday for having a consensual relationship with an employee.
The 51-year-old Kempczinski, known as “Chris K” around the office, was hired by Easterbrook in 2015 as an executive vice president of strategy and business development, part of a massive shakeup of management ranks. A little over a year later, he was named to run all U.S. business. He previously worked at Kraft Foods and PepsiCo.
Easterbrook, by contrast, spent most of his career at McDonald’s, joining in 1993 in London. He once worked as a restaurant manager for McDonald’s before being named to head its U.K. division.
“Chris Kempczinski is not typical relative to previous CEOs at McDonald’s, as he has not spent the majority of his career at the company, and is a relative outsider,” said Kristin Ketner Pak, a portfolio manager at the Invesco Oppenheimer Main Street Fund, which owns McDonald’s shares.
McDonald’s shares rose as much as 0.6% in early trading in New York Tuesday. The stock fell 2.7% on Monday, closing at its lowest in seven months. The stock had almost doubled since Easterbrook took over in March 2015, more than twice the gain in the S&P 500 Index, giving the company a market capitalization of $147 billion as of Friday.
McDonald’s was further shaken Monday when it announced that its top human resources manager, David Fairhurst, left the company. No reason was given.
With Kempczinski at his side, Easterbrook is credited with turning the once lagging restaurant chain around with an ambitious modernization plan that spanned menu revamps, store remodels and acquiring artificial intelligence startups.
But the costs of implementing Easterbrook’s plan were heaped upon the restaurant owners, who run about 93% of McDonald’s 38,000 restaurants worldwide. They banded together in open rebellion as they chafed at what they saw as a command-and-control mentality coming from corporate headquarters.
Last November, they succeeded in forcing Easterbrook to slow by two years the rollout of upgrades tied to home delivery and touchscreen kiosks in the U.S.
Given Kempczinski’s key role, that strife isn’t likely to recede easily, said a person familiar with the situation. McDonald’s owners and suppliers are further worried about some of the recent tech acquisitions, including their view that the company overpaid in a pending deal for Apprente Inc. in September, the person said.
Still, the franchisees are trying to figure out how to best support the company right now, the person said.
Kempczinski declined to comment.
His 2017 appointment to head the U.S. business initially “raised some eyebrows” due to his background in strategy roles, Charlie Strong, who heads McDonald’s operations in the western U.S., said in an interview earlier this year. Strong said Kempczinski had ultimately done a great job running that division, where same-store sales had steadily increased before losing momentum in the latest quarter.
The management change is “unfortunate,” Nicole Miller Regan, an analyst at Piper Jaffray who cut the broker’s target price for McDonald’s shares following the announcement, wrote in a note to investors.
“Even though the company’s fundamentals are solid, changes of this magnitude are disruptive and often don’t occur in isolation,” she said.
Kempczinski is expected to continue pushing Easterbrook’s general strategy. In an internal memo sent to franchisees after earnings in July, Kempczinski also laid out plans for 2020, acknowledging problems afflicting the world’s biggest restaurant chain.
“We can now pinpoint exactly what needs to be fixed,” Kempczinski said an internal video, noting that customer traffic has been declining. “All of our guest count losses are happening either during breakfast, beverage-only occasions or at below $2,” he said. “We have to leverage the offensive position we’re in and come up with the right answers quickly.”
Kempczinski also said the company is trying to reduce restaurant staff turnover and better its McCafe coffee lineup for morning customers. It’s also pushing hard to speed up its drive-thru lanes, which have lagged in recent years due to an expanding menu.
Meanwhile, the company is going ahead with revamping its stores despite franchisee objections. It wants all U.S. restaurants completed by 2022. Franchisees don’t like the one-size-fits-all blueprint to the remodeling, which can cost millions. McDonald’s has offered to pay about half of the costs.
Along with new counters, furniture and charging outlets in dining rooms, initiatives such as all-day breakfast and mobile ordering have heaped stress on employees, franchisees have previously said.