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McDonald’s reset to change structure, cut costs, boost franchises

A McDonald’s sign in a scrapyard in Phoenix, the US. Photo: Brian Snyder/Reuters

A McDonald’s sign in a scrapyard in Phoenix, the US. Photo: Brian Snyder/Reuters

McDonald’s Corp.’s new chief executive officer said he would reorganize business units, sell restaurants to franchisees and cut costs in a bid to turn the fast-food chain into a “modern, progressive burger company”.

The anticipated video announcement by CEO Steve Easterbrook left investors hungry for specific details on how the world’s biggest restaurant chain would try to improve consumer perceptions of food quality and slow 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 nearly 2.0 per cent in premarket trading, and closed 1.7 per cent lower at $96.13 on the New York Stock Exchange as investors digested the news.

There appears to be more of a ‘prove it’ sentiment

“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 per cent from 81 per cent. McDonald’s prior plan called for selling 1,500 restaurants by 2016.

He vowed to remove “cumbersome” management and scour the business for inefficiencies to find about $300 million in net annual savings, most of which will be realised by the end of 2017.

Easterbrook also said McDonald’s would return $8 billion to $9 billion to shareholders in 2015.

McDonald’s currently organises its business around major geographic markets: the US, Europe, and Asia/Pacific, the Middle East and Africa (APMEA).

Easterbrook said the new segments, which become effective July 1, will be organised around business similarities.

The US market, which accounts for more than 40 per cent 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 UK, which make up a total of 40 per cent of McDonald’s operating income. It will be led by Doug Goare, current president of McDonald’s Europe.

Dave Hoffman, now 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 per cent 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.

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