McDonald’s Case History, 2006–2015 

Larry Light and Joan Kiddon Asacompaniontothebook,weincludethisonlinecasehistoryofMcDonald’susingonlypublishedinformation.TheoriginalSixRulesbookdescribedthe2002–2005McDonald’sturnaroundandourroleinthatbusinesssuccess.Inthiscase,wedetailtheyears2006–2015toshowhowthebrandsurfedtheturnaroundmomentumandeventuallyfounditselfinneedofanotherrevitalization.ThenewMcDonald’sturnaroundisstillinitsinfancyasthiscasecomesonlinewithournewbookontherevisedSixRules.Hopefully,theinitialsuccessofthethird‐quarter2015performanceisthebeginningofanotherneweraatMcDonald’s.Attheendofthiscase,therearesomequestionsforyoutothinkabout.Inansweringthesequestions,youwillneedtosynthesizetheinformationoverthe10‐yearperioddiscussed,2006–2015.Asyoureadthebookandlearnaboutthewaysbrandsfallintotrouble,getoutoftrouble,andcanstayoutoftrouble,youwillseethesebroughttolifeinthisMcDonald’scase.  

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Year 2006 

THE STATE OF THE BRAND 

The Situation BytheendofDecember2005,RussSmythe,headofEurope,ClaireBabrowski,headofoperations,andMarvinWhaley,presidentAsiaoperations,hadresigned.LarryLighthadendedhisthree‐yearcontractandwasslatedtoleaveJanuary1,2006.ByAugust,MikeRoberts,chiefoperatingofficer(COO),wouldbegoneaswell.Andsoonafterthat,BillLamar,headofmarketingforNorthAmerica,wouldretire.ThiswasfollowedbyMattPaull,chieffinancialofficer(CFO),leavinginJuly2007.Inaddition,thehedgefundactivist,WilliamAckman,wasworkingwithotherMcDonald’sshareholdersonbehalfofhisvisiontomakeMcDonald’smoreofarealestate–focusedenterprise.1Hisinitialproposal(November2005)hadbeenrejected2,buthewascomingbackwitharevisedrecommendation.TheoriginalturnaroundleadershipthatworkedwithJimCantalupoandCharlieBellwouldessentiallybegonefromMcDonald’s.Tounderstandhowtheyleftthebrand,theWallStreetJournalOnlinesitepressreleaseonJanuary17,2006,listedtheaccomplishments.“McDonald’sdeliversstrongDecembercomparablesales.Totalglobalcompsalesrose5%inDecemberontopof4.9%increaseachievedforDecember2004.Globalcomparablesalesforthefourthquarterandtheyearwerestrongat4.2%and3.9%respectively.”3JimSkinner,thenewCEO,said,“IntheU.S.,comparablesalesrose4.4%forthemonthofDecember,reflectingtheongoingpopularityofMcDonald’ssignaturebreakfastmenuandourpremiumchickenofferings.U.S.customersalsorespondedpositivelytoMcDonald’sArchCards,ournewgiftcardslaunchedduringtheholidays.Europe’scomparablesalesforthemonthwereup4.6%.WeremainfocusedonbuildingsalesmomentumacrossEurope,andIamconfidentwehavetherightplansinplacetodothis.InAsia/Pacific,MiddleEastandAfricacomparablesales(were)up5.9%.”4McDonald’swasingreatshape.Analysts,observers,reporters,andpunditswouldcommentontheconsecutivequartersofpositiveearnings.JimSkinnerattributedthesuccessfulfourth‐quarter2014totheCantalupoandBellPlantoWinwithitsmust‐doactionsrelatedto“qualityfoodchoices,greaterconvenienceandanenhancedfocusontheMcDonald’srestaurantexperience,”specifically,breakfastandchickenofferings.Skinneralsomentionedthathewouldcontinuetoridethealreadyestablishedmomentum.5Europewasabrightspot.Reportsindicatedthatitwasup4.6%versusa2.2%riseayearago.Thiswasabovethepreviousestimateforflatsales.ResultsfromEuropeindicatedaseventhconsecutivemonthofpositiveresults.6Japan,avolatilecountryforthebrand,alsoreportedaterrificquarter,revisingupwarditsestimatefortheyear.Therewereincreasedcustomervisitseventhoughper‐customerspendingfell8.0%.However,Japansaidthepaceofdeclinecontinuedtonarrow.7

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However,someobserversindicatedthattherewasperhapsahintoftroublesizzlingbeneaththeunbrokenpositiveresults.Eventhoughthebranddemonstratedcontinuedhealthandrobustness,someperceptiveoutsiderssawthepotentialfortrouble.Puttingtheremarkableresultsaside,somequestionedhowMcDonald’splannedtosustainitsperpetualgrowth.WhenaskedofMcDonald’smanagement,theresponsewas“tokeepaddingnewitems,astrategythathastodateworkedwell.”AtMSNDellMoney,areporterwonderedwhetherMcDonald’scouldcontinuetodothisbeforehittingawallandwhetherMcDonald’shadbeguntohitthatwallalready.8Mr.RalphAlvarez,presidentofMcDonald’sNorthAmerica,gaveaspeechinwhichheconfirmedthecontinuedfocusonnewmenuitems.Theseitemsattractnewcustomers.Andthenewcustomersare“demandingmorechickenandthatMcDonald’shastofollowthattrend.”Mr.Alvarezmadeitclearthatthecustomers“donotjustcomeforourtriedandtruecoreproducts.”Althoughhedidemphasizethatthecorporatefocusonnewitemswouldnotcomeattheexpenseofburgers,theMSNDellMoneyreporterquestionedhowthiswouldbepossible.Thereporterobservedthatwithsuchanexpansionofnewmenuofferings,itdidappearthatMcDonald’swas“diversifyingawayfromitscoreburgerandfriesbusiness.”Thereporternotedthatexpandingthemenuhadbeenagoodstrategyforthebrand:withnewitems,McDonald’shadbeenattracting“anewsetofhealthconsciousandpremium‐mindedconsumerstoitsrestaurants.”Butwhatisnotable,thereportercontinued,isthatthecompany“haslargelyignoreditsburgerareawhenitcomestonewofferings.Thatcomplacencymayleadtocustomeralienationoverthelongrun.Afterall,plentyofcompanies,fromCKERestaurantstoRedRobinGourmetBurgersareworkinghardtoreachburgeraficionados.IfMcDonald’sneglectsitscoreproductsfortoolong,itmayfindthatitsnextbigthingwillbetowinburgerfansback.”9

Pershing Square Aftertherejectionofhisfirstproposal,PershingSquare,WilliamAckman’shedgefundleakedaglimpseofitsMcDonald’srestructuringproposalonJanuary18,2006,thatincludedplanstoformanewcompanyandsell20%ofsharestothepublic.PershingSquarenowproposedtheeventualsaleof1,000ofMcDonald’scompany‐ownedstoresinmaturemarkets.ObserversindicatedthatthisMcDonald’sproposalwassimilartotheoneAckmanhadwithWendy’s.Mr.Ackmanrevealedthathedidhavesomefranchiseebacking.And,aspartoftheproposal,PershingSquarewantedatleastonefranchiseeseatontheboard.10Mr.Ackmancalledhisrevisedproposalhis“PlantoWin‐Win,”clearlyaplayontheMcDonald’sPlantoWinstrategicdocument.11Interestingly,theanalystcommunitydidnotpresentaunitedfrontsupportingPershingSquare’sproposal.SomeanalystsbelievedthatMr.Ackman’saccusationoflackadaisicalmanagementonthepartofMcDonald’swasan“off‐base”argument.TheseanalystspointedtoMcDonald’sremarkableresultsthatwereenviedbymany.Stakeholderswerealreadyreapingfinancialrewards.Ontheotherhand,supportersofPershingSquaresaiditsplancouldleadtomuchhigherstockprices.AtleastoneofthesePershingSquaresupporterscouldnotunderstandwhytheinitialrecommendationwasrejectedinthefirstplace.12

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ShareholdersrejectedthesecondPershingSquareproposalbyJanuary19,2006.Withtheextraordinaryturnaroundbasedonasolidandprovenstrategythatliftedshareprices,investorswereclearintheirbeliefthatthebrandwouldachieveAckman‐proposedlevelsbythemselves.13Mr.Ackmanstatedthathedidnotbelievetheresultswereasgoodasthesecouldbeeventhoughthe3‐yearturnaroundstrategy(PlantoWin)delivered32consecutivemonthsofhighersalesatthechain’s30,000outletsworldwide.14AlthoughMr.AckmanandPershingSquarelostthissecondround,RichardGibsonofTheWallStreetJournalreportedthatMcDonald’splannedtorefranchiseseveralhundredoverseasrestaurants.CFOMattPaullannouncedtherefranchisingplanbutonceagainrejectedthePershingSquarespinoff.“Webelievethatsomeofthe8,000restaurantsweownwillbebetterservedinthehandsoffranchisees.”Mr.GibsonaddedthatoneplacewhererefranchisingwouldhappenwouldbetheUK,whereMcDonald’sowns800restaurants.15Bymid‐January,McDonald’sappearedtohavecededtosomeofthePershingSquare“requests”whenthebrandannouncedplanstosell1,500loss‐makingstorestolocalfranchiseesinupto20countries.Analystsandthepressbelievedthiswasawaytoaddressconcernsthatitscompany‐ownedrestaurantswereunderperforming.TheobserversalsosawthisasasignthatMr.Ackman’sargumentswerenotdismissedoutrightbutactuallyconsideredviable.JimSkinnerstatedthatthesaleofcompany‐ownedstores(McOpCo)wasaway“tocreatemoretransparencyaroundMcOpCoperformance.”16AckmanmadeitclearthatMcDonald’sactionswereanacceptanceofhisproposalseventhoughinvestorsrejectedPershingSquaretwice.Mr.Ackmansaid,“They’regivingusalmosteverythingwewant,andmore.TheyacknowledgedsignificantunderperformanceinMcOpCo,andselling2,000restaurants.And,they’regivingyoutransparency—transparencygivesyouvalue.They’redoingalltherightthings.Idon’tthinkthemarketyetappreciateswhatthey’redoing.”17

FINANCIALS  EventhoughMcDonald’ssharepricedoubledsincethebeginningof2006,thefinancialcommunitywasfeelingconcerned;thesharepricehadfallen8%sinceitsfive‐yearhighonFebruary8,2006.InvestorsandanalystssawthathighergaspricesandeconomicworriesintheU.S.werehavinganeffecteverywhere,includingatMcDonald’s.InJuly,analystsfeltsomewhatrelievedassharesdidcomebackabit.AndMcDonald’sbasicprinciplesseemedtobeasecurewaytoexistinashakyenvironment.Thefinancialcommunitybelievedthatasacheaperalternativethanacasualdiningrestaurant,McDonald’swouldstillbeabletolurecustomersintoitsrestaurants.(However,Applebee’s,TGIFriday’s,andChili’sarenotinthesamecompetitivesetasMcDonald’s.ThefinancialcommunitydidnotreportonhowMcDonald’smightfarerelativetoKFC,Wendy’s,Popeye’s,orBurgerKing.)Relativetoacasualdiningestablishment,McDonald’sisacheapereatingexperience.Analystsoverlookedneedsandoccasionsandbasedtheirpronouncements(incorrectly)onindustrydefinitions.AndthesefinancialproclamationsoverlookedthefactthatMcDonald’shadplacednumerouspremium‐priceditemsonitsmenuboard,reapingprofits.McDonald’sannouncedthatitwouldspend$6billionto$7billionondividendsandstockrepurchases.18

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Second‐quarter2006earningscontinuedthepositivenews.Europewasclearlythedrivingforce.TherewasgoodU.S.growth,buttherewerethebestEuropeanresultsinmorethanadecade.McDonald’sattributedtheEuroperesultstobreakfast,higherendcoffee,andpremiumchicken.19However,astheyearworeon,thecracksinthefortresswerestartingtobecomemorevisible.McDonald’sreportedthatJuly2006U.S.same‐storesalesgrewbytheirsmallestamountinmorethanthreeyears.CEOJimSkinnerremindedinvestorsthatgaspricescouldimpactstoretraffic.Eventhoughanalystscouldseetheissues,thefinancialcommunitybelievedthatMcDonald’scouldstillgrowsubstantially.TheyseemedtobelievethatcustomerscouldpossiblycutbackbutthatMcDonald’shadheadroom.20AttheendofSeptember2006,McDonald’smadethedecisiontoincreaseitsdividendby50%.ThepressreportedthattheMcDonald’sBoardofDirectorscited“confidenceintheongoingstrengthofitsbusinessandthereliabilityofitscashflow.”Theincreasewouldbeanannualpayoutto$1ashareversus67cents,payableonDecember1.MattPaull,McDonald’sCFO,said,“Welikedividends.Ifwearegoingtobebetter,wecanaffordtobepayingahigherdividendasawayofremindingpeopleofhowstrongandsteadyourcashflowgenerationis.”Ofcourse,theanalystcommunitywasthrilled.Oneanalystsaidthefollowing:“Inthe1990sMcDonald’schasedrapidgrowth;theyweremorefocusedonbeingbiggerthantheywereonbeingbetter.Theystartedtorunintosometroublethatthey’veaddressedinthepastfewyears.Thecompany’sstockhasmorethantripledsince2003whenthecompanyinstitutedaturnaroundprogramdubbedPlantoWin,whichitsayshasdriven40straightmonthsofpositiveworldwidesalesincreasesanddouble‐digitincreasesinearningspershareforthepastthreeyears.McDonald’shasseenrecentsuccessfromits“i’mlovin’it”advertisingcampaignandnewproductpromotions,suchasitsbreakfastmenu,premiumcoffeeandchickenitems.”21Thisanalystwaslookingattheresultsfromthetimelineof2003,duringtheturnaround.HementionsthePlantoWinandthe“i’mlovin’it”campaign.Healsomixedinthepremium‐priceditemsandthe2006focusonbreakfast,premiumcoffee,andchicken—afocusthatignoredthecoreproductline.Aboutamonthbeforethedividendannouncement,itwasrevealedthatWilliamAckman,thehedgefundactivistwhohadsoldallhissharesafterthesecondrejectionofhis“proposal,”hadboughtahugestakeinthebrand.Withtheannouncementoftheincreaseddividend,Mr.Ackmanwasquotedassaying,“Themorestockweown,thegreatertheinfluencewecanhave.”McDonald’sdidnotcommentonMr.Ackman’sstockrepurchase.However,McDonald’swasveryclear:itsperformancespeaksforitself,citing40consecutivemonthsofworldwidesalesincreases.ThereappearedtobeagreementinthefinancialcommunitythatwithMcDonald’sexcellentresultsandthisdividendasasignalofinternalperformanceconfidence,Mr.Ackmanmaynotfindareceptiveaudiencefora“shake‐up.”22InOctober,themonthlyearningsstorywasagainpositive.Europe’sstrongsalesandthebreakfastandcoffeeinitiativesalongwithchickensandwichesweregeneratingincreasedsame‐storesales.JimSkinnerstatedthatthebreakfast,coffee,andchickenentriesmadethebrandmorerelevant.HealsoindicatedthatthebrandwasstrongenoughnottobeaffectedbytherisinggaspricesintheUnitedStates.23

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As2006ended,thebrandcontinueditsstrongearningsgrowth.Aswiththepreviousmonths,thereasonswerethemenuofferingsofbreakfast,coffee,ChickenSnackWrap,andextendedhours.McDonald’ssharesshowedtheenormousmomentumofthe2002–2005turnaroundassharesmorethantripledsince2003.The“i’mlovin’it”advertisingcampaign,alongwiththePlantoWinprogram,werestillgeneratingsuccess.24

MARKETING 

Forever Young InOctober2005,McDonald’shiredaglobalCMOfromQuaker,MaryDillon,toreplaceLarryLight,whohadbeenpartoftheCantalupo/Bell/Lightteamresponsibleforthe2003–2005turnaround.ThecompanybelievedthatMs.Dillon,whohadnoglobalexperience,neededathree‐monthwindowtolearntheMcDonald’sbusinessandunderstandtheconceptsthatpropelledMcDonald’stoitsthree‐yearsuccessfulturnaround.Duringher“transitiontime”Ms.Dillonstayedbelowtheradar.ButsoonsheneededtoaddresstheOlympics,asMcDonald’swasoneofthesponsors.Wasthebrand’smarketingintrouble?ThisiswhatTheChicagoSunTimessaid:“SinceOctober,McDonald’shadbeenkeepingMaryDillonunderwrapsuntilMondaywhenshewasbroughtforthtodiscussthemeageranduninspiringcampaignfortheupcomingWinterOlympicsinTurin,Italy.Sadly,ourfirstbrushwithDillonwaseerieintheextremeaswesatandlistenedtoarecitationforafive‐minutestatementontheadvertisingstrategy.But,perhapsDillon’sperformancewasmerelyareflectionofwhatMcDonald’sisrapidlybecomingunderitsnewleader,JimSkinner—afacelesspre‐programmedbehemothintentsolelyonkeepingthosesalesfiguresgrowingatanacceptablepace.”25MSNDellOnlinereportedthestorydifferently.And,inthatonlinestory,MaryDillonarticulatedhowmuchshesupportedForeverYoung.“We’recontinuingtoletour‘foreveryoung’brandattitudeshinethroughinthisentertainingOlympicGamesthemedadvertising,”commentedMaryDillon,ExecutiveVPandGlobalChiefMarketingOfficer.26Someofthemarketinginitiatives,includingthecampaign“i’mlovin’it,”continued.TheWallStreetJournalreportedthatanongoinginitiativeto“tidyup”in‐storepromotionalmaterialswasontrack,clearingupthe“McJumble”ofmessy,uncoordinatedclutterofmessaging.“Forthefirsttime,nearlyallthefast‐foodchain’s13,700U.S.outletsareusingthesameslickpromotionalsigns.”Asthearticlenoticed,thepreviousapproachof“everyonedoestheirownlocalstoremarketing”hadcreatedconfusionatthecounter.“McDonald’sefforttocoordinateitsin‐storepromotions,implementedgraduallyduringthepastyear,isoneofanumberofstepsthefast‐foodchainhastakentoboostsalesintheaftermathofaslumpearlierthisdecade.Theeffortrequiredalmostayear’sworthofcomplexlogisticalwork.ItwasrolledoutinJanuaryatalimitednumberofrestaurantsandexpandedtotherestofthechaininsubsequentmonths.”27Thiswaspartofthepreviousreimagingeffortthatfocusedonbringingtherestaurants,insideandout,closertobeingexpressionsofForeverYoung.

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Theglobalrestaurantreimagingbeganin2003.ThedesignscamefromFrance,wheretheideasforreimagingstartedasfarbackas1996.Thesewerenotjustexteriorchangeswithinteriorfurniturerenewals.Thechangesassociatedwithfivedifferentdesignswereholistic,addressingthecustomer’sfivesenses.By2006,McDonald’sEuropereportedthatabout2,000outletswouldberefurbished.DenisHennequin,presidentofMcDonald’sEurope,pioneeredtheFrenchreimaging.Whenhespokeaboutthis,heusedtheUKasanexampleforhischanges.Hesaidthat,“‘Britainnolongerwantscheapfoodbutexpectschoice,comfortandambience.”Healsosaidthatreimagingispartof“upgradingthecustomerexperience”tobuildtrustinitsbrand—atrusterodedrecentlyinEuropebyconsumerconcernaboutdietandhealth,foodquality,andadvertisingtochildren.“Onlybybuildingthistrustwillweincreaseloyalty,frequency,penetration,salesandreturns.”28

“i’m lovin’ it” Whenthiscampaignbegan,ithadatitscoretheideathatMcDonald’swasapartofpeople’slivesandthatiswhattheylovedaboutthebrand.McDonald’swaspartofyourlifestyle:thereforyouwithdelicious,relevant,anduniquelyMcDonald’sfoodsandbeveragesdeliveringarelevantanduniquelyMcDonald’sexperience.Sincethecampaignbegan,2millionmoredailycustomerswerevisitingMcDonald’s.Thecampaign,knowninternallyas“ili”createdrelevanceforMcDonald’s.AsrelatedinAdvertisingAge,“Itrevitalizedthebrand’simage,andframeditasamodernandcontemporarylifestylebrand.”29Ms.Dillondecidedthatitwouldbebettertobecomeaproduct‐focusedbrand.Shemistakenlybelievedthatthe“it”mustnowrefertoaproduct,notthebigger,moreexciting,andmotivatingideaofbeingapartofyourlife.Shechangedthefocusofthemarketingfrombeingcustomerfocusedtoproductfocused.“Wehavedoneagreatjobonshowingthecustomerweknowthemwiththe‘I‘….Nowwemustfocusonthe‘it’….Whenwegettoconventionwewillshowtheevolution.”30Thischangefrombeingacustomer‐focusedbrandaffectedmorethanjustadvertising.Thisdecisioncontributedtomakingthebrandlessrelevant.InMarch2006,Ms.Dillongavethisnewassignmenttotheadvertisingagencies.However,shecoucheditintermsof“betterconnectingourfoodtothefeelingandmomentthatpeoplehavewiththebrand.”31

Competition Duringthe2002–2005turnaround,McDonald’sexperiencedaluckybreak.BurgerKingwasundergoingadifficultperiodofcorporatechanges,decliningsales,andfranchiseeuproaroveritsmarketing.ThisgaveMcDonald’ssomebreathingroom:itsmaincompetitorwasinastateofdisrepair.However,by2006,BurgerKingseemedtohaveappeasedthefranchiseessufficientlyand“peace”reigned,asAdvertisingAgecommented.32ThismeantthatBurgerKingwasgettingitselftogetherandpossiblybecomingastrongcompetitiveforce.OneofthewaysBurgerKingreformedwastofocusonitscoreburgersandfries.Today,theBurgerKingbrandisdoingverywellconsideringitwentthroughanotherseriesofcorporatechanges.However,itstillkeepsalensonitscoremenu.In2006,itwasnotedthatBurgerKing,alongwithotherssuchasCKErestaurants,waschurningoutWhoppers,leavingsaladstoMcDonald’s.ThecoreBurgerKingcustomerissimplynotthatinterestedinsalads,sellingaboutthreeper

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storeperday.Ontheotherhand,onaverage,aBurgerKingrestaurantsellsapproximately300Whoppersaday.33Tocontinuetoappealtoitscorebaseofcustomersandattractmoreyoungadultmales,BurgerKingdidnotfocusonitemswithfewercaloriesandlessfat.WhereasMcDonald’saddeditemstoappealtomoms,women,andthehealthconscious,BurgerKingaddedtoitsreputationasthefastfoodchainwhereyoucouldbeonemealawayfromacoronary.Butwithyoungadultmalesasitscore,thismayhavebeenthecorrect,morerelevantpositioningbecausethisgroupisfarlessconcernedabouthealthandnutritionthanothergroups.“They’rejustinyourfaceandtheyhaveacorecustomerthatlovesthat,”saidMarionNestle,professorofnutrition,foodstudies,andpublichealthatNYU.34Whatevertherationale,BurgerKingbecameatruecompetitortoMcDonald’sagainwithahighlyfocusedapproachandappeal.Evenwithitskeeneyeonitstargetaudience,BurgerKingwasawarethatithadauniqueopportunitywiththisaudiencetogoupagainstMcDonald’swithbreakfast.Afteragreatfiscalfirstquarter,BurgerKingannouncedthatitwasconsideringpromotingabreakfastvaluemealtotakeonMcDonald’s.35

Pricing Whenaskedabouttheonethingthatmatteredmosttotheturnaround,LarryLighthascontinuouslysaidthatitwasthethree‐tierpricingstrategy.Thiswasnota“Good,Better,Best”approachwheredegreeofvalueandqualityvarybyprice.Qualitydidnotvarybypricepoint.Andeachpricepointwasexcellentvalue.Whatvariedbypricepointweredifferencesinproductdesign.Itwasadisciplined,thoughtfulapproachtothemenuwhereeachofthethreepricingtiersrepresentedagreatvalue.OnelevelrepresentedtheDollarMenuandvariousmealoptions.Herepriceswere$1andunderforappropriatelysized,deliciousMcDonald’sfood.AnothertiercomprisedthecoremenuitemssuchasBigMacandEggMcMuffin.Thestrategicintentionwasthattherewouldbelittleornodiscountinginthiscategory.Dealingonthecoremenuonlydetractsfromthebrandandextractsvaluefromthebrand.Thethirdtierincludedthepremiumitemssuchaspremiumsaladsandpremiumcoffee.Thesewereitemsoutsidethegroupofcoremenuitems.TheDollarMenuwassuccessfulespeciallyamongtheyoungadultaudiencewithlimitedmoneytospend.TheDollarMenualsoprovidedadd‐ons,suchasyogurtparfaitandextrafries,inadditiontowhatpeoplepurchasedfromtheregularmenu.ObserverssaidthattheDollarMenuwasahugeforceinthe36consecutivemonthsofsalesgrowth.And,asonejournalistpointedout,overthethree‐yearperiodoftheturnaround,theDollarMenubecamesointegralthat“revenueincreasedby33percentwithsharesrocketing170percent,aremarkableturnaroundforacompanythatonlyfouryearsagoseemedtobegoingnowhere.”36However,underJimSkinner,U.S.pricesforthenewmenuoptionsrosetolevelswelloutoftherangeofmostcorecustomers.Analystscommentedthattheheftyriseinpricesincreasedtheaveragechecktotalby5%,whichishugeforacompanythatoperatesinaprice‐sensitiveenvironment.TheCobbSaladhadaticketpriceof$4.50.Thestrategy

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seemedtobeincludingitemsthatwerenotdesignedforchildrenandyoungadults.Thepriceincreaseswereseenasoneofthekeyreasonsthebrandwasdoingsowellintermsofearnings.37Forexample,althoughsaladsmadeuponly10%(atmost)ofturnover,theysoldatapremiumforabout$4.20(onaverage).ABigMaccostabout$2.89.38

24/7 InApril2006,thepressbeganreportingonthenewhoursforfastfoodrestaurants.Occasionsegmentationpointedoutthatthethreediscreteeatingoccasions(breakfast,lunch,dinner)hadchangedremarkably.Peoplewereeatingatallhours.Ina24/7world,dinnertimewasnowbleedingintobedtime.Snackingwasbecominganimportantmealtimeoccasion.Datawereshowingthat6.7%offastfoodmealswereconsumedbetween9PMandmidnight.Andresearchshowedthatlate‐nightdiningwasmoreprofitablethanearliermeals:forexample,$4.43wasanaverageticketforadaytimefastfoodcustomer,whereas$6.22wasanaverageticketforalate‐nightfastfoodconsumer.Fastfoodmarketerswereseeingstrongsalesoflate‐nightmeals,whichNPDGroupestimatedwereaccountingfornearly8%ofthe$160billionfastfoodindustry.“Thenotionofbreakfastat7AM,lunchat12(noon)anddinnerat6PMisover,”saidBobGolden,executiveVPatTechnomic.McDonald’ssaidthatstoreswithlatehourswereexperiencingdouble‐digitsame‐salesgains.TacoBellwasalsoenteringlatenightanddifferentiatingitsofferingbycallingthistimezoneafourthmealarounditsfourtasteandtextureprofilesofcrunchy,spicy,melted,andgrilled.39AttheendofAugust2006,JimSkinnerannouncedthatanewkitchensystemwouldfinallyallowforall‐daybreakfast.The“flexibleoperatingsystem”wouldprovidevarietywithgreaterease.Inthepastthreeyears,breakfasthadbeenandremainsthestrongestperformeramongthethreemajormealsegments.40

Segmentation  PartofBurgerKing’srevivalwasduetothelaserfocusontheyoungadultmale.ThishadbeenoneofMcDonald’stargetaudiencesduringtheturnaround.BurgerKingcalleditstargettheSuperFan.TheSuperFanwasdescribedasayoung,18–34,blue‐collarworker;slightlymoremalethanfemale;andmorethan30%areHispanicorAfricanAmerican.SuperFanslovedtechnologyandtendedtobeearlyadopters.TheyreallylovedBurgerKing.AlthoughSuperFanswereonly18%oftheBurgerKingcustomerbase,theyaccountedfornearlyhalf(49%)ofallvisits.TheywerefrequentusersofBurgerKing,withatleastninevisitsamonth.Onaverage,SuperFansateatBurgerKingaround16timesamonth.Theywerealwaysontherunandalwaysmultitasking;theyoverindexedondrive‐thrus.41McDonald’swasfollowingaverydifferentstrategy;itwasbroadeningitsmenutobroadenitsappeal.Insteadoffocusingonafewmarketsegments,McDonald’sseemedtobetryingtohavesomethingforeveryoneateveryoccasion.

Happy Meals Duringearly2006,DisneycutitstiestoMcDonald’sandstoppedsupplyingtie‐inpromotionalmaterialsasgiveawayswithHappyMeals.Disneyfeltthepressurefromthenutritionalcommunityandtheincreasingawarenessofchildhoodobesitywithits

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associateddangerssuchasjuvenilediabetes.McDonald’shadtolookelsewhereforthe“toys”thathelpedtoselltheHappyMeal.Oneofthegreatironiesof2006wastheHummergiveaway.2006wasthebeginningofthe“astronomicalgasprice”summer.Cash‐strappedcustomersfoundthathighergasolinepricesimpactedtheirrestaurantvisits,includingfastfood.ButwhileMcDonald’sfeltthepinchoftheemptierwallet,itglorifiedthebiggestgas‐guzzlericonofthemall:GM’sHummer.Notonlydiditgulpgallonsofgasoline,butfromanecologicalstandpoint,theHummerwasasignofextremeenvironmentaldisregard.Asthefinancialcommunitystartednoticingtheimpactofgaspricesonmealsawayfromhome,McDonald’sdecidedtotouttheHummer.McDonald’scalledita“HummerofaSummer”promo.Thepresstookadimview.Herearesomeofthepresscomments:42

AdvertisingAge:“LicensetoDriveSales:WhyGMIsPuttingHummersinHappyMeals.”“GMlost$3.2billionlastyeargloballyinthesecondquarterandGMlicensedproductsintheUSsoldnearlyasmuch.TheHMinclusionwilltotal42millionHummers,muchtothechagrinofenvironmentalists.”

TheNewYorkTimes:“WouldYouLikeaGasGuzzlerwithThat?”“Withgaspricesat$3agallonandthreateningtogohigher,Hummersalesaredeclining.ButMcDonald’sappearsnottohavegottenthemessage.ByputtingHummersinHMs,McDonald’sissendingamessagetokidsthatutterwasteofthispreciousresourcethatiscausingussuchnationalsecurityproblemsisOK.”

Food 

Fries Duringthecourseof2006,therewasacontroversyregardingtheiconicMcDonald’sfries.(N.B.:In2015,McDonald’spromisedopennessandtransparency.Itsonlinesiteforinformationonanyfoodproductcausedacontroversyofitsownascustomersaskedquestionssuchas,“Aretheburgersreallymadeofpinkslime?”and,“Whataretheingredientsinthefries?”Perhapsitwasthe2006blow‐upthatcoloredthewayMcDonald’sstartedtoapproach“transparency.”)Thefoodenvironmentin2006reflectedcustomers’newfoundabilitytoseekandfindinformationoneverything,includingingredientsandfoodallergens.TheFDAinstitutednewfoodlabelinglaws,socompanieshadtocomplybylistingallingredients.DuetotheFDAchanges,McDonald’sadmitted,“itsfriescontainwheatandmilkingredientsthatmightcauseproblemsfordinerssensitivetothesesubstances.Previously,McDonald’sdescribeditsfriesasfreeofsubstancesthatcancauseallergicorothermedicalreactionsinsensitivepeople.”Notonlyfreeofallergens,butalso,McDonald’sstatedthatthefriesweresafetoeatregardlessofsensitivities.NowMcDonald’shadtostatethat,infact,“thefriesincludeanaturalflavoringmadeinpartfromextractsofwheatanddairyproducts.”Thisisproblematicforthosewithglutenallergiesandotherfoodsensitivities.43TheMcDonald’sFrenchfriescontroversyblossomedintoseverallawsuitsclaimingthepublicwasmisled.Oneoftheselawsuitswasonbehalfofachildwithceliacdisease(allergytogluten)whobecamesickaftereatingthefries.44

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Additionally,withthenewlabelinglaws,McDonald’shadtoadmitthatitsfrieshadmoretransfatsthanthought.Citing“newtest”results,itturnedoutthatthefrieshadathirdmoretransfats:8gramsratherthanthestated6grams.45ThecontroversyregardingMcDonald’sfoodsdidnotendwiththeFDAlabelingchangesandthefrieswithglutenissues.InApril,inaNewYorkTimesOp‐Ed,NinaTeicholzcontributedheropinionin“NuggetsofDeath.”Inherarticle,sheremindedpeoplethatthereisaheart‐punishingfat(transfat)hiddeninAmericanfastfood—inthiscase,ChickenMcNuggets.46

Meat AtrulyimportantinitiativeatMcDonald’swasthepushformeatprovenance.GaryJohnson,theseniordirectorofworldwidesupplychain,spearheadedthiseffort.Hetrulybelievedthatglobalmeatsupplyshouldimplementcattletracebacksocustomerscouldknowjustwherethemeattheywereeatingcamefrom.IfthebiguserslikeMcDonald’swouldaskcattlepeopletodothis,thentherestoftheworldwouldfollow.Hewasforcefulinaskingforanindustrywakeupcallsoconsumerscouldtrusttheirfood.47

Breakfast, Coffee, and Chicken Beginningin2006,McDonald’sfocusbecamesolidifiedas“breakfast,coffee,andchicken.”FromthebeginningofCEOJimSkinner’stenure,heconsistentlytoldanalystsandinvestorsthatMcDonald’swasdoingwellbecauseofitsbreakfast,coffee,andchicken.Hedidnotsayanythingaboutthecoreproducts.Infact,inMarch,McDonald’sstatedthatitsFebruarycomparativesaleswereup4.7%—positiveacrossallgeographies.IncreasesinU.S.compsales(3.6%)wereachievedinpart“bythenewspicypremiumchickensandwich,breakfastmenuoptions,andextendedhours.”48Again,thereisnoreferencetocoreproducts.And,inApril,Mr.Skinnerstatedthatcoffeewasdoingincrediblywellandbecomingamajorcontributortoearnings.“Wedidn’tmakeanenormouschangeintheblend…butrevisitedprocedures,madesureweweredoingitintherightway,”saidMr.Skinner.Healsoadmittedthatothercompanieswerefocusingonbreakfast,butMcDonald’swouldcontinueto“communicateverystronglyaroundourhigh‐qualitybreakfast.”Sharepricefell1.3%.49ByApril,McDonald’saddedyetanotherchickenitemtoitsmenu.Long‐timerestaurantbusinessjournalist,RichardGibson(TheWallStreetJournal),noticedthatburgerswerenotadded.Norwereimprovementstothecoreburgerproductsonthemenu.Hecommented,“Forachainfoundedonhamburger,McDonald’sispayingalotofattentiontochicken.ItscoremenualreadyboastsmorethanadozenchickendishesrangingfromsandwichesandsaladstoitsfamedMcNuggets.AspicychickensandwichwasrecentlyaddedandanAsianchickensaladiscomingsoon.Soisanitemcalledsnackwrap.”50(N.B.:CurrentlyCEOSteveEasterbrookistakinghis2006UKmission,“tobeaprogressive,modernburgercompany”andusingitglobally.However,heisnotatthistime,publiclysupportingfixingthecoremenu,whichhasmanyburgers.ThelatestnewproductisCrispyButtermilk‐FriedChicken.Doesbeingaprogressiveburgercompanymeanfocusingonchickenattheexpenseofthebasicburger,BigMac,andQuarterPounder?)

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Duringtheturnaround,newproductdevelopmentchangedtobeginwithhavingafoundationalunderstandingofcustomerneedsandoccasions.Insteadofsaying,“Weneedanewchickensandwich,”thequestionbecame,“Whatneedsdothecustomershave?Whendotheyhavetheseneeds?Whichneedsarebestsatisfiedbyanewchickensandwich?Why?”Thisdisciplinedprocess—foodsdesignedtosatisfyneedsincertainoccasions—workedtoMcDonald’sadvantage.ChickenCaesarSaladandMcGriddlesareexamples.Additionally,CharlieBellstartedconvincingfranchiseestoputMcCafésintheirstores,anideaborninAustralia.(N.B.:whileCharliewasalive,aMcCaféwasbuiltinthelobbyoftheOakbrook,Illinois,headquarters.JimSkinnerrippeditoutuponCharlie’sdeath.)AlthoughMcDonald’sownedbreakfast,StarbucksandDunkin’Donutsweremakinginroads.51Andcoffeewasbecomingapremiumitem.52McCaféwasnotmeanttobeacoffeebrandservingacomplexarrayofhotandcoldbeverages.Aprilquarterlyresultswerepositiveduetobreakfast,chicken,andlongerhours.Same‐storesales,globally,rose6.2%.ThecoreproductswerenotmentionedinMcDonald’sreportstoanalysts:“IntheU.S.,thecompany’slargestmarket,chickensandwichesaswellasitsbreakfastbusinessandlongerstorehourscontributedtoa4.1%salesincrease.”AnditisimportanttorememberthatthechickensandwichintheU.S.wasa“premiumpriced”item.Europeansame‐storesalesrose9.3%,whileinthePacific,theMiddleEast,andAfrica,same‐storesalesrose6.5%.ThiswasreportedlyduetostrongsalesinJapanandAustralia.53McDonald’s,facingbreakfastcompetitionfromStarbucks,Dunkin’Donuts,andBurgerKing,threwmoreresourcesintocoffee.BurgerKing,noticingthatMcDonald’scoffeesweresoldatpremiumpricesandincludedmorecomplicatedfrothyoptions,sawanavenueforgrabbingbreakfastfromMcDonald’s.BurgerKingexecutivessawtheircoffeeasthemoreaffordable,straightforwardoption.AsoneBurgerKingexecutivesaid,“ThosebuyingourBKJoeCoffeedon’twantittobecomplicated,likeachaihalf‐decafwhatever.Ourcustomersdon’thavethatkindofmoney,frankly,anddon’thavethatkindofprofile.Theyjustwantittobestraightforward.Thisisnotfrou‐froucoffee.”However,McDonald’svocallysupporteditsmorepremiumcoffeeofferings,sayingthatitscoffeesaleshaveincreasedatadouble‐digitrate.54(Wasthisaroadto“pricingout”itscorecustomerbase?WasthispartofthebeginningofMcDonald’sdecline?)AdditionalreportsatthetimeindicatedthatMcDonald’swasnowconsideringotherpremium‐pricedbeverageswitharangeofbottlesandcans,includingenergydrinksandicedteaasanalternativetosoftdrinks.55Augustsalesrose.Mr.SkinnerstatedthattheriseinearningswasduetothebreakfastmenuandthenewlyintroducedChickenSnackWrap.Europestillrepresentedthestrength,butthebreakfastmenuandtheChickenSnackWraphelpedtheUnitedStatessignificantly.56

Trans Fats Oneofthekeydietaryissuesof2006wastheremovaloftransfatsfromfoodproducts.Intherestaurantbusiness,thiswasatouchyissue.Manyproductswerebeloved,andachangeinformulacouldresultina“NewCoke”fiasco.InNovember,bothKFCand

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Wendy’shadalreadycuttransfats.BurgerKingannouncedthatitwouldtestnewoilin90days.McDonald’sannouncedthatitwouldalsomakesuchachange.Frightenedthatanychangetotheiconicfrieswouldalienatescoresofcustomers,McDonald’sstalled.Eventhoughthecompanymadenochangetothefries,thecompanyheardfromitscustomersthattheydidnotlikethechangedtasteofthefries.Duringthe2002–2005turnaround,therewasaseriouscommitmenttorebuildingtrust.McDonald’shadaprogrambasedontrust‐buildingprinciples.“Transparency”wasoneprinciple.“Becomepartofthedebate;donothidefromit”wasanother.UnderCEOJimSkinner,thosetrustbuildingprinciplesseemedtobeabandoned.Thisbehaviordidnotgounnoticedbythepress.KateMacArthurofAdvertisingAgetitledherarticle“WhyMcDonald’sHasn’tCuttheFat:FastFoodLeaderFearsOilChangeWillLeaveBadTasteAmongItsFryFans.”57Apparently,thefearoflosingcustomersdidnotextendtoEurope,wherethebranddecidedtoreplacetheoffendingoilwithanewrapeseedoil.58

STEVE EASTERBROOK In2006,McDonald’smovedthechairmanandCEOofMcDonald’sUK,PeterBeresford,totheU.S.,reportingtoMaryDillon.Hisnewjobwasdescribedas“leaderofstrategicglobalbranddevelopment.”ReplacingPeterBeresfordwasSteveEasterbrook,whohadbeenreportingtoPeterBeresfordasexecutivevicepresidentandCOOoftheUK.59

PARTNER BRANDS JimCantalupohadgiventheordersthatthePartnerBrandshadtogobecausetheydetractedanddistractedfromconcentratingontheMcDonald’sbrand.Resourceswereredirected.InMay2006,MattPaull,whohadbeenCFOunderJimCantalupo,toldanalyststhatallthePartnerBrandsweresoldorbeingreadiedforsaleexceptforBostonMarket.HetoldinvestorsthatsellingBostonMarketwasnotabigdealbecauseitwas“anunimportantbrand.”McDonald’spurchasedthebrandasBostonChickenin2000for$173.5millionpaidmainlyforitsrealestateportfolio.McDonald’splowedresourcesintothebrandandchangeditsnamefromBostonChickentoBostonMarket.Butanalystspointedoutthatitwascurrentlyworthabout$100million—apossiblelossof$73.5million,notcountingthemillionsinvestedinreimagingthebrand.Mr.PaulladdedthatMcDonald’sshouldnothaveboughtitinthefirstplace.TheBusinessWeekheadlinestatedtheobvious:buyer’sremorse.60  

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Year 2007 

Financials January2007beganwithmoregoodfinancialnews.ThepositivemomentuminitiatedbyJimCantalupoandCharlieBellcontinued.McDonald’sglobalsalesrose7.2%inDecember2006.61Europewasabrightspot.ThechangesmadebyDenisHennequin,headofEurope,hadenormouspositiveimpact.Asthepressreported,thenewheadoftheUK,SteveEasterbrook,adoptedandimportedtheeffectiveHennequindecisionstofixtheUKbecause,comparedtotherestofEurope,itwasalaggard.“UnderSteveEasterbrook,theUKhasbeentryingtoemulatethecontinentalEuropeanMcDonald’sbusinesswithagreatervarietyofrestaurantdesigns,endingaone‐size‐fits‐allphilosophyatits1,220UKoutletsthathadmadethemlookdecidedlydowdy.”IntheUnitedStates,itwasbecomingclearthatMcDonald’swasmovingaway—albeitinitsownway—fromitscoremenu.The2006additionofchickenwrapswasstillasuccessfulmenuitem.“McDonald’sisnolongerjusta‘burgerjoint’.Theydoabout$5bninchickensalesintheUSonanannualbasis,roughlyequaltotheirburgersales,”saidJackRusso,analystatAGEdwards.“Expectnewchickensnackwrapflavorsandnewchickensandwiches.Expectmorenewproductsatbreakfast.Expandedcoffeeofferingsfromtherecentlylaunchedpremiumcoffeeblendcouldincludespecialtycoffeessuchaslattesandflavoredicedcoffees.”62January2007beganasDecember2006ended:thecoreproductswerenothighpriorityontheMcDonald’sradarscreen.Whenfourth‐quarter2006resultswereannouncedinJanuary2007,revenueswereup11%.McDonald’sfourth‐quarter2006profitmorethandoubled,thanksinlargeparttothespinoffofChipotle,andcontinuedstrengthinEurope.CEOJimSkinnercommented:“McDonald’sisdeliveringthestrongestbusinessresultsin30years.Ourdouble‐digitearningsgrowthforboththefourthquarterandfullyearreflectsthesuccessofourPlantoWin....Webegin2007fromapositionofstrengthandIamconfidentwewillcontinuetodeliversustainedprofitablegrowthwellintothefuture.”63Thebusinessreporterswroteglowingarticles.ButtheremarksfromMr.SkinnerandfromMr.Alvarez,presidentandCOO,madethepressthinkabouthowMcDonald’swouldkeepupthemomentumthatbeganunderCantalupoandBell.ThepressknewthatMcDonald’shadbeen“onatearsince2003.”McDonald’sneededtofigureouthowtomaintainitssuccess,especiallysincethecompetitionwasbecomingmuchsavvierandwasalreadystealingcustomers,particularlyfromprofitableareaslikebreakfast.True,Mr.Skinnerhadannouncedanewflexiblesystemthatwouldallowakitchentoservebreakfastallday,butnothinghadhappened.Therewereotherideasthatweretalkedabout,suchasapaymentsystemforspeedierpurchases,morerestaurantswithlongerhours,andawidevarietyofnewitems,includingmorespecialtycoffeedrinks.64InlateJanuary,ErinBurnett,thenatCNBC,interviewedDavidPalmer,aUBSanalystwhowasquitebullishonMcDonald’s.Mr.Palmerfollowedtherestaurantbusinessandwaswellversedinallthefastfoodandfastcasualentries.Ms.Burnettexpressedsomeconcernthatsomethingisnotseemingly“OK”withMcDonald’s.Itssharesweredown,

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eventhoughMcDonald’spreannouncedthisslippage.Ms.Burnettprefacedtheinterviewwiththisremark:

“GoldenArchescameinwithprofitsof61cents.Theypre‐announced.Sonooneissurprisedaboutthat.Revenuethoughup11percent,alittlebitshyofwhatpeoplewerehopingtoseeandalotofnoiseinthereport.WearegoingtobejoinednowbyDavidPalmer.HeistherestaurantanalystatUBS.HeisgoingtobewithusnowandafterthebelltotalkaboutMcDonald’s.”

Shefollowedwiththis:

“David,nowwehavethat,let’s—whatdoyoudowithMcDonald’sshares?Imean,theypre‐announced.Again,wegetbacktothispoint,peopleshouldhaveknownwhattheyweregoingtoget.Andyetwearestillseeingabitofasell‐off.Sowhatwouldyoudotodaywiththisstock,whichisalreadyup,what,30percentoverthepastsixmonths?”

Mr.Palmerresponded:

“WelikeMcDonald’shere.Thereturnoninvestedcapital,whichisthekeydriverforthisstock,shouldexpandoverthenextyearandinfacttwoorthreeyears;partofwhichisaresultofthefactthatthecompanyissellingunderperformingmarketsaroundtheglobetolicensees.Sotheearningsvolatilitywillgodown.Themarginswillgoup.Thesteadinessofearningswillgoup.Plustheinternationalmarketsareperforming,andthatisdrivingrelativeearningsgrowthrelativetothemarket,which,asyouknow;earningsgrowthinthemarketisprojectedtoslow.”

Ms.Burnett’sco‐anchor,MarkHaines,questionedMr.Palmer’sremarksbysayingthatMcDonald’swouldbeopening800newrestaurantsthatyear.HewonderedwherethesewouldgobecausetheUnitedStatesseemedsosaturated.Mr.PalmerindicatedthatmostoftherestaurantswouldbeinRussiaandChina.ButheaddedthatwiththeMcDonald’sviewthataMcDonald’srestaurantbeontheoutsideofathree‐mileradiusofotherMcDonald’srestaurants,therewouldstillbespaceintheU.S.fornewstores.WhenMr.HainesaskedwhetherbuyingintoaMcDonald’sfranchisewasagoodidea,Mr.Palmersaidyes.ButthenhequalifiedbysayingStarbucksshouldbeyourfirstchoice.65InMarch2007,thereportfromMcDonald’sshowedFebruaryincreasesinglobalsame‐storesales.Therisewas5.7%andderivedfromdouble‐digitgrowthintheAPMEAregion.U.S.same‐storesalesrose3.1%.McDonald’sattributedthesegainstobreakfastandlate‐nightmenuoptions,aswellasanewgrilledandhoney‐mustardChickenSnackWrap.66AprilreportingindicatedthatU.S.same‐storesalesrose6.2%inMarch.Additionally,thesharepricereachedaseven‐yearhigh.ThepopularityoftheSnackWrapwasgivenasthemainreasonforthegoodresults.EuropeandAPMEAalsowerestrong.Same‐storesalesrose11.2%inEuropeinMarch,whilesame‐storesalesgrew9.6%in

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APMEA.Marchsame‐storesalesworldwiderose8.2%.Forthefirstquarter2007,same‐storesalesincreased6.3%.Globalsystem‐widesalesclimbed12.7%inMarch,and10.3%forthefirstquarter.67CEOJimSkinnersaid,“Ourcustomer‐centricPlantoWincontinuestodriveMcDonald’ssustainedmomentumandisgeneratingbroad‐basedgrowthinourbusiness.”68TheamazinglygoodMarchresultscausedanalyststotakepause:couldthebrandcontinueatthispace?Coulditmaintainthegrowth?Fromwherewouldthegrowthcome?“SharesoffastfoodcompanieshadmixedreactionstonewsFridaythatburgergiantMcDonald’ssawprofitsrise22%inthefirstquarter.McDonald’ssaiditwouldsellabout1,600restaurantsinLatinAmericaandtheCaribbeantoafranchiseeandreturnthegaintoshareholdersthroughdividendsandsharebuybacks.ThereportsentMcDonald’ssharestoanall‐timehighof$49.70earlierintheday.”AndthenMcDonald’swasdown42centsto$48.36.69April2007same‐storesalesclimbed4.8%worldwide.McDonald’ssaiditwasduetothesuccessofitsbreakfastmenu,HappyMeals,andnewSnackWrapsandwich.IntheU.S.,theseofferingscontributedtoa3.5%increaseinsame‐storesales.Same‐storesalesclimbed3.5%inEuropeaswellandrose10.3%inAPMEA.JapanandChinahadstrongperformancesduetoextendedhours,breakfast,andlocalmenuofferings.McDonald’ssharesfell6centsto$49.44inlatemorningtrading.Theyreachedanall‐timehighof$50.06lastweek.“McDonald’shasgeneratedfifty‐fourconsecutivequartersofpositiveCashFlowfromOperations.CashFlowfromOperationsforthemostrecentquarteralsoreachedanine‐yearhigh.”70ShrektheThird(DreamWorksAnimation)helpedMcDonald’sU.S.Mayresults.U.S.same‐storesalesrose7.4%and11.9%worldwide.McDonald’sreportedthatthefilmanditsbreakfastinitiativescontributedtoMay’spositiveperformance.IntheU.S.,McDonald’ssaiditsShrektheThirdpromotionandbreakfastcontributedtolastmonth’sstrength.TheShrekpromotionwithMcDonald’sHappyMealsusedthegreenogretofeaturehealthierfooditemslikeitssalads,milk,appleslices,andotherproducts.McDonald’swasconcernedaboutcriticismthatitsfoodisafactorintheobesityepidemicaffectingnotonlychildrenbutadults.InEurope,same‐storesalesrose8.9%,basedonChickenSelectsandSnackWrapinGermanyandlimited‐timeofferingsofpremiumchickenandbeefsandwichesinFranceandtheUK.71Julyresultsshowedanotherrise:globalsame‐storesalesrose6.5%.U.S.same‐storesalesrose4.3%,aidedbybreakfast,newfoodofferings,andlate‐nighthours.Europeansame‐storesalesrose7.7%,boostedbysalesinFrance,Germany,andtheUK.APMEArose9.9%,duetogreatperformanceinJapan,Australia,andChina.72Augustsame‐storesalesclimbed8.1%boostedbystrongoverseassales,itsbreakfastbusiness,andnewfoodofferingsintheU.S.TheU.S.same‐storesalesrose7.4%duetobreakfast,beverages,andnewfooditems.Breakfastaccountedforone‐thirdofU.S.revenue.“McDonald’shas40%ofthebreakfastmarket.McDonald’sisunderpressuretoattractandretainmorningcustomers.”InEurope,same‐storesalesclimbed6.1%.APMEAsame‐storesalesrose12.4%.McDonald’ssharesrose$2.03,or4percent,to$52.18.GoldmanSachsanalystStevenKroncalledthemonth’ssales“exceptionallystrong”andsaidinanotetoinvestorsthateven“apinchedconsumer”doesnotseemtobean

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impedimenttoMcDonald’ssalesgrowth.Consumershavebeenstrugglingwithhighergaspricesandtheweakeninghousingmarket,promptingsomeintherestaurantindustrytoworrythatconsumersmaybelesslikelytospendforamealout.73InSeptember,theMcDonald’sBoardofDirectorsincreasedthedividendagain,thistimedeclaringanannualcashdividendof$1.50pershare,payableonDecember3.Thisincreasewas50%higherthanthecompany’s2006dividendof$1pershare.CEOJimSkinnersaidthatMcDonald’sexpectedtoreturn$15billionto$17billionincashtoshareholdersfrom2007through2009.“McDonald’ssharesrose6percentto$54.30pershareonSept.13.Thatsamedayshareshitanall‐timehighof$54.68.Thelargershareholderdividend,coupledwithadditionalstockbuybacksandanincreaseddebtlevel,willhelpMcDonald’sreturnbetween$15billionand$17billiontoshareholdersthrough2009,thecompanysaid.Thisisasignificantincreasefromthelastcommitmenttoreturnabout$5.7billionby2008.”74Third‐quarter2007same‐storesalesclimbed6.9%,includinga5.1%increaseintheU.S.DuringSeptember,same‐storesalesincreased3.5%intheU.S.,5.7%inEurope,and12%inAPMEA.75However,thegreatperformancewasdiminishedbysubstantialrisesincommoditycoststhatwouldaffectcustomerpricesatthecounterespeciallywhenitcametotheDollarMenu.Eventhoughthird‐quarternetrose27%,revenuewaslight,causedbylaborandcommoditycosts.Cheesecostsrose20%–30%.Chickenrose3%.TheseincreasedcostsforcedMcDonald’storaisepricesintheU.S.byabout3.5%.PresidentRalphAlvarezsaidtheDollarMenuaccountedfor14%ofU.S.sales;therefore,maintainingitwasextremelyimportant.76Additionally,asreportedbyCashFlowNews.com,cashflowfromMcDonald’soperationsforthe“twelvemonthsendedSeptember30,2007was$4,928,200,000,a19.2%increaseovertheyearearliersametwelvemonthswhenMcDonald’sgenerated$4,132,900,000inCashFlowfromOperations.”Thiswasanine‐yearhigh.SharesofMcDonald’sweretradingat$59.74,whichwaswithin1%ofMcDonald’sten‐yearhighof$59.92onNovember6,2007.77DecemberreportsforNovember2007saidthatMcDonald’ssawa6.4%increaseincomparablesalesacrossitsEuropeanbusinessinOctober.78Novemberglobalsame‐storesalesincreased8.2%.IntheU.S.,same‐storesalesrose4.4%duetoitsvalueandbreakfastmenus,alongwithpremiumcoffees.Europesame‐storesalesclimbed10.8%.APMEAsame‐storesalesrose12%.79

MATT PAULL, CFO AttheendofJuly2007,McDonald’sannouncedthatMattPaull,CFO,wasretiring.Mr.Paullagreedtostayuntiltheendof2007tohelpintheswitchovertohisreplacement.MattPaulltooktheCFOjobin2001.HewasakeyplayerintheCantalupo/Bell/Lightturnaround.Hebelievedinbrandbuilding.Infact,hisofficewasnexttoLarryLight’soffice.MattfrequentlysaidthatifLarrycouldshowhowimportantsomethingwasforthebrand,he(Matt)wouldfindthemoney.ThestrategicactionsdefinedinthePlantoWincouldnothaveproceededwithoutMr.Paull’ssupport.

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PLAN TO WIN InaNovember2007webcast,CEOJimSkinnerandotherMcDonald’stopmanagement“reaffirmedthecompany’scommitmenttobeingbetternotbeingbigger.”Mr.SkinnerremindedviewersthatMcDonald’shadexperienced54consecutivemonthsofcomparablesalesincreasesduetothePlantoWin.“We’vestayedfocusedanddisciplinedfinancially.That’sallowedustoconsistentlyexceedthegrowthtargetswelaidoutin2003.Thesetargetshaveserveduswellandwillnotchangeinthenearterm.Theyarerealistic,sustainable,andwillhelpusmakethebestdecisionsforthelongtermbenefitofourshareholders.”80

PARTNER BRANDS Therumorsaboutthesaleofthe630‐unitBostonMarketemergedearlyin2007.MichaelAndres,theCEOofGolden,Colorado‐basedBostonMarket,alertedemployeesonJanuary11thatasale,afteraseven‐yearMcDonald’sownership,wasapossibility.McDonald’sheardofMikeAndresannouncement,soitissuedastatementsayingthatitwasinfactassessingitsoptionsregardingBostonMarket.However,ithadnotyetdeterminedwhattodo.BostonMarketwasbankruptwhenMcDonald’spurchasedit.McDonald’ssawtherealestateasthemainreasontoinvestinandholdthebrand.However,muchtoitssurprise,McDonald’sdiscoveredthatBostonMarket’sfrozenfoodgrocerybusinesswasaveryprofitableoperationwithhigh‐marginsalesofmorethan$100millionannually.BostonMarkethadnofranchiseeswithstoresin28states.In2006,McDonald’sspunoffChipotlethrougha“$320millionIPOandthesubsequentdistributionofMcDonald’sremainingstakeintheDenver‐basedburritochainasaspecialdividendtoMcDonald’sshareholders.”AsfortheotherPartnerBrands,in2003,McDonald’sriditselfofitsstakeinFazoli’s,afast‐casualItalianchain.ItsoldthepizzachainDonato’s.ItalsodivesteditselfofitsstakeinAroma,aEuropeancoffeeconcept.IfitdiddecidetosellBostonMarket,McDonald’swouldnothaveverymuchleftofthePartnerBrands.ItstillhadastakeinLondon‐basedPretAManger,agrab‐and‐gosandwichspecialtychain,whichhadnotbeensuccessfulintheU.S.Redbox,thesuccessfulvideovendingbusiness,wasstillheldbyMcDonald’switha53%stake.ReportssaidthatRedboxwasplanninganexpansionintoatotalof1,600McDonald’sstoresbyJuly2007.81InAugust,McDonald’sagreedtosellBostonMarkettotheprivateequityfirmSunCapitalPartners.SunCapitalPartnersownedFazoli’s,ChevysFreshMex,ElTorito,andBruegger’sBagels.Althoughtermswerenotdisclosed,itwaspublicknowledgethatMcDonald’spaid$173.5millionforBostonMarketin2000.ItwasalsopublicknowledgethatMcDonald’swasinterestedinBostonMarket’srealestate.TheselocationswereseenaspotentialsitesfornewMcDonald’s.However,thisneverhappened.U.S.revenueforBostonMarketwas$680millionin2006.ExceptforitsstakeinPretaManger,thesaleofBostonMarketrepresentedthelastdetachmentfromallthePartnerBrands.82

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SERVICE InFebruary,RichardGibson(TheWallStreetJournal)reportedadownturninMcDonald’sservice.Hepointedoutthatin2006,withearningssoaringandwithCEOJimSkinnertakingcreditforjustabouteverygoodthingthathappenedsince2002,servicecomplaintswererising.Orderaccuracyhadthehighestnumberofcomplaints,followedbyrudeorunprofessionalemployees.Thethird‐highestareaforcomplaintswasspeedofservice.Thereweretoomanyitemsonthemenu,andtoomanycomplexitemsonthemenu,makingithardertopreparetheordersquickly.Mistakeshappened.Orderswereputtogetherincorrectlyormixedup,orcondimentsandutensilswereleftout.Peopleatthedrive‐thru,wherethemajorityofservicehappens,expectfastserviceandwillcomplaintothecrewmember.Thismakescrewmemberssurlyandunresponsiveasaresponsecanaddafewseconds.Thisreportshouldhavebeentreatedasacanaryinacoalmine:awarningsignthatsomethingwasnotquiteright.83Asanadditiontothecomplexityissue,soonafterthismiserableservicequalityreportbecamepublic,McDonald’sannouncedthatitwouldsoonbeofferinglattes.McDonald’sbelievedthatcompetitorsofferingawidervarietyofcoffeedrinkscouldstealcustomersfromitslucrativebreakfastbusiness.84

COMPETITION Nation’sRestaurantNewspublishedanarticleonbreakfastinMarch2007thatpointedtoafullsetofcompetitorsforthebreakfastoccasion.Subway,Dunkin’Donuts,Starbucks,Wendy’s,andTacoBellwereofferingitemsforbreakfasttowrestcustomersfromtheMcDonald’sgrip.Allthesecompetitorssawbreakfastasthebiggestday‐partopportunity.AccordingtoBobSandelman,presidentofSandelman&Associates(aSanClemente,California‐basedfoodserviceresearchfirmthatspecializesintrackingconsumertraffic),McDonald’swasshowingvulnerabilityinthebreakfastarena.Mr.Sandelmansaidthatthisweaknessiswhythereissomuchcompetitiveactivity.McDonald’scontinuestotestitsnew“kitchensystem”thatcouldleadtotheextensionofitsbreakfastofferingstoall‐dayavailability.Nation’sRestaurantNewsobtainedanemailfromMcDonald’stoitsfranchiseesregardinggettingreadyforbreakfast.Intheemail,McDonald’stoldoperatorstobeginyourplansforimplementationof“theBreakfastOptimizationprocedures.”TheemailisattributedtoJanFields,chiefoperatingofficerofMcDonald’sUSA.AsvoicedbyCEOJimSkinnerin2006(seeabove),thesenewprocedureswouldrequirefranchiseestobuyandinstallnewequipment.Thisequipmentwouldexpandthefranchisee’skitchencapabilities,improveitscapacity,andbeabletohandlenewproductsinthefuture.“Breakfastisthenextbattlegroundformarketsharewith8‐to9‐percentdaypartgrowthandincreasedcompetition,"thememosaid.“Thesoonerwecanoptimizeourbreakfastplatformtomeettoday'sgrowthopportunities...andpositionTheEntireSystemforfuturenewbreakfastproducts...thegreaterchancewehaveto'win'amajorityofthoseguestcounts.“85Franchiseeswereunhappy.TheywereconcernedthatthisstrategywasanextensionofplanningarticulatedbyMr.SkinnerinSeptemberwhenheequatedthenewsystemwithall‐daybreakfast.McDonald’sdidnotconfirmthatitwantedtomakebreakfastavailableallday.Itsstatementscontinuedtotellthefranchiseecommunitythat“BreakfastOptimization”wouldbeforbetteroperationsduringthebreakfastrush.

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CFOMattPaulltoldanalystsin2006thatbreakfastwasabout25%ofMcDonald’smealoccasions.Mr.Sandelmansaidthatall‐daybreakfastworkedwellforJackintheBox(amuchsmaller,morediffuseoperation).TheresearcherpointedtothechangingworkhabitsofAmericanswithmanyworkingoddhours.FranchiseesworriedthatJackintheBoxcouldnotpossiblybeagoodmodelbecauseitwasamuchsmalleroperationandhadmuchlessbreakfasttraffic.Further,franchiseescontinuedtocomplainaboutthecomplex,overlyfullmenuboard.Whenitcametoall‐daybreakfast,differentbrandshavedifferentdemands.BurgerKingsaiditsawnoneedforit,whereasDunkin’Donutsbelieveditmadesense.Starbuckshadbreakfastsandwichesinitsfreshcasethroughoutthedayandheatedthemtoorder.86Inthemeantime,reportsindicatedthattherushforbreakfasthegemonyamongfastfoodchainswasbecomingmorecompetitive.BurgerKing,Wendy’s,andStarbuckswereallcreatingitemsformorningmeals.AtaMcDonald’sconferenceofrestaurantmanagers,JanFieldscounseledrestaurantmanagersthatthehoursbetween5AMand7AMshouldbemanagedinthesamewayastheymanagethelunchtime.87

ItwasnotjusttheUnitedStateswherenewburgerrestaurantswereappearing.TheEuropeanhamburgerlandscapewaschangingevenin2007.InMay,anarticleinTheSundayTimesnewspaperreportedthatinLondontherewasariseinthenumberof“qualityburger”restaurants.Thereportersaidthefollowing:“Allofthemservebetter‐qualityfoodinasmarterenvironmentthanatraditionalfast‐foodoutlet.TheyareafarcryfromthesortofrestaurantsfeaturedinFastFoodNation,thefilmversionofEricSchlosser’sbest‐sellingcritiqueoftheindustry,whichwasreleasedthisweekend.Collectively,theseneweateriesamounttoabout50outlets,insignificantnexttothe1,800orsooperatedbythesector’sgiants,McDonald’sandBurgerKing,andhavemadebarelyadentinthe£11billionUKmarket.”Asthearticlepointedout,theriseofthe“posh”burgerrestaurantswasasymptomorasignalofa“flighttoquality”thatwasimpactingtheentireUKfoodindustry.ThewritersaidthatMcDonald’swasfeelingthepressure.McDonald’swasdoingalottochangeitsperceptionof“industrialfood”byusingfree‐rangeeggsandorganicmilk.AndMcDonald’sannouncedthatitwouldintroduceasalimitedtimeoffer(LTO)theDeluxeBurger,whichusedaciabattabunwithBatavialettuce.McDonald’smaintainedthatthissandwichwouldtastedifferentfromitscoreburgerproducts.BurgerKingwasnotgoingtositaround:itintroducedtheAberdeenAngusBurgerin2006.TherewereatleasttwovariationsplannedfortheAberdeenAngusBurgerin2007,suchasonewithaUKbluecheese.SteveEasterbrook,CEOMcDonald’sUK,insistedthatMcDonald’swasnotinanywayrespondingtothesenewburgerjoints.HestatedthatthenewDeluxewasjustoneofmanyinaseriesofsandwichintroductions.Mr.EasterbrookdidnotbelieveMcDonald’sshouldfeelthreatenedbythesenewburgerrestaurants.88

FOOD 

New Products Onceagain,McDonald’smadethedecisiontoignoreitscorecustomer.InMarch,McDonald’sreportedthetestmarketofthick,higher‐qualityhamburgersaspartofastrategytoappealtomoreupscaleU.S.customers.TheAngusThirdPounderwas

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currentlyavailableinSouthernCalifornia,whereitwasofferedinthreeversionsusinga“denserbun”thanMcDonald’sregularhamburgers.Itcost$3.99,makingitthemostexpensivesandwichontheMcDonald’smenuboard.AspointedoutbyfoodresearchfirmTechnomic,McDonald’swasenteringthepremiumfoodcategoryinabigway:“Theyarenowmerchandisingpremiumsalads,premiumchickensandwiches,premiumcoffee,sowhynotapremiumburger?InsteadofJohnnyRockets,peoplehaveanotheroptionforabetterburger.”89

Current Products AninterestingsurveywasreleasedinMarchandreportedinthetradejournalBrandWeek.Thestudy,RestaurantMarketingGroup’sLeakyBucketsurvey,statedthat73%ofMcDonald’slapseduserssaidthereasontheynolongerreturnisthattheycannot“stomachthefood.”90

Beverages InMarch,McDonald’ssaiditwasplanningtoaddsmoothiesandspecialtycoffeestothemenuboard.Therewasalsoacommitmenttocreateanicedcoffeeinthehopesthatthiscoldbeveragewouldattractnewcustomers.McDonald’sannouncementsfollowedreportsfromWendy’ssayingthatitwouldbeaddinguniquebeveragesunavailableatanyotherfast‐foodrestaurant.TheMcDonald’srevelationsalsofollowedananalystreportthatBurgerKingwasdevelopingpremiumicedcoffee.91InOctober,McDonald’sconfirmeditsspecialtycoffeedrinkswouldbeavailableinallU.S.restaurantsbytheendof2008.Thismeantaddinglattesandcappuccinostoitslineofsuccessfulpremiumcoffee.Inthereleaseannouncement,McDonald’sforecastmorethan$1billionayearadditionalsaleswouldbeattributabletothesenewdrinks.92DuringDecember,McDonald’sagreedwithfranchiseestosharethebillion‐dollarcostsforthenewcoffeemachinesneededtocompetewithStarbucks.McDonald’sagreedtopayupto40%ofthecostsneededforinstallingthemachinesthatbrewedlattes,mochas,andotherspecialtycoffeebeverages.McDonald’sUSAPresidentDonThompsonacknowledgedthatremodelingcostsmightreacharound$75,000perrestaurantplusanother$25,000foreachpieceof“specialtycoffeeequipment.Mr.Thompsonreinforcedthatthenewspecialtycoffeeshadthepotentialtoboostsalesperrestaurantataround$125,000.93

Chicken McDonald’sreportedtoaCanadiannewspaperinMaythatitnowsoldmorechickenthanKentuckyFriedChicken.McDonald’schickensaleswerereportedtobe$5.2billioninthe12monthsthroughMarch,pushingitaheadofYUM!’sKFC.McDonald’sstrengthenedsaleswithpremium‐pricedchickensandwichesandtheaffordableChickenSnackWrap.McDonald’ssaidtheSnackWraphelpedMcDonald’sliftAprilsalesatolderrestaurantsintheU.S.andEuropeby4.8%.Also,chickenhelpedreducecriticismthatMcDonald’ssoldhigh‐calorieandhigh‐fatfoods.94

Burgers InAugust,withrestaurantsfromBobEvanstoBurgerKingnowofferingpremiumburgers,McDonald’sdecidedtoofferanewburgeroffering,too.McDonald’ssaiditwas

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testinganewAngusThirdPounderburgerinsouthernCaliforniathatwasalsointestinOhio.95

Breakfast InNovember2007,McDonald’sannouncedtheintroductionofanewbreakfastsandwich,theMcSkilletBurrito.Thenewmorningsandwichwasdescribedasanofferingthatwouldgrowsalesandgohead‐to‐headwithcompetitors,BurgerKingHoldingsInc.andWendy’sInternationalInc.AMcDonald’sspokespersonindicatedthatthenewbreakfastburritocouldrangefrom$2.39to$2.59.ThelastnewbreakfastproductwastheTom‐Ryan‐designedMcGriddlesandwichin2003.96Nation’sRestaurantNews,alsoreportingontheMcSkilletBurritointroduction,saidthatMcDonald’senhanceditsbreakfastandbeveragebusinesswithproductssuchasaSouthern‐stylechickenbiscuit,espressodrinks,smoothies,andsweetenedicedtea.Cappuccinos,cafélattes,andmochasalreadyavailableincreasedsales(perrestaurant)by5%annually,or$125,000.97Afterthe2007Thanksgiving,McDonald’sreportedthatitwouldnotbeofferingall‐daybreakfast.BreakfastwasthemostprofitablemealofMcDonald’sU.S.division,accountingfor24%ofMcDonald’sU.S.salesand28%oftransactions.ButJanFieldsMcDonald’sUSAchiefoperatingofficersaidall‐daybreakfastwouldnotbehappeninganytimesoon.True,McDonald’shadexpandedbreakfastitems.Butthisdidnotmeanall‐daybreakfast.AsreportedinTheChicagoSun‐Times,thenewMcSkilletBurritocontained610calories,1,390gramsofsodium,and36gramsoffat,including14gramsofsaturatedfatand0.5gramsoftransfat.Itcost$2.49.AlthoughJackintheBoxofferedall‐daybreakfastitems,franchiseescontinuedtoreinforcethatJackintheBoxisasmalleroperationwithlesstrafficandsmallercrowdsatrushtimes.98

TRUST 

Happy Meals TheWallStreetJournalreportedthatMcDonald’s“trust”scoresamongmothersweredeclining.FranchiseesbelievedthatthedecliningtrustscoreswereindicatorsofdiscontentwithHappyMeals.Duetothislossoftrust,McDonald’swasfocusingonimprovingthenutritionalconfigurationoftheHappyMeal.Someoftheaspectsunderreviewweresodiumreductionandcaloriereduction.Theperceptionwasthatthecaloriesweretoohighforgirls.99AttheendofDecember2007,McDonald’sinFloridacreatedapromotionthatrewardedchildrenwithaHappyMealiftheyreceivedgoodgradesontheirreportcards.FinancialTimesheadlinedthisnewsas“badmarks”forMcDonald’s.100

Quality Correspondents McDonald’scontinuedtofightthecustomerandcriticperceptionsthatitsfoodsweremakingkidsfat.Asacountermeasure,thebrandgatheredlargegroupsofmomscalled“QualityCorrespondents.”McDonald’srevealedthatitstrustscoresamongmomswerenotimpressiveandcertainlynotinsyncwithitssales.However,accordingtoan

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Edelmansurvey,conductedbyStrategyOne,McDonald’strustscoresamongcollege‐educated,informeddomesticopinionleadersages35–64wereattheirhighestlevelsin8years.101McDonald’srecruitedsix“everydaymoms”asQualityCorrespondentstoexperienceMcDonald’sfoodqualityfirsthandandsharelearningswithpeermomsaroundtheUnitedStates.Writingtheirownblogs,thesemomsdescribedtheirpersonalMcDonald’sexperiences.Theiraimwastrustbuildingwithothermoms.TheirgoalwastospreadtheMcDonald’sfoodqualitystory.Aspartofthe“qualitycorrespondents”program,LopezFoods,anOklahoma‐basedMcDonald’sbeefsupplier,openeditsdoorstotheMoms’QualityCorrespondents.MomsintheprogramhadvoicedmanyquestionsandconcernsaboutMcDonald’shamburgers.A40‐yearsuppliertoMcDonald’s,LopezFoodsgavethemomsafactorytoursotheycouldseeexactlyhowMcDonald’sbeefpattiesweremade,packaged,andshippedtotherestaurants.Aspartoftheprocess,themomsbecamecrewmembersatalocalMcDonald’srestaurantinMustang,Oklahoma,wheretheyworkedthehamburgergrill.102

Super Sizes AccordingtoTheNewYorkTimes,thenewMcDonald’ssupersizemenuitemwashardtounderstand.Whywouldthebrandgobacktosomethingsoprovocative?Thesupersizebeveragewasbackbutwithanewname.TheHugo,anewdrinksize,wasavailableonlyincertainmarkets.Itwasa42‐ouncedrinkforaslittleas89cents.AccordingtoMcDonald’s,oneHugosodacontainsabout410calories.103

Transparency Transparencyoropennessisacriticalcomponentoftrust.Duringthe2002–2005turnaround,DenisHennequinrebuilttrustamongtheFrenchthroughitsOpenDoorsprogram.Customers,schools,parents,andchildrenwereinvitedtovisittherestaurantsandseebehindthescenes:“Wehavenothingtohide.”WantingtocopyMr.Hennequin’ssuccessfultrust‐buildingapproach,theUKteammadeadecisionontransparencythatishauntingthebrandtothisday.InMay2006,oneofthebrand’sagenciescreatedawebsitecalledwww.makeupyourownmind.co.uk.ThesiteansweredcustomerquestionsonallaspectsofMcDonald’s.InApril2007,reportsonMcDonald’stransparencyproblemsthroughitsMcDonald’sUK“makeupyourownmind”initiativesurfacedinthepress.Sinceitslaunch,websitevisitorspostedawiderangeof(inmanycases)inappropriatequestions.Marketingandmediaexpertsquestionedthecontinuationoftheinitiativebecausesomerespondentscomplainedaboutthe“prerecorded”answerstheywerereceiving.McDonald’sadmittedproviding“rote”answersthat“didnotreceivethefullandthoroughanswerdeserved.”ThepressreportedthatthisUKinitiativewasnotatallofthesamequalityasMr.Hennequin’s.The“OpenDoor’strategydevelopedinresponsetotheseissuespaiddividendsinFrance,thecompany’smostprofitablemarketoutsidetheU.S.Transparency,foodquality,andhealthwerethecornerstonesofitsmarketingacrosstheChannel,“whereMcDonald’sfamouslyadvocatedonlyvisitingitsoutletsonceaweek.CriticssaidtheUKworkwasacheapattempttoexploitthissuccess.”AsreportedpublicallybyNicolaClarkinMarketing,

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herearesomeofthequestionsthatappearedontheUKwebsiteforanswers:“DatafileQuestionsonmakeupyourownmind.co.uk

Doyourburgerscontaineyesororgans? Whydidyouremployeesejaculateintomygrandmother’smilkshake? Whyisitallofyourburgerslookliketheyhavebeensaton? Doyousqueezecowslipstomakeyourmilkshake?That’swhatmybigbrother

said. ThetapwaterateveryMcDonald’sI’veevereatenattastedlikepetrol.Why? Doyouputbraincellsinyourburgers? IheardthatMilkshakesaremadefromPig’sfat,isittrue? Arethereeyeballsofchickensinthechickennuggets? DidpeoplefindachickenheadintheirchickenMcNuggets?”104

STEVE EASTERBROOK In2007,SteveEasterbrookstatedhisvisionforMcDonald’sintheUK.Hesaid,“Wewanttobeamodernandprogressivecompany,notsuchafacelesscorporategiant.NotnecessarilyadifferentMcDonald’s,butabetterone.”Mr.Easterbrooksaidthatthecustomer’smind‐sethadchanged:“Peoplecaremoreandmoreaboutthreethings—whattheyeat,wheretheyeat,andthecompanytheyarebuyingfrom.”So,hetookcreditforreducingsaltinfries,removingtheblendedmeats,introducingorganicmilk,andbringinginInnocentSmoothiesforHappyMeals.Thecompanylaunchedanumberofgreeninitiatives.Inaninterview,Mr.Easterbrookwasquiteclearthathismissionwasto“changepublicimpressions(ofMcDonald’s)and,quitepossibly,setnewstandardsforthebrand.”105

MARKETING 

Olympics InAugustof2007,aheadofthe2008BeijingOlympics,McDonald’sdiscloseditsplansforakid‐focused2008Olympicsprogram.BehindtheinitiativewastheideathatMcDonald’ssupportsresponsiblemarketingtochildren.Called“McDonald’sChampionKids,”theinitiativewouldprovide300childrenworldwidethechancetoattendtheOlympics,watchthegames,meettheOlympicathletes,tourculturalsites,andinteractwithchildrenfromaroundtheworld.MaryDillon,globalchiefmarketingofficer,saidthisreflectedMcDonald’slong“tradition”ofresponsiblemarketingtochildren.ItwasanawkwardannouncementasMcDonald’sOlympicsprogramwasmaderightaftertherevelationofa“studyfindingthatchildrenpreferredthetasteoffoodanddrinkstheythoughtwerefromMcDonald’soveridenticalalternatives.”(HereiswhatTheNewYorkTimessaidaboutthestudy:“Childrenlikefoodbetterifthebaghasacertainlabel.Intastetestswith63childrenages3–5,therewasonlyaslightpreferencefortheMcDonald’sbrandedhamburgeroveronewrappedinplainpaper,notenoughtobestatisticallysignificant.Butforalltheotherfoods,theMcDonald’sbrandmadeallthedifference.Almost77%thoughtthattheMcDonald’sFrenchfriesservedinaMcDonald’sbagtastedbetter,comparedwith13%wholikethefriesinaplainbag.McDonald’sbrandingofmilk,apples,saladsandotherfruitsandvegetableshasdirectly

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resultedinmajorincreasesinthepurchasesofthesemenuitemsbymoms,familiesandchildren.”)106Additionally,McDonald’smadetheOlympicsinitiative“withindaysoftheFederalTradeCommissionissuingsubpoenastoMcDonald’sandahandfulofotherlargechainstorequirethemtohandoverdocumentsonkid‐marketingpractices.”Ms.DillonsaidthatMcDonald’shadbeenveryresponsiblehandlingitsmarketingtochildren.HerstatementdidnotdetercriticizerswhocontinuedtocallattentiontotheproblemswithMcDonald’smarketingpracticesandmenu.Ms.DillonstatedthattheOlympicsinitiativewouldbeastellarexampleofMcDonald’scommitmenttochildrenaroundtheworld.107

Dollar Menu TheDollarMenuwasalwaysanessentialpartofthe2002‐2005turnaround,andofthePlantoWin.In2007,commodity‐costrisesimpactedtheDollarMenu,especiallytheDoubleCheeseburger.Somefranchiseestooktheitemoffthemenu,whileothersraiseditsprice,defeatingtheconceptoftheDollarMenu.Thesandwichwasnowalossleaderforfranchisees.DiscussionoftheDollarMenuandtheDoubleCheeseburgerbecameantagonistic.108

U.S. Marketing Team AttheendofNovember,BillLamar,U.S.CMO,retired.McDonald’sannouncedthatNeilGolden(an18‐yearMcDonald’sveteran)wouldreplaceMr.Lamar.109Mr.LamarhadbeenMcDonald’sU.S.CMOsince2002.Hespentcloseto25yearswithMcDonald’s,includingrestaurantoperations,andmorethanfiveyearsrunningMcDonald’sAtlantaregion.110AdvertisingAgereportedthatevenwithMr.Goldeninhisnewjob,nothingdifferentwasexpectedinmarketingasMaryDillonwasstillinherGlobalCMOjob.111

EUROPE McDonald’sannouncedattheendofAugust2007thatitintendedtoinvestabout$1billioninEuropesayingitwasMcDonald’sbiggestopportunityforgrowth.RalphAlvarezstatedthatMcDonald’swouldputasmuchmoneyintoEuropein2007asitwasputtingintotheU.S.market.Europeansaleswereslowingduetoafocusonhealthiereating,andthiswasleadingtolostmarketshare.Mr.AlvarezsaidMcDonald’swouldsellanywherefrom5to10percentofthecompany‐ownedrestaurantsinEurope.112And,McDonald’swouldmovebeyondreimagingofrestaurantstoofferinghealthierfoodsanditemscateringtoregionaltastes.DenisHennequin,PresidentEurope,wouldleadtheseefforts.Mr.HennequinwascorrectabouttheneedtochangetherestaurantdesignstoappealtoEuropean“foodaesthetics.”Hisideasforcompetinginanenvironmentoffood‐conscioussensibilitieswerespoton:salesatreimagedrestaurantsaveraged4.5%increases.113  

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Year 2008 

FINANCIALS Astheyear2008began,McDonald’sreportedthatglobalcomparablesalesclimbed5.7%forthemonthofJanuary.Worldwide,McDonald’ssystemwidesalesclimbed13.4%inJanuary.U.S.comparablesaleslifted1.9%inJanuaryduetobreakfastcombinedwithMcDonald’sDollarMenu.Europecomparablesalesrose8.2%ineverymarketinJanuary.InAPMEA,Januarycomparablesalesrose7.8%.114JimSkinner,CEO,said,“WhileseverewinterweatherthroughoutthemonthandsofterconsumerspendingresultedinDecember(2007)UScomparablesalesbeingflat,weremainconfidentinourUSbusiness.”SomeeconomistsbelievedtherecouldbeaU.S.recessionbecauseofthehousingslumpandthecreditcrunch.Annualprofitfell32%during2007to$2.39billion,partlyduetoawrite‐offassociatedwiththesaleofcompanyinterestsinCentralAmericaandSouthAmerica.“Mr.SkinnersaidMcDonald’shadtakenanumberofstrategicinitiativestoboostitsperformanceandstressedtheuseofa“three‐tieredmenu”whichofferscustomerspremium,coreanddollarmenuoptions.”115McDonald’ssaidthatits2008netprofitrose80%fromayearagoduetocustomerstradingdowntolow‐costmealsastheglobalrecessiondeepened.McDonald’sreportedthatnetprofitfor2008was$4.3billion,comparedto$2.3billionin2007.Thesestrongannualresultswerejuxtaposedagainsta23%declineinfourth‐quarternetprofit.CEOJimSkinnerstatedthattheresultsfor2008werebasedon“menuchoice,foodqualityandvalue.”Headdedthattheaveragenumberof“customersservedperdayincreasedtomorethan58millionin2008.”McDonald’ssaidcomparablesalesandcustomercountsacrossgrewallsegmentsforeveryquarter.Thecompanyhaddouble‐digitgrowthinoperatingincomeforthefinalquarterandtheyear.116InJanuary,TheSundayTimes(London)polledtwofinanceexpertsfortheirdecisionstoeitherbuyorsellMcDonald’sstock.Onerecommended,“buy”thestockforthefollowingreasons:“Itsglobaloperationsdiversifyitsrevenuestreams.Europebeingthelargest(35.4%)followedbytheUS(34.6%)withtheremainderfromAsia(14.1%),LatinAmerica(7.7%)andCanada(5.0%).ThisspreadpreventsoverexposuretotheweakeningUSdollar.Infact,earningsmaygetaboostduetothestrengthoftheeuroagainstthedollar.Morethan70%isfranchised,generatingrevenueupfrontasafranchiseemustpurchaseequipment,signageanddecorfromthecompany.”Additionally,thisexpertremindedreadersthatMcDonald’sdoeschargerentonitsproperties.“…(McDonald’s)ownsorleasesthelandandbuilding,chargingthefranchiseerentandservicefeesforthe20‐yearfranchiseagreement.McDonald’sgetsguaranteedrentonappreciatingpropertyfor20yearsandapercentageofsales.”And,hepointedoutthatMcDonald’sreceivesapercentageofrevenuesfromfranchiseeswhilesupplyingthefoodandpackagingforeachrestaurant.Thisfinancierfeltthatthe54consecutivemonthsofcomparablesalesincreasedwithitssame‐storesalesgrowthinNovemberacrossallregionswouldallowMcDonald’storiseabovetheunfortunate

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recessionaryeconomictimes.However,hedidsaythatthestockpricewasexpensiveasMcDonald’strades19timesnextyear’searnings.117TheotherfinancialexperthadaslightlydifferentperspectiverecommendingthatpeoplebuyMcDonald’sstockonlywhentheysawapricedip.WhythedifferentinterpretationofthestellarMcDonald’sresults?Hereiswhathesaid:“InDecember(2007),thestocktradedatanall‐timehighof$63…amultipleof20timesearnings.Withthehistoricrangeforthestockbetween10and20timesearningsMcDonald’snowlooksexpensive.Muchoftheturnaroundinitsprospectshasbeenpricedinandthestockhasbeenre‐rated.Quick‐servicerestaurantssuchasMcDonald’shavedonewellrecentlythankstothepopularityofbreakfastandsnackofferings.Thereisevidence,however,thatthesectorishittingaslowdown.”Thisexpertbelievedthatwith35%ofrevenuesand60%ofoperatingincomecomingfromtheU.S.,the$54ashare,or16.5timesearnings,madeMcDonald’sstock“pricy.”Hefeltitmightbesusceptibletoade‐rating.Ifthatweretohappen,McDonald’swouldbeamoreappealingpurchase.118InMarch2008,McDonald’sreportedthatsame‐storesalesintheU.S.forFebruaryfellforthefirsttimein5years.119InadvanceofMcDonald’sreportingitsAprilearnings,someanalystsbegancommentingandofferingopinions.Oneanalystpointedoutthattherestaurantchainhadrobustsalesabroadandwouldprobablybenefitfromforeignearningsduetotheweakdollar.JeffreyBernstein,aLehmanBrothersanalyst,saidMcDonald’smarginsmightsufferasMcDonald’spromotes“value”orlow‐costmenuitems.Bernstein’sratingforMcDonald’sis“Overweight”…“butthinksresultsmayfallshyofconsensusearningsestimatesforthefirstquarter.”120Reportingonfirst‐quarter2008,McDonald’sexceededWallStreet’sfirst‐quarterprofitestimatesbasedonperformanceinnon‐U.S.markets.McDonald’sdidreport,however,thatanessentialU.S.salesgaugeunexpectedlyfellinMarchforthefirsttimeinfiveyears,partlytheresultofaweakeconomy.McDonald’swasoptimisticthattherewouldbeaU.S.rebound,however.ThefinancialcommunityindicateditwasnotworriedaboutanextendedU.S.slump.Yet,someanalystsandinvestorsexpressedconcernsabouttheMarchdeclineinU.S.same‐storesales.MarchU.S.same‐storesalesfell0.8%comparedwiththepreviousMarch.Mostanalystswerelookingfordomesticsame‐storesalesgrowthof1%to1.5%inMarch.Europehadan11%comparable‐salesincreaseover2007,thebiggestsuchjumpinitshistory.McDonald’ssaidthattheU.S.MarchdeclinewasduepartlyfromthetimingofEaster,whichwasinMarch,comparedtoAprilin2007.U.S.salesonEasterweekendtendtobelower.McDonald’sresultswerealsoaffectedbythedownturnintheU.S.economy.And,analystssaidthatMcDonald’swascomparingMarch2008’ssalestoaparticularlystrongMarch2007.“AndsomeofMcDonald’scompetitors,mostnotablyKFCwithitsnewchickenwrap,hadnewproductsoutinMarch.”Competitorshadmorenewnewsduringtheperiod,”Millersaid.Inateleconferencewithanalysts,McDonald’sexecutivessaidtheydidn’tseecompetitionhavinganeffect.KFC’swrapisafollow‐uptoMcDonald’sChickenSnackWrap,whichhasbeenabighit.‘That’ssomethingthathappenswhenyouhavesuccess,’saidRalphAlvarez,McDonald’spresident.”TheChicagoTribunepointedoutthatMcDonald’shasbeenahuge,powerfulfoodandbeverageforceoverthepastfewyears,

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showingquarterafterquarterofsolidsalesandprofits.However,inDecember2007,McDonald’sexperiencedsomebadnews,thefirstinstanceinaverylongtime:U.S.same‐storesaleswereflatpartlybecauseoftheeconomy.ThencameMarch’sU.S.results.McDonald’swasadamantthatU.S.comparablesaleswouldgrowinAprilby2%to2.5%.AndCEOJimSkinnermadeastatementtoanalyststhatthecurrentMcDonald’sstrategywasdesignedtoweatheraweakereconomywherebudget‐consciousconsumersseeklower‐priced,cheaperfoods.“Inthisenvironment,ourstrategyofaffordabilitybecomesevenmoreimportantandwewillcontinuetoemphasizeourvalueofferings,”hesaid.121InCanada,TheFinancialPoststatedthatWallStreetmightnotbeprovidingthebestassessmentofMcDonald’sperformance,underestimatingitsearnings‐growthpotentialforthesecond‐quarterhalfof2008.UBSanalystDavidPalmerrepeatedhis“buy”ratinganddidnotchangehisU.S.$69pricetarget.Mr.Palmersaid,“Whiledividendincreaseswillcontinuetosupportvaluation,webelievereturnofinvestmentcapitalgainsandearnings‐per‐shareupsideshouldremainthekeystockdriversinthesecondhalfof2008andbeyond.”Heremindedreadersthatwiththenewbeveragesbeinglaunched,McDonald’scouldexpectsalesupside.122Nation’sRestaurantNews’s“AheadoftheTape”columninJuly2008notedthatanalysts’expectationsforMcDonald’srosebasedonhigherper‐shareearningsof21%insecond‐quarter2008fromtheyearearlierbasedonoverseasearningsandthriftycustomers.“AheadoftheTape”notedthatalthough“risky,”McDonald’sventureintofancycoffeedrinkswasagreatwaytoofferaffordablecoffeebeveragestoStarbuckscustomerswhomayneedtotradedown.123InSeptember,McDonald’sstatedan8.5%increaseinAugustglobalsame‐storesaleswitha4.5%U.S.gain.Beverages,thebreakfastmenu,andanOlympic‐themedSouthernStyleChickenSandwichfurtheredU.S.performance.Europeansame‐storesalesleaped12%.APMEAexperienced10%growth.Olympic‐relatedmarketingwaspartlyresponsiblefortheincreases.System‐widesalesincreased14%worldwide.“UBSpredictedthatMcDonald’scouldoutperformitspeersonthebackofitsOlympicsadvertisingcampaignandasuccessfulStarWarsHappyMeal.SoaringcommoditycostshaveforcedsomeMcDonald’sfranchiseestore‐evaluatepricing,includingthepopularDollarMenu.McDonald’shasbeentestingmodificationstoitspopular$1doublecheeseburgerandhigherpricesforthesandwichasitpreparestochangeDollarMenuoverthenextyears.”AnalystsbelievethatMcDonald’snewmenuitems,itsexpandedhours,andthetendencyofcash‐strappedconsumerstotradedownfrommorepriceyeating‐outoptionsintheU.S.havebeenthedriversofMcDonald’ssuccess.124McDonald’searningsforthird‐quarter2008cameinearlyOctober.TheresultsforthequarterendedSeptember30showedthatsystemwidesalesforallstoresincreased11.4%inSeptemberand10.1%forthethirdquarter.Systemwidesame‐storesalesincreased7.3%inSeptemberandrose5.8%forthequarter.TheseresultsshowU.S.comparablesalesincreasesof10.6%forthemonthand8.5percentforthequarter.Europeanrestaurantsreporteda0.6%same‐storesalesdeclineinSeptemberanda0.3%increaseforthequarter.InAPMEA,same‐storesalesroseby7.3%inSeptemberand5.4%inthethirdquarter.125

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InOctober,CEOJimSkinnerstatedthatMcDonald’swas“recessionresilient.”Hesaidthisinthecontextofcontinuingcustomerdemandforburgersandfries.AccordingtoMr.Skinner,thecustomer’sdesireforaburgerwithfriesseemedtobe“resilienttoeconomicweakness”worldwide.Mr.SkinnerremindedanalyststhatMcDonald’scontinuedtogroweveninthemidstofafragile,globaleconomicscene.FinancialTimesstatedthatevenwithslowingU.S.customerspending,self‐servicefastfoodrestaurantscontinuedtooutperformmoreexpensive,familyrestaurantswithwaiterservice,includingApplebee’sandDenny’s.FinancialTimesreportedthatcustomersofmorecasual,sit‐downrestaurantswereeatingmoreathome.McDonald’sCOO,RalphAlvarez,commentedonthefactthatintheU.S.,grocerypriceswererising,makingthecostdifferentialbetweeneatingathomeandeatingatMcDonald’sasmallincrement.“Webelieve(thepriceof)foodathomehasgrownsomuchhigherthatitmakesourcategoryabetterdealthaneatingathome.”McDonald’sexecutivescontinuedtoemphasizethebrand’scontinuedcommitmenttotheDollarMenuasakeyvalue‐focusedinitiative.126InreviewingtheSeptember2008results,somemembersofthefinancialcommunityvoicedconcernthatMcDonald’swas“caughtupintheglobalconsumerslowdown.ManyagreedwithMr.SkinnerthatMcDonald’swas“relativelyrecession‐resistant”givenitsvalueandconveniencepositioningaswellasitscontinuingstoreremodelinginitiative.ZacksEquitynoted,“McDonald’s,whichrecentlyboosteditsdividendby33%,hasbeenconsistentlyoutperformingthemarketduringtherecentturbulenceandoverthelong‐term.”AndBankofAmericatookissuewithreportsaboutthefrozencreditlinesforfranchisees.ABankofAmericaspokespersonsaidthebankwouldhonoranyobligationstofranchiseownersspendingupto$100Ktoremodel.127AstrongOctoberwasfollowedbyastrongNovember.AsTheWallStreetJournalpointedout,“…ofthe30companiesontheDJIAonlyMcDonald’sandWal‐Marthaveahigherstockpricetodaythanayearago.”(McDonald’sincreaseditsdividendsby33%inthepreviousmonth.)McDonald’slowpricesaidedcustomerswhoweretradingdowntocheaperrestaurantmealsfrommid‐priced,morecasual,andwaiter‐service‐sit‐downrestaurants.However,McDonald’sfastfoodcompetitorsalsodidwellinNovember.McDonald’scontinuedtosupporttheideathatthekeytoitssuccessisthe6‐yearoldPlantoWinturnaroundstrategy.128U.S.same‐storesalesincreasedby4.5%duringNovember.McDonald’screditedthistothebreakfastmenuandthechickenitemsaswellaseverydayvaluethroughoutthemenu.Globallysame‐storesalesgrew7.7%.However,thedatashowedthatEuropeangrowthdippedfromthe10.8%seeninNovember2007.APMEAsame‐storesalesrose13.2%.U.S.BurgerKingshowedstrongperformanceinDecember.129WhenNovember2008resultswerereported,itturnedoutthatcustomersboughtalotofburgersandchickenbreakfastbiscuitsatMcDonald’sinOctober.Thisledtoasignificantclimbinsales.DuringOctober,globalsame‐storesalesincreased8.2%.McDonald’swasoneoftheonlyrestaurantstodowellinOctober.IntheU.S.,same‐storesalesclimbed5.3%.McDonald’ssaidthiswasduetothenewmenuitems,includingtheSouthernStyleChickensandwichalongwithongoingbreakfastdemand.TheDollarMenuandtheMonopolygameattractedvalue‐focusedcustomers.Same‐storesalesincreased9.8%inEuropeandclimbed11.5%intheAPMEA.AnalystsandthepressusedMr.Skinner’sdescriptionthatMcDonald’sisrecessionresistant.130

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CEOJimSkinnersaiditfirstwhilemanagement(andthepress,financial,andinvestorcommunities)repeated,“McDonald’sisrecessionresistant.”Analystsandinvestorscommentedthatthird‐quarterresultsreinforcedhissentiment.Infact,third‐quarter2008beatanalysts’expectationsbutdidnothelpMcDonald’sstock,whichcollapsedbelowits“buy”pointinOctober.McDonald’swasgrowingduetonewmenuitemsandstrongoverseasgrowth.“ChiefExecutiveJimSkinnercreditedtheDollarMenuwithincreasingfoottrafficinrestaurants,thoughnotprofitsdirectly.”But,asMcDonald’scontinuestostate,economicdownturnsseeconsumerstighteningtheirbudgetsandeatingoutless.131

FOOD 

Dollar Menu InAugust,TheWallStreetJournalreportedthatMcDonald’srestaurantswerebecoming“stingy”becausefranchiseesreducedtheexpensiveingredientsinthe$1DoubleCheeseburgerduetorisingcommodityprices.DonThompson,presidentofMcDonald’sU.S.business,saidthereisongoingtestingtofigureouthowtomaketheburgerlessexpensivetoproduce.“Somerestaurantsaresellingitwithonesliceofcheeseinsteadoftwoandbillingitasa‘doublehamburgerwithcheese.’”Somemakethesandwichwithoutcheese,billedasa“doublehamburgerwithoutcheese.”Franchiseesareraisingpricesinthetestmarkets.SomefranchiseesaresellingtheDoubleCheeseburgerasisbutat$1.09to$1.19,clearlynot$1orbelowastheDollarMenustates.ThereportersaidthatMcDonald’swasconsideringplacingthisburgerinitsmiddlepricetier,whereitemsrangefrom$1.30to$2.132TheDollarMenuappearedin2003aspartoftheturnaroundplanofathree‐tieredpricingstrategy:DollarMenu,Core,andPremium.Sincethen,theDollarMenuhadbeenakeydriverofsalesintheU.S.SomefranchiseesbelievedthattheDollarMenuattractedlessthandesirablecustomers.McDonald’scontinuedtomonitoritspricingastheeconomyturneddownward.Itwasessentialthatthemenustayedaffordablewithouthurtingprofitmargins.InNovember2008,McDonald’spulledtheDoubleCheeseburgerofftheDollarMenu,replacingitwithaMcDoubleburgerwithonesliceofcheeseinsteadoftwo.ItkepttheDoubleCheeseburgeronitsregularmenuandraisedthesuggestedpriceto$1.19.133

Value McDonald’sintroducedlowerpricedbeveragesin2008.Thesebeverageshavebeensiphoningoffthepurchaseofthemoreexpensivepremiumcoffees.InOctober,McDonald’sannouncedthattheicedmochas,$1icedsweettea,alongwithDollarMenufoodsweregaininginsales.CEOJimSkinnersaid,“Value,whichhasalwaysbeenimportant,ismissioncriticaltoday.IntheUS,there’snodoubtthattoday’senvironmentischallengingforconsumersandrestaurants.”134

Beverages As2008began,McDonald’sannouncedtherolloutofoneofitsbiggestandmostexpensivenewproductconceptsever:premiumcoffees.Analystssaiditwasan

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opportunitytocompetewithStarbucksforupscalecoffeedrinkers,especiallysinceStarbuckswasintrouble.Starbucks’ssame‐storesaleswereslowing.(StarbucksannouncedduringthefirstweekofJanuarythatCEOJimDonaldwasletgoandthatfounderandchairmanHowardSchultzwouldreturnasCEO.)McDonald’ssaidthatthenewbeveragestrategycouldaddupto$1billioninsales.ThisinitiativerequiresfranchiseestobuildaMcCaféintheirrestaurants.“ThisisthebiggestendeavorforMcDonald’ssinceourintroductionofbreakfast35yearsago,”saysJohnBetts,vicepresidentofnationalbeveragestrategy.StatementsfromMcDonald’sindicatedthatoverthenexttwoyears,mostofthebrand’s14,000domesticlocationswouldaddMcCafécoffeebars(neartheregisters).TheMcCaféareawaswherecoffeebeveragessuchascappuccino,lattes,andmochaswerecreated.Thebeverageswerenotcheap.However,comparedtocoffeecompetitors,McDonald’sspecialtycoffeeswereabout40centsto80centslowerpricedthancoffeechains’$1.99to$3.29.ComparedtoStarbucks,therewerefewcoffeechoices.135Franchiseeswerenotcompletelypositivewhenaskedaboutthecoffeeinitiative.Theywereconcernedabouttheslowsalesofthehotbeverages.Andtheyworriedaboutthecostsofthenewequipment.Thecoffeeinitiativerequiredconstructioncostsofasmuchas$100,000astore.McDonald’sdidagreetopayupto40%.However,asoneconsultantsays,“Franchiseeshavemoredemandsfortheirmoneythantheyknowwhattodowith.”Anotherconsultant,RichardAdams,presidentofFranchiseEquityGroup,said,“Itiscertainlythebiggestpotentialmistakeinthehistoryofthesystem.McDonald’snewproductdevelopmenthasalwaysbeendoneinbabysteps.Thisisagiantleapoffaith.136Inobservingandanalyzingthedifficulteconomicenvironment,analystsquestionedMcDonald’stimingofthepremiumbeveragerollouts(lattes,cappuccinos,smoothies,andsweetice‐blendedfrappes).Inthecaseofcoffee,analystscommentedthatinaweakeconomy,manypeopleforgocoffeeoutsideatcafésandrestaurants,preferringtobrewcoffeeathome.(29%ofStarbuckscustomerswhosaytheywanttospendlessatthechainarebrewingathome.)Therewerefranchiseeswhocontinuedtocomplainaboutthehighcostsassociatedwithfullimplementationofthebeverageprogramalongwiththein‐storeremodeling.McDonald’sstatedtheprogramwouldcostabout$100Kperstore.Formanyfranchisees,thiswasjusttoomuchtospendatthistime.Andthepullbackonloanstofranchiseescomplicatedfinancing.McDonald’sargumentfocusedonitsperceivedsuccessofthebeverageprogram:itwasnotonlyontrackbutdoingverywell.AndMcDonald’sremindedeveryonethatitsrestaurantswerenothurtbytheeconomicdownturnbecauseofitscheapmenu.“Inmanycases,consumersarecomingforthebeverageswhereasbeforetheywerecomingforthemeal,”saysLeeRenz,McDonald’svicepresident,nationalbeveragestrategy.McDonald’swasdefensivewhenitcametothesuccessoftheespressodrinks:therewerereportsthatthedrinkswerenotsellingaswellasexpected.Infact,internaldocumentsrevealedthatespressodrinkssalespeakedabout3weeksaftertheirintroduction,andthenthesedeclinedquitesharply.McDonald’sblamedtheweatherfortheespressodeclines,sayingtheweatherintheentireU.S.wastoohotforhotdrinks.Wasthepricingtoohighforcustomerswhowereimpactedbytheslidingeconomy?Ms.Fieldsagreedthatperhapspeoplewerebrewingcoffeeathome,butshesaidthat“athomecup”wastheirfirstcup.Afterthat,theywerebuyingaway‐from‐homecoffee,andtherewasnothingtoworryabout.137

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InJune,aCanadiannewspaperwrotethatMcDonald’swasbecominga“beveragedestination”forthirstyNorthAmericans.ThejournalistpointedoutthatthiswasgoingwaybeyondjustofferingbeveragesasdoesStarbucks.“Notonlyhastherestaurantchain’slaunchofitspremiumcoffeebeenasuccessonthebackofravereviewsfromtaste‐testers,butitisaddingmanymorespecialtycoffeedrinksatMcCafélocationslaterthisyear,includingvanillalattes,cafemochasandcaramelcappuccinos.”Additionally,McDonald’swouldbeaddingtothebeveragemenuwithnewicedcoffeeandicedteadrinks.Further,therewere“reports”thatMcDonald’swouldbeofferingsmoothiesandenergydrinks.Believingthatfairtradecoffeewouldattractmorecustomers,McDonald’spledgedthatallofitsbeanswouldbegrownin“environmentallyfriendlyconditions”by2009.UBSSecuritiesreportedthatfastfoodburgerrestaurantsserveonly5%ofthenation’sbeverages.UBS“estimatedthatcarbonatedsoftdrinksrepresent60%ofthebeveragessoldbyfast‐foodchains,butsuggestedthatMcDonald’sisseizingthesizeandgrowthopportunitiesinotherbeveragecategories.”UBScommentedthataddingbeverageswassimilartoaddingmorechicken.“Likechicken,beveragesarerelativelyhighermarginandcanbeintroducedinmanyforms.”UBSanalystsestimatedthatMcDonald’scouldadd5%inearningspersharegrowthoverthenexttwoyearswithitsdrinkstrategy.Anditsaidthatthesewereconservativeestimates.UBSalsostatedthatMcDonald’scouldtakemarketsharefromrestaurantsotherthanStarbucks,aswellasconveniencestoresandevenCoca‐Cola.138TheWallStreetJournalreviewedinternaldatashowingatleasttwoorthreemonthsofsaggingsalesoflattes,cappuccinos,andotherespressodrinks.DonThompsonstatedthatthiswasonlypartofthestory.Heindicatedthatsomeconsumerswereswitchingfrompremiumcoffeedrinkstolowerpricedbeverages($1.89icedcoffee,$1fountaindrink,andsweettea…underthe$2to$3espressodrinks).Mr.Thompsonsaidthisswitchingwasunanticipated.However,hedidremarkthatthegoalofhavingbeveragesadding$125,000perstoreisontrackto,andmayevenexceed,theseincrementalperrestaurantsales.139

New Products OnMay14,McDonald’sannouncedthatinNewYorkTri‐StateArearestaurantstwonewproductswouldbeaddedtoitsmenuonMay15:SouthernStyleChickenBiscuit,McDonald’sfirst‐everchickenbreakfastmenuitem,andSouthernStyleChickenSandwich.TheannouncementwastoalertcustomersaboutasamplingeventonMay15:theycouldtrytheSouthernStyleChickenBiscuitforfreefrom7:00AMto10:30AM,ortheycouldtryaSouthernStyleChickenSandwichbeginningafterbreakfasthoursuntil7:00PM,withthepurchaseofanymediumorlargebeverageatparticipatingrestaurants(whilesupplieslasted).KenEbo,marketingdirectorforMcDonald’sNewYorkTri‐StateArea,said,“WiththeintroductionoftheSouthernStyleChickenBiscuitandSandwich,ourcustomersaregettingthechancetohaveournewjuicychickenoptionsmorningandnight.Andformany,that’sanentirelynewexperience.”140

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Innovation: Dan Coudreaut, Executive Chef and Director of Culinary Innovation of McDonald’s USA InAugust,aftertheintroductionoftheSouthernStyleChickenbreakfastsandwich,DanCoudreaut,theheadofinnovationatMcDonald’s,satforaninterviewwithatradepublication.HesaidtheSouthern‐StyleChickenSandwichwasanideathatbubbledupfromtheSouthernfranchiseegroup.Mr.CoudreautcreditedMcDonald’sowner‐operatorsformovingtheideaforward.Hebelievedthatanideafromtheowner‐operatorsgroup“isaverypositivething.”Henotedthatthiscreatedanalignedsystemworkinginanalignedmanner.Mr.Coudreautaddedthathepersonallybelievedgoodideascouldcomefromanywhere.Additionally,Mr.Coudreautaddressedthealignmentbetweensupplychainandhisculinaryinnovationteam.Hesaid,“We’reopen,andthat’sapowerfulculturewithinMcDonald’s.It’sverymuchanentrepreneurialcompanythat’sopentoinnovation.Thefactthatweintroducedbreakfastorintroduceddrive‐thruorareopentoideascomingfromthefranchisecommunity,thatcultureistranslatedthroughoutourdepartment.Itrytofosterit,knowingIdon’thavealltheanswers,andthesamewiththesupplychainknowingthattheydon’thavealltheanswers.Sothere’scollaborationwithinourowner‐operatorcommunity,oursuppliercommunityandinternalteam.”Mr.CoudreautdidincludethefactthatheandhisteamaregoodlistenersandobserversandspendtimeoutsideofthefourwallsinOakbrook,Illinois.141

MENU BOARD AND PRICES InMarch,TheChicagoSunTimesranastorydisclosingthatMcDonald’scustomersmightnotfindtheirfavoriteitemsonthemenuboard.McDonald’smenushadexpandedsomuchthattherewasnomoreroomfortheentiremenu.QuotingDarrenTristano,executivevicepresidentofTechnomicInformationServices,thearticlepointedoutthatwithallthenewitems,McDonald’sanditsfranchiseeswerehavingtroublefindingroomonthedisplay.“Forexample,someMcDonald’sstoresdon’tlistregularmilkshakesonthemenu,althoughtheyarestilloffered.”RichardAdams,ofFranchiseEquityGroup,aCalifornia‐basedfranchiseconsultancy,saidthatMcDonald’siscurrentlyintheprocessofcreatinganewmenuboardtoaccommodatethegrowingnumberofitems.Theproblemissevere:McDonald’shasaddedpremiumsalads,ChickenSnackWraps,andspecialtycoffeestothemenuoverthepastcoupleofyears.AnditwillonlybecomeworseasfranchiseesprepareformoreadditionssuchasSouthernStyleChickensandwichesandpossiblyAngushamburgers.ThearticledidtellChicago‐areacustomersthatiftheynotedmissingpriceinformationtheyshouldcall311sotheDepartmentofConsumerAffairscouldinvestigate.142

COMPETITION: BURGER KING AsMcDonald’sentered2008,itfacedastrongercompetitivesetwithBurgerKingperformingwell.Duringthe2002–2005turnaround,ithelpedthatBurgerKingwasindisarray.InFebruary,BurgerKingCEOJohnChidseysaidthatafter16quartersofsame‐storesalesgrowth,BurgerKinghadprovenitsturnaroundwasgenuine.Herecognizedthathisnextchallengewouldbetoprovethistoinvestorsandanalysts.HemadethesecommentsatthefirstBurgerKingInvestorDaysincegoingpublic.‘‘Nowthatwe’rehittingonallcylinders,wethinkthisisagrowthstorygoingforward,’’Chidseytoldanalysts.‘‘There’squitearunwayinfrontofusinallregionsoftheworld,

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evenintheUnitedStates.’’BurgerKing’sgrowthderivedfromopeningnewrestaurants,remodelingoutdatedrestaurants,introducingnewproducts,andaskingexistingrestaurantstostayopenlonger.BurgerKingimpliedthatitwouldincreasethenumberofU.S.storeseventhough80%ofitsgrowthisinternational.Mr.Chidseycitedastatistic:thereare3,500U.S.McDonald’srestaurantsthatdonothaveaBurgerKingwithinathree‐mileradius.Again,Mr.ChidseyreinforcedthattheBurgerKingpipelinewasfullwithmorethan50newproductsindevelopment.Forexample,since2005,BurgerKingintroducedaseriesofnewproductssuchasBreakfastValueMenu,ChickenFries,andAngusBurger.Allgeneratedsignificantsales($5billion).Thisyear,BurgerKingplanstointroduceaSteakhouseBurgerandBKWrapperforbreakfast,followedbyapple‐shapedFrenchfriesandgrilledchickentendersforkids.Foratie‐inwiththenewIndianaJonesmovies,BurgerKingwilllaunchanIndyWhopperfeaturingpepperjackcheeseandbacon.“Whatyouseeisaverybroad‐shoulderedmenu,’’saidRussKlein,BurgerKing’spresidentofglobalmarketingandinnovation.Asforpricing,BurgerKingnowhasasystemthatallowsitsfranchiseestoadjustpricesusingneighborhooddemographicstocompetition.143As2008continued,Miami‐basedBurgerKingofferedmorepositivenewsthatcheeredtheinvestorcommunity.BurgerKing’sextremelyaggressiverebuildingofthebusinessdependedinlargepartonmarketing.AnalystscommentedthatBurgerKingshowedincreasing“same‐storesalesgainsof5.4%initsfiscalthirdquarter,wellaheadofevenMcDonald’s,whichreportedacomparativelyanemic2.9%.”Wendy’s,nowinthemiddleofadifficultownershipchange,experienceddecliningsame‐storesales.“They’re(BurgerKing)doingasuperjobontheadvertisingfront.They’reclearlyconnectingwiththesuperfanthatistheyoung,hungrymale,”saidUBSanalystDavidPalmer.BurgerKingCEO,JohnChidsey,saidthattherecessiondidnotnegativelyaffectthebrand’stop‐lineperformancebecauseofBurgerKing’s“quality,convenienceandaffordability.Asforpricing,BurgerKingdefineditsapproachasa‘‘barbellmenustrategy,’’withvalue‐menuofferingssuchastheWhopperJr.andthecrispy‐chickensandwichatoneendandpremiumitemssuchasthenewBBQBaconTendercrispontheother.”Inspiteofitsinternalstruggles,BurgerKinghadafourthconsecutiveyearofpositivesame‐storesalesgrowth.IthadsomebreathingroomaswellbecauseMcDonald’smomentumwasslowing.McDonald’srecentlyblamedtheeconomy.However,UBS’sMr.PalmersaidheexpectedBurgerKingtogrowevenstrongerthroughthesummerdespiteashakyeconomy,inpartbecauseBurgerKinghadafullandinnovativepipelineinvariousstagesofdevelopment.Mr.PalmeralsosaidthatbecauseBurgerKingstoreshavefewersalesthanMcDonald’s,itwouldbeeasiertoincreasesame‐storesalesbyanextra$100,000perstore.McDonald’swouldneedaliftofagreatermagnitudetoshowthesamekindofgrowth.144

COMPETITION: WENDY’S InSeptember,Wendy’sannouncedtheadditionofa99‐centDoubleStackcheeseburgertoitsvaluemenu.ThisreflectedtheenlargementofavaluesandwichlinethatalreadyincludeditsJuniorBaconCheeseburgerandCrispyChickenSandwich.Wendy’ssaidthisrolloutoftheDoubleStackwouldcompetewiththe$1DoubleCheeseburgerfeaturedbyMcDonald’s.OthernewswasthatMcDonald’swasreassessingtheDoubleCheeseburgerbecauseofrisingcommoditiescosts’effectsonmargins.Wendy’sDouble

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Stackwasdescribedastwojuniorhamburgerpattieswithasliceofcheeseandketchup,onion,mustard,andpickles.Itreplacedthecurrentvaluemenu’sStackAttackburger.Intheannouncement,Wendy’sstatedthatitconsideredMcDonald’sitsbiggestcompetitor.145

FRANCHISEES InApril,Nation’sRestaurantNews,thebigrestauranttradepress,reportedtheresultsofasurveyof32domesticMcDonald’sfranchiseesrepresentingabout241restaurants.Thefranchiseessaidthattheywouldseeyear‐to‐yearincreasesinsame‐storesalesforMarchandApril2008oflessthan1%.Thenegativereportofthefranchiseesurveyrepresentedthelowestresultsinthethree‐yearhistoryofthestudy.AlthoughconductedamongasmallsampleoftheMcDonald’sfranchiseecommunity,thestudyhadbecomeabellwetheroffranchiseesentiment.IndependentstockanalystMarkKalinowskiconducteditandcontinuestoconductit.“He(Kalinowski)saidthefranchisees’aggregatesame‐storesalesforecastshavebeenwithin1percentagepointofMcDonald’sactualsame‐storeresultsfor22ofthepast31surveys.Thesurveyedfranchiseesreportedanaggregatesame‐storeincreaseof0.9%forMarchandexpecttopostacollective0.8%uptickforApril.146

Bank Loans Aspartoftherealignmentduringthefinancialcrisis,BankofAmericamergedMerrillLynchintoitsoperation.DuetotheMerrillLynchpurchaseandotherfinancialproblems,BankofAmericastatedthatitwouldnotincreaselendingonexistingloanstoMcDonald’sfranchisees.Inthecontextofthepooreconomy,theBankofAmericaMcDonald’s‐specificloanprogram(namedEagle)experiencedgreatdemand,quicklyexceedinghistoricalnorms.Thiscausedtheprogramtoreachfundinglimitsfasterthanordinarilyexpected.McDonald’sfranchiseesdidnotbelievetherewouldbealotoffalloutfromthis.147TheSeptember29issueofAdvertisingAgeranastoryaboutapotentialproblemwithMcDonald’scoffeerollout:findingfundingtocoverthecostsofthenewequipmentandremodeling.ThejournalistcommentedthattighteningcreditconditionspromptedBankofAmericatohaltloanstoMcDonald’sfranchisees.TobuildtheneededMcCafésforwhatwassupposedtobeanApril2009coffeeintroduction,franchiseeswouldneedmoneynow.ButRalphAlvarez,chiefoperatingofficer,saidduringaBankofAmericaconferencethatthespecialty‐coffeerolloutshouldbecompletebymid‐2009.WasMcDonald’sbackpedalingontherolloutdateeventhoughthespokespeoplecontinuedtosayeverythingwasontrack?Rumorswerethatthefranchiseecreditcrunchwouldprobablydelaythenationalrolloutuntilnextsummer.Manyfeltthatsummerwouldnotbethebesttimeforintroducinghot‐beverages.And,iftherolloutweredelayed,McDonald’swouldpossiblyneedtoreconfiguretheplannedmarketingeffort.(Tohavenationaladvertising,McDonald’smusthave60%ofitsstoreswithMcCafés.)BankofAmericadidnotanticipatethatitsloanprogramforMcDonald’sfranchiseeswouldbedepletedsoquickly.TofundtheMcCafés,BankofAmericaaskedfranchiseestofindnewlenders.Franchiseeswouldneedapproximately$100,000perstorefortheMcCafés.Mostfranchiseeswereseekingloans.“Asmoneyremainstight,it’sgoingtobemoredifficulttogettheloanstoremodelforthecombinedbeveragestrategy.Obviously

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wedon’tknowwhatthesituationisgoingtobeinanotherthreetosixmonths,’’saidafranchisee.McDonald’sadvisedinaninternalmemo,“franchiseesshouldconsiderusingcashonhandtocovernew‐equipmentcosts.”148

Raising Prices ThenewbeveragesMcDonald’swantedtosellrequirednewequipment.Someofthisequipmentwouldbecostlyandtakeuppreciousspace.McDonald’sU.S.operatorscomplainedaboutthelargerthanexpectedincrementalfeesMcDonald’snowdemandedeachoperatorinstall.Franchiseesweretoldtheywouldhavetopayfornearlyhalftheupgrade’sarchitecturalandengineeringfees,itemsMcDonald’susedtocover.Accordingtofranchisees,those“beverageequipmentandspacecostscanbeseveralthousanddollars.”Additionally,franchiseessaythatMcDonald’shasnotyetdemonstratedthatthisprojectiscost‐justified.149AddressingU.S.franchiseeconcerns,inNovember,McDonald’sannouncedthatitwouldraisethepriceoftheDoubleCheeseburger,movingitoffoftheDollarMenu.McDonald’srecommendedtofranchiseesthattheypricetheburgerat$1.19.OntheDollarMenu,McDonald’sreplacedtheDoubleCheeseburgerwithaMcDoubleburger.TheMcDoublehadtwopattiesandasinglepieceofcheese.Analystscalculatedthatthischangewouldsave6centsaburger.McDonald’salsoannouncedthatitwastestingrecipemodificationstotheDoubleCheeseburgertocovercoststhatwerehigherforbeefandcheese.150

PLAN TO WIN Thepositiveandpowerfulmomentumcreatedbythe2003PlantoWinwascontinuingtocontributetoMcDonald’sperformance.Whenremarkingonthestrongthird‐quarter2008results,CEOJimSkinnersaid,“ThestrengthofMcDonald’songoingresultsisatestamenttoourmulti‐dimensionalPlantoWin.”151Investors’BusinessDailyremarkedthatMcDonald’sstrongNovembersalesdemonstratedhowthechainhadmanagedtosucceedduringtheeconomicdownturn.Whiletheworldwasexperiencinganeconomicdownspin,McDonald’sincreaseditsquarterlydividendby33%.Otherrestaurantswereshowingsignsofstruggles,butMcDonald’shadsalesincreasesof7.7%.IntheU.S.,salesrose4.5percentinNovember,boostedbybreakfastfoods,chickenitems,andtheappealofthechain’svalue‐orientedmenutocustomerslookingforagooddealinthedowneconomy.Thenumbersbeatsomeanalysts’estimates.However,someanalystssaidthenegativeimpactofcurrencytranslationscouldhurtthecompany’searnings.Sharesfell.AlongwithWal‐Mart,McDonald’shadlowpricesandwasbenefitingfromthenewfrugalityoftradingdown.McDonald’ssaiditssuccesswasbasedonitssix‐year‐oldPlantoWinfocusedonimprovingresultsatexistinglocations,afterJimCantalupotampeddownonopeningnewstores.152

UK TURNAROUND AND JILL MCDONALD SteveEasterbrookhiredJillMcDonaldfromBritishAirwaysin2006.Asseniorvicepresidentandchiefmarketingofficer,Ms.McDonald’sjobwentbeyondmarketing.“Ms.McDonald’sroleatthecompanyisalayeredonethatgoesbeyondthebrandandits

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reputation.Aswellasleadingtherevampofitsoutlets,herjobincludesfooddevelopment.Thechain’sofferingisnowfocusedonthreetiers—thevalueend,whichincludesthePoundSavermenu,comprisingcorefavouritessuchasthebaconcheeseburger;morepremiumitemssuchasrecentlyintroducedChickenLegend;andthereturntothemenuofthelimited‐editiondeluxeburgeraswellasafreshchickenvariant.”And,asMs.McDonaldcommented,thebattleforbreakfastwasnotjustaU.S.occurrence:intheUK,McDonald’sbreakfastsalesincreased10%in2007,andcoffeeclimbed22%.Inaninterview,Ms.McDonaldtalkedaboutthefirstmajorpromotionof2008focusingona“returntoquality”initsbreakfast.McDonald’schangedto“backbacon”andbetter‐qualitybreadinitsbreakfastsandwich.153

MARKETING InOctober2008,McDonald’sintroducednewglobalpackaging.Duringthe2003–2005turnaroundtherewasthefirst‐evercompleteredoofpackagingworldwide.ThenewpackagingcelebratedMcDonald’sfoodqualitystory.“OurnewpackagingisafreshwayofsharingMcDonald’sfoodqualitystorywithourcustomers,”saidMaryDillon,McDonald’sglobalchiefmarketingofficeratapressbriefing.“Themorepeopleknowaboutourfoodthemorethey’llloveit.”Thenewpackagingwillillustratethehigh‐qualityingredientsandfoodpreparedatMcDonald’s.Thepackagingcanaccommodate“21languageswhilesharingstoriesaboutthequalityofMcDonald’singredientsinawaythatislocallyrelevantforcustomersaroundtheworld.”Itwilltaketwoyearstohavefullglobalcoveragewiththispackaging.154  

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YEAR 2009 

FINANCIALS Theyearbeganwithgreatfinancialnews:McDonald’shadexperiencedarobust2008.CEOJimSkinner’sstatementthatMcDonald’swasrecessionresistantbecamevernacular.McDonald’sannouncedthatits2008netprofitsoared80%relativetoayearago.McDonald’sattributedthissuccesstocustomersseekingeconomicreliefwithlow‐costmealsastheglobalrecessionworsened.Againstthecontextofpowerfulannualresultswasthe23%dropinfourth‐quarter2008netprofitto$985millionfrom$1.273billioninthe2007fourthquarter.AsMr.Skinnersaid,“Throughourstrategicfocusonmenuchoice,foodqualityandvalue,theaveragenumberofcustomersservedperdayincreasedtomorethan58millionin2008.”In2008,salesandcustomercountsgrewacrossallsegmentsforeveryquarter.Globalcomparablesaleslifted6.9%.ObserversindicatedthatMcDonald’sresultsreflectedtradingdowntocheaperfoodasoneofthemostimportantcontributingfactors.155Fourth‐quarter2008resultsindicatedsolidgrowthdespitetheglobalrecession,asMcDonald’sreportedstronger‐than‐expectedfourth‐quarterprofit.However,McDonald’snetincomedeclinedbynearly23%.McDonald’searningsexceededanalystexpectationsby4centsashare.Reinforcingtherecession‐resistantcharacteroftheMcDonald’sbrand,Mr.Skinnersaid,“Whileweclearlypreferamorerobustenvironment,today’smarketconditionsplaytoourstrengths.Consumersarefeelingthepinchalmosteverywhereelseintheirdailylives.WebelievethatMcDonald’sbroad‐basedglobalsalesmomentumcontinuespartlyduetotherecession‐resistantnatureofbrandMcDonald’s.”156AnalystsagreedwithMr.Skinner.As“StifelNicolausanalystSteveWestsaidinaJanuary21notetoclients,fastfoodchainslikeMcDonald’shavebeenabletocapturemoredollarsfromconsumerslookingtocutbackonpurchasesbecausetheyoffercheaperandmoreconvenientfoodthansit‐downchains.”157AsTheNewYorkTimesreportedinJanuary,McDonald’shadstrongprofitsinspiteofthefactthatinpreviousyearsthebrandwastheposterchildforobesity.Thejournalistnotedthataftersixyearssincethefamedturnaround,McDonald’shadassuagedsomeofitsmostvocalandaggressivecritics.Thisdidnotmeanthattheskepticshadsteppedback;thedietaryexpertspointedoutthatMcDonald’sstillhadseriousfaultsregardingitsfood,includingthefactthatcomeofthesaladshavefriedchicken.McDonald’smanagedtostayprofitableduringtherecessioneventhoughotherrestaurantchainshadnotbeenabletodoso.BothintheU.S.andoverseas,thebrandflourished.ByNovember2008,McDonald’sachieved55consecutivemonthsofpositiveglobalresults.CEOJimSkinnerstatedthatMcDonald’swasrecessionresistant,andthisappearstobethecase.Sincetheturnaroundbeganin2002,chickensaleshaddoubled.The2009focuswouldbeonbeverages.Mr.SkinnergavecredittothePlantoWinforthe“alignmentoftheorganization”thathadbeenthegalvanizingforcefortheenterprise.Mr.SkinnerwasastrongbelieverinthePlantoWin.ItwasnotedthatduringMr.Skinner’stenure,McDonald’spostedthebestfinancialresultsinitshistory.158

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InMarch,McDonald’swarnedinvestorsandanalyststhatthefirstquarterof2009wouldnotbeasrosyasoriginallyexpected.Evenwithstrongsalesperformances,McDonald’ssaidthatfirst‐quarterresultswouldbenegativelyaffectedbyforeign‐currencyexchangeratesandhighercommoditycosts.Nevertheless,forFebruary,McDonald’ssaidglobalsame‐storesaleslifted1.4%andU.S.same‐storesalesincreased2.8%.159InApril,McDonald’ssaidfirst‐quarterprofitclimbedby4%to$979million.Thiswasinspiteofa10%declineinworldwidesales.McDonald’sreceivedaboostfromaone‐timegainrelatedtothesaleofastakeintheRedboxDVDrentalunit.Revenuesfell10%fromayearearlier,butsame‐storesalesincreasedby4.3%,withincreasingnumbersofcustomersseeking“value.”“McDonald’scontinuestodeliverarelevantrestaurantexperiencethatprovidesconsumerswithabroadrangeofqualitymenuchoices,affordablepricesandunmatchedconvenience,”saidCEOJimSkinner.IntheU.S.,operatingprofitsincreased6.0%.Aroundtheworld,McDonald’shadgoodresultsinEurope.APMEAregionsawoperatingprofitrise11%.“Ourwell‐knownvaluepropositionandunparalleledconveniencecontinuetoresonatewithcustomers,”Mr.Skinnersaid.160McDonald’sreportedthatglobalsame‐storesalesrose5.1%inMay,withaU.S.2.8%rise.Europeansame‐storesalesclimbed7.6%witha6.4%inAPMEA.McDonald’ssaidthatitsMayperformancefellshortofitsresultsinApril,whenitposteda6.9%boostinglobalsame‐storesales.Aprilresultsshowedincreasesof6.1%intheUnitedStates,8.4%inEurope,and6.5%inAPMEA.161Profitforthesecond‐quarter2008(endingJune30)wasdown8%versusyear‐agoearnings.McDonald’sblamedtheglobalcurrencytranslations.Second‐quartercorporaterevenuefell7%.However,quarterlyU.S.same‐storesalesrose3.5%and4.8%globally.McDonald’sattributedthisnewstothechain’snewMcCafépremium‐coffeedrinks.162McDonald’shadastrongthirdquarter(endingSeptember30,2009),thatwasattributedtopositivecomparablesalesacrossallgeographies.CEOJimSkinnersaid,“AlignmentbehindMcDonald’slong‐termbusinessstrategy,thePlantoWin,isclearasourgrowthcontinuestobeasystemwideeffortwitheachareaoftheworldcontributing.McDonald’sglobalresultsdemonstratetheresilienceofourstrategiesandourabilitytoexecutesuccessfully.”Globalcomparablesalesincreased3.8%,withtheU.S.up2.5%,Europeup5.8%,andAPMEAup2.2%.McDonald’sincreaseditsquarterlycashdividend10%.Thecoremenu,thepremiumAngusThirdPounders,andMcCaféespresso‐basedcoffeesdroveU.S.sales.Europehadstrongthird‐quartercomparablesalesaswelldueto“locallyrelevantpremiumproducts,promotions,andperceivedcustomervalue.”APMEAhadstrongresults,too,duetoits“positioningaroundconvenience,value,operationsexcellenceandcoremenuoffers.”163Februaryresultsshowedtheeffectsofunstableforeignexchangecurrencyrates.McDonald’ssaidthatthesefluctuationswouldreduceearningsbyatleast$600million.“SalesinUSrose6.8%whileadjustedsalesinEuropeandAPMEArose4%.However

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globalsalesindollartermsdeclined4.6%forthemonth.”IntheU.S.,strongdemandforchickenitemsandbreakfastofferingscontinuedtoprovideasaleslift.164First‐quarter2009resultsstatedthefollowing:profitsrose4%assame‐store‐salesclimbed4.3%worldwide.McDonald’sreportedthattheresultsdependedonsalesofitscoremenuitems:QuarterPounderandMcNuggets,whichwereattractingnewcustomers.McDonald’semphasizedthatitsthree‐tieredpricingstrategywasalsoafactor.AreportfromMorganStanleyindicatedthatthebusinessmodeloffastfoodrestaurantswasnowa“zerosumindustry”asbrandsfoughtforthesamecustomers.Mr.SkinnersaidthatMcDonald’sintendedtostaywithitsthree‐tieredpricingstrategy“evenifcompetitorsusedecliningfoodpricestoofferbetterdeals.Idon’tseeusdictatinganychangeinstrategyaroundthat,”hesaid.165AnalystsandinvestorswerepleasedwithApril2009results.Globalsalesclimbed6.9%,exceedingestimates.InApril,datashowedthatcustomerspurchasedthebrand’scoffeedrinksandChickenSnackWraps.IntheU.S.,coreitemsimprovedsales.ChickenWrapsandMcCaféespresso‐baseddrinksalsoimprovedU.S.sales.U.S.storeshadsame‐storesalesincreasesof6%,whereasEurope’ssame‐storesalesincreased8.4%.APMEAgained6.5%.166May2009wasyetanothergreatmonthforMcDonald’s,aslowpricingintheUnitedStatesandEuropecontinuedtoattractbudget‐consciouscustomers.FinancialTimesreportedthatlowcostsmotivatedcustomerstofrequentMcDonald’s.Thelowcostshelpedachievestrongresults.McDonald’swasincrediblystronginspiteoftheeconomicdownturn.Itsaiditssuccesswasaresultofcustomersdemandinglow‐costfastfood,takingbusinessawayfromthoserestaurantsthatweremoreexpensive.Whilefamilyrestaurantswerestruggling,McDonald’shada5.1%riseinglobalcompsales.167Withthecontinuingpositiveresults,CEOJimSkinnersaidinJulythatMcDonald’ssuccessechoedMcDonald’sabilitytomatchitsbrandwithcustomerneeds,inthiscase,beingmorecashstrappedandtimechallenged.168JuneresultsindicatedthatperhapsMcDonald’swasnotrecessionresistant.Theweakeningeconomyaffectedcustomerbehavior.Ascustomerslosttheirjobs,theycookedmoreathome.McDonald’srevenuefell7%.ItappearedasifMcDonald’swasfacingslowingmomentumaroundtheworld:McDonald’sJuneresultsdidnotmeetanalystexpectations,withglobalsame‐storesalesshowingaliftofonly2.6%,witha1.8%increaseintheU.S.Asareminder,inApril,globalsame‐storesaleswereup7%.Itwaspossiblethatthelaserfocusonpremium‐pricedproductssuchastheMcCaféspecialtycoffeesandthelaunchofa$4AngusburgerworkedagainstMcDonald’svalueperception.Thelatestfranchiseesurveyof35franchiseesconductedbyindependentanalystMarkKalinowskishowedthattherewerefranchiseeswhoquestionedhowmuchtheespresso‐basedmochasandlatteswerecontributingtosales.169Same‐storesalesroseinJulywitha4.3%increase.ThereportingindicatedthatMcDonald’swasnowthebrandforlowpricesandcheapfood:customersweretradingdowntoMcDonald’s“cheaper”items,soMcDonald’sattractedthe“budgetconscious.”

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Europeansalesclimbedby7.2%,whereasAPMEAhadrisingsalesaswellat+2%.However,profitdeclined8%inthesecondquarter.170TheAugustreportingonMcDonald’sshowedthatitsmomentumwasslowing.Infact,McDonald’smissedallanalysts’expectations.Same‐storesalesdidrisegloballyinAugustbutmissedanalysts’targets.Globalsame‐storesalesincreased2.2%,butitappearedthatEurope’sstrengthwasnotenoughtoovercomeU.S.andAPMEAweaknesses.IntheU.S.,thesame‐storesalesrisewas1.7%.McDonald’screditedthesmallgainstointensecompetition.McDonald’striedtoputaspinontheresultssayingthatU.S.salesshowedthepositiveimpactofthenewpremiumAngusThirdPounderburgerandnewMcCafédrinks.171Third‐quarter2009reportedatotalpictureofthreemonthsofpositivenews.Earningswereup5.9%helpedbystrongSeptembersales.U.S.operationsdelivered6%earningsgrowthaidedbyAngusburgerandMcCaféespressodrinks.172

MARKETING 

Promotions Withtheeconomyinadownturn,fastfoodchainstriedtoavoidofferingdeeppricecuts.Franchiseeshadtoprotectmargins.However,McDonald’s,alongwithitscompetition,usedmorepromotions(deals)forattractingcustomerstoincreasetraffic.Forexample,inJuly2008,McDonald’sranapromotionforoneofitspremium‐pricedcoffees.“MochaMondays”offeredcustomersafreesampleoficedorhotmochaoverthecourseof4weeks.173

Research InApril,TheNewYorkTimesreportedonasurveyindicatinghowthepresenceofsaladsonamenugavedinerspermissiontoeatlesshealthyoptions.Thereportsaidthatthepercentageofpeoplewhoorderfriesfromano‐saladmenuis10%.However,thepercentageofpeoplewhoorderfriesfromamenuthatincludesasaladis33%.TheresearchwasfromTheJournalofConsumerResearch.Italludedtothepossibilitythatthepresenceofhealthyoptionsonamenucanpersuadepeopletobuyoptionsthatarelesshealthyforthem.Apparently,aperson’sguardcomesdownwhenchoicesareavailable.Thisleads“toself‐indulgentbehavior.”174

GROWTH 

Europe DenisHennequin,presidentofMcDonald’sEurope,announcedtheplantocreate12,000jobsandopen240restaurantsacrossEurope.ThisreflectedanalterationtotheJimCantalupostrategyofmakingmoneybymakingexistingstoresbetter.Notsince2002hadMcDonald’sincreasedstoresandjobsbythismuchinEurope.McDonald’sfocusonlowpriceswasattractingcustomers.Andtheredesignedstoreswithnewfoodandbeverageoptionsattractedmorecustomers.McDonald’stopmanagementcontinuedtosaythateatingoutatMcDonald’swasa“betterdealthaneatingathome.”175

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Store Openings: Global Afterreportingstrong2008fourth‐quarterresults,McDonald’sannouncedthatitwouldhave650moreoutletsbyyear‐end.TheincreaseinstoreopeningswasbasedoncustomerdemandforlowpricesalongwithMcDonald’seffortsinofferingnewchickenitems,beverage,andbreakfast.176

China TheAprilnewsfromMcDonald’sindicatedthatitwouldcutbackonitsplannedChinagrowthbecauseoffallingsales.CEOJimSkinnersaidthisdecisioncouldimpactasmanyas35sitesinChinaasfactoriesintheselocationshadbeenshuttered.Additionally,asRalphAlvarezdeclared,Chinahadmanyeating‐outalternativesthatweresubstantiallycheaperandmoreconvenientthanMcDonald’s.177

India JunebroughtanannouncementthatMcDonald’swouldintroducetheChickenMaharajaMacto“moreofIndia.”Aswiththerestoftheworld,whereothercompetitorswerestruggling,McDonald’swassucceeding.“McDonald’shasbeenlargelyunaffected.Chickenburgersandvegetablespattieshaveledtomonthlytrafficincreasesof10%to15%.”178

Slowing Growth: Beginning of Fourth‐Quarter 2009 InOctober,thebusinessjournalistsandanalystsaswellasinvestorsstartedtoquestionMcDonald’sslowinggrowth.Somesurmisedthatcustomersweregoingtothecasual‐diningsector.Ifthatwerethecase,didinvestinginfastfood,specificallyMcDonald’s,makesense?Inanoft‐quotedstatement,JeffreyBernsteinatBarclaysCapitalsaid,“Wouldyouratherinvestinacompanythathasstrongerbutdeceleratingsame‐storesalesorinvestinacompanywithweakersame‐storesalesbuttheprospectofmodestreaccelerationovertime?”DatashowedthatunemploymentrosewhileMcDonald’sgrowthebbed.ItwaspossiblethateatingoutwasnowconsideredtobeaveryspecialoccasionandnotaMcDonald’soccasion.Mr.BernsteinstatedthattheinvestorcommunitywasconcernedaboutthepotentialfornegativeMcDonald’snumbers.TheinsightprovidedbytheanalystsandthearticleswasthatMcDonald’scouldhavestrongearningsbutmissexpectationsonsame‐storesales.Thiswouldbeanegativeinanalysts’eyes.EventhoughMcDonald’shadsaidmanytimesovermanymonthsandquartersthatthebrandsatisfiedcustomers’desiresforlower‐priceditems,aMcDonald’sspokespersonHeidiBarkersaid,“There’sthismyththatwe’redoingwellbecauseoftherecessionbutthemomentumbeganin2003.”JimSkinnerhadsaidmanytimesthatthebrandwasrecessionresistant.179InareportonEurope,thebrandwasdescribedasalow‐costalternativetoStarbucks.180BusinessWeekbegananarticlewiththephrase,“Incrediblebuttrue:McDonald’smissedthisyear’srobuststockmarketrally.”ThewriterpointedoutthateventhoughtherewasarallyonWallStreetwiththethreeindicatorsshowingincreases(Dow+11%,S&P+15%andNasdaq+30%),McDonald’swasdown3%.181

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CHALLENGES FOR 2009 Analystsandinvestorscommentedonchallengesforthebrandin2009.ThestrengthoftheU.S.dollarwasoneofthesechallenges,asastrongdollarwouldadverselyaffectoverseasbenefits.Additionally,therewasaglobalrecession.Andnomatterhowrecessionresistantthebrandwas,theintroductionofpremium‐pricedbeveragesintheU.S.wasaconcern.Thequestionscontinuedtobe:wasthisthetimetoaddexpensivelattes,cappuccinos,andotherupscalecoffeedrinks?Alldatashowedthatbudget‐consciousconsumerswerecuttingbackonthesesmall“luxury”items.However,CEOJimSkinnersaid,“Thecoffeeprogramisontrack.”182AnarticleinBarron’sdetailedareportbyJeffries&Co.thathighlighted2009challengesforMcDonald’s.ThereportremindedreadersthatMcDonald’s“sharesareup200%overthepast6years”sincethe2002–2005turnaround.Thequestionsremained:howcanandwillMcDonald’scontinuetopostsuchamazingresults?Jeffries&Co.believedthatthemomentumfromthe“remodeling,extendedhoursandconvenience”wasin“therearviewmirror,”makingany“USoutperformancemoredifficult.”InEuropeandAPMEA,thebrandwasbuildingmomentumaroundremodeling,extendedhours,andbreakfast,whichmightdrivecontinuedsame‐storesalesoutperformance.Jeffries&Co.expectedstrongsame‐storesalesin2009butbelievedtheincreasedcostsforcommoditiesalongwithincreasedlaborcostsandissueswould“likelyoffsetthemajorityofsalesleveragebenefitonreturnoninvestedcapital.”Additionally,McDonald’sincreasedCapex“andisunlikelytoprovideavaluationpremiumtailwindin2009.”Thereportstatedthatinvestorsshould“expectaslowerpaceofnet‐incomegrowthandagradualincreaseincapitalintensitytopreventMcDonald’sfromincreasingtheamountofcashreturnedtoshareholdersin2009and2010.”Jeffries&Co.statedthatitbelievedMcDonald’searningspersharewould“bemoredifficulttoachievein2009.”183

RALPH ALVAREZ, COO  RalphAlvarez,McDonald’sCOO,understoodthatEuropeanandAsiancustomershavedifferentperspectivesthanAmericans.SowhileU.S.customerswereseeingMcDonald’sas“acheapalternativetosit‐downmealsthatwasnotthecaseinsomepartsofEuropeandAsia.”TheWallStreetJournalcreditedMr.AlvarezasbeinganessentialplayerinMcDonald’slengtheningits6‐yearsuccesspath.Mr.Alvarezfocusedonimprovingrestaurantoperations,makingpriceadjustments,andmaintainingalow‐coststructure.HestatedthatthesorryglobaleconomyhadnotbeenagoodthingforMcDonald’seventhoughthepressreportedthatcheappricesenticegueststofrequentthechain.McDonald’srecentstrategyfocusedonpremium‐pricedofferings.However,withthedownward‐spiralingeconomy,McDonald’smarketedlowerpriceditemsinresponsetocustomerneeds.InspeakingoftheUK,whichwasarobustplaceforMcDonald’s,thejournalistsaidthatitisMr.AlvarezwhohasbeendirectingtheUKchanges,andnotMr.Easterbrook.ToquoteTheWallStreetJournal,“Mr.Alvarezdirectedmanagementtoexamineabroadsetofdatameasuringchangesinconsumerbuyingpatterns,customertrafficforcompetitorsandgeneraleconomicdata.McDonald’sexecutivessaythatpromotinglowerpriceditemsandproductsperceivedasagoodvaluewillbeatopprioritythisyearandrestaurantsmayhavetosettleforlowermargins.”184

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InDecember,McDonald’sannouncedMr.Alvarez’resignation,sayingitwasforhealthreasons.Mr.AlvarezalsoresignedfromtheMcDonald’sBoardofDirectors.TheNewYorkTimesreportedthattheresignationwas“unexpected.”AlsoreportedwasthataftertheresignationofMikeRoberts,thiswasthesecondsignificanttopmanagementresignationinjustafewyears.BothMr.RobertsandMr.AlvarezweresupposedtobesuccessorstoJimSkinner.Thenumber‐twojobatMcDonald’shadextraimportance,asthedeathsofJimCantalupoandCharlieBelldemonstrated.NowMr.Skinnerhadtofindasuccessor.TheNewYorkTimescontinued,“WhenMr.Robertsleft,hewassaidtobefrustratedthatMr.Skinnerwasnotsteppingdownasquicklyasexpected.Mr.Alvarezsaidhisdeparturewaspromptedsolelybyhealthconcerns.ButhealsosaidhewasawarethatMr.Skinnerwasnotplanningtoretiresoon,andsohedidnotexpectthetopjobtocomeopenintheshortterm.”TherewereotherissuessurroundingMr.Alvarez’sdeparture.TheNewYorkTimesreported,“ThisisnotthefirsttimeMr.AlvarezhasmadeanabruptexitfromMcDonald’s.Hewasforcedoutin1998,whenhewasaregionalexecutiveinCalifornia,forhavinganaffairwithawomanwhowashissubordinate.Thewoman’shusbandalsoworkedforMcDonald’sandcomplainedtothecompanyabouttheaffair.Atthetime,Mr.Alvarez’sdeparturewasexplainedtotopcompanyofficialsinaletterfromthechiefexecutive,JackM.Greenberg.PeoplewhosawthelettersaidthatMr.GreenbergmadeanexampleofMr.Alvarez,sayingthatthecompanywouldnottoleratesuchbehavior.Buttwoyearslater,Mr.AlvarezwasrehiredasaMcDonald’sexecutiveinMexico.Mr.GreenbergsentanotherlettersayingMr.Alvarezdeservedasecondchance.Mr.AlvarezquicklyrosethroughtheranksandwasgiventheNo.2jobin2006,whenMr.Robertsquit.Hewasnamedtotheboardin2008.Describedbycolleaguesasabrilliantoperationsmanager,Mr.Alvarezwaswidelyviewedasfirstinlinetobethenextchiefexecutive.”Anunfortunatestory,Mr.Alvarezwasonceagaininvolvedinanotherallegedaffairwithanemployee.Alawsuitfiledin2003inFederalDistrictCourtinNewJerseyallegedthatMr.AlvarezhadanaffairwiththewifeofaMcDonald’smanagerwhoalsoworkedatMcDonald’s.“Theman,PatrickW.Moss,saidthathiswife,KathMoss,hadalsohadaffairswithtwolocalMcDonald’smanagers.Mr.MossclaimedthathisattemptstobepromotedwithinthecompanyhadbeenthwartedbyMr.Alvarezandothers.Mr.AlvarezandMs.Mossdeniedunderoath,incourtpapers,thattheyhadhadanaffair.Ms.Mossalsodeniedtheotheraffairsallegedbyherhusband.TheMossesdivorcedin2004.Ms.MossnowownstwoMcDonald’sfranchisesinNewJersey.Mr.RikersaidMcDonald’sagreedtopayMr.Moss$80,000aspartofasettlementthatincluded‘‘noacknowledgmentofanywrongdoing.’’185

STEVE EASTERBROOK, UK CEO InMarch2009,Mr.EasterbrookgaveaninterviewwithFinancialTimes.Hetalkedabouthisidea—nowimplemented—foronlinetransparencyforMcDonald’s,“thewebsiteheestablished,www.makeyourownmindup.co.uk.Thewebsitesetoutthecompany’sphilosophy,acceptedquestionstowhichitpromptlysuppliedanswers,andallowedmembersofthegeneralpublic,referredtoas‘qualityscouts’behindthescenes.”(NB:ThiswasadoptedbyMcDonald’sCanadaandthenMcDonald’sUS,whereitwasafailure.Inthechaptersyouhavejustread,itappearedthatthisUKEasterbrookinitiativewasadisasterforthebrand.)Additionally,Mr.EasterbrookdescribedhisvisionforMcDonald’sUKas“themodern,progressiveburgercompany.”186

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BEVERAGES AMayarticlestatedthatinEurope,McDonald’swantedtobeatStarbucks.McDonald’saimwastobethebiggestEuropeancoffeechain.McDonald’splannedtoopenseveralhundredEuropeanMcCaféstoresthatwillsellbakedgoodsandupscalecoffeebeveragesin2009.JeromeTafani,chieffinancialofficerforMcDonald’sEuropesaid,“WecanbecomethebiggestsellerofcoffeeinEurope,”Mr.TafaniaddedthatMcCafésdidattractnewcustomers.Thespacecreatesa“cozy”atmospherewithinthestores.Theaudienceispeoplelookingforbreakfastontheirwaytowork.187Infact,byJuly2009,theearningsreportscitedbeveragesasoneofthemainreasonsMcDonald’sshowedincreases.OnejournalistcoveringMcDonald’stitledtheearningsreport:“moveintomochasliftsfiguresby4.3%inJuly.”188

FRANCHISEES AninterestingarticleappearedinTheWallStreetJournalinAugust.Writtenbylong‐timeMcDonald’sjournalist,RichardGibson,thearticlepointedoutthatfranchiseesintheU.S.werefindingasaturatedmarketplace.ThefranchiseeswhowereabletoaffordachangewerelookingoverseasforMcDonald’srestaurants,wherethesaturationwaslessandtheoutlookwasrosier.189

PLAN TO WIN InJune,atananalystmeeting,creditforMcDonald’scontinuingsuccesswasattributedtothePlantoWin,whichbythispointin2009wasslightlyoversixyearsold.Theanalystmoderatingthemeetingstatedthefollowing:“ThisdominantpositioninthequickservicemarketreflectsthesuccessofMcDonald’sworldwiderevitalizationplanthatwaslaunchedin2003,aplanthatturnedtheCompanyaroundandrefocusedoncustomerstrategies,businessdisciplines,andcloseglobalalignments.”190  

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YEAR 2010 

FINANCIALS The2009McDonald’sresultsshowedgreatstrengthforthefourthquarterandfortheyearendedDecember31,2009.McDonald’sattributedthisgrowthtoincreasedglobalcomparablesales.CEOJimSkinnerreportedthatMcDonald’swasserving60millionglobalcustomerseachday.Thiswasanincreaseof2millionperdayoverthepast12months.Mr.SkinneraddedthatMcDonald’sprofitabilityincreasedforthesixthyeararoundtheworld.In2009,salesincreased3.8%,includinga2.6%riseintheUnitedStates,a5.2%riseinEurope,andaboostof3.4%inAPMEA.Inthefourth‐quarter2009,theJanuary2010reportindicatedglobalcomparablesaleslifted2.3%.McDonald’sreportedthatin2009,U.S.sales“outpacedtheoverallquick‐servicerestaurantindustry.”McDonald’ssaiditgainedU.S.marketshare.Thiswasanindicationthatcommoditycostshadeased.McDonald’sdidnotsaywhattheeffectwasonprices.Europealsoexperiencedstrongfourth‐quarter2009sales.Again,therewasincreasedmarketshareinEurope.APMEAhadincreased“double‐digitoperatingincomegrowth.”JimSkinnerannouncedthatMcDonald’swouldcontinuetogivebacktoinvestorsintermsofincreaseddividends.191March2010resultswereimpressive.JanuaryandFebruaryhadbeenslightlydepressingmonths,sothegoodMarchnumbersmadefirst‐quarter2010apositiveoverall,rising11%worldwide.First‐quarterinternationalsalesweregood,butthenewswastheMarch4.2%liftinU.S.sales.McDonald’sofferedavarietyof“value”productssuchaslow‐pricedrinksandanewDollarMenuatbreakfast.First‐quarterglobalsalesclimbed4.2%.Asforglobalperformance,therewasa5.2%riseinEuropeanda5.7%climbinAPMEA.192McDonald’sadditionof“snack‐focused”itemssuchastheSnackWrapanditsbeveragelinesliftedMay2010same‐storeglobalsales.Analystestimateswereexceeded,withglobalsame‐storesalesincreasing4.8%.193EmilyBrysonYorkofAdvertisingAgecommentedthatMcDonald’swasdoingmorethansellingburgers:therestaurantchainwasgivingStarbucksarunforitsmoney.McDonald’ssuccesswasnowgeneratedbyitsimageasabeveragedestination.Salesseemedtosupportthis.194Second‐quarter2010benefitednotonlyfrombeveragesbutalsofromlowerpricesthatsatisfiedcustomersinastillshakyeconomicenvironment.Lowerpricesledto+3.7%inU.S.second‐quarter,year‐to‐year,same‐storesales.Individualticketsshowedadeclinecloseto6%inthequartercomparedwithayearago.TherewasgrowthinEuropeandAPMEA,withsame‐storesalesrising5.2%and4.6%,respectively.DonThompson,McDonald’spresidentandCOO,statedthatthelowerpriceswithloweraveragecheckshadincreasedtheguestcountsglobally.Hemadeitclearthatlowerpriceswithlowerchecktotalswerea“verydeliberateapproachbasedontheeconomy.”However,McDonald’sdidwarntheanalystcommunitythatfutureEuropeanresultswouldbeaffectedduetothewaveofimplementedausteritymeasures.AndMcDonald’swarnedthatevenwithbeveragesaleshelpingsecond‐quartersales,futureperformancewould

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showtheeffectsofthepooreconomy.Lower‐pricedfoodandbeverageswerehelpingMcDonald’sresisttherecessionbecausebeveragesarehighermargin.Thesehighermarginscounterbalancedthe$1breakfastmenupromotions.Mr.Thompsonwaspositiveaboutthebeverageline,especiallythesmoothiesales,sayingthatsalesofsmoothiesexceededMcDonald’shighestestimates.However,AugustinEuropewasadisappointmentforanalystsassalesdidnotmeettheirexpectations.Infact,theEuropenumberswerewellbelowwhattheyhadexpected.195InAugust,onlinefinancialwebsiteMotleyFoolcreatedaSWOT(strengths,weaknesses,opportunities,andthreats)analysisforMcDonald’sbasedonMcDonald’simpressivemarketperformanceanditsall‐timehighshareprice.MotleyFoolnotedthatMcDonald’sstrengthswereitsnewproducts,includingthebeveragelineandtheAngusburger.Becauseofthesenewofferings,MotleyFoolsaidMcDonald’swouldgetthroughthe“recession”withstrongsame‐storesales.Additionally,itwasnotedthatMcDonald’sdividendswere“sizzling,”risingfrom55centspersharein2005to$2.20in2010.Asforweaknesses,MotleyFoolmentionedthattheU.S.geographywasnow“oversaturated.”(Franchiseeshadcomplainedthattherewerenolongerprimelocationsforinvestment.)Also,MotleyFoolnotedthatalthoughitseemedasifMcDonald’swouldcontinuetodeliverdividends,therateofthedividendgrowthwasslowingandwouldprobablyleveloff.Asforopportunities,thereportstated,theopportunityforgrowthwasoutsidetheU.S.,especiallyinChina.MotleyFoolstatedthattherewaslimited“imagination”inthefoodinnovationprocessatMcDonald’sandthatthiswouldhurtthem.Finally,thethreatswerethewidevarietyofgovernmentalregulationsandrestrictionsforfastfood,sugarandcalories,andmarketingtochildren.Anotherthreatwasthefactthatworldwidethecompetitorsweregrowing,strengtheningwithnewcategoriesappearing.196AndinSeptember,McDonald’sdidraiseitsgoalofreturning$5billiontoshareholders.197Octobersame‐storesalesclimbed6.5%.McDonald’ssaidthiswasduetocontinuedgrowthinEurope.ThesalesclimbwasalsoattributabletosalesofcoremenuitemssuchasChickenMcNuggetsandMcCafébeverages.198McDonald’sNovembersalespicturedidnotmeetanalysts’expectations.Growthseemedtobeslowingglobally:same‐storesalesrose4.8%.IntheU.S.,McDonald’ssaidtherisewasduetotheLTO(LimitedTimeOffer)oftheMcRibsandwich(acultfavorite)andtoMcCafébeverages.McDonald’sfocushadbeenon“drivingmorecustomertraffic.”Theless‐than‐stellarperformancewasblamedonAPMEA:the2.4%same‐storesalesgainwaswellbelowanalysts’estimateof6.4%growth.U.S.andEuropeansame‐storesalesincreased4.9%inbothregions.199

RESTAURANT REIMAGING InMarch,McDonald’sannouncedthatitwouldallocate$1billiontoreimagethecompany‐ownedstoresusingoneoftheavailabledesignsundertheaegisof“urbanredesign”aesthetic.200

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PRICING McDonald’sdecidedinMarchthatitshouldpriceallofitsU.S.softdrinksat$1regardlessofthesizeofthebeverage,hopingthispricingwouldhelpmakeMcDonald’sadestinationforbeverages,notjustburgers.However,McDonald’sdidnotconsiderthis$1beveragepricingtobeapermanentpartofitsmenu:itwouldbeanLTOendingrightafterMemorialDay.Softdrinkswereamoneymakerforfranchisees.Theyexpressedconcernthat$1beveragescouldhurttheirprofits…especiallyifthecustomerbuysofftheDollarMenu.”201InSeptember,McDonald’sfounditselfinapositioninwhichithadnochoicebuttoraiseprices.McDonald’shadnotraisedpricesinoverayear.202

GROWTH 

China InMarch,TimFenton,presidentAPMEA,announcedplanstoincreasethenumberofrestaurantsinChina.Additionally,toemphasizetheimportanceofChinatoMcDonald’s,Mr.FentonstatedthatMcDonald’shadstartedaHamburgerUniversityinShanghai.Hesaid,“Chinaisourfastestgrowingmarketfromtheincomestandpointandfromtherevenuestandpoint.”203

Europe InadvanceofMarch2010results,McDonald’sindicatedthatitwouldbemoredependentonEurope.OnejournaliststatedthatMcDonald’sreceivedmostofitsgoodideasfromoutsideoftheU.S.ThisjournalistindicatedthatEuropecarriedthechaininthepreviousyearandthatMcDonald’shadamuchmoresophisticatedperceptioninEuropethanintheU.S.Intheopinionofthewriter,McDonald’swasdemonstratingthatitcouldbemoreofaEuropeanchainwithstoresintheU.S.thantheotherwayaroundwhenitcametoideas,products,andimage.204

New Product Proliferation; Menu Expansion Attheendoftheyear,JulieJargonofTheWallStreetJournalreportedonthenumberofnewproductsnowavailableatMcDonald’s.Manyobserversandanalystsattributedthebrand’srecessionsuccesstothevarietyofnewitemsavailableforpurchase.Duringtheeconomicdownspin,McDonald’swasstillabletopostincreasesinsame‐storesales.ObserverssaidthatthevarietyofproductsofferedatbothhighandlowpricesallowedMcDonald’stomaintainitsprofitmargins.Theriseinbeefandothercommoditypricesaffectedthepricesofcoremenuoptions,makingthehamburgerssuchasBigMacoutofrangefortheyoungadultswhousedtobethe“heavyusers.”Profitswerealsoduetotheincreasedhoursarestaurantstayedopen.McDonald’shadmany“open‐24‐hourslocations”inthehopesofincreasingguestcounts.Additionally,therewasmajorreimaging,theinstallationofdouble‐lanedrive‐thrus,andfreeWi‐Fi.Butwithsomanychanges,somefranchiseesandanalystsworriedaboutthechain’sabilitytosustaingrowth.Asanexample,Ms.Jargonfocusedononerestaurantwithmorethan100itemsonthemenuboard:EggMcMuffinsandfruitsmoothies,recentlyaddedoatmealandcaramel‐mochabeverages,andpossiblyanewfrozenstrawberrylemonadetonamea

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few.SomeU.S.franchiseesweresaidtobetestingflatbreadsandwichesandanewversionoftheverypopularSnackWrap.ThereweresomanynewitemsonthemenuboardthatMcDonald’sranreminderadvertisingaroundtheBigMacandQuarterPoundersandwiches,aspeoplewerenolongerbuyingthese.205Ms.JargonremarkedonaninternalemaildetailingthatMcDonald’smainbusinessday‐partsegment,thelunch‐hourbusiness,hadbeenflatforfiveyears.(AMcDonald’sspokeswomandeclinedtocommentonthecontentofthememo.)JeffreyBernstein,restaurantanalystatBarclaysCapital,saidthatleadinginsizedidnotnecessarilymeanthatyouweretheindustryleader.(ThinkIBMwhenApplewasabighit;IBMmayhavebeenbigger,butusersfeltApplewastheleaderbecauseitwassoinnovative.)Ms.Jargondescribedthechangingfastfoodenvironment.ShestatedthatthedriverbehindMcDonald’sburstofnewitemswastokeepupwithallthechangesintheeating‐outbusiness.McDonald’sanditscompetitorssuchasBurgerKing,KFC,andWendy’swerenolongertheonlychoiceswhenitcametofastfood.206Shecitedexamplessuchas7‐Eleven,Starbucks,JambaJuice,andgasstationsthatcarriedpreparedfood.Perimetergrocerystoresalsoofferedpreparedmeals.McDonald’sfranchiseesrepresentedcloseto90%oftheU.S.14,000U.S.stores;theywereresponsibleforalltheupgrades,equipmentchanges,andexpansioncosts.Withmoreandmorenewitems,thecomplexityofthekitchenandthecomplexityofpreparationincreased.Surveysshowedthatfranchiseeswerecomplainingaboutslowerserviceandinaccurateorders.Ms.Jargoninterviewedsomefranchiseeswhoexpressedtheirconcernsaboutthebrand’sdirectionandthecostsforimplementingthisdirection.Onefranchiseeconcernwas,“Whatistheprofitablebenefittotheseremodelinvestments?”ThiswasexpressedinthefranchiseeOctobersurveyconductedbyJanneyMontgomeryScottanalystMarkKalinowski.ContrarytothepartylineemanatingfromMcDonald’smanagement,especiallyDonThompson,presidentandCOO,andJanFields,U.S.president,therewasfranchiseeopinionthattheMcCafébeveragesweresellingsopoorlythatthedrinkswerenotevenpayingfortheelectricityneededtoruntheespressomachines.TheRayKrocsystemwassimple.Nowthattherewassomuchcomplexity,thesystemwassaggingundertheweightofdelivering.ThearticlecitedtheexampleofMcDonald’sSnackWrap,whichrepresentedsuchamajorpreparationchallengethatcrewmembersneededextensivetraining.Thearticlealsorevealedthattherequiredequipmentforpreparingthefrozendrinkscost$13,000permachine.Ms.Fieldsrejectedthefranchiseestatements.Shewasvocalthatthecoffeebeveragesweretotallysuccessful.Althoughinthearticlesheinsistedthatthenewitemswerenotmeanttoputanyburdenonthefranchisee,thefactwasthebrandmuststayrelevantatallcosts.ThereweresomesavvyinvestorswhocomparedthefrenzyofnewitemintroductionintheJimSkinnertenuretothefrenzyofopeningnewstoresintheyearsbeforeMr.Cantalupo.Mr.Cantalupostronglymovedtohavethebrandbebiggerbybeingbetter.207

PUBLIC RELATIONS April,May,andJune2010wereunsettlingmonthsintermsofnegativePR.UnfortunateeventshitMcDonald’sonallsides.InApril,thetradepressespickedupareportshowingthatwhenrespondentswereshownfastfoodrestaurantlogos,theybecame

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“impatient”andweremoreinclinedtospendmoney.ThestudywasconductedinCanada.InMay,CEOJimSkinnerfoundhimselfonthedefensiveregardingthebrand’sicon,RonaldMcDonald.RonaldMcDonaldhadbecomeadivisivesocialandmarketingforce.Kidslovedtheclown,andhewasrecognizableworldwide.However,criticsbelievedthathewaspromotingeatingatMcDonald’s,aproviderofhigh‐fat,high‐sodium,andgenuinely“bad‐for‐you”foods.NowagroupcalledCorporateAccountabilitycalleduponMr.SkinnertoretireRonaldMcDonald.Thegroup’sstatementsindicatedthatRonaldMcDonaldluredchildrentoahavenofcaloric,obesity‐causing,diabetes‐causingfoods.TheysaidthatRonaldMcDonaldsent“insidious”messagestochildren.Mr.SkinnerwaspublicallyadamantthatRonaldMcDonaldwaspartofthebrandandthereforeneededtostay.RonaldMcDonalddidnot“shill”forthebrand.Hepromotedimportantmessagessuchaswearingseatbeltsandbikehelmets,forexample.Healsopromotedexercise.InJune,McDonald’shadtorecall12millionShrekglassesasthecadmiumlevelsinthepaintwerewellbeyondthegovernmentsafetylevels.TheCSPC(theU.S.governmentConsumerProductsSafetyCommission)jumpedontheissue.Thefollowingmonth,Mr.Skinnerfoundhimselfonthedefensiveagain,thistimefightingcriticismofHappyMeals.Long‐timeMcDonald’snutritionalanddietarycritic,theCSPI(CenterforScienceinthePublicInterest),forcedJimSkinnertopublicallydefendtheuseoftoysinitsHappyMeals.TheCSPIwasthreateningtosueMcDonald’sonthegroundsthattoyswerea“deceptiveandillegalmarketingpracticetolurechildrenintoitsrestaurants.”208

HAPPY MEALS HappyMealsin2010represented10%oftheMcDonald’sbusiness,whichwasworth$30.9billionintheU.S.assystemwidesales.ThismadeitbiggerthanIHOPandPanera,forexample.McDonald’ssaidthat87%of6‐and7‐yearoldsand80%of8‐and9year‐oldssaidtheyenjoyedgettingatoywiththeirHappyMeals.209InDecember,thecityofSanFranciscobannedrestaurantshavingatoy‐with‐a‐mealoffering.CEOJimSkinnerfacedthepossibilitythatthisregulationcouldpopupinothermunicipalities.Mr.SkinnerreferredtothisCaliforniacity’scivicleadersas“foodpolice.”Hearguedthatthesemunicipalleadershadtakenpersonalchoiceawayfromfamilies.OneconsultantcomparedtoyswithmealstosellingHummersandcigarettes.Eventually,acompanyneedstorethinkhowandwhatitsells.210TwodaysaftertheSanFranciscoannouncement,theconsumerwatchdoggroupCSPI(CenterforScienceinthePublicInterest)enteredalawsuitagainstMcDonald’suseoftoyswithameal.CSPIstatedthatitwasawaytoseducechildrenintobeggingtheirparentsforMcDonald’sfoodjusttogetthetoy.CSPIusedthecalorie,fat,andsodiumlevelsagainstMcDonald’sinthesuit,statingthatallofthesewerewellabovenormallevelsforchildrenunder8yearsold.FinancialTimesreportedthatalthoughthecityofSanFranciscoandtheCSPIwerechallengingMcDonald’s,otherconsultantsforothergroupswerejumpingintothefray.Onegroup’sspokespersonsaid,“Whenitcomestounderminingparentalauthoritybytargetingchildrendirectly,McDonald’sistheworstoftheworst.”211  

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YEAR 2011 

FINANCIALS Theyear‐endreportfor2010,announcedinJanuary2011,wasanupbeatpictureforMcDonald’s.Fourth‐quarter2010globalsaleswereup5%.TheUnitedStateshada4.4%increase;Europeclimbed3.4%;andAPMEArose5.5%.McDonald’ssaidtheU.S.growthwasduetoattractingmorecustomersusingnewitemsandvalue.U.S.salesbenefitedfromtheLTOMcRibcultsandwich,anewcaramelmochacoffee,anditsyearlyMonopolypromotion.BadweatherintheU.S.wasblamedforsomedropsinsalesduringDecember2010.YetMcDonald’ssaidthepoorweatherdidnothaveabigenougheffecttoweakenmomentum.Europeancomparablesalesgrew,asdidcomparablesalesinAPMEA.Inreviewing2010,McDonald’sstatedthatglobalcomparablesalesincreased5%.CEOJimSkinnerrepeatedthenow‐familiargoaloftheoriginalCantalupo/Bell/LightPlantoWin(now9yearsold)bysayingthefollowing:“During2010,wecontinuedoureffortstowardbecomingourcustomers’favoriteplaceandwaytoeatanddrink—andcustomersrewardedusbyvisitingourrestaurantsmoreoften.Asaresult,wegeneratedstrongsalesanddeliveredprofitablemarketsharegrowth,alongwithhigherglobalrevenues,operatingincomeandearningspershare.”Mr.SkinneraddedthatMcDonald’sPlantoWinhadpositionedthecompanytocontinueturninginpositiveperformancesfor2011.212AlthoughU.S.same‐storesalesclimbed2.6%inDecember2010,thereportsfromanalystswerenotpositive.Analystswereexpectingmoreimpressiveresults,andthenumbersforDecemberwereamajordisappointment.213

Marchnumberswereoutstanding.Earningswerewellaboveanalysts’estimates.TheAprilreportfromCEOJimSkinneracknowledgedchallengesbecauseoftheshakyeconomiclandscapeandthecustomerwhowasseekingvaluewheneatingout.Hesaid,“OurdedicationtobuildingtheMcDonald’sbusinessbyoptimizingourmenu,modernizingtherestaurantexperienceandbroadeningaccessibilitycontinuestodriveourglobalperformance.”Forthequarter,McDonald’sdelivereddouble‐digitearningspersharegrowthledbyhighercomparablesalesandguestcountsacrossallgeographicsegmentsandstrongfranchisemarginperformance.”Globalcomparablesalesclimbed4.2%.Thisincludeda2.9%riseintheU.S.,a5.7%riseinEurope,anda3.2%riseinAPMEA.McDonald’sannouncedthatithad“returned$2.0billiontoshareholdersthroughsharerepurchasesanddividends.”214First‐full‐quarterreportingindicatedthatMcDonald’sprofitrose11%.Globalsame‐storesalesrose4.2%,includinga2.9%liftintheU.S.However,McDonald’salsoannouncedthatitwouldraisepricesagain.CFOPeteBensendidnotgiveascheduleforthepricehikes,buthereportedthatMcDonald’swasmonitoringthepricechangesatgroceryoutletsandwouldmakeeveryattempttofollowtheirpricerises.Mr.BensensaidthatcommoditycostsweregoingtobedoublewhatMcDonald’santicipatedinJanuary.Costsforessentialssuchasbread,cheese,andbeefwereestimatedtoincrease4%–4.5%.Regardlessofthepricechanges,analystswerevocalthatifanyfastfood

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chaincouldweathersuchpricehikes,itwouldbeMcDonald’s.McDonald’ssaiditwouldintroducesomenewbeverageofferingsandwouldbebringingbacktheAsiansalad.215Second‐quarter2011performancewasverygoodforMcDonald’s.Eventhoughcustomerswereexperiencingdifficultiesmakingendsmeet,McDonald’ssoldalotoffrozendrinksandbreakfastmeals.Sharepricerose.Mr.Skinneragreedthatthesenewofferingswerespurringsales,buthealsoattributedthegrowthtothestoreremodeling.Hestatedthatinspiteofstrugglingcustomers,McDonald’swasnotseeingariseinsalesofDollarMenu.Forthefirsttime,Mr.Skinneradmittedthattherewasnewcompetitioninthe“betterburger”category.Tocompeteonthatfront,hesaidthatMcDonald’swasplanningtoimportsomeofitsEuropeanburgersandwiches.Second‐quarter2011wasnotthatstellarfortheU.S.asitwastheslowestgrowingregionoftheworld.Infact,ablurbinBloombergBusinessWeekstatedthatMcDonald’swashavingdifficultygrowing,notmeetinganalysts’expectations:same‐storesalesrose3.1%,andanalystsexpectedaheftier3.6%.216IntheU.S.,forsecondquarter,McCafébeveragessuchasFrozenStrawberryLemonadeandMangoPineappleRealFruitSmoothie,alongwithnewdippingsaucesforMcNuggets,helpedthegoodresults,asdidsalesofBigMac.DonThompson,presidentandCOOsaid,“OurtotalMcCafésaleswereup29percentoverthesecondquarterof2010,andwe’restillfeaturingdollarsoftdrinksandsweettea.”Mr.ThompsonalsostatedthatMcDonald’swouldfocuson“nutritional”items,too,suchasoatmealandwholegrainbunsforitschickensandwiches.”InAPMEA,resultsshoweda5.2%riseduetogrowth(storeopenings)and“addedconvenienceinitiatives”alongwitha“valueinitiative.”InEurope,second‐quartersalesrose5.9%basedonnewproductsanddemandforbreakfast.Storeredesignsalsoimprovedperformance.Mr.ThompsonindicatedthatthestrategyinEuropewastomakeMcDonald’sa“compellingdestination,”anditwasworking.Hecontinuedbysaying,“OurpremiumproductsliketheMcWrapsareavailablein17countriesacrossEuropeand,in11markets,the1955burgerisavailable.ItisalsoGermany’sbestperformingpremiumsandwich.”217

TheSeptemberreportingforAugust2011onceagainmissedanalystestimatesonsame‐storesales.ThiswasarepeatoftheJunereportwhenMcDonald’ssaidthemisswasaone‐timeevent.Investors’concernsfocusedonwhetherthesemissedexpectationswerepartofsomelargerissue.Therecentmissedestimatewasthesecondintwomonths,andanalystsfeltthismightbeatrend.EventhoughMcDonald’shadsailedthroughthe2008recessionvirtuallyunscathed,ifitcontinuedtomissestimates,theinvestorcommunitymightstopsupportingthestock.McDonald’sreportedsame‐storesalesof3.5%.Thiswasfarunderanalystestimatesof4.3%.McDonald’sreportedweaknessinbothAPMEAandEuropeaswellasintheU.S.CEOJimSkinneroverlookedtheconcernofthefinancialcommunitybyfocusingonanothermonthofsalesgrowth.Hesaid,“Augustmarksour100thconsecutivemonthofglobalcomparablesalesgrowth,demonstratingtheongoingcustomerappealofMcDonald’sgreattastingfood,offeredatanoutstandingvalueinourmodernandconvenientrestaurants.”WallStreetacknowledgedthatMcDonald’shadbeentherecipientofcustomerdollarsasthey“tradedown”tothebrandforitsaffordableitems.218

ByNovember,withcontinuedremarkableresults,CFOPeteBensentoldanalystsandinvestorsthatMcDonald’shadalotofcash,makingitclearthatnowwastheexactright

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timeforinvestmentinreimagingandforopeningnewstoresglobally.HeindicatedthatMcDonald’swouldberaisingitslevelsofCAPEXtoapproximately$2.9billioninthefollowingyear.Oncetheallocationtobusinessreinvestmentwasmade,Mr.Bensenstatedthattheremainingcashwouldbereturnedtoshareholdersthroughdividendsandrepurchases.HeacknowledgedthatthroughOctober2011,McDonald’sreturned$5.1billionandexpectedthefull‐yearreturntoshareholderstobearound$6billion.219TheDecemberannouncementreportingNovember2011earningscontinuedthegoodnews.Novemberglobalsame‐storesalesleaped7.4%.McDonald’ssaidtheglobalboostswereduetomotivatingproducts,whichworkedinbothdevelopedandemergingmarkets.ThereportdidmentionthatintheU.S.,McDonald’spriceswere3%higherinNovemberthantheywereayearago.220

PLAN TO WIN 

InApril,whenreportingMarchnumbers,CEOJimSkinnerremindedtheanalystandinvestoraudiencethathavingthePlantoWinwasanessentialpartofthecurrentsuccess.Hesaid,“Despitethechallengesofthecurrenteconomicenvironment,IamconfidentthatMcDonald’scancontinuetogrowbylisteningtoourcustomersandremainingtruetoourprovenPlantoWinstrategy.”221Whenannouncingsecond‐quarter2011results,CEOJimSkinnerstatedthattheresultswereduetocontinuedimplementationoftheoriginal2002PlantoWin.Hesaid,“McDonald’sglobalresultsforthequarterdemonstratetheresilienceofourPlantoWinandourabilitytoexecutesuccessfully.Comparablesalesandguestcountincreasesacrossallsegments,highlightedbyJune’sstrongresults,drovedouble‐digitoperatingincomeandearningspersharegrowth.”222InNovember,CEOJimSkinnerandhistopmanagementteammadeapublicrecommitmenttothe2002strategic(turnaround)plan—thePlantoWin.Mr.SkinnerwithhismanagementsupportindicatedthatthePlantoWinwasstillthesamestrategicdocumentforidentifying“opportunitiesandinvestmentstofurthermodernizetheBrand,enhancecustomerrelevanceandsustaintheCompany’sperformanceforthefuture.”Mr.Skinnersaidthefollowing:“OverthepastnineyearsthePlantoWinhasbeentherightblueprintforMcDonald’sandremainsrelevanttoday.Ithasenabledustoperformwellinbothrobustandchallengingeconomicenvironments.Mostimportantly,thePlanissupportedbyourunparalleledcompetitiveadvantagesinsizeandscale,ourfinancialstrengthandourSystemalignment.”Mr.Skinnersummeduphisremarksbysaying,“McDonald’sunwaveringcommitmenttoandoutstandingexecutionofthePlantoWinhascreatedsignificantbranddifferentiationandstrongbusinessmomentum.”223DonThompson,presidentandCOO,added:“WeareintensifyingoureffortsbehindthreeglobalprioritiesthatrepresentourgreatestopportunitiesunderthePlantoWin:1)optimizingandevolvingourmenu,2)modernizingthecustomerexperienceand3)broadeningaccessibilitytoourBrand.IamconfidentinourstrategiesandtheabilityofourtalentedSystemtoexecuteagainsttheseprioritiesaswedrivetowardourmissiontobecomeourcustomers’favoriteplaceandwaytoeatanddrink.”224

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PRICES InlateJanuary2011,McDonald’sannouncedthestrongpossibilitythatitwouldneedtoraisepricesin2011ascommoditycostscontinuedtheirrise.McDonald’sestimatedthatitscostswouldincreasebyapproximately2.5%intheU.S.andapproximately4.5%inEurope.InDesMoines,Iowa,TheRegisterreportedthatcornandlivestockpricesweresharplyclimbing.ObserversnoticedthatMcDonald’sappearedtobemovingina“rebrandingeffort”byrefurbishingthestores,sellingmorenon‐coffeebeveragessuchassmoothies,offeringpremiumcoffeedrinks,andprovidingawidervarietyofhealthyfoodoptions.Alongwithanewbreakfastmenuandamoreconvenientdrive‐thru,theseelementswerepartofastrategytobolstergrowth.In2011,analystsinterpretedMcDonald’spotentialpriceincreasesasbeingawayofgrowingthebrandgloballyastheDecember2010numbersdisappointed.225ByApril,theannouncementsforpriceincreaseshadbecomeexpectednews.McDonald’shadraisedprices1%inMarch.TheNewYorkTimessaidthatMcDonald’swasexpectedtoincreasethepriceofitsbeefsandwiches.Othercommoditieswerealsoexpectedtoreflectpriceincreases.(ThenewssentMcDonald’ssharestumblingdown.)Thefranchiseecommunityworriedaboutthenewpriceincreases.SomefranchiseesvoicedtheirconcernthatMcDonald’swasinvestingmoneyintothereimagingofrestaurantswhilethefranchiseeswerestuckfortheincreasedcostsofessentialingredients.226ReadersofTheWallStreetJournallearnedthattherewasaconcernfromWallStreetaboutMcDonald’srisingprices:continuingtochargemoreinthestill‐fragileeconomywasmakingMcDonald’svulnerable.ItsHeardontheStreetcolumnreinforcedtheanxietiesoffranchisees:remodelingrestaurantswasnowthekeytoincreasedsales.Newlyredesignedstoreswereshowing5%–6%salesrises.ThejournalistalsopointedoutthatcompetitorssuchasBurgerKingwerenotinafinancialpositiontomakeredesignsandatsuchagloballevel.227Inreportingsecond‐quarter2011results,CFOPeteBensendiscussedcommodityprices,sayingthatfoodinflationrateswereincreasingbyasmuchas4%to4.5%.However,hereinforcedthatanycostincreaseswereoffsetbyincreasedguesttraffic.InChina,Mr.Bensensaidthecurrentincreasedpriceswerenotaffecting“theguestcountsorthebottomline.”Headded,“Thekeytokeepingtheguestcountmovementstrongiseverydayvalueofferedinahighinflationmarket.”Atthesametime,withinputcostsrising,wehavetodosomethingtomaintainprofitability.InJulywelookedatadjustingprices,butwe’renotseeingimpactfromthatintheseearlydays.”Mr.BensensaidthatMcDonald’sdidnotbelievethecommoditycostswouldlessenoverthenextyear.Yet,thiswouldnotstopMcDonald’sfromimplementingagainstthetoppriority,theongoingreinvestmentinthecompany.228

LOSS OF FOCUS The“LEX”columninFinancialTimespointedtoJimCantalupo’sstrategyfordoingfewerthingsbetter—partofthe“bebiggerbybeingbetter.”ItstatedthatMcDonald’sunderJimSkinnerhadbecomejustlikeMickeyMouse:an“instantlyrecognizablemascotbutonethatnolongerdrivesgrowth.”LEXsaidthatMcDonald’sabandonedburgerstofocusonbreakfast.And,forthoseofuswholooktoburgers,weshould“expecta

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breakfastfocustocontinue.”Multiplyingbreakfastoptionsandmultiplecoffeeandnon‐coffeebeverageswasthecatalystforincreasingsalessince2006.“AllthisappearstoconsigntohistoryformerCEOCantalupo’spromisetodofewerthingsanddothembetter.”229

RONALD MCDONALD Thepublicdiscussionsaroundmarketingtochildrencontinuedinto2011.Again,therewascontroversyovertheroleofRonaldMcDonald.CEOJimSkinnerwasoncemoreinthehotseatdefendingthebrand’siconicspokesperson.Mr.SkinnerwasadamantthatMcDonald’swasnot“firing”RonaldMcDonald,makingitclearthatRonaldMcDonald’srolewasnottoadvertiseunhealthyfoodtochildren.ManycriticsquestionedMcDonald’scontinueduseoftheclown.TheywonderedifRonaldMcDonaldwasstillarealconnectiontochildrenandwhetherthebrandwithitsnewfoodsandbeverageshad“lefttheclowninthedust.”TocounterthisargumentthatRonaldMcDonaldwasirrelevantinthecurrentworldofchildren,Mr.SkinnerpointedoutthatnexttoSantaClaus,RonaldMcDonaldwasthemostrecognizedfigureamongU.S.consumersat99%ofthosesampled.However,astheoppositionwasquicktoshow,knowingtheclowndidnotmeanlikingortrustingtheclown.TheMarketingArm,anOMNICOMagency,ranayearlysurveyofcelebritiesthatratedthemonlikeability.Intheirrecentsurvey,RonaldMcDonaldranked2,109outofmorethan2,800celebrities.Mr.SkinnerfacedyetanotherwatchdoggroupdemandingthatRonaldMcDonaldstopmarketingtochildrenwhenmorethan600health‐careprofessionalsandorganizationsgatheredsignaturestostoptheclown.230

HAPPY MEALS  Afteroverayearofvocal,unrelentingcriticism,McDonald’sannouncedthatitwouldmakechangestotheHappyMealcomposition.Watchdoggroups,consumers,lawmakers,andmunicipalitieswerevociferouswhenitcametotheconnectionbetweenfastfood,toys,HappyMeals,children’smarketing,andchildhoodobesity.ThepressreferredtoMcDonald’sannouncementas“bowingtopressure.”ThenewHappyMealwouldhavehalfthenumberofFrenchfriesandwouldaddfruit,specificallyappleslices.ThenumberofapplesliceswouldbefewerthanthenumberinaservingofAppleDippers.(Coincidentally,McDonald’ssaiditwaseliminatingtheAppleDipperscaramelsauce,sotheofferingwasbeingrenamed.)Additionally,McDonald’ssaidthatitwouldreducethesaltcontentofallfoodsby15%(exceptthoseoverwhichithadnocontrol,suchascarbonatedbeveragesanddesserts).NYUnutritionist,McDonald’sskeptic,andauthorMarionNestlewasunimpressedbytheannouncement.Assheexpressedit,offeringfewerFrenchfrieswasnottheanswertoproblemsthatMcDonald’shadwroughtwithitschildren’sofferings.231FeelingconfidentabouttheirnewHappyMealconfiguration,McDonald’stookafull‐pageadinTheNewYorkTimesinDecember2011,titled,“HaveYouHeardAboutOurNewHappyMeals?”232

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CHALLENGES  InJanuary,aguestcommentatorforTheStreet.comcommentedonMcDonald’s.Thecommentatorreflectedontheriseincommoditypricesbutsawthisasashort‐termblip.Whatwaschallenging,intheauthor’sopinion,wasthefrequentinclusionofnewproductsontheMcDonald’smenu.Hesawtheconstantadditionofnewproductsasmorethreateningtothebrand,althoughtheauthoracknowledgedthatthesenewproductswereamainreasonforthespectacularearningsreports,quarterafterquarter.233TheStreet.comdiscussioncontinued.McDonald’squarterlycomparablestoresalesnumbersrecorded30consecutiveyear‐over‐yearincreasesdatingbackto2003.Thesuccesswaslargelyduetoproductofferingsaswellasoperations.Forexample,McDonald’sincreaseditshealthyfoodofferingstoattracthealth‐consciouscustomerswhileaddingon‐the‐gotypemealsforconsumerseatingatnonconventionalhoursandkeepingmanyofitsrestaurantsoperating24/7tocatertothesecustomers.Whywasthefrequentadditionofmenuitemssuchapotentialproblem?Addingadditionalitemstothemenuboard1)increasedoperationalcomplexityand2)increasedoperatingcoststhatfranchiseeswereaskedtopayforoutoftheirownpockets.Storeswereopen24hoursandneededtohavefreeWi‐Fiandflat‐screenTVs,thusincreasinglaborcostswiththeneedforalargerstaff.Thenewequipmentwasnotcheap;thefrozendrinkmachinesalonecouldcostafranchisee$13,000perstore.McCaféunitswereapproximately$100,000perstore,andMcDonald’swouldpayforonlyathirdofthiscost.Furthermore,accordingtothiscommentary,manyofthenewitems,includingmanyofthenewMcCafédrinks,weresellingpoorly.Asthewriterstated,“McDonalds’propensitytodiversifyandadaptinordertodrivesalesimprovementcouldindirectlyhinderprofitmarginsatmanyofitsfranchises,asfranchiseesoftenbearthebruntofexpansionandupgradecostsresultingfromthenewinitiatives.CouldthisdownsidetoprofitabilitymakepotentialownersthinktwiceaboutopeningnewMcDonald’sfranchises?”234AtashareholdermeetinginMay,CEOJimSkinnerandhistopmanagementwerestunnedtofaceanangrycrowdofinvestors.Aftersomanyquartersandyearsoffabuloussuccess,itwasasurprisetodealwithpeoplewhoblamedMcDonald’sforsocialissuessuchasmarketingtochildren,sellersoffattening,salt‐ladenfoods,andusingRonaldMcDonaldasaluretopersuadechildrentoeatthingsthatwerebadforthem.Votesthatwerescheduledforthemeetingbecame“referendums”onpublicpolicyandcorporatesocialresponsibility.Againstabackdropofnegativeshareholdercomments,McDonald’sCEOJimSkinnerrepliedforcefully.First,hemadetheissuesaquestionofAmericanfreedomofchoice.Hetriedtoturnthequestioningofhispositionsintoademocracyissue.Second,hetoldinvestorsthattheydidnothavetoeatatMcDonald’siftheydidnotwantto.Hesaid,“Ifyoudon’tlikeMcDonald’s,don’teatthere.”HedidnotbuyintothethinkingthatMcDonald’shadaroletoplayinthenation’ssoaringchildhoodobesityrates:datafromtheCDCshowedthataround17%ofchildrenandadolescentswereobese.ButthediscussionsofirateinvestorsdidnotendwiththisissueorwithMr.Skinner’saggressiveness.Marketingtochildrenwashighontheagendaaswell.AspokespersonforCorporateAccountabilityInternationalstatedthatasinvestors,McDonald’shadto“cleanupitsact.”“McDonald’smarketingisreally

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designedtogetaroundparentsandgettokidsdirectly.Fornearly50years,McDonald’shasbeenworkingtohookkidsonunhealthyfoods....Parentsareexercisingparentalresponsibility.Thatalonewon’tstoptheproblem.”ThisavenueledtoadiscussionofRonaldMcDonald.InvestorsbelievethatMcDonald’susestheclowntogetaroundparentsevenwhileJimSkinnersaysitisuptoparents.235TheauthorsofaChicagoTribunereportasked:WhybullyMcDonald’sataninvestormeeting?McDonald’scriticssaiditwasbecausegoingaftertheleaderwasthebesttactic.Thentheothersmallerchainswouldfollow.McDonald’sexecutivessaiditplannedtobepartofthesolution.SayingthatMcDonald’sofferedagreatdealofchoicedidnotappeartosatisfytheskeptics.TheobjectorsstatedthatMcDonald’ssaidthesethingsto“nutra‐wash”thebrand.CorporateAccountabilityInternationalraisedthesefactstosupporttheirpointofview:“Thisyear,thecorporationdebutedoatmealwiththenutritionalvalueofaSnicker’sbar,strawberrylemonadethathasmoresugarthanCoca‐Cola,andsmoothiesthatrivalamediumfriesforcalories—focusingitspromotionsforsuchitemsontheirsupposedhealthfulness,”saysCorporateAccountabilityInternational.Theanti‐McDonald’scrowdevenhadagroupofnunswho“askedthecompanytoassessitsimpactonthechildhoodobesityepidemicanddiscloseitslobbyingagainstgovernmentalregulation.”McDonald’sinvestorsrejectedtheproposal.Tocalmangryshareholders,McDonald’sofferedtopurchase1millioncage‐freeeggsand1millioneggsraisedbyenriched‐housingmethodsthatallowedhensmorefreedomofmovement.236ANovemberreportintheonlineversionofQSRMagazinearticulatedthenewchallengesMcDonald’sfacedwithitsdirectcompetition.ThearticlefocusedontherevitalizationsofbothBurgerKingandWendy’s.Thejournalistpraisedbothbrandsforfocusingonsellingtheirproductsratherthansellingsillyicons,suchastheFunkyChickenandtheRedheads,respectively.NowbothofthebrandswereactuallygivingMcDonald’sarunforitsmoney.Althoughthearticlespentalotoftimeontheadcampaigns,theauthordidpointoutthatfinallybothBurgerKingandWendy’sweremanagedby“peoplewiththeirfeetontheground,”includingWendy’snewCEOEmilBrolick,whowasjettisonedatYUM!And,althoughtheresultsatBurgerKingweregreat,itwastruethatthenewmanagementwasnotaswellknown.Asthejournalistremarked,“Bothmanagementteamsunderstandwhatmotivatesconsumers,andwon’tbetakeninbyslick,entertaining‐but‐not‐sellingcommunications.Theymaynothavethebudgets,ubiquityandexperiencedarmyofmarketersthatisbehindtheGoldenArches,buttheyarefinallyonwhatlookslikeabettercompetitivepath,bothstrategicallyandcreatively.”Sothereportersaidthatinhisopinion,“withinthenextsixmonthswewillhearreportsofgainsbyWendy’sandBurgerKing,andsomeflatteningatMcDonald’s.”PartlythisremarkwasbasedonthefactthatMcDonald’sabandonedburgers,perse,forawider,non‐burgermenu.237

DON THOMPSON OnJanuary28,2011,McDonald’selectedDonThompsontoitsBoardofDirectors.238InOctober,journalistKateMacArthurwroteaboutMr.Thompson’spositionas“CEO‐in‐waiting.”ShepointedoutthatCEOJimSkinnersawbothofhischoicesfornumber‐2

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executiveleave.HewaswatchingDonThompson,whowasknownforhispatience.ThosewhoknewhimsaidthatMr.Thompsonwouldwaitnomatterhowlongittook,andfornow,hewasfocusedoncarryingouthiscurrentresponsibilitiesinaqualitymanner.Mr.Thompsonwas(atthetime)the“heir‐apparent.”But(againasreported)hehadsomeareaswhereheneededtoprovehewastherightpersonforthejob.MostimportantwasthatMr.ThompsonhadneverbeenpostedoutsidetheU.S.,yettwo‐thirdsofMcDonald’ssalescomefromnon‐U.S.markets.Mr.Thompsonwasverygoodatoperations,however,andoperationsarecriticalatMcDonald’s,whichdoesbusinessineverycorneroftheworld.ThefactthatMr.ThompsondidnothaveanMBAoranyadvanceddegreewasnotwhatobserverssawasahandicapatMcDonald’s.WhattheywerewatchingandthinkingaboutwaswhetherMr.Thompsoncouldcontinuethestellarperformancethatthefinancialcommunityhadcometoexpect.SomeofMr.Thompson’sotherchallengeswere:1)McDonald’sperformanceinChinawasbehinditcompetitors;2)McDonald’swaspressuredforitscontinuous,persuasivechildren’smarketingthatwasseenasbeingamaincontributortochildhoodobesityanddiabetes;3)McDonald’sdrinkswerenotinnovations.TherehadnotbeenaninnovationfromMcDonald’ssincetheSnackWrapin2006,andthatwasconsideredjustawayofgettingridofalreadyin‐houseingredients.239

KEVIN NEWELL OnthesamedayashiselectiontotheMcDonald’sBoardofDirectors,DonThompson,McDonald’spresidentandCOO,promotedKevinNewelltotheroleofexecutivevicepresidentandglobalchiefbrandofficer,reportingdirectlytoMr.Thompson,effectiveFebruary1,2011.Mr.Newellwastheseniorvicepresidentandrestaurantsupportofficer(forUSAWestdivision).SteveEasterbrookhadthepreviousglobalchiefbrandofficerpositionpriortoMr.Easterbrook’spromotiontoEuropepresident.A20‐yearMcDonald’sveteran,Mr.NewellhadworkedwithadvertisingagenciesBurrellAdvertisingandLeoBurnett,USA.In2001,aftervaryingpositionswithinMcDonald’s,Mr.NewellwaspromotedtomarketingdivisionofficerfortheCentralDivisionintheU.S.240

STEVE EASTERBROOK InAugust,SteveEasterbrookannouncedhisresignation,eightmonthsafterDonThompsonwaselectedtotheMcDonald’sBoardofDirectorsandKevinNewell’spromotion.After18years,Mr.EasterbrookwasleavingMcDonald’sonSeptember30,2011.HewasjoiningtheprivatelyownedGondolaGroup.HisnewpositionwouldbeCEOofinternationalrestaurantbrandPizzaExpress.McDonald’simmediatelyelectedDougGoare,currentexecutivevicepresidentofMcDonald’sglobalsupplychainandrealestatedevelopment,aspresidentofMcDonald’sEurope,effectiveOctober1,2011.Mr.GoarecontinuedtoreporttoDonThompson.WithSteveEasterbrook’sleaving,othermanagementchangeswereputintoeffect.JoseArmario,currentgrouppresidentofMcDonald’sCanadaandLatinAmerica,succeededDougGoareasexecutivevicepresidentofglobalsupplychain,realestatedevelopment,andfranchising.Mr.ArmariocontinuedtoreporttoDonThompson.CEOJimSkinneronceagaingavecredittothePlantoWin.Hesaid,“Doug’sandJose’sappointmentsreflectoursolidsuccessionplanningprocessandtheglobalalignmentaroundMcDonald’sbusinessstrategy,thePlantoWin.”241

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RESTAURANT REIMAGING AtthebeginningofJuly2011,DonThompson,inananalystcall,reportedontherestaurantreimagingprogram.HesaidthatMcDonald’sgoodresultswereinpartbasedonmodernizationofthestores’interiorandgeneratingfasterserviceviathedrive‐thruwiththeintroductionofdouble‐lane,side‐by‐sidedrive‐thrus.With2,200double‐lanedrive‐thrusintheU.S.,alongwithhandheldordertakers,McDonald’shadbeenincreasingdrive‐thru“throughput.”Mr.Thompsonaddedthatmodernizingtherestaurantexperiencealsoincluded“anewPOSsystem.”Intherolloutstage(currentlyin10,000U.S.stores),thisnewPOSsystemwouldallowimprovedaccuracy.DonThompsonacknowledgedthatEuropewastheleaderinrestaurantmodernization,using“contactlesspaymentandself‐servicekiosks.”AccordingtoMcDonald’s,theseEuropeanadditionshadimprovedandsimplifiedtheentireMcDonald’sexperience.InChina,1,700dessertkioskswithquicksweetsnackssimplifiedthein‐storeexperience.242Theservicechangessuchasthedouble‐lanedrive‐thruswerenotinexpensive.McDonald’sestimatedthatthecostperrestaurantwasabout$600,000perstore.Franchiseeswouldpaymuchofthebill.AndbasedonMcDonald’sowncalculations,itwouldtakeaboutayearormoreforfranchiseestobreakevenandfindoutwhethertheinvestmentwouldpayoutwhathadbeenpaidintoexecutingthese“time‐saving”redesigns.AsforthenewPOSsystem,itwouldcost$12,000–$17,000foranupgradetothisnewersystem,oranywherefrom$40,000–$46,000foracompletelynewinstallation.McDonald’swasnotclearonwhetheritwouldhelpfranchiseeswiththecosts.Inthemeantime,franchiseeshadbeenpayingoutoftheirownpocketsformorethanhalfoftheremodelingcosts,includingthedouble‐lanedrive‐thrus.243AguestcontributortotheTheStreet.comofferedinsightintotheenormousamountofmoneyMcDonald’swasputtingintoreimaging.TheMay2011storyfocusedonthefactthatMcDonald’sbelievedthestateofsomeofitsrestaurantsmadeitmoredifficulttocompetewithBurgerKing,KFC,aswellasChipotleandPaneraBread.(Asnewerbrands,ChipotleandPanerahadnewerlookingstores.However,KFCandBurgerKingdidhaveolderstoresthatwereinneedofrenovations.)McDonald’sannouncedthatitwouldreimage14,000U.S.restaurants.Asidefrominteriorcolorchanges,thenewdesignsshowedadiningareaaswellasdouble‐lanedrive‐thrus.McDonald’shadtospeedupservice.Thecontinuousadditionofnewpremiumitemstothemenuboardhurtspeed.Additionally,McDonald’ssaidthereimagingwouldbeacatalystforincreasing“average‐spend‐per‐customervisit.”Theguestcontributorthoughtthesechangescouldpotentiallyalienatesomecurrentcustomers.244

GROWTH  

New Stores  CFOPeteBensontoldanalystsduringareportonsecond‐quarter2011resultsthattherewouldbeamassivereinvestmentofcashintothebusiness—specificallytheopeningofnewrestaurants.HesaidthatMcDonald’sperformancehadgeneratedquiteabitofcash.Halfofthecashwouldbeallocatedtoimprovingestablishedstores,and

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halfwouldgotonewstoreopenings.Heindicatedthatthegoalwouldbetofix600storesbytheendof2011andthattheplanfornewstoreopeningswouldtotalapproximately1,100stores.Thisprogramfornewstoreswastentativelyidentifiedas150intheUnitedStates;225inEurope;90‐plusinLatinAmerica,and650inAPMEA(450inChina).245

New Global Customers and Competition 

TheresearchfirmTechnomicreportedthatalthoughglobalcustomerswerefeelingtheeffectsofanuncertaineconomiclandscape,U.S.fastfoodrestaurantswereflourishingascustomerswere“tradingdownfromsit‐downfamilystylerestaurants.”Why?IntheU.S.,fastfoodrestaurantswerefamiliar,offeringavarietyofhunger‐satisfying,affordableitems,soeveryoneinthefamilywouldbehappy.However,asTechnomicpointedout,theU.S.wasasaturatedmarketwithfastfoodstoreseverywhere.TheTechnomicdatashowedthatinSouthAmericaandinChina,anewlyemergedmiddleclasswasbehindfastfoodgrowth.Forexample,KFCandPizzaHutenlargedtheirpresenceinChina.Thisrequiredanewperspective,analystsatTechnomicsaid:thethinkingaboutfastfoodrestaurantsatU.S.companieswouldhavetochange.Thesecompanieswerebecomingincreasinglyglobalandwerecateringtodiverseglobaltastes.246

Breakfast and Lunch 

InNovember,journalistKateMacArthurreportedthatMcDonald’ssalesvolumehadpeakedatthebreakfastandlunchhours.Shereportedthattomaximizeandgrowthesesales,McDonald’swasintheprocessofhavingfranchiseesconnectthenewcomputersystemandbuildtheextradrive‐thrulanes.McDonald’sthoughtthechangeswouldenablemorecapacityduringthesetwocriticalhours.McDonald’swanteditsfranchiseestoaddmorecrewmembersaswellasaddmoreexpensivesandwiches.Thecompanyhopedthattheadditionofmoreregistersandkitchenpreppeople,alongwithpremium‐priceditems,wouldincreaserevenueswhileMcDonald’sstruggledtogeneratemoresalesinthealready‐at‐capacityday‐part:inotherwords,servemorecustomersmoreexpensiveitems.Ms.MacArthurquotedJimJohannesen,executivevicepresidentandchiefoperatingofficerofMcDonald’sUSA,whospoketotheinvestorcommunityearlierinNovember.HeadmittedthatalthoughMcDonald’sexperiencedgrowthacrossallofitsmealsegments,ithadnotgrownasmuchasdesiredduringthe“peak”breakfastandlunchhours.Ms.MacArthurnotedthatperhapstheexpectationsweretoohighconsideringthatsincethe2002turnaroundbegan,“averageyearlysalesacrossMcDonald’s14,000U.S.restaurantshaveincreasedby54%,or$875,000,to$2.5millionperrestaurant.”Privytoaninternalemail,thejournalistreportedthatMcDonald’slunch“rush”capacityhadbeen“stalledforfiveyearsat75ordersatthedrive‐upwindowand55atthecounter.”247

COMPETITION 

Wendy’s  In2011,Wendy’swaspartofamergedgroupcalledWendy’s/Arby’sGroupInc.InJanuary2011,seeingthesuccessofMcDonald’satenlargingbreakfastwithitemsand

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coffee,Wendy’sdecidedtorolloutanewU.S.andinternationalbreakfastprogram.ThechairmanofWendy’s/Arby’swasNelsonPeltz,oneofAmerica’smostactivistshareholders.“McDonald’sgotitright,”Mr.Peltztoldstockanalystsandinvestorsatthecompany’sannualinvestorsmeeting.VeryimpressedwiththeturnaroundatMcDonald’sanditspost‐turnaroundactivities,Mr.Peltzsaidthataftersellingits“partnerbrands,”McDonald’sfocusedonmenuimprovement,theMcDonald’sbrand,andrestaurantreimaging.“Sincethey’vedonethat,thestockhasgoneupoverfive‐fold,”hesaid.(Mr.PeltzgatheredthevotesofothershareholderstoensurethatWendy’ssoldits“other”brands,losingTimHortons,BajaFresh,PastaPomodoro,andCafeExpress.AccordingtoMr.Peltz’surging,thesesaleswouldallowWendy’s,likeMcDonald’s,tofocusongettingbacktobasics.)Notbeyondbeingafastfollower,Mr.PeltzsaidthatWendy’scouldimitatetheMcDonald’sbreakfastapproach.SoheannouncedthatWendy’s/Arby’swouldbesellingtheArby’schainwhilefixingWendy’smenuandredesigningWendy’sstores.Thefinancialcommunitylovedthismove.Historically,Wendy’shadnotbeensuccessfulwithbreakfast,havingfailedtwice.However,thepresidentofWendy’s,DavidKaram,saidthebrandnowhadawinningplan,whichitwouldrolloutnationallyfor2012availability.OnthenewWendy’smenuboardwouldbe“anartisaneggsandwich,Panini‐grilledsourdoughbreadsandwiches,warmoatmealbarsandhome‐stylepotatoes.”CEORolandSmithstatedthatWendy’smustgobeyondmeretrial.Hesaidthebreakfastprogramwould“add$140,000to$150,000inincrementalsalestoaverageunitsalesof$1.4million.”ThesaleofArby’shappenedatatimewhenothercompanieswereconsideringsalesof“other”brands.YUM!Brandsstatedthatitwassellingfish‐basedrestaurantchainLongJohnSilver’sanditsA&WAll‐AmericanFoodbusinesses.AnalystssaidthatNelsonPeltzhadnointerestinbuyingotherbrandsundertheWendy’saegis.Mr.Peltz’sTrianFundManagementLPatthetimeowned23.5%ofWendy’s/Arby’sGroup.Ithadthreeboardseats.248ByJune,Mr.Peltzhadhiswish:theseparationofWendy’sandArby’swasannounced,allowingWendy’s/Arby’sGrouptofocusonWendy’swithoutbeingweigheddownbyitsstep‐siblingroastbeefchain.Aprivateequityfirm,RoarkCapitalGroup,statedthatitwouldbuy81.5%ofArby’satapriceof$430million.TherewouldnowbeanenergizedprogramtorevitalizeWendy’sbyimprovingitscoreproducts,enteringintothebreakfastday‐partfrayandreimagingitsstores.AreporterforCNNmoney.comsaid,“BillionairehedgefundmanagerNelsonPeltz,knownfortakingoverandspinningoffcompanies,hasbeenoneofWendy’slargestshareholdersandhassatontheWendy’s/Arby’sGroupboardsince1993.In2006,hepushedWendy’stospinofftheTimHorton’scoffeechainandsellBajaFresh.Peltz’sfirm,TrianFundManagement,alsoacquireda9.7%stakeinDomino’sPizzaInc.lastmonth.”249ThesaleofArby’sappearedtohelpWendy’salmostimmediately.TheColumbusDispatchnearWendy’sDublin,Ohio,hometownreportedinAugust(justtwomonthslater)thatWendy’swouldsoonbethenumber‐2hamburgerchainintheU.S.ThejournalistusedareportfromMarkKalinowski,ananalystwithJanneyCapitalMarkets,thatWendy’swouldsurpassBurgerKing.Inhisreport,Mr.KalinowskisaidhesawWendy’sovertaking“privatelyheldBurgerKingfortheNo.2market‐sharepositionwithinthelimited‐servicehamburgersector,perhapsassoonasthisyear.”Kalinowskisaidhehada“buy”ratingonWendy’s.Specifically,hestated,“Strategically,BurgerKingseemslikeitwantstobeaMcDonald’sclone.ButthepaththatWendy’swantsto

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positionitselfmoreislikesomethingbetweenMcDonald’sandPaneraBread,whichIbelieveismorerealisticanddefensible.”HeaddedhowimpressedhewaswithWendy’sinnovationpipeline,includingitsnewbreakfastfocus.Wendy’smanagementadmittedthatbeinga“standalonecompanyagainisabigplusfor“pursuingitsgrowthstrategy,takingtheWendy’sbrandintonewmarketsworldwide,buildingmorerestaurantsintheU.S.,revitalizingitsmenuandcontinuingtherolloutofitsbreakfastmenu.”250Recognizingthatitneededtoimproveitscoremenu,Wendy’sannouncedinmid‐Septemberthatithad“remade”itssignatureburger.Afteracriticalinnovationprocessthatevenfocusedonthepickle,Wendy’sdebutedthenewDave’sHot‘NJuicy.251AnalystsandjournalistspointedoutthatWendy’srecentgainswerenotbecausethechainopenednewrestaurants.Ithadbecome“better”throughorganicgrowth.252Bytheendoftheyear,Mr.Kalinowski’spredictioncametrue:Wendy’swasaheadofBurgerKing.Journalistsbeingjournalists,thediscussionsrevolvedaroundquestionssuchas:“DidsomethinggowrongatBurgerKing?DidWendy’sdosomethingright?WillBurgerKingnowbeleftinthedust?”Ofcourse,BurgerKinghadpipelineissues,targetaudiencesissues,andthewell‐reporteddifficultieswithfranchisees.And,thereweresignificantmanagementchangesandrealignmentsatBurgerKing.Inthemeantime,DennyLynch,Wendy’sSVPofcommunications,saidinanAugustinterview:“We’renotjustimprovingouringredients,we’retotallyreengineeringthem.It’snotaproductimprovement;it’satotalreimagedproduct.Itispartofabrandstrategythathasbeentwoyearsinthemaking.”ThearticlepointedoutthatBurgerKingalsohadmanythingsgoingforit,includingtheorganizationalchanges,thenewmenuitems,andanewmarketingstrategy.Additionally,3GCapitaldedicatedalotoftimetofixingitsproblemswithitsfranchiseebase.253

Burger King MarchbroughtsomeinterestingnewsforMcDonald’s:itsrivalBurgerKingwasgoingthroughsomeadditionalmanagementchanges.BurgerKing’sglobalchiefmarketingofficer,NataliaFranco,lefttogotoIHOP.Ms.FrancowasglobalVPofmarketingandinnovationatCoca‐ColapriortojoiningBurgerKing.Shewasjustoneofmany“highprofilemarketers”toleaveBurgerKing.(Forexample,UKmarketingdirectorSarahPowerleftBurgerKing,asdidBurgerKing’smostseniorEuropeanmarketer,DavidKisilevsky.)BurgerKing,ownedby3GCapital,aBraziliancompany,institutedchangestoalignthecompany’sglobalbrandmarketingandglobaloperationsteam.Thegoalwastocreateaunitedglobalbrandmarketingandoperationsfunction.254InMay,privateequityfirm3GCapital(itboughtBurgerKingin2010for$3.26billion)madesomeexecutivechanges.BurgerKinghiredformerMcDonald’smarketingdirectorJoBlundelltomanageBurgerKingmarketingintheUKandIrelandtocompetehead‐onwithMcDonald’s.ThepreviousCMOleftinJanuary.Ms.BlundellreporteddirectlytoUKmanagingdirectorAndrewTrounceandwouldworkcloselywithEMEAmarketinghead,JohnSchaufelberger.InMarch,BurgerKingreorganizedglobalmarketingtobetteralignmarketingwithoperationsandcreateasingleglobalbrandmarketingandoperationsfunction.255

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Inadditiontoreorganizingthemarketingandoperationsfunctions,inMay,BurgerKing’smanagementannouncedthatithad“fired”the“Kingmascot”whilestoppingthe$1promotions,anditwouldaddnew,healthieritems.AndBurgerKingindicatedthatitsstoreswouldundergowhatTheMiamiHeralddescribedasa“dramatic”reimagingproject.AswithMcDonald’smakeover,BurgerKingsaiditwouldtaketimetodothis.However,itwouldjump‐startsalesthatfellovertheyears.NewlyappointedBurgerKingCEOBernardoHeessaid,“Thepowerofthisbrandisamazing.Whatwehavetodoisbuildonthatstrength.Ourapproachisverypragmaticandstraightforward.Theturnaroundisnotgoingtohappenovernight.”Heindicatedthat3GCapitalhadthreeprioritiesforBurgerKing:1)Improvefoodquality;2)Improverestaurantambianceandoperations;and3)LetcustomersknowthereisareasontoreturntoBurgerKing.Tosucceedagainstthesepriorities,BurgerKingwouldrefocusmarketingtoabroaderaudienceandwouldofferfooditemsforeveryone.Sotheyoungadulteatingmachinewouldnolongerbethebrand’stargetcustomer.Thebrandwasespeciallysensitivetothefemalevetovote.SoBurgerKingtestedawiderangeofnon‐beefoptionsandnewbeverages,aswellasapremiumlineofburgers.JonathanMuhtar,vicepresidentofglobalinnovation,said,“Inthepast,therewerecompromisesmadewithourfoodforeaseofoperationandtotakecostsoutoftheproduct.Foodqualityandtastehastocomefirst.ConsumerscometoBurgerKingbecausewe’vetraditionallystoodoutforhavinggreattastingfood.’’BurgerKingreachedouttothedisgruntledfranchiseecommunitybyaskingaselectgrouptoinputonthemenuinnovations.ThebrandwantedtoensurethatthenewmenuwasrelevantlydifferentiatedfromMcDonald’s.However,everyoneadmittedthattheremightbesome“me‐too”productsonthemenuboard.256

New Burger Restaurants New,premium,better‐burgerrestaurantswerethehighlightofasegmentonthenationalpublicradioMorningShow,indicatingthatevenin2011,the“eating‐out”experiencewasundergoingmanychanges.InApril2011,NationalPublicRadiodiscussedtheappearanceofthesenewhamburgerrestaurantsonthefast‐casualeatingscene.NPRintroducedthesegmentbysayingthatMcDonald’smaybethebiggestburgerchain,buttherewasa“revolution”happeninginburgers:FiveGuysBurgersandFrieswerecausingMcDonald’stotakenotice.FiveGuyssawitsrestaurantascompetingnotjustwithMcDonald’s,Wendy’s,andBurgerKingbutalsowiththesit‐down,familyplacesApplebee’sandChili’s.NPRanchorRobertSachspickeduptheconversationwithFiveGuysCEO,JerryMurrell.Mr.SachsstartedbysayingthatataMcDonald’shecouldorderaMcDoublefor$1andhaveitinhandveryquickly,whileatFiveGuysacustomermayhavetowaitfivetotenminutes,payingaround$4.TheresponsefromFiveGuyswasthattheiraimwastomakeaFiveGuysburgerjustlikea“mom‐and‐pop”localjointwoulddo.NPRpointedoutthatFiveGuysalreadyhad700restaurantsintheU.S.JoiningtheconversationwasDarrenTristano,theexecutivevicepresidentwithTechnomic.Theresearcherindicatedthattheuncertaintyoftherecessionwasdrivingpeopletoseekcomfort.Oneofthemostcomfortingtypesofcomfortisfoundineating“comfortfoods.”RestaurantslikeFiveGuysbringcomfort.Andbecauseitislessexpensivethanasteakdinner,peoplefeelbetter.Mr.Tristanosaidthatthegiantfastfoodchainswerenoticingthetrendto“better(premium)burgers.”ThisiswhywesawtheintroductionofAngusburgersandhigherqualitymeatpattiesonmenuboards,albeitatpremiumpricesforfastfoodchains.TheCEOofElevationBurger(18stores;

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usesonlyfree‐range,grass‐fedorganicbeef)indicatedthattheirconceptwasto“elevate”theburgerabovethepattiesservedatmostfastfoodchains.257TheSt.LouisPostDispatchreportedinJulythatburgerswerethenewfocusincasualandfastfooddining.Betterburgerswerenowthebigwaveincasualdiningbecausethesewere“quintessentialAmericanclassics.”AsTechnomicreportedfromitsdata,TheSt.LouisPostDispatchsaidthedesireforfresh,premiumburgerswasanAmericanwaytosatisfytheneedforbeefwhilenotfeelingguilty:burgersareaffordable.EveninSt.Louis,saidthenewspaper,newpremiumburgerrestaurantswereappearingeverywhere.Thiswasnotjustaneastcoast/westcoastfad.Toemphasizethepoint,thereporternotedthatFiveGuysalreadyhadsevenSt.Louislocations.Smashburger,aDenverconceptcreatedbyTomRyan,theformerinnovationchiefatMcDonald’s,hadoneSt.Louislocationandplannedelevenmoreverysoon.Thesebrandswerepartofabiggerwavethatincludedmanyindividualbetterburgerrestaurantsaswell.Mr.Ryanbelievedthatbetterburgerbrandsallowedcustomerstoeatdelicious,freshbeefburgersataffordablepriceswhilenottradingdownontherestaurantexperience.“AbouthalfofSmashburger’scustomerssayiftheyhadn’tgonetoSmashburger,theywouldhaveeatenaburgersomewhereelse.Buttheotherhalfsaytheywouldhaveeatensomethingelsealtogether.Tome,thatsaysweareputtingburgersbackinthechoicesetforconsumersthatwasn’ttherebefore.”258Intheinterview,Technomicresearcher,DarrenTristano,executivevicepresidentofthefood‐consultinggroup,remarkedtothereporterwhyhebelievedtherewassuchinterestinbetterburgers.“Traditionalburgerchainshavedoneaverypoorjoboffocusingonburgers—assurprisingasthatmaysound.McDonald’s,BurgerKingandWendy’shaveexpandedbreakfast,goneintosalads,focusedonkids’mealsandnowbeverage.”Inotherwords,theburgerchainsforgotaboutburgers.CitingTechnomicdataagain,Mr.Tristanosaid,“…betterburgerchainsrangup$1.6billioninsalesin2010,andrepresentthefastest‐growingsegmentwithinthefast‐growing$20billionto$25billionfast‐casualcategory,whichincludesthelikesofSunsetHills‐basedPaneraBreadCo.andChipotle.”Hesaid,“Technomicsawlotsofroomforgrowth,possiblyupto$4billion.”Why?Becauseburgereatingwasexpanding:Technomicresearchindicatedthatalmosthalfofcurrentcustomersreportedeatingaburgeratleastonceaweek.259BySeptember,AdvertisingAgejumpedonthebetterburgerbandwagonreportingonthekeybrandsthatwereshakinguptheburger‐eatingenvironment.RepeatingthestatementsfromTechnomiconthedesiretoeataffordablecomfortfoods,AdvertisingAgegaveaprécisofthetopnamesinbetterburgers.ThemagazinehighlightedFiveGuys,Smashburger,UmamiBurger,ShakeShack,TheCounter,andFatburger.260

Starbucks Afterashakyperiodofdecliningsalesandimage,HowardSchultz’sreturntoStarbuckswasshowingremarkablebrandimprovement.ByMay,AdvertisingAgereportedthatStarbuckswasnowthenumber‐3restaurantchain,aheadofBurgerKingandWendy’s,with$9.07billion(+8.7%relativetoyearago)inU.S.2010sales.Thejournalistremarkedthatasidefromtheclosingof600stores,itwasthemenuinnovationthatcatapultedStarbuckstoitscurrentposition.AndStarbuckskeptitspricepointseven

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thoughtheseweresomewhathigherthanthecompetition.Thiswasconsideredamazingconsideringtheongoingrecession.DarrenTristano,executiveVPatresearchfirmTechnomic,saidthatStarbuckswasverygoodataddingfooditems“thatcomplementthebeverages.”Forexample,itbeganofferingbreakfastsandwichesandoatmealtogowiththeircoffees.Additionally,Mr.TristanosaidStarbuckshadbeenverysmartinensuringthattheproductstheyaddedwere,ifpossible,organicand,atleast,notladenwithaddednon‐healthfulingredients.261Asforthepremiumprices,Mr.Tristanosaid,“…burgerchainshaven’tbeenasabletoincreasepricesbecauseofthecompetitivenessintheburgercategory.Starbuckshasofferedsomevaluecombomeals—suchasacoffeeandbreakfast‐sandwichmeal—butnothingonthedollar‐menulevelfastfeederssuchasMcDonald’sandBurgerKingoffer.”BecauseStarbuck’sisknownforcoffee,itwasalreadypositionedwellforbreakfastgrowth.AtUBS,analystDavidPalmerindicatedthatnotonlyisbreakfastasamealtimegrowing,coffeeisgrowing.StarbuckswasalreadycompetingnotjustwithMcDonald’sbutalsowithSubway.Subwaysellsbreakfast,too.In2010,SubwaystartedofferingSeattle’sBestcoffee.Asforbeingcompetitiveoutsideofthebreakfastmeal,StarbucksaddedsnacksinMarch.The“petite‐dessertprogram”wasgeneratingnon‐breakfasttraffic.262  

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Year 2012 

FINANCIALS 

2011endedwithgreatresultsforMcDonald’s.Thestrengthofits2011resultswasduetoglobalgrowth.McDonald’sannouncedhigherrevenues,operatingincome,andearningspersharecomparedwiththeprioryear.TheJanuaryreportindicatedthatthekeyreasonfortheincreasedsaleswasthedemandforMcDonald’sbreakfast,alongwithcoffeeandlongerhours.McDonald’snoteditsstrongestU.S.same‐storesalessince2006.TheresultswerestrongallaroundtheworldwithU.S.fourth‐quarter2011same‐storesalesrising7.5%yearoveryear,up7.3%inEuropeandplus6.9%inAPMEA.263TheWallStreetJournalsaidthatthefourthquarterofstrongearningsowedalottotheextendedmidnightto5AMhours,whichwereshowingdoublethe“growthrateofitslunchandbreakfastbusiness.”Asreported,hereisasampleofthefull‐yearresults:

Globalcomparablesalesup5.6%,withpositivecomparablesalesacrossallgeographicsegmentsforeveryquarter

Consolidatedrevenuesup12%toarecord‐highof$27billion Combinedoperatingmarginincreaseof60basispointsto31.6% Consolidatedoperatingincomeincreaseof145 Returned$6.0billiontoshareholdersthroughsharerepurchasesanddividends

During2011,“theU.S.reinforcedtheCompany’sdedicationtoeverydayvalue,showcasedcoreandnewproductofferings,increasedconvenienceandfurtherupgradedMcDonald’srestaurantportfoliowithfresh,moderndesignsthatenhancebrandrelevance.Asia/Pacific,MiddleEastandAfricapostedstrongcomparablesalesforthequarterandyearanddelivereddouble‐digitoperatingincomegrowthforbothperiods,ledbystrongerresultsinmanymarkets.Resultsacrossthesegmentweredrivenbyrobustvalueplatforms,branddifferentiatingconveniencesandlocally‐relevantmenuoptions.”264

January2012reportinghighlightedglobalcomparablesalesgrowthof6.7%.Performancebysegmentwasasfollows:U.S.+7.8%,Europe+4.0%,andAPMEA+7.3%.IntheU.S.,comparablesalesincreased7.8%duetobreakfast,beverages,coreitems,andnewlyaddedLTO(LimitedTimeOffer)ChickenMcBites,bite‐sizedpiecesofpremiumchickenbreast.265

First‐quarter2012sawMcDonald’stradinghigher.Thecompanyhadanotherquarterofgoodresults.(Althoughthesharepricegained$2.21toputitat$97.49,McDonald’sstockwasdown2.85%yeartodate.)ThegoodquarterpromptedCEOJimSkinnertosay,“McDonald’scontinuedmomentuminfirstquarterdrovemarketsharegainsandprofitabilityacrossallgeographicsegments.TheongoingstrengthofMcDonald’sresults,amidstpersistenteconomicheadwinds,isatestamenttoourcustomer‐focusedplansandourprovenbusinessmodel.Weremaincommittedtotheglobalprioritiesthataremostimpactfultoourcustomers—evolvingourmenu,modernizingthecustomerexperienceandbroadeningaccessibilitytoourBrand.Asweenterthesecond‐quarter,globalcomparablesalesgrowthforAprilisexpectedtobeabout4%.”266

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Second‐quarter2012netincomewaslower,witha4.5%decline.McDonald’srevenueroseto$6.92billionfrom$6.91billion.Yetthefinancialcommunityexpectedmore.Globally,McDonald’scomparable‐storesalesincreased3.7%.Duetotheestimatemiss,sharesfell.267Additionalreporting(online)confirmedthatsharesfellafterthelower‐than‐expectedprofitannouncement.Itwasalsonotedthatits2012profitwouldcomeinlowerthanthepreviouslyannouncedtarget.Previously,McDonald’sstated,“itslong‐termgoalwastoincreaseitsoperatingincome6%–7%,excludingcurrencyfluctuations.”268

McDonald’sannouncedthatJuly2012globalcomparablesaleswereflat,withtheU.S.down0.1%,Europedown0.6%,andAPMEAdown1.5%.McDonald’scitedtheweakeconomyasthereason.McDonald’spointedtoseveralstrongelements,suchasthedemandforbreakfastandtheMcCaféFrappebeverageline.However,McDonald’sadmittedthattheseinitiativeswerenotimpactfulenoughtomakethesalestrendspositive.Analysts,investors,andobserverscommentedthatsinceJimSkinner’sretirementannouncement,sharesofMcDonald’sdeclinedmorethan10%.Inhiscomments,Mr.Thompsonsaidthemissedestimatesweredueto“persistenteconomicheadwinds.”HeforecastthatMcDonald’swouldhavepositiveglobalcomparablesalesforJuly.CEODonThompson(Mr.ThompsonbecameCEOinJuly)said,“Wearecommittedtodrivingthebusinessoverthelong‐termbyexecutingourprovenPlantoWinstrategy,despitesofterglobalcomparablesalesinJuly.Ourleadershipteamhastheexperiencetoeffectivelymanagethroughthechallengingenvironmentandbuildsalesandmarketshare.”269

InSeptember,Realmoney.comranapageinwhichacontributorcommentedonMcDonald’sstock.Thewriternotedthatinthemostrecentquarter,second‐quarter2012,McDonald’sreportedweaker‐than‐expectedearnings.AndJulysame‐storesaleswereflatrelativetoexpectations.NotingthatthedeclineswereduetoproblemsinEuropeanandAsianeconomies,thewritersaidthatMcDonald’sstockexperienceda10%correctionwiththisflatperformance.HedidremarkthatMcDonald’smanagementwasstillpresentingapositiveview.HeexpectedMcDonald’stocontinueraisingitsdividendsasithasdonesoforthepasttenyears.270

Apageonflyonthewall.com,anonlinefinancialsite,remarkedonthepossibilitythatMcDonald’sthird‐quarterearningsreportcouldbelower.ThesitenotedareportfromTheWallStreetJournalthatquotedaSeptember14interviewwithCNBC,whereMcDonald’sUSAPresidentJanFieldsstatedongoingoptimismaboutsalesthroughtheendoftheyear.SheindicatedthatMcDonald’smightberemovingpoor‐sellingmenuitemssoon.ShealsosaidthatMcDonald’susedcouponsanddealsinGermany,France,andothercountriesduetothepooreconomiesthere.ThefinancialpaperBarron’sstatedthatitbelievedMcDonald’ssame‐storesalesnumberssuggestedacontinuingstrugglewithmanyissuesthatwerenotgoingawayanytimesoon,suchaseconomicuncertainty,lowersame‐storesales,increasingcompetitionintheU.S.,andfewnotableproductlaunches.NoneoftheotherWallStreetreportswerepositiveeither.271

Asexpectedandpredictedbyflyonthewall.com,inOctober,McDonald’spostedweaker‐than‐expectedearnings.McDonald’sblamedtheglobaleconomy.Anditblamedtheincreasedqualityofthecompetition.Same‐storesalesincreased1.9%,showingupbeat

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performancesincomparablesalesacrossallgeographicsegments.IntheU.S.,comparablesalesgrew1.2%,whileEuropeancomparablesaleslifted1.8%.ThiswasremarkableconsideringthenumberofguestsinEuropehaddeclined.APMEAsame‐storesalesgrew1.4%.272Infact,Reutersstatedthatitwaspossiblythe“worstquarterlyrestaurantsalesgrowthinnineyears.”Reutersindicatedthattheentrenchedandworseningeconomywascreatingamuchbleakerlandscapethatappearedtobeslowingdemandforhamburgers,salads,andsmoothies.Furthermore,ReuterspointedoutthatpreviouslyMcDonald’scompetitionwasweaklybattlingthebigbrand.Butnow,brandssuchasTacoBell,Wendy’s,andBurgerKingwerefightingbackwithmotivating,qualityoffers.Thecompetitionwasmoreaggressivewithnewmenus,celebrityendorsers,andafocusonlow‐pricedfood.‘‘Youhaveascenariowheretheoverallpieisshrinking,andcompaniesarecompetingaggressivelytotaketheirpieceofit,’’SaraSenatore,aBernsteinResearchanalyst,said.CEODonThompsonsaidthecompanywaspreparedforthetougherbattleascustomersandeconomicchallengesineachofthecompany’smajorregionsaffectedMcDonald’ssales.Mr.Thompsonaddedthatitwasnowclearthat,‘‘Whentheeconomiccrisisbeganin2008,fewpeoplethoughttheenvironmentwouldstillbeasuncertainandfragileasitistoday.”273

PLAN TO WIN CEOJimSkinnerdiscussed2011byreinforcingtheoriginalPlantoWin.Hesaid,“TheongoingstrengthofMcDonald’sresultsisrootedinourPlantoWinwitharelentlessfocusonwhatmattersmosttoourcustomers.Weareenhancingthecustomerexperience—fromourmenuandservicetoourvalueandconvenience—whilegivingmorepeoplemorereasonstovisitMcDonald’smoreoften.”And,Mr.Skinneradded,“Aswebegin2012,weareintensifyingoureffortstowardtheglobalprioritiesthatrepresentourgreatestopportunitiesunderthePlantoWin—optimizingandevolvingourmenu,modernizingthecustomerexperienceandbroadeningaccessibilitytoourBrand.”274

GROWTH 

Restaurant Locations AsmallblurbinFinancialTimesinJanuaryreportedthatMcDonald’smadecloseto60%ofitsprofitsfrominternationalrestaurants.Infact,thepapernotedthatonlyatenthofthenewrestaurantsopenedin2011wereintheU.S.275

China FacingongoingconcernsaboutitsfoodinChinaandtofightthenegativepublicity,McDonald’sdecidedtorunanadvertisingcampaignthatwouldexplainandemphasizeMcDonald’sfoodquality.276

MARKETING 

Online McDonald’sdecidedtouseanewadvertisingsystempromotedbyTwitter.Thesystem,named“promotedtweets,”wasmeantforsharingof“positive,happyMcDonald’s

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stories.”However,theclickablehashtagwashackedwithintwohoursandinsteadofhappystories,McDonald’sreadabout“foodpoisoningandallegationsoflowstandardsofemployeesandanimalwelfare.”Thenumberofnegative,scarytweetswassolargethatMcDonald’syankedthehashtagimmediately.277InCanada,followingtheU.S.,the#McStoriescampaignhadamorepositivereception.Called“OurFood.YourQuestions,”thesocialmediasitetookquestionsfromcustomers,whichwerethenansweredbyrealpeopleintheMcDonald’sCanadaoffice.Whywastheprogramworkingthere?SomeobserverssaidMcDonald’sCanadahadmorecontroloverthemanagementofthesite.Thismayhavemeantthatnegativecommentsweretakendownfaster.ThewordfiascowasusedinternallytodescribetheU.S.versionof#McStories.278

Localization Aspartofitsfocusonlocalizingproductsfordifferentareasofthecountryandfordifferentcountries,inAprilMcDonald’sannouncedthatitwouldofferalimitedsix‐weekpromotioninFranceusingFrenchingredients.CalledMcBaguette,thesandwichwasaburger“madefromFrance’sfamedCharolaisbeefandtoppedwithFrench‐madeEmmentalcheese.”279

InMarch,anonlinefinancialwebsitepublishedanarticlebySashaCekeravaccalled“WhyMcDonald’sIsBrilliant.”Itfocusedontheauthor’sviewthatMcDonald’shadaveryinnovativeinvestmentstrategythatcontinuedtodriveearnings.PublishedinthefinancialenewsletterProfitConfidential,CekeravacsaidthatthecontinuedinnovationatMcDonald’swasresponsiblefortheriseinstockpricebeginningin2003at$13andnowin2012atcloseto$100.ThearticlecitedMcDonald’sfocusonlocalizationofproductssuchastheMcBagetteinFrancethatwithvaryingelementsappearedin14Europeancountries.TheauthorsaidthatMcDonald’shadmorethantwentydifferentmenupossibilitiesthatchangedbylocale.Additionally,theselocalproductswerepricedataslightpremium.So,McDonald’swinninginvestmentstrategywascreatinginnovativeideasadaptedbylocalmarket.Althoughnotanewidea,theauthorclaimedthatsuccessfulstrategiesfocusedonlongevityandinnovation,whichweretheonlymeansofincreasingcorporateearnings.280

McRib AdvertisingAgerevealedaninternalmemofromSeptemberindicatingthattheOctoberMcRibLTOwouldbemovedtothefourth‐quarter2012calendar.FormerfranchiseeRichardAdamsexpressedconcernthatfourth‐quartersalesmustbeundergreatstressforthistohappen.Itwasextremelyunusualtohavethecalendarchangedsoclosetotheeventdate.RatherthanusetheMcRibforOctober,Mr.Adamssaidthenewcalendarwouldpromotetwonew,higherpriced,premiumitems.ObserverssaidthatitwaspossibletheMcRibwouldsavethefourthquarter.However,theypointedoutthatinFebruaryof2012McDonald’sexperiencedan11%salesincrease:whatwouldthebranddotofixthatifsalesin2013werefalling?281

CHALLENGES TheonlineTwitterclickablehashtag#McStorieswasnotsupposedtobeahorrorstory.ItwasactuallysupposedtobeacompanionsitetotheMcDonald’ssocialmediasite#MeetTheFarmers.#MeetTheFarmersshowedvideosshowcasingtheMcDonald’s

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farmersandrancherswhosuppliedMcDonald’swithitsingredients.TheideawastobuildauthenticityamongMillennialsusingTwitter.TheonlinevideosweresupposedtoshowthatMcDonald’susedrealfoodfromrealfarmerswhogrewandrealrancherswhobredrealfoods.The#McStoriessitewaswherewatchersofthevideoscouldcontinuetheconversationaboutthegoodnessofMcDonald’sfoods.Butitallwentwrong.Insteadofsharinggoodstories,thesitebecameaPRnightmareofpeopleventingaboutMcDonald’sfood,service,atmosphere,andjustabouteverythingelse.McDonald’sprotestedthatthepressoveremphasizedthevolumeofnegativecomments.However,thenegativecommentarywasreflectiveoftheongoing,long‐standing,seeminglyingrainednegativeperceptionofMcDonald’s,itsfood,anditsroleintheever‐growingdilemmaofobesityandjuvenilediabetes.EvenMcDonald’sadmittedthatitspracticesanditsfoodshadbeenthetargetofthe“foodpolice”formanyyears.However,theInternetallowedforquicker,morebroad‐baseddisseminationoftheperceptions.CriticsbelievedthatMcDonald’srefusedtoacceptanyroleinthephysicalcrisesaffectingchildren.TheysaidthatMcDonald’susedaggressivemarketingtochildrenandthatchildrenthenusedthatinformationtocoercetheirparents,suchastheHappyMealwithtoyandRonaldMcDonald.Additionally,the“pinkslime”issuesurroundingthecompositionofthehamburgerpattycausedMcDonald’stoagreetostopusingthisprocedureinitsmanufacturing.ThisonlyreinforcedthefactthatMcDonald’swasnothonestwithitscustomers.TheuseoftheTwittersiteswassupposedtobeoneofthemajorsalvosinthefightagainstthesenegativeperceptions.282GlobalCMONeilGoldenadmittedthattheperceptionsofMcDonald’sfoodsamongcustomersandcriticswere“notwherewewantittobe.”Thecompanybelievedthatreimagedrestaurantswereawaytochangefoodqualityperceptions.Using“momswhoblog”wasyetonemorewaytosteerperceptionsawayfromthenegative.JanFields,thepresidentofMcDonald’sU.S.,wasabigpromoteroftheblogger‐momsstrategy.ShewasopentospeakingwithMcDonald’smoms,especiallythosewithblogswhocouldalterparentalperceptions.ForMcDonald’s,bloggermomswereinfluencers.Totheoutsidedetractors,bloggermomswerePRhackswho“spun”thenews.McDonald’sdidcompensatethesebloggermomsnotonlymonetarily(asmuchasU.S.$20,000)butalsowithanassortmentofperks.Itremainedtobeseenifanyoftheseonlineapproacheswouldworktoalterthewaypeopleperceivedthebrand.283

DON THOMPSON 

InMarch,theMcDonald’sBoardofDirectorsannouncedthatDonThompsonwouldsucceedJimSkinner,whowouldretireonJuly1.Mr.ThompsonwouldbecomeMcDonald’sfirstAfro‐Americanchiefexecutive.IntheirpraiseofJimSkinner,theBoardofDirectorssaidthatMr.Skinnerhad“anunwaveringfocusonthePlantoWin.”TheBoardacknowledgedthatMr.SkinnerledMcDonald’sthroughnineyearsofincreasedglobalsales.284

STEVE EASTERBROOK ShortlyafterDonThompsonwaselectedtotheMcDonald’sBoardofDirectorsandbecamethenumber‐twopersonintheorganization,SteveEasterbrookleftMcDonald’s

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forPizzaExpress.InAugust,notevenayearafterleavingMcDonald’sfortheCEOroleatPizzaExpress,SteveEasterbrooklefttobecomeCEOofnoodlechainWagamama.Wagamamaannouncedthatitwouldbesignificantlyexpandingitsinternationalfootprint.WhileCEOofPizzaExpress,Mr.Easterbrookrebrandedtherestaurantchain.CopyingtheStarbucksapproachofpromotingtheirbaristas,Mr.EasterbrookstartedpromotingthePizzaExpress“pizzaiolos.”285

JAN FIELDS InNovember,McDonald’sfiredJanFields,McDonald’sUSApresident.ChicagoBusinessJournalwriterLewisLazarewrotethatthelacklustersalesintheU.S.andthebrand’sweakeningrelativetocompetitionwerewhatdoomedMs.Fields.(TacoBell,Wendy’s,andBurgerKinghadrecentlywokenupandbecomehighlyaggressivecompetitorswithmanycompelling,high‐qualitynewfoodproducts.)Mr.Lazaresaidthelatestfiguresshowedsame‐storesalesfacinga2.2%decline,thefirstU.S.declinesince2003.Ms.Fieldsworkedherwayuptheladderover35years.Shewasresponsibleforthe“bloggermoms”initiativedesignedtoimprovecustomerperceptionsofMcDonald’samongmothers.Insiderssaidthathercompetencywasirrelevantasthoseaboveherlookedforsomeonetoshouldertheblameforthedecliningsales.Additionally,sourcestoldMr.Lazarethattherecentlyinstalledglobalchiefoperatingofficer,TimFenton,mighthaveconsidereditwastimefornewmanagementfortheU.S.Ms.FieldshappenedtohavetheCOOjobwhentheEnglishPubBurgerfailedandasMcDonald’shadtoreturntothe“DollarMenu”whenthemoreexpensive“ExtraValueMenu”didnotattractcustomers.Interestingly,JanFieldshadalongfriendshipandmanyyearsofcollaborativeworkingwithCEODonThompson.(Ms.FieldshadpreviouslyreportedtoMr.ThompsonwhenshewastheUSAchiefoperatingofficerandThompsonwaspresidentofMcDonald’sUSA.McDonald’spromotedhertohisjobwhenhebecameCOOofMcDonald’s.)JeffStratton,theglobalchiefrestaurantofficer,wouldsucceedMs.FieldsonDecember1,givingherapproximatelytwoweekstoclearout.286

REIMAGING 

AJanuaryarticlebyEmilyBrysonYorkdiscussedindetailtheMcDonald’sreimagingproject.Thereimagingofrestaurantswasahuge,multibillion‐dollarundertaking.(McDonald’sgrowthplansindicatedthatin2012thecompanywouldopen1,300newrestaurants.And,McDonald’sstatedintentionwastoredo2,400restaurants,spendingabout$2.9billion.)Ms.BrysonYorkreportedthatMcDonald’sbelievedtheglobalrenovationswouldstimulatesales,boosttraffic,andchangeoverallcustomer‐perceivedbrandimage.Infact,McDonald’swassoconfidentthatittoldfranchiseesarenovatedstorewould“increasesalesby6%to7%immediatelyuponopeningtheremodeleddoors,regardlessoflocation.”McDonald’saddedthatthecustomer‐perceivedbrandimagewouldchangeonceaspecificlocalehadanywherefrom40%to60%reimagedrestaurants.McDonald’sstatedthatthemoreupscalelookofthenewdesignswouldbeinsyncwiththenewpremiumproducts,suchastheAngusburgerandthespecializedpremiumbeverages.Aremodelingwasnotcheap.FranchiseeslearnedthatarenovationcouldcostonaverageU.S.$600,000.McDonald’ssaiditwouldpayfor40%–45%ofthecostforeachrestaurantreimaged.Still,ifafranchiseeownedthreestores,thecostcouldbeover$1millionatthelowend.Onefranchiseesaidthatherremodelswere

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rangingincostbetweenU.S.$350,000toU.S.$700,000perstore.Oneoftheexteriorredesignswasthedouble‐lanedrive‐thrutospeedupservice.287

FOOD 

Chicken McBites DuringthelastweekofJanuary,McDonald’soffereditsChickenMcBitesasaLimitedTimeOffernationwide.Thesewere“pop‐able”chickenpieceswithseasonedbreadingaccompaniedbyachoiceofsevendippingsauces.TherewerealsothreesizesofChickenMcBites:a$1snacksize,regular,and“shareable.”Thelaunchwassupportedbyasocialmediacampaign.288

Happy Meal InadditiontotheChickenMcBitesintroduction,McDonald’sbegan2012withachangetotheHappyMealcomponents.FirstofferedinthePhiladelphiaregion,thenewHappyMealwithan“automatic”servingofAppleSliceswouldrolloutnationallyinMarch.TheAppleslicescameintwosizes:¼cupor½cupserving.Themealwouldalsoincludeasmaller1.1‐ounceservingofFrenchfries.Thechoiceofmainmealwouldbeahamburger,acheeseburger,orChickenMcNuggets.HappyMealofferedachoiceofbeverage:1%milkorfat‐freechocolatemilk.Ifparentspreferrednofries,therewastheoptionofanadditionalbagofAppleslices.McDonald’ssaidthisreconfigurationofHappyMealwaspartofanongoingmenuevolutionencouragingchildrentoeatmorefreshproduce.ThenewHappyMealwasthelatestexampleofMcDonald’s“ongoingmenuevolution.”ByaddingfruitineveryHappyMeal,McDonald’shopedtohelpchildrenmeettherecommendeddailyconsumptionofproduce.InCanada,theofferdifferedslightlyandhadastrawberryyogurtoptioninsteadoffriesorAppleSlices.289  

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YEAR 2013 

FRED L. TURNER 2013beganwithsadnews.EarlyinJanuary,FredTurner,RayKroc’sright‐handpersonandtheorganizationalwhiztoMr.Kroc’svision,died.Mr.Turnerwas80yearsoldandheldthetitleofMcDonald’shonorarychairmanandformerCEO.Mr.Turnerwasheraldedasthearchitectofthe“quality,service,andcleanliness”restaurantoperationsmodel(QSC)thatlaunchedMcDonald’sglobalpresenceandunparalleledindustryleadership.FredTurnerwasoneofRayKroc’sfirstemployeesin1956.HisoperationalandlogisticalmindbuilttheMcDonald’ssystem.CEODonThompsonsaid,“Formorethanfiftyyears,he(Fred)wasdedicatedtooperationsexcellence,traininganddevelopingagreattastingmenu.HeworkedsidebysidewithRaytoopenclean,welcomingrestaurantswherefamiliescouldenjoyahighqualitymealandaspecialtimetogether.Ourmorethan34,000restaurantsaroundtheworldserveasatestamenttoFred’sbusinessgeniusandhisstrongcommitmenttoourcustomers.Fredwasadedicatedfamilyman,asavvybusinessleader,andaloyalfriend.Wewillmisshimtremendously.”PressreleasesnotedthatwhileworkingatMcDonald’s,FredTurnerwaspresidentandchiefadministrativeofficerin1968,thenMcDonald’spresidentandCEOin1974.In1977,hewaschairmanandCEO,holdingthatpositionuntil1987.Heremainedchairmanoftheboarduntil1990whenhewasnamedseniorchairman.Hecontinuedinthatroleuntil2004whenheretiredandbecamehonorarychairman.290Duringthe2002–2005turnaround,FredTurnerwasapassionateparticipantensuringthatthecoremenuitemsberestoredtotheirqualityplatforms,rejectingtheyearsofincrementalproductqualitydegradation.McDonald’sstatedthatoneofMr.Turner’smostnotableachievementswasexpansionintheU.S.andaroundtheworld.WhileunderMr.Turner’sleadership,“McDonald’smorethantripledthenumberofrestaurantsandopeneddozensofnewmarketsworldwide.Helovedtherestaurantbusinessandlovedworkingwithcrewmembers.In1958,heputhisideasandlearningintoacompendiumcalledtheOperationsandTrainingManualthatstillcontinuesastherestaurantoperationshandbook.Followingthis,in1961,heledthedevelopmentofHamburgerUniversity,a“rigoroustrainingcurriculumformanagers,franchiseesandcompanyemployees.”InadditiontosittingonBoards,hedevotedhimselftocharityandwas“aco‐founderandlifetrusteeofRonaldMcDonaldHouseCharities,dedicatedtoservingfamiliesofcriticallyillchildrenandprovidingcaretochildreninunderservedcommunities.”291

FINANCIALS InJanuary2013,McDonald’sreporteditsfourth‐quarter2012earnings,whichexceededexpectations.And,addingtothispositivenews,McDonald’sreportedthatsame‐storesalesexceededfourth‐quarterexpectations.Moreover,forDecember2012,resultswereinlinewithanalysts’estimates.McDonald’snotedthattherewasanunexpectedslowmonthforsame‐storesalesinOctober2012.However,thatwasananomalybecauseNovemberwasstrong.TheanalystcommunitysaidthatthegreatresultswereduetothereintroductionoftheMcRibsandwich.DonThompson,CEO,remarked,“Throughout2012,weconcentratedoureffortsbehindtheglobalpriorities

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thatrepresentourgreatestopportunitiesunderthePlantoWin—optimizingourmenu,modernizingthecustomerexperienceandbroadeningaccessibilitytoourBrand.McDonald’scontinuedtogrowbyremainingfocusedonwhatmattersmosttoourcustomers,althoughourresultsreflecttheimpactofthechallengingglobaloperating,economicandcompetitiveenvironment.OuroverallperformanceisatestamenttotheunderlyingstrengthofourbusinessandourdedicatedSystemoffranchisees,suppliersandemployeeswhocontinuetodrivetowardourmissiontobecomeourcustomers’favoriteplaceandwaytoeatanddrink.”292January2013resultsreflecteda1.9%declineincomparablesales.CEODonThompsonsaidthelandscapewas“challenging.”However,hedidexpresshisviewthatMcDonald’swastoostrongtocollapseinthefaceofthischallenge.IntheUSA,same‐storesaleslifted0.9%.McDonald’ssaidthiswasduetothenewGrilledOnionCheddarburgerandtheDollarMenu.Also,thereimagedrestaurantsandtheeffortsbehind“convenience”madeforanenhancedbrandexperiencethatledtoincreasedsales.Europeansame‐storesalesfell2.1%.TheAPMEAregionhadsame‐storesalesdeclineby9.5%.293First‐quarter2013resultsannouncedinAprilshowedaprofitthatfellshortofexpectations.McDonald’ssaiditwasduetosalesatU.S.restaurantswherethefallwas1.2%.McDonald’salsoreportedthatglobalcomparablesalesshowedweakness.Specifically,McDonald’snotedthatglobalcomparablesalesweredown1%inthefirstquarter.McDonald’ssaidMarchU.S.same‐storesalesU.S.fell1.2%.CEODonThompsonmentionedagainthatthebrandwasfightinginachallengingenvironment.294

Second‐quarterearningsannouncedinJulywereadisappointmentaswell,missingtheanalystestimates.McDonald’scontinuedtonotethatitfacedatrying(CEODonThompsonfrequentlysaid“challenging”)economiclandscape,affectingcustomersinallregions.McDonald’smadeitclearthatitexpectedearningstobeflatovertheremainderoftheyear.Second‐quartersame‐storesalesincreased1%globally.(Analystswerelookingfor1.5%.)TheU.S.regionwastheonlyonewithapositivesame‐storesalesperformancewithanincreaseof1%.EuropeandAPMEAbothhadsame‐storesalesdeclines.McDonald’sindicatedthatalthoughtherisewasonly1%intheU.S.,this“outpaced”thecompetition.However,analystswereskepticalbecausetheyunderstoodthesmallrisewasduealmostentirelytopromotional,dealactivity.295

Althoughtherewasapositiveblipinthird‐quarterearnings,thenumbersmissedslightlyonrevenuefigures.Thecompany’sthird‐quarterrevenuetotaled$7.32billion,belowexpectationsforrevenueof$7.34billion.McDonald’snotedthatcomparablesalesincreased0.7%,andtheexpectationwas0.9%.Sharesdropped1.9%.296

SERVICE In2013,therewasaseriousdeclineinMcDonald’sservicequality.Notonlydidthebrandfaceanearningsslide,butalsoMcDonald’scustomersweregrumblingaboutfrequentdiscourteousandunfriendlyservice.Customercomplaintsincreased,especiallyaboutrudeemployees.Aninternalwebcastaddressedthepoorserviceissuehead‐on.Executivesreportedthat,“oneinfivecustomercomplaintswasrelatedtofriendlinessissues.”Thenumberof“unfriendly”complaintsincreasedeveryday.Thetopcomplaintwas“rudeorunprofessionalemployees.”Executivesaddedthat“speedof

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service”complaintshadsignificantincreasesforatleastsixmonths.JeffStratton,whotookoverfromJanFieldsinDecember2012,putalotofeffortintoattemptingtofixtheserviceproblem,franchiseeswerequotedassaying.Tounderstandthedepthoftheproblem,theindustrytradepress,QSRMagazine,ranasurveyeachyearondrive‐thru.(McDonald’sinstalleddouble‐lanedrive‐thrustospeedupserviceaspartofthereimagingprogram.)Lastyear’ssurveyindicated“otherchainshaveconsistentlyoutperformedMcDonald’s.”Thisstudyshowedthat“theaverageservicetimeattheMcDonald’sdrive‐thruwas188.83secondscomparedwith129.75forindustryleaderWendy’s.Chick‐fil‐Ahadthetopfriendlinessrankings.Outof7chainsinthestudy,McDonald’swasthesecondtolastinthe“veryfriendly”ranking,justaboveBurgerKing.”297

MARKETING 

Advertising Agencies ByNovember,theunhappysalesreportsforcedMcDonald’storeviewallbrand‐basedactions,includingareviewoftheadvertisingagencies.AdvertisingAgereportedthatMcDonald’swasbecomingincreasinglyconcernedthatitsagencieswerenotdoingenoughtosavethebrandevenwithits$1.4billioninU.S.marketingspending.AttheNovemberanalystconference,CEODonThompsonsaidthecompanywas“leaning”onitsagenciestodomoretoincreasesales.MarkKalinowski,theJanneyanalystwhoalsoranthefranchiseesurveyandthereforehadinsightintothemoodofthefranchiseecommunity,saidthatsomeoftheagencies’outputoverthepastseveralquartershadnotbeenverywellreceivedandhadnotgeneratedsales.Mr.KalinowskididsayMcDonald’shadsomeotherchallenges,butadvertisingwascertainlyonthelistandinneedofaddressing.Heindicatedthatfromhisperspective,thiscouldincludepersonnelchangesaswellasagencychanges.AMcDonald’sspokespersondeniedtherewereanyagencychangesontheagenda.Franchiseesputpartoftheblameonthemarketingcalendarandthedifficultythatmultiplemenuitemintroductionswerecausing.Theyfeltthenumberofitemsintroducedonerightafteranothercontributedtothecustomerserviceratingsthatwerewellbelowacceptable.McDonald’sexecutivesadmittedthattheintroductionofMcWraps,blueberry‐pomegranatesmoothies,EggWhiteDelightMcMuffins,anditsnewlineofQuarterPoundersbetweenMarchandJulywastoomuchtoosoon,makingoperationscomplicated.Thisexacerbatedcustomerproblems,mostparticularlyslowservice.298

Neil Golden InSeptember,withsalesstillsaggingandfewideashelpingtogeneratesales,McDonald’sfiredNeilGolden,thechiefmarketingofficerforMcDonald’sUSAsince2008.Thecodewordwasretired.Mr.Goldenwasnotabletochangethetrajectoryofthebrandwithhis“deal,pricepromotions,convenience”message.OneanalystsaidthatfinallyMcDonald’smaybetakingaharderlookatmarketingbecauseclearlywhathadbeengoingonwasunsatisfactory.Althoughanalysts,investors,andobserversrecognizedtheuncertaineconomicenvironmentwithitsemergenceofanewfrugality,itwasclearthatMcDonald’shadseveralmarketingmisstepsunderMr.Golden.First,thepipelinewasemptyin2012.Therewassomehopethatnewideasundertestmightaddressthis.Second,DollarMenuwascompromised.Ithadbeenamajordriverfor

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restauranttraffic,butsomehowMcDonald’slostitswaywithDollarMenuand“strayedtoofar”fromitscorereasonforbeing.Third,Mr.GoldenwasbehindtheintroductionoftheAngusBurger,whichwasadisastereventuallydiscontinued.Fourth,thefranchiseecommunitysawtherelianceondealsasdebasingthebrandanddeflatingtheirmargins.Theyalsobelievedthattheconstantintroductionofvarieties,mostparticularlyinbeverages,complicatedserviceandslowedorder‐to‐deliverytounacceptablelevels.TheywereangrybecausethesatisfactionsurveysputMcDonald’sinthelowerranks.Thiswasnotthe“marketingexcellence”theywereusedtocomingoutofthe2002–2005turnaround.299

FOOD 

Fish McBites InFebruary2011,SouthernCaliforniarestaurantsofferedalimitedtimeoffer(LTO),ofanewandinnovativefishitemcalledFishMcBites.ItwouldbeavailableuntilMarch.McDonald’spressannouncementdescribedFishMcBitesas“crispy,tenderpiecesofpoppableflakywild‐caughtAlaskaPollockresponsibly‐sourcedfromaMarineStewardshipCouncil(MSC)certifiedsustainablefishery.”Theitemcameinapackageforeatingonthegoandwasavailableinthreesizes:Snack(3oz.),Regular(5oz.),andShareable(10oz.).ItwasalsoanoptionforinclusioninaHappyMeal.SouthernCaliforniafranchiseescitedresearchindicatingthatfishwasanitemparentswantedtoseeontheMcDonald’smenuboard.Chef“Dan”Coudreautsawtheitemasagreatwaytogainthecommitmentofparentsbyofferinganitemtheycouldfeelgoodaboutfeedingtheirchildren.McDonald’salsobelievedthatitwasaverygoodwaytohighlightitscontinuingcommitmenttosustainablefishingandsourcing.300

McWrap InJuly,BloombergBusinessweekranalongSusanBerfieldstoryontheMcWrapanditsimportancetoMcDonald’s.McWrapwasmorethanjustanothersandwichoffering:itwasasandwichthatofferedfreshvegetables.TheMcWrap,whichwasmadetoorder,wasdesignedtograbtheattentionofpeoplewhowereabandoningMcDonald’sforfresheroptionsperceivedtobehealthier,suchasFiveGuys,Chipotle,andSubway.McWrapalsohadtheroleofattractingtheMillennialcohort,the18–32yearoldswhowerechoosingtogoelsewhere.Ms.BerfieldreferredtoanarticleinAdvertisingAge;havingobtainedaninternalmemo,AdvertisingAgenotedtheseriousproblemthatMcDonald’swashavingwiththishugegroupofpotentialcustomers.AdvertisingAgesaid,“McDonald’sdidn’tevenrankintheMillennialgeneration’stop10favoriterestaurantchains.”TheinternalmemostatedthattheMcWrapwasthewaytothehearts,minds,andstomachsofMillennials:itwasMcDonald’s“Subwaybuster,”saidthememo’sauthor.Ms.Berfieldsingledoutthenewheadchef,DanCoudreaut,astheinventorandvisionarybehindtheMcWrapandothernewideas.ChefDan,ashewascalled,waslaudedonseveralpagesofthearticle.Justaweeklater,Mr.CoudreautwasaguestonNPR,wherehedescribedtheadditionofcucumberintheMcWrap,anewingredientforMcDonald’s,as“magical.”Ms.BerfieldfollowedhimonNPRanddiscussedherarticleinmoredetail.SheremindedtheinterviewerthatMcDonald’sbelievedthathavingchoiceonthemenuwasgreatevenifpeopledidnotorderthehealthier,fresheritem.AndshesaidthatthesuccessofMcWrapwoulddependonthe

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drive‐thru.McDonald’shadmanyitemsthatwereeasierandfastertoassemble.TheMcWraptookabout60secondsatbest.301

Breakfast Sandwich: Egg White McMuffin InApril,McDonald’sannouncedanewbreakfastMcMuffin:thenewEggWhiteDelightMcMuffin.Describedasawholesomeoption,thenewsandwichwasanexampleofMcDonald’s“CommitmentstoOfferImprovedNutritionChoices,”announcedin2011.TheEggWhiteMcMuffinhas250calories.TheoriginalEggMcMuffin,theFruit&MapleOatmeal,andMcDonald’sFruitN’YogurtParfaitareallunder300calories.McDonald’sintroducedthenewsandwichusinganeventwithOlympicstarGabrielleDouglasinNewYorkCity.302

“From Fast Food to Good Food Served Fast.” ThepresswascuriousinSeptemberwhenanannouncementcamefromMcDonald’sregardingaculinaryeventatafancyNewYorkCityrestaurant.Theeventfeaturedthreewell‐known,award‐winningchefs.Inaddition,GregWatson,SVPofmenuinnovation,andDanCoudreaut,executivechefandVPofculinaryinnovation,wereattending.Thechefswouldcreatesome“unexpected”recipesandtransformMcDonald’singredientsinto5‐starmeals.IntriguedreadersofthepressreleasewonderedifthiswereasignthatMcDonald’swaschangingitsstripes.Reviewingthepastyear,outsidersnotedthatglobalsalesfellforthefirsttimeinnineyears.Thereweremanagementchanges,nottheleastofwhichwasthefiringofJanFields,U.S.president,andthe“retirement”ofmarketingchiefNeilGolden.TherewerefailedinitiativessuchasAngusBurgerandproblemswiththeDollarMenu.McDonald’salsofacedadifferenteating‐outlandscape,notjustwithChipotleandPaneraBreadbutwiththeincreasedstrengthofWendy’sandBurgerKingaswellasthegrowthofthe“betterburger”brandsthathadbeendoingwellinashakyeconomicworld.Withvaried,qualityoptionstochoosefrom,McDonald’swaslosinginterestamongMillennials.Further,whatthesevariouscompetitorshadincommonwasafocusonthequalityofthefoodforitscoremenus.Aswith2002,thepresswonderedinheadlineswhethertherewereproblemsatMcDonald’sthatcouldnotbesolvedwithyetanothercoffeebeverageorsmoothie.303

Millennial Burgers: New Quarter Pounders McDonald’sintroducedanewseriesofQuarterPounderburgerstoattractMillennialswhowereflockingtofastfoodcompetitorsandalsotobetterburgerrestaurants.InplaceofNeilGolden’sfailedAngusThirdPounders,McDonald’snowofferedanewexpandedseriesofQuarterPounderburgers.304EmilyBrysonYorkoftheChicagoTribunereportedthatthenewQuarterPounderburgerswouldbecalledRoyaleswithCheeseQuarterPoundersandwouldcomeinthreeflavors:baconandcheddar;amorebasiclettuce,tomato,andonion;andaspicyversionwithhabañeroranchsauce.ShenotedaswellthatMcDonald’ssaiditwouldchangethetypeofbaconitcurrentlyusedforathicker‐cutApplewoodsmokedbacon.ThethickerbaconwouldprovideofferasandwichwithmoretexturethanusualMcDonald’sburgers.NeilGolden,CMO,statedwithsomeapparentsurprisethatcustomersseemedtowantahigherqualityofferingfromMcDonald’s.Thenewbaconwouldhopefullydeliverthatandmeetcustomerqualityexpectations.Ms.BrysonYorkwonderedinhercolumniftheonlyreasonMcDonald’swouldreplaceThirdPounders

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withQuarterPounderswascost.ButMcDonald’ssaidno:itwasjustaboutgettingbacktobasics.SpokespersonDanyaProudsaidthatsalesincreasedwhenMcDonald’smarketeditscoreitems.SowhynotgivecustomersanewQuarterPounderthathadnotbeenchangedin40years.305

FRANCHISEES Aprilbroughtnewsoffranchiseefrustration.EmilyBrysonYorkreportedthattheMcDonald’sfranchiseeswereattheirwits’endduetothenowstrongemphasisontheDollarMenu;theincreasingqualityandaggressivenessofthecompetition;andthedownwardspiralofthebrand.AccordingtotheJanneyCapitalMarketssurvey,McDonald’sfranchiseeswereextremelyconcernedaboutthebrand’ssame‐storesalesresults.Theresearcherssaidthatfranchiseeswerevocallybitterandangry,especiallyinrelationtotheDollarMenu.Onefranchiseewasdistraughtoverthe“couponinglikethereisnotomorrow.”Anothercomplainedaboutthefactthatthemenuwasnotbeingsoldatitsneededpricebutsoldwithdeals,destroyinganypossiblefranchiseeprofitability.AlthoughthefranchiseessaidtheMcWrapwaspopular,itwastruly“anoperationalnightmare”thatsloweddownservice,generatingcustomercomplaintsaboutspeed.McDonald’sdeclinedtocomment.Withrecessionbehaviorsstillholdingwithcustomers,sourcessaidthatMcDonald’sU.S.presidentJeffStrattonfocusedonlyondealsandDollarMenu.306

ThefranchiseesurveyinJulyprovidedaclearpictureoffranchiseeemotionsregardingthebrand’sperformanceanditsactions.AsdescribedbyEmilyBrysonYork,franchiseesworriedaboutthenextearningsreportastheyrecognizedthemuch‐improvedofferingsandmoreassertivecompetitivebehaviorsfromBurgerKingandWendy’s.ForMcDonald’s,therewouldbemoreadditionalpromotionsduringthesummermonths.Franchiseesbelieveddiscountingwasbadforthebrandandbadfortheirbottomline.Theysaidthebrandlackedcreativethinkingandonlyseemedtofocusondealsanddiscountingtodrivetraffic.Onthefive‐pointscale,McDonald’sfranchiseesratedMcDonald’sa2.39,between“fair”and“good”relativetohowtheyfeltMcDonald’swouldperformoverthenextsixmonths.Thiscomparedtoa2.40fromthreemonthsagoandbelowthenormof3.0.307

DOLLAR MENU InMarch,Ms.BrysonYork,whofollowedthefastfoodcategory,interviewedaMcDonald’scustomerwhowasonalunchbreak.ThemanorderedtwoMcDoublecheeseburgers,fries,andalargeCoke.Hesaidthatthe$1pricewasarealmotivatoreventhoughpricewasnottheonlyfactor.HetoldMs.BrysonYork,“InoticedthatWendy’s(burgers)wentto$1.19.AndInoticedIwenttherelessoften.”McDonald’sknowsthatitcannotlosethesecustomers,soitisinthemiddleofastrongmarketingpushbehindtheDollarMenu.AsMs.BrysonYorknoted:“DollarMenuisaten‐year‐oldfeaturethatbecamethelinchpinofthelastturnaroundinitsU.S.business.”McDonald’swantstokeeptheDollarMenuasacompellingfactorforcustomerstochooseMcDonald’sinthesetryingeconomictimes.TheanalystcommunitybelievedthatsupportingtheDollarMenuwasslowingthemorerapiddeclinethebrandhadbeenfacing.Andnotonlywerecustomersmorefrugal,theynowhadtworevitalizedcompetitorsofferingbothvalueandquality:BurgerKingandWendy’s.NeilGolden,

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CMO,alwayssupportedMcDonald’sbeingalow‐priceoption.Hesaidcustomersmightbeslightly“unsettled”atthispointintime,soofferinggreatlowpriceswaswhatMcDonald’smustdo.Ofcourse,ifthedrawwasDollarMenu,thehopewasthatacustomerwouldseeanothermorepremiumproductonthemenuandbuythatinsteadorinaddition.PushingDollarMenualsogaveMcDonald’ssomebreathingroombecausetherewerenewproductsbeingintroducedin2013.Everyoneagreedthat2012wasayearwitharelativelyemptypipelineandthisimpactedsales,leadingtosalesdecline.DollarMenuwasperceivedinternallyasa“trafficdriver.”OnefranchiseesaidthatDollarMenudidhaveacachéas,“Therereallyismagicinthedollarpricepoint.Whenyougoawayfromit,it’shardertocommunicate,becauseit’snolongerassimpleassayingwe’vegotDollarMenueveryday.”308ObserversnotedthatdemandforitemsoffDollarMenuwasslowing.Forawhile,DollarMenuhelpedMcDonald’sbe“recessionresistant,”asformerCEOJimSkinnerwouldalwayssay.However,itappearedthatDollarMenuwasnotthatcompelling,anditslessfrequentusemightbeaffectingMcDonald’searnings.(JulyreportsnotedthatMcDonald’sstockwasdown9%.)Aspunditsreviewedthebrand,onefocuswascomingintoperspective:McDonald’scorecustomerbasemightnotbeeatingoutinthesamewayastheydidpreviously.Frugalitymightbeanissuewithagroupthathadbeencaughtinthedowndraftoftherecession.Insteadofbeingabletoeatout,themorefrugalchoicewaseatingsomethingathome.AndMcDonald’smenuwasskewedbetweennewer,moreinterestingitemsthatwerepremiumpricedandDollarMenu,whichhadfeweritems.McDonald’sdidnotputmucheffortintomarketingthecoreproducts.309ThosereadingbetweenthelinesweresayingthatCEODonThompson’sremarksatearningsandanalystcallsweresignalsthatthingswerenotgoingwellforMcDonald’scustomers.Forexample,“Wedon’thaveasmuchpricingpower.AndaslongasinflationaryratesarelowerandGDPgrowthandconsumerdiscretionaryspendingissofterwe’renotgoingtomoveforwardandtakealotofpricebecauseitwouldmeanguestcounterosionlongerterm.”Onejournalist“decoded”thesestatementsasindicationsthatMcDonald’scouldnotraisepricesanymore.Theresultwouldbeevenlesstrafficanddecreasedguestvisits.Forthosewhocouldaffordalittlebitmore,ChipotleandPaneraweremorepopularoptions.McDonald’scontinuedtosayduringJimSkinner’stenurethatthebrandwasdoingwellbecause“ourcustomerbasecantradedowntocheaperitems.Now,observerssaythosecustomerscannolongeraffordtotradedownandareeatingin.”310InOctober,thepressannouncedthatMcDonald’swouldendDollarMenuandreplaceitwithsomethingcalled“DollarMenu&More.”Atthetime,DollarMenuaccountedforapproximately14%ofsales.DollarMenu&Morewouldincludeitemscostingmorethan$1.McDonald’ssaidthatthe“More”partofthemenuwouldreplacetheExtraValueMenu.OntheExtraValueMenutherewere$2items,butthesedidnotgeneratesales.AfterthedemiseofExtraValueMenu,McDonald’sbegantoaggressivelymarketDollarMenu.Interestinglyandsadly,NeilGoldenactuallysaidthatheandMcDonald’sweresurprisedatthebrandattachmentandpowerthatDollarMenuhadwithcustomers.McDonald’ssaiditsgoalwastotakeadvantageofthedemandforDollarMenuwhilehopingcustomerswouldbuythepricieritems.TheMcDoubleandthe

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McChickensandwicheswouldremainas$1items.The“More”partofthemenumightpossiblyincludea20‐pieceMcNuggetsandsomeofMcDonald’sdeluxesandwiches.TheExtraValueMenuwasaconfusingoption,notgeneratingthehoped‐forsales.Priortohis“retirement”fromhisjobasCMO,NeilGoldensaid,“Wedidn’tdeliveronsimplicityandclarity”insellingtheExtraValueMenu.McDonald’sindicatedthatDollarMenu&Morehadalreadybeentest‐marketedinfiveU.S.cities.ThepressreportedthatDollarMenu&Morefromthefivetestmarketshadthreepricepoints:$1,$2,and$5or“shareable”itemssuchas20‐pieceMcNuggets.However,McDonald’sdidtestanalternativepricingschemewithpricesof$1,$1.79,and$4.99.Themenuincludedmorechickenitems,aswellasversionsofitsburgersthatcamewithanextrabeefpattyortoppingssuchasbacon.Asreportedin2012,commoditycostsdidcauseMcDonald’stochangesomeofitsofferingsonDollarMenubecauseitbecameimpossibleforfranchiseestoholdtheirmarginsandmakemoney.Originally,DollarMenuhadacoreitemcalledtheBig’NTasty,madewithaquarterpoundbeefpatty.TheheartiestburgeronDollarMenuin2013wastheMcDoublethattooktheplaceoftheDoubleCheeseburger.(CheesecostskilledtheDoubleCheeseburger’splaceonDollarMenu.)WithDollarMenu&More,thepriceoftheMcDoublewouldriseto$1.19insomeplaces.311  

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YEAR 2014 

FINANCIALS January2014reportingforDecember2013earningsshowedthatMcDonald’sdidnotmeetanalystexpectationsonceagain.Withfewercustomersvisitingitsrestaurantsquarterlysalesdeclined0.1%forthefourthquarter.McDonald’sblamedtheU.S.weather.Observerswrotethatthenegativeresultscreatedapattern:fiveconsecutivequartersofweakness.Andtheseobserverssaidthereasonsforthedeclineswere“self‐inflicted.”Althoughthebrandexperiencedslowerserviceandotheroperationalissuesduetomenucomplexityalongwithdiminishingtraffic,analystsreportedthatMcDonald’sdidnotseempreparedforthefiercenessandthequalityofthecompetition,mostspecificallyWendy’sandBurgerKing.TheChicagoTribunewrotethatCEODonThompsondidnotseemtohavetherightstrategiesformakingprogressasitappearedthatnothinghehadimplemented(menuchanges,organizationalchanges,forexample)hadgeneratedpositiveresults.TheswitchfromDollarMenutothenewDollarMenu&Morewasnotgeneratingsaleseither.Analystsdidnotseehistenureashavingmuchtimeleft.OneanalystpredictedthatMr.ThompsonhaduntilDecemberofthisyeartopullittogetherandchangethebrand’strajectory.Analystsconcernswerethatseniormanagementhadsaidmanytimesthattheyareparingthemenutoeasethecomplexity,whichwouldleadtofasterservice.However,McDonald’smanagementcontinuedtosaythattheyweretestingcustomizablemealsandintroducingnewbeveragesandsandwichesthattookmoretimetodeliver.AsforJanuarysales,analystssaidwhateverMcDonald’sturnedoutwouldlookgoodcomparedtoayearago,sotheseresultsmightmisleadstakeholdersastothehealthofthebusiness.312First‐quarter2014wasnotahappyquartereither.McDonald’snetincomedeclinedby5%,andtotalsalesincreasedby1%.Globalcomparablesalesrose0.5%,whichanalystssaidwasduetoahigheraveragecheck.TheAPMEAandU.S.experienced“negative”trafficinthefirstquarter.313Happinessdidnotextendintosecond‐quarterresults.InJuly,thereportingindicatedthatprofitatMcDonald’sfellmorethanexpecteddueinmainparttothesaggingresultsintheU.S.,whichaccountedforabout30%ofrevenue.However,Europenoteddeclinesaswell.Asobservedinpreviousmonthlyandquarterlyreporting,McDonald’sseemedtobeillpreparedforthequalitycompetitionfromWendy’sandBurgerKing,andnowChick‐fil‐AwassiphoningoffcustomersfromMcDonald’s.314InAugust,McDonald’sreportedonthefoodqualityscandalinChinaafteranundercoverreportershotvideoofShanghaiHusiFoodCompanyusingexpiredmeatwhilechangingexpirationdatesonpackaging.McDonald’ssaidthatitsrestaurantshadpulledmeatitemsfromthemenuswhileitfocusedongettingtothebottomoftheproblems.Saleswereimpacted,aswellastrustinthebrand.ShanghaiHusiFoodCompanywaspartofalong‐timeMcDonald’ssupplier,OSIGroup.McDonald’swarnedoffutureresultsasthescandalwasaffectingtrafficnotonlyatMcDonald’sbutatotherwesternrivalssuchasKFCaswell.315

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Septemberannouncementsweredepressing;McDonald’sreportedthatitsuffereditsworstsame‐storesalesdeclineinmorethan10years.ThecompanyblamedweakenedU.S.trafficandthescandalinChinathatitdescribedasa“healthscare.”Augustsalesdeclined3.7%,anumberthatexceededthenegative3.1%analystsestimated.IntheU.S.,McDonald’sguesttrafficdeclinesweresoacutethatthebrandresortedtoheavyemphasisondeals,discounts,andlimitedtimeoffers(LTOs)torejuvenatethebrand.Apparently,thedealmentalitydidnotgenerateprofitasU.S.same‐storesalesfell2.8%—afourthstraightmonthlydecline.APMEAsame‐storesalesfell14.5%,amuchlargerdropthananalystexpectationsof–10%.ThedropinAPMEAwasduetothefoodqualityissuethatspilledoverfromChinatoJapan,wherecustomersassumedthebrandhadbadJapanesefood‐qualitypracticesevenifitwasnottrue.316McDonald’sthird‐quarterearningsnosedivedby30%,dueinparttothefood‐qualityissueinChinaandaseriesofchallengesthatwereperceivedtobebiggerandmoredifficultthanearlierthought.CEODonThompsonpromisedsignificantchanges,acknowledgingthatMcDonald’scontinuedtoloserelevancewithcustomers.Healsopromisedtofixthemenuissues.Mr.ThompsonappearedtoanalystsassomeonewhowasnotabletoharnessthewhirlwindofdauntingissuesfacingthebrandintheUSandabroad.Mr.Thompsoncontinuedtostatethatthechallengesneededsignificantstrategies,yetnoneofthesefixesweredetailedfortheinvestorcommunity.Thecurrentapproachofmorestaffatrushhoursandtheemphasisonthebreakfastdaypartwithcoffeeswasjustnotattractingcustomers,especiallyMillennials.McDonald’shadalsobeenrehiringex‐McDonald’sexecutivesinthehopesofrekindlingpastsuccesses.HeadmittedthatMcDonald’sexpectedOctobertodelivernegativesame‐storesalesalso.317InNovember,astheyearofdepressedsalescontinued,McDonald’sannouncedthatglobalsalesdeclined0.5%inOctober.Thisbeatanalysts’estimatesofa2.2%decline.October’sdrop‐offfolloweda3.8%declineinSeptembersame‐storesales.TheAPMEAregionexperiencedthesteepestdropinsame‐storesalesat–4.2%.Thegoodnewsherewasthattheanalystcommunitythoughtthedeclinewouldbe6.1%.U.S.reportsfocusedonthecomplexmenuwithitscomplicatedpreparations,bothofwhichslowedservicetimes.Additionally,U.S.salessufferedfromthedefectionsofthecorecustomer,youngadultbase.U.S.same‐storesalesdropped1%intheU.S.inOctober,butagainthiswasaheadoftheexpectationthatsaleswouldfall1.9%.Apparentlyanalystopinionsweremuchmorepessimisticthatreality.318TheDecemberreportingshowedMcDonald’ssteepestmonthlydeclineinU.S.same‐storesalesinmorethan14years.AnalystsfeltasenseofurgencyandlookedforMcDonald’stobehaveinanurgentmanner.Foranalystsandshareholders,fixingtheUSwasthemostimportant,mostneeded‐nowissueforCEODonThompson.AlldivisionsstatedthattheNovembersalesdeclinesweremoreacutethanexpected.However,intheU.S.,thedownwardtrendwastheworst,withsalesdeclining4.6%—fargreaterthanthe1.9%thefinancialcommunityprojected.November’sdropwasmorethanSeptember’s4.1%salesdecline,whichwasMcDonald’slargestdeclinesinceearly2003.McDonald’sstatedthatthecompetitiveenvironmentwastoblame.Managementindicatedthattherewereplansforimprovedmarketing,menu,andorganizationalstructure.ManyofthechangesMcDonald’shadmadetobecompetitiveweredifficultforoperations,slowingservice.Increasingly,themenuadditionsconfusedcustomers.

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CEODonThompsonsaidthatMcDonald’shadmademanychangesalready,includingareorganizationofseniorexecutives.HealsosaidthatMcDonald’swasplanninganumberofinitiativesaimedatimprovingresultsacrossgeographies,fornear‐termandlong‐termperformance.ApartofthiswasaninitiativecalledtheMcDonald’sExperienceoftheFuture.PreviouslymentionedinOctober,Mr.Thompsonstatedthatthiswould“betterdeliveragainstconsumers’evolvingexpectationsformorechoice,convenienceandvalue.”APMEAexperiencedsalesdeclinesof4%,morethanthe3.8%expectedbyanalysts.McDonald’ssaidtheaccusationsofexpiredmeatproductnegativelyaffectedcustomers,andthebrandwasonlynowseeingthesituationabate.McDonald’sdidreportthatithadaplanforrebuildingtrustinthosemarketsaffectedbythemeatqualityscandal.Europe’sdeclineswereblamedonrepercussionsfromthepoliticalsituationwithRussiaandtheUkraine.Europesalesdeclined2%;analystshadpredictedafallof1.9%.319Thefinancialratingsfirm,FitchRatings,lookedatMcDonald’sinlateDecemberasthebrandcontinuedtoslide.FitchstatedthatMcDonald’shadconfirmedthatitwastakingnecessarystepstochangethebrand’snegativecustomer‐perceivedimage.Additionally,McDonald’sconfirmedthatitwas“goinglocal”tobemorerelevantwhileputtingmoreaccountabilityintheregionsandbygivingfranchiseesmoresayinpromotions.Fitchindicatedthatthesewerepositiveactions.Fitchdidweightheconsistentdeclinesinsales,especiallyintheU.S.However,itbelievedtheannouncementofthecustomizableburgersystemwasapositive.Fitchreiteratedthegoodstepsinreturningthethree‐yeargoalofU.S.$18–$20billionincashtoshareholders.“FullimplementationofMcDonald’sinitiativeswilltaketime,giventhesizeofthecompany’sU.S.operationsandtheneedtocollaboratewithfranchisees.However,anurgentandcustomer‐centricapproachtoincreasingtrafficcombinedwithanimprovingU.S.economyandthepotentialforslightlyhigherdisposableincomeforlower‐incomeconsumersshouldresultingradualsalesimprovementin2015.”FitchwasparticularlyimpressedthatMcDonald’scontinuedtogeneratecashandhadastrategyinplacewherebythatcashwasgivenbacktoinvestorsaswellasaprogramforreinvestment(asitdidwiththeremodeling).AfteradetailedandlengthydiscussionofMcDonald’sfuture,Fitchendedbysaying,“(McDonald’s)lackofnear‐termevidencethatsalestrendscanimproveand/ormaterialadditionaldebtwouldplacedownwardpressureonratings.”320

STEVE EASTERBROOK InApril,McDonald’sannouncedthatitwasbringingbackSteveEasterbrook.Mr.EasterbrookleftMcDonald’sshortlyafterDonThompsonwaselectedtoMcDonald’sBoardofDirectorsandhadbeengiventhenodasheirapparenttoJimSkinner.SteveEasterbrookreturnedtoMcDonald’sasglobalbrandofficeroverseeingglobalmarketing,menudevelopment,andinsights.InDecember2010,Mr.EasterbrookhadbeenchosentobepresidentofMcDonald’sEurope.But,unexpectedly,inSeptember2011,helefttobeCEOofPizzaExpress.Lessthanayearlater,heleftPizzaExpresstobecomeCEOofWagamama.KevinNewellreplacedMr.EasterbrookinJanuary2011,afterMr.EasterbrookbecamepresidentofMcDonald’sEurope.InhisnewrolelocatedinOakbrook,Illinois,Mr.EasterbrookreporteddirectlytoDonThompson.321

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ORGANIZATIONAL CHANGES 

Mike Andres Afterexperiencingitslargestmonthlydeclineinsame‐storesalessince2003earlierthisAugust,McDonald’sreplaceditsheadoftheU.S.divisionforthesecondtimeinlessthantwoyearswithMikeAndres.ItwasnotedinthepressthatMcDonald’ssame‐storesaleshadbeenfallingoratbestflatforatleastayear.322

New Organizational Structure ByOctober,witha4.1%slipinsame‐storesalesinSeptember,McDonald’sannouncedastructuralchangethatwouldgetridofseveralmanagementlayersinthehopesofbecomingamoreagileandresponsiveenterpriseintheU.S.Itwashopedthattheleanerstructurewouldhelpwithsales.TheideacamefromthenewU.S.presidentMikeAndres.Hesaid,“TherealityisthatourcurrentU.S.structureisnotoptimizedforthecustomer.”SoMcDonald’swouldnowhavefourregionalzones:Northeast,South,Central,andWest.Thesewouldreflectlocalconsumertastesandpreferences.323

Going Local “Local,local,local”iswhatQSRwebtitleditsdiscussionoftheneworganizationatMcDonald’sthatcreatedfourU.S.regions.Theaimofthereorganizationwastogivetheregionsmorecontrolovermenupromotionsandallowregionalfranchiseegroupstohavemoresayinwhatwasofferedtotheircustomers.Localizationcanmakeabrandseemmorerelevant.MikeAndres,president,indicatedthattherewouldbegreateremphasisonlocalinsights:“Therealwork,therealimpactiswhatourlocalmarketscandotodriveaplanthatwilladdressthediversityofthemarketplace.Thisidea—ofhowweplanlocallytosupplementournationalmarketing—isreallystartingtoignitetheentrepreneurialspirit.”Thenewstructureplacedaccountabilityinthelocales,whichareclosertothecustomerthanOakbrook,Illinois.Akeypartofthenew“insight”formationistheuseofmoms(emphasizedbyoustedJanFields).324

MARKETING 

Millennials Onethinginthisworldiscertain:shortofanapocalypse,demographicchangeswillhappen.TheMillennialcohortislargerthantheBabyBoomgeneration,anditswantsandneedsaredrivingbehaviorsandattitudes.McDonald’swasseeingthatithadaproblemattractingMillennialswhogrewupinamorewidelyethnic,sophisticated,andassertivefoodlandscape.MillennialsappearedtobeleavingMcDonald’sforcompetitorsofferingfresher,healthierfoodwithvaluesthatmimickedtheirown.McDonald’snotedthatthenumbersofpeopleage19–21intheU.S.visitingMcDonald’sonamonthlybasisfellby12.9percentagepointssincethebeginningof2011.ThisdatawasfromresearchcompanyTechnomic.Thenumberofcustomers22–37yearsoldvisitingMcDonald’sonamonthlybasisduringthatsametimeframewasflat.Mr.EasterbrookfocusedonMillennials.“TheMillennialgenerationhasawiderrangeofchoicesthananygenerationbeforethem.Theyarepromiscuousintheirbrandloyalty.ItmakesitharderforallofustoearnloyaltyoftheMillennialgeneration.”Withhis

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constantfocusonChipotle,hesetupalearninglabinsouthernCaliforniatoworkoncustomizableprocedures.HeseemedtobelievethatwhatmadeChipotlesopopularwasthecustomizablesystemratherthanthebrandvalues,theemployeedevelopment,andthedelicious,qualityfoodsourcedandservedwithintegrity.TurningMcDonald’sintoChipotlewouldincreaseprices,andusingMcDonald’ssystemwouldincreaseservicetimes.Customizingfoodthatcustomersdidnotlikewouldnotbuildbrandpreference.Mr.Easterbrookcommentedthat,“Millennialswanttobuyintoabrandnotjustbuyfromit.”HesaidthatMcDonald’swasdevelopingmobileappsthatwouldenablepeopletoaccessinformationaboutthecompany’ssocialresponsibility.“Whatwe’vegottodoisfindinterestingwaystosharethatinformationwithMillennials,notold‐fashionedcorporatelecturing.”325AsFinancialTimespointedout,bothMcDonald’sandCoca‐ColawerehavingsimilarproblemswiththisMillennialcohort.Partoftheproblemwashealthrelatedbecausethisgroupofindividualswasraisedonanorganic,local,foodieculture.ButFinancialTimessaidalsothatrelevanceorlackofitwasanevenbiggerissue.McDonald’sandCoca‐Colabothhaveportfolioswithprofitablecoreproductswherereplacementofanyofthesewouldimmediatelyaffectcashflow.326QSRwebreportedinDecemberthatthelatestYouGovpollindicatedthatJimmyJohn’s,Chipotle,Chick‐fil‐AandWhataburgerhadachievedthehighestloyaltyamongMillennialsamongtheentirekey“limited‐servicebrands”overthepastsixmonths.Basedonpurchaseconsiderationratesfornearly30limited‐servicebrands,YouGovcalculatedscoresamongeachbrand’scurrentuserbase,definedasapast‐30‐daypatronofthatbrand.YouGovscoresindicatedthatofthoseMillennialswhowerealreadycustomersofJimmyJohns,“83%saytheywouldconsidereatingthereagainthenexttimetheyarelookingtodineout.”Amongtheirowncurrentcustomers,thenexthighestrankedbrandswere,“Chipotle(82%),Chick‐fil‐A(78%)andWhataburger(76%).BothSubwayandWendy’sscored70%orhigheramongtheirmillennialcustomers.”AreviewofotherbrandsshowsthefollowingrankingamongMillennialpreferences:327

Arby’s,69% LongJohnSilver’s,69% Popeye’s,66% Hardee’s,65% TacoBell,64% JackintheBox,64% KFC,64% BurgerKing,63% McDonald’s,62%

CustomerPreferencesMikeAndres,McDonald’spresident,saidthatdecisionswouldnowbemadebasedoncustomerinsights.Mr.Andressaidcustomershadchangedthewaytheydefinedqualityandhadanewfoundinterestinwellnessandhealth.McDonald’shadallowedtheleadintheseareastobetakenbythefastcasualcompetitorsthathadoverallperceptionsof

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qualityandfresh:McDonald’s,hesaid,wasplaying“catch‐up.”“ThepaceofchangeoutsideofMcDonald’shasmovedfasterthanithasinternally,”Butifwecaneliminatetheperceptionsofqualityquestionswegetcomparedtoournewcompetitors,thenwewinoneasyandvalue.Peoplealwaysaregoingtolookforvalueandwhatmakestheirlifeeasier.Valueisn’tatrend;it’sheretostay.Thosearethethingswe’vefallenbehindonandwe’llcatchupquickly.”328

COMPETITION 

Hamburger Restaurants Inoneoftheleastobservantarticlesontherestaurantbusiness,BloombergBusinessweeknotedthatthehamburgercategorywasinitsfinalthroesofdecline.Yetthetrendforbetterburgerrestaurantswasgrowingatarapidpace.ThemovetowardqualitybeefatMcDonald’scompetitorshadtakenoffwithbothBurgerKingandWendy’sbecomingmoreastutemarketersofhamburgers.Againstthisfactualbackground,themagazinereported:“America’sonceinsatiableappetiteforhamburgerjointsmayfinallybesatisfied.Slowersalesgrowthhasmanyindustrywatchersforecastingtheonceunthinkable:thepeakingofburgerjointgrowthintheU.S.”329

How Can McDonald’s Compete? SteveElls,founderofChipotle,toldFinancialTimesinOctoberthat,“Thetraditionalfastfoodsectortradedfoodqualityandtasteforlowcostandeaseofpreparation.”ThishadalwaysbeenhisvoicedopinionoftheindustryandofMcDonald’sinparticular.SinceChipotlewasonceownedbyMcDonald’s,Mr.EllssawfirsthandhowMcDonald’sfoodwaspreparedandthe“quality”oftheingredientsthatwentintothepreparation.However,asFinancialTimespointedout,CEODonThompson’scommentsagreewithMr.Ells.McDonald’ssaiditwouldtake“decisiveactiontofundamentallychange”itsbusinessinwaysthatwouldbetterpositionittocompetewithChipotleandotherfastcasualrestaurants.ReportsindicatedthatthenewteamledbyMr.Easterbrookhadplansfora“radicaldeparturefromthebasicMcDonald’sformula,withchangestoitsmenus,stores,customerserviceandtechnology.”Additionally,McDonald’schallengedthosewhohadnegativeideasaboutthequalityofitsingredients.Mr.EasterbrookbelievedthatMcDonald’scorecustomerswerefleeingtoChipotleandotherfast‐casualchains.However,basedondemographicsincludingincome,therewerequestionsoutsideofMcDonald’sastowhethertheChipotlecustomerwasinfactaMcDonald’slapsedcustomer.330Whateverthecase,Mr.Skinner’sleavewastimedbrilliantly.AlreadybyJune2012,itwasbecomingclearthatMcDonald’swasnotcontinuingthestellargrowththatwasbasedonlivingoffthemomentumofthe2002–2005turnaround.Thattookthebrandfar,butnotfarenoughintoMr.Thompson’stenure.SomeseeMr.Thompsontakingoveratatippingpoint—unfortunatelyadownward‐pointingtippingpoint.ThegrowthofthemenubeganduringMr.Skinner’stenure,whenMcDonald’sbeganthrowingalotofthingsintothemarketplacehopingsomethingwouldhelp.ToomanynewitemsandLTOsconfusedcustomers.Acomplexmenuhurtoperations.Thecoremenusandthecorecustomerwereignored.Itemslikewrapsandspecialtybeverageshurtservice.Customerservicetimesincreased.Foodqualitywascuttosavecosts.DollarMenulost

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relevance.Heavydealsandpromotionaldiscountsateawayatthebrand’simagewhileinfuriatingthefranchiseecommunity.Forseveralyearspriortohisdeparture,Mr.Skinnersaidthatthebrandwasdoingwellbecauseitofferedcheapfoodtothosetradingdown.ThedealsanddiscountsreinforcedtheMcDonald’simageasabrandforcheap,low‐qualityfoodforthosewhocouldnotaffordtoeatelsewhere.Asmentionedearlier,theemergenceofthebetterburgerjointshadalsoeatenatMcDonald’s,acompanythatavoidedfixingthequalityofthecoremenu.AstobecomingmorelikeChipotle:someoutsideobserverssaidthatwhatdefinedMcDonald’saroundtheworldwasitsreliabilityandconformity.Nomatterwhereyouwent,theMcDonald’sfrywastheMcDonald’sfry.Changingthatwouldchangelogistics,operations,andimage.AndasBobGoldinofresearchfirmTechnomicsaidrelativetothetransparencycampaigncalled,Ourfood.Yourquestions:“Ithinktherearealotofquestionsabouttheintegrityofthefoodandthequalityoftheingredientsonthepartofconsumers.SomuchofitisfriedandheavilybreadedandIthinkthatalmostgoesagainsttheperceptionofgoodquality.”331

Wendy’s InaninterviewwithBettyLiuonBloombergNews,Wendy’sCEO,EmilBrolick,discussedseveraltopicsincludingWendy’sfailedeffortsatcreatingamotivatingbreakfast.Thetwoalsodiscussedtheemergenceofhighlycompetitivefastcasualrestaurantsthatweretakingcustomersawayfromfastfoodbrands.Mr.Brolick,aformerYUM!seniorexecutive,saidthatWendy’swouldbe“newQSRqualityatacompetitiveprice.”Inhisdefinition,thisinhabitedaspaceandsegmentthataddressedneedsthatChipotleandMcDonald’sdidnot.Hesaid,“Wedon’tchargepremiumsrelativetothetraditionalQSRexperiencebutwefeelthatwegivethemapremiumexperience.IfyouthinkofusinthecontextofthequickcasualsorthenewQSR,wearegivingpeopleacomparableexperienceasyoucanseehereandthequalityofthisfood,butasignificantlylowerprice.Ouraveragecheckisprobably40–45percentlowerthantheaveragenewerQSR.”Theforayintobreakfastwasnotthefirst.Hediscontinuedthebreakfasteffortbecauseitwasnotdeliveredconsistently.However,Mr.BrolickdidnotsaythatWendy’swasthroughwithbreakfast.Heimplieditwouldbepossible,butonlyifWendy’scoulddoitinaqualitymannerthatwouldbeprofitableforthebrandanditsfranchisees.Hisopennesstodobreakfastonemoretime,hesaid,wasthathehadavisionforbreakfastthatcompletelydifferentiatedWendy’s.332

OPERATIONS 

Menu Complexity Bytheendof2014,theMcDonald’smenucontained121items.OvertheyearsunderMr.Skinner,themenubecameanoverwhelmingassortmentofsandwiches,coffees,andotherbeverages.Someoftheseitemstookmorethan60secondstoprepareunderthebestofcircumstances.AnexamplewasthenewPremiumMcWrap.DesignedtoattractMillennials,franchiseesreferredtoitasa“showstopper”behindthecounter.“OurkitchencomestoahaltwhenwegetanorderforaMcWrap,”saidonefranchisee.Thisfranchiseeaddedthattheassemblersmustcontinuetochecktheinstructionsastheprephassomanydifferentsteps.Thispre‐processtakesabout85seconds.Thisisaproblembecausethebrandhasa90‐secondorder‐to‐delivery‐timeobjectiveatthe

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drive‐thru,whereabout70%ofsalestakeplace.Hecontinuedbysayingthathesoldabout1,000cheeseburgersaweekandonly140PremiumMcWraps.JanneyMontgomeryScottanalystMarkKalinowskistatedthatthePremiumMcWraphaddisappointedintermsofsalesandoperations.Fromhisperspective,“Themorecomplexproductsshouldgetacloserlookatbeingcandidatesforremovalfromthemenu.”333Forabrandknownforeasy‐to‐choose,speedyservice,choosinganitemwasnowaconfusingexperienceforcustomers.Andthewaittimesincreased.Allthelattes,snackwraps,oatmeal,andsmoothiesnotonlyexpandedthemenubeyondreasonablelimitsbutcomplicatedoperations.Forexample,asJulieJargonpointedoutinTheWallStreetJournal,“McCafédrinksrequireaseparatestationbehindthecounterequippedwithcoffeegrindersandblenders,causinglongerwaits.Asaresult,somecustomershavestartedgoingelsewherefortheirfast‐foodfix.”UnderCharlieBell,themantrawasthatforeachitemaddedtothemenuboard,anitemshouldbetakenoff.Mr.Skinnerwentinanoppositedirection:menuadditionwithnomenusubtraction.Butbeyondcomplexityandlongerwaittimes,therewasanotherproblemforMcDonald’s,anditfellonCEODonThompson’sshoulderstofindthesolution:howtocompeteinavastlydifferenteating‐outenvironment.WhileMcDonald’sexpandeditsmenuinavarietyofdifferentdirections,betterburgerbrandssuchasFiveGuysandSmashburger;fastcasualoperationssuchasChipotleandPaneraBread;cult‐statusbrandslikeChick‐fil‐AandIn‐N‐OutBurger;andtraditionalQSRbrandslikeBurgerKing,Wendy’s,andPopeye’sweretakingapagefromCharlieBell’sandJimCantalupo’saim:doafewthingsreallywell.AccordingtoMs.Jargon,StarbucksandBurgerKingworkveryhardtoavoid“menubloat.”AlthoughMcDonald’smanagementhadstatedmanytimesthatitwouldbeaddressingthemenuissue,atthesametime,itwasaddingitemssuchasnewsandwichesthathadmorecustomizabilityandnewbeverages.Onefirmthattracksmenuitems,Datassential,toldMs.JargonthatonlysevenyearsagotheMcDonald’smenuhad85itemsversusthe121today.Toputthecomplexityinmoreperspective,Ms.JargonlearnedfromtheMcDonald’swebsitethat,“BetweenMarchandJuly2013,thechainaddedPremiumMcWraps,EggWhiteDelightMcMuffins,blueberrypomegranatesmoothies,andthreenewkindsofQuarterPounders.IntheU.S.,McDonald’sbreakfastmenuincluded14sandwichoptions,andforlunch,theBigMacsharedamenuboardwith15otherburgers.334FollowingtheseriouslynegativeNovemberresults,McDonald’sannouncedthechangesitwouldmaketothemenutoaddresscomplexityandtherelatedslowservice.TheplansoutlinedhowMcDonald’swouldworktoeliminateitemsitsoldandhowitemswereassembled.MikeAndres,U.S.president,saidthatnewfoodsmustbeculinaryinspiredandhaveamuchshorter,cleareringredientlist.Hesaid,“Whydoweneedtohavepreservativesinourfood?”McDonald’ssaidthatitwouldparethenumberofvaluemealsto11from16.Butitwouldalsoprovidecustomerswiththeopportunitytocustomizeburgers.Mr.Thompson,repeatingSteveEasterbrook’schantfrom2006,saidMcDonald’swouldbecomea“modernprogressiveburgercompany.”“Wehaveaddedover100SKUsinthepast10years,”Mr.Andressaid.Thesenewitemsgenerated$770,000insalesfortheaveragerestaurant.However,itcomplicatedthingsbothforcrewmembersandcustomers.(Heneversaidforfranchisees.)“Thefuturesuggestswecancontinuetosimplifyourbasemenu,andweallrecognizethatabout80percentof

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oursalesarecomingfromasmallsubsetofthemenu.”Mr.ThompsonandMr.Andressaidtheywouldmove“carefullyonthissimplificationeffort”becausetheydidnotwanttonegativelyimpacttheprofitabilityofthefranchiseecommunity.McDonald’saddedthatitwasintheprocessofparingthemenuinitsLondonandGermanyrestaurants.“WehavealargeropportunityintheUSbecauseofthedrive‐thru.Youdon’twantthecustomertobeconfusedasthey’recomingthroughthedrive‐thru,”Mr.Thompsonsaid.335Theannouncementofmenuparingthatitishopedwouldshavetimeoffofdeliverytimeswascoupledwiththeannouncementabouttestingthe“CreateYourTaste”customizedsandwichprogram.CreateYourTastewasconsideredtobethewaytobeatChipotleandFiveGuysattheirowngameofmorehealthfulmealsself‐designedandpersonalized.However,McDonald’sisafastfoodbrand.CreateYourTastedeliverytimesare8–10minutes.Thiswouldbeabrandexperiencechallenge.CEODonThompsonsaidthatCreateYourTastewouldsimplifythemenuandbeneededhelpforoperationsasitwasasmallermenu.CreateYourTasteisasignatureprograminMcDonald’smovetobeinga“modernprogressiveburgerandbreakfastrestaurant.”CreateYourTastecouldpotentiallybeamotivatingreasonforMillennialstofrequentMcDonald’s.DarrenTristano,executivevicepresidentatrestaurantindustryresearchfirmTechnomic,toldUSATodaythatMcDonald’shadahugeimageproblemwithMillennials.MikeAndres,McDonald’spresident,believedthatCreateYourTastewasagreatstepinmakingMcDonald’sappearmore“culinary‐inspired”andthatwashowthebrandwouldrebuildtrustwiththisinformed,moreskepticalgroupofyoungpeople.HethoughttheywerecorrectintheirdislikeofalltheartificialandunknowningredientsinMcDonald’sfoods.He,too,wishedtheywerenotthere.336

Service Thetradepress,QSRMagazine,conductsresearcheveryyearonfastfoodrestaurantdrive‐thruperformance.Inits2013study,QSRnotedthatMcDonald’shadits“slowestaveragespeedofserviceinthestudy’s15‐yearhistory:189.49seconds,morethantwicethechain’sgoal.”CustomerscomplainedthatMcDonald’sservicewasslowregardlessofwhatwasordered.And,forsome,justthesightofthecarlineatthedrive‐thrusignalsado‐not‐drive‐thrumessage.In2013,McDonald’stoldfranchiseesinawebcastthatservicetimeswereaproblemanditwastheirresponsibilitytofixthis.Butfranchiseessaiditwasthesheernumberofitemsbeingservedandthenumberofitemsneedingcustomizationthathadslowedservice;itwasnotthequalityorquantityofcrewmembers.Tosupportthefranchiseediscontentabouttheserviceissues,theOctoberversionofJanney’sfranchiseesurvey(runbyMarkKalinowski,Janneyanalyst)indicatedthatonlyonefranchiseefeltMcDonald’seffortstohelpwithservicehadyieldedsuccess.337

Create Your Taste (CYT) InDecember,asthedismalNovemberresultswereannounced,anarticleinUSATodayreportedonMcDonald’s“Chipotle‐busting”initiativecalledCreateYourTaste(CYT)anditsexpansionofthetestmarkets.ThestoryinUSATodaystatedthatMcDonald’swouldtaketheprogramcurrentlyinSouthernCaliforniainto30morelocationsinfiveadditionalstates:Illinois,Wisconsin,Georgia,Missouri,andPennsylvania—andthento2,000locationsin2015.AspartoftheMcDonald’sExperienceoftheFutureprogram,

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CYT“allowscustomerstoorderfromakioskandcustomizetheirburgerswithavarietyoftoppings.Thecreate‐your‐ownburgersarethenassembledinaseparateareainthekitchenanddeliveredtothecustomer’stable.”NotonlywouldMcDonald’staketheprogramintonewU.S.states,itwouldaddtheoptionofcreatingyourownchickensandwichesaswell.TherewasconcernthattheCYTprogramtookupwardsof7minutesandcostaround$8.29withamediumdrinkandanorderoffries.ThisfightsthefastfoodataffordablepricesforwhichMcDonald’swasknown.OnefranchiseefavorabletotheprogramsaidthatinhisstoresCYTbroughtMillennialsintotherestaurantontheweekends.338

Multiple Order Point Strategies  AnalystsattendingtheDecemberearningsmeetingheardaboutseveralstrategiesforfixingtheslumpingbrand.Oneofthesestrategieswasaroundconvenienceandfocusedonhowcustomersinteractinanorder/purchaseexperience.CEODonThompsonindicatedthatanalystswouldsoonseethesechangestotheservicemodel.Theideawastogivethecustomer“morememorableexperiencesaroundconvenience.”Callingit“multipleorderpointstrategies,”McDonald’schangeswouldinclude“self‐orderkiosks,tableservice,mobileordering,weborderingandmobilepayment.”Mr.ThompsonandMr.AndresenvisionedanewinteractionthatwouldprovideanoveralleasierandhopefullymoredesirableMcDonald’sexperience.339

Labor Relations Attheendof2014,McDonald’sfounditselfinanotherPRnightmare,andthistimeithadnothingtodowiththequalityofthefoodoritsingredients.EmployeesatMcDonald’srestaurantsfiledcomplaintswiththeNationalLaborRelationsBoard(NLRB)statingthatfranchiseesviolatedfederallaborlaws.TheNLRB,afterreviewingtheclaims,filed13complaintsagainstMcDonald’s.Thesefederalcomplaintswereinresponsetoatotalof78“allegedinstances”offederallawviolations.Byfilingthecomplaints,theNLRBjumpedintoanargumentthatwouldhaverepercussionsacrossawideswathofbusinesses.Bysupportingthedecision,itmeantthatMcDonald’scorporatewasa“jointemployer”withitsfranchiseesmakingMcDonald’spotentiallyliableforwageviolations.InJuly,theNLRBthrewoutarequestbyMcDonald’sthatitwasnotdirectlyresponsibleforitsfranchisees’business.ThissituationdidnotjustaffectMcDonald’s.Butasthebiggest,itwastheeasiesttargetespeciallysinceithadmoreemployeesworldwidethanmostbusinesses.Constituentswerealreadytakingsides,pittingpro‐laborforcesagainstsmallbusinessentrepreneursandabigcorporateenterprise.OnMcDonald’ssideweretheNationalRestaurantAssociationandtheInternationalFranchiseAssociation.Theheartandsoulofsmallbusinesspeoplewereatstake.McDonald’ssupportedthisbysayingthefranchiseesystemhadmademillionairesoutofmanypeopleandwasafinewaytoachievesuccessonabusinessandpersonallevel.McDonald’salsobelievedandhadstatedpublicallythatitwasthetargetofthosewhosawMcDonald’sasanti‐union.340

Menu Testing TheDailyTelegraphinLondonstatedthatMcDonald’snewapproachtomenuitemswaslesslikeMcDonald’s.SoMcDonald’srenamedaSydney,Australia,McCaféas“TheCorner.”TherewerelimitedinstancesofMcDonald’sbranding.TheCornerreflectedanoutputofthecompany’s“CustomerLearningLabs.”ComingoutoftheLab,TheDaily

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TelegraphsaidthatnewmenuitemswouldnotbeMcDonald’sbutwouldincludeinterestingideassuchas“gingerbreadmen,mueslipots,build‐your‐ownburgers,oradailychoiceofmealfromasouporsaladstation.”341

Pricing AnotherannouncementduringtheDecemberanalysteventdealtwithnewpricingstrategies.MikeAndres,McDonald’spresident,saidthatthethree‐tieredpricingstrategyhadexpandedtothepointwheretherewasnow“toomuchdisparitybetweenMcDonald’sentry,coreandpremiumofferings.”Mr.AndressaidthepricedisparitieswereaffectingMcDonald’soverallperception.DuringMr.Skinner’stenure,McDonald’ssaidmanytimesthatitwassurvivingtherecessionduetothefactthatpeoplecouldtradedowntoitscheaperprices.NowMr.AndressaidthatthepriceissueswerethefaultoftheDollarMenu.“TheDollarMenuhasservedusverywell,butitspricingrelationshiphasmovedcustomersnaturallytolower‐priceditems.Thishascontributedtosomedeclineinqualityperceptions.Peoplearebasing(thoseperceptions)onourvalueitemsand,whilethey’regreatproducts,they’renottheBigMac,”hesaid.”342

FIXING MCDONALD’S RightbeforetheChristmasholiday,andafterthereportingonMcDonald’ssalesslump,JulieJargonofTheWallStreetJournalinterviewedrestaurantexpertsonhowtofixMcDonald’s.ObserverssaidthatMcDonald’splanto“fix”McDonald’swas“paradoxical”asitfocusedonslimmingthemenuboardwhileaddingcustomizableitems.Chipotlewasthemainfocusofthebrandleaders;itwasseenasbeingarestaurantofchoiceonlybecauseofitscustomizableburritosandsalads.CEODonThompsonadmittedthatMcDonald’swasnolongerrelevant.Thiswaswhythebrandintendedtobemorelocallyinspired.Thebrandalreadyagreedtosimplifytheingredientlistsandchangesomeofthecookingprocedures.Thehopewastoimproveperceivedquality.Fromamarketingstandpoint,thebrandwasusingawebsite(awebsitethatfailedunderSteveEasterbrookintheUK)calledOurfood.Yourquestions.Thewebsitewasdesignedtoaddressquestionscustomershadaboutthefood,theingredients,andthesourcing.Ms.Jargoninterviewedoneoftheauthorsofthisbook,LarryLight.Mr.LighthadbeentheglobalCMOworkingwithJimCantalupoandCharlieBellonthe2002–2005turnaround.ThesethreeseniormanagerswereresponsiblefortheturnaroundPlantoWin.AneditedversionofMr.Light’scommentsfromthearticlewereasfollows:

“Ithinkthisisagoodstart.Bothconsumerandoperationalcomplexityneedtobeaddressed.Themenuneedsmuchmorefocusandsimplification.“Abigchallengeistheperceptionoffoodquality.Andresisrightinmakingthisapriority.Idonotthinkthe“transparency”PReffortwillwork.Theyneedtoaddressactualimprovementofthefooditself.TellingmehowfoodIdon’twanttoeatismadewillnotchangemymindaboutthefood.“Intheshortterm,thefirstpriorityistolovethecustomersyouhave.IamconcernedthattheMcDonald’sstrategyseemstobemorefocusedoncustomerstheywouldlovetohave.Attractingnewcustomersisanimperative,butkeepingcurrentcustomersisthebaseuponwhichcustomerattractionyields

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incrementalgrowth.Protectingthebaseisaboutneversacrificingthecoreprinciplesthatmadethebrandsuccessful,andoneofthoseinfastfoodisspeed.AtFiveGuysifyouorderacustomizedburgeryouhavetostandaroundandwaitforit.McDonald’scorecustomerwantsfastservice.“McDonald’shaslosttrustandtrustisamultiplier,soiftrustiszero,itdoesn’tmatterwhatelsetheydo.WhatmadeChipotleeffectiveisnotjustcustomization,buttrust—theirtaglineis‘foodwithintegrity.’ToMillennials,establishingtrustinabrandisnotaseasyasitusedtobe.WhenwelaunchedsaladsatMcDonald’s,weusedPaulNewmantoestablishtrust.Saying“wemakeadeliciousfreshsalad”isnotthesameaswhenPaulNewmanendorsedthesaladandputhisdressingonit.Third‐partytestimonyissomethingtheyneedtoadd.AnditneedstobesomeonerespectedbyMillennialsbutalsorelevanttothecategory—notjustanactororathlete.”

Ms.JargoninterviewedCarlChang,founderandCEOoffast‐casualpizzachainPieologyPizzeria.HiscommentswerethatMcDonald’sshouldacceptwhatthebrandwasandstoptryingto“reinvent”itself.AlthoughMr.Changagreedthattakingthebrandandrevisitingitsrelevancewereanecessity,hedisagreedwithMr.Thompson’sadoptionofMr.Easterbrook’sattempttoremakeMcDonald’sasadifferenttypeofrestaurantcompletely(themodernprogressiveburgercompany).Rightnow,Mr.Changnotedthatalargepercentageofthebrand’sprofitabilitycamethroughthedrive‐thru:McDonald’sneededtotakethatintoaccountbeforeremakingthebrand.Additionally,Mr.ChangnotedthatMcDonald’shadagreat,iconiclineofcoreproductsthatwerenotbeingservedwellinthecurrentMcDonald’srestaurants.Heendedhisinterviewbysayinginhisopinionthebrandneededtodowhatithadbeendoingbutdoingitbetterandmakingitmorerelevant.Ms.JargonalsospokewithCherylBerman,CEOofUnbundled,abrandingagency,andformerchiefcreativeofficerofMcDonald’slong‐timeagencyLeoBurnettUSA.Ms.BermanhadworkedformanyyearsontheMcDonald’sbusiness.ShesaidtoMs.JargonthatMcDonald’s“haslostitsmagic.”Ms.BermansaidtheworkMcDonald’swasdoingwasallaboutthefoodandnotabouttheemotionalexperience.ShesaidthatMcDonald’shadalwaysbeenapartofpeople’slives.Notincludingtheemotionalconnectionputsthebrandatadisadvantage.McDonald’swasanexperience.343

IS MCDONALD’S AN ACTIVIST TARGET? ABloombergjournalistraisedtheissueofwhetherMcDonald’scouldbecomethetargetofsomeactivistinvestor’sinterestnowthatitseemedtobefallingapartwithdecliningsalesandaCEOwhoappearedtohavenogoodideasforbrandsalvation.ThereporterstatedthatMcDonald’sappearedvulnerableespeciallysince,accordingtoBloombergdata,its“valuationrelativetoitsearningshadfallenwellbelowitsUSpeers.”Additionally,BloombergtookintoaccountthefactthatMcDonald’shadalotofcashonhand(itreturnedU.S.$4.6billiontoshareholderssofarin2104)andverylowdebt—anappealingsituationforanactivistinvestor.IfMcDonald’strajectorycontinuedtomovedownward,andastheinvestorcommunityventeditsirritation,MorningstarbelievedoneormoreactivistswouldappearonMcDonald’sdoorstepinOakbrook,Illinois.McDonald’srealestatewashighlyprizedbyactivistsaswell.344

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Year 2015 

DON THOMPSON AttheendofJanuary2015,thenewsthatmanyexpectedcameacrossthewire:afterpresidingovertwoyearsofpoorfinancialperformance,CEODonThompsonwasleavingMcDonald’s.Theinvestorcommunityreceivedtheirwish:anewpersontoliftthebrandoutofitsmire.SteveEasterbrook,recentlyrehiredbyMcDonald’safterquittingtobeCEOattwodifferentrestaurantsinan18‐monthperiod,wouldbethenewCEO.Mr.Easterbrookappearedtohavethesupportofmanyintheinvestmentcommunity.ManyobserversvoicedtheiropinionsthatMr.Thompsondidnotactwithsufficienturgencytogalvanizetheorganizationaroundrevitalization.TheysawMr.Easterbrook’sworkintheUKasproofthathewasreadytotakeupthechallengesthatwereaffectingcustomertraffic.NeilMunshiofFinancialTimeswrotethattherewereanalystswhothoughtputtingyetanotherMcDonald’sveteraninchargewasnottherightthingtodo.CouldsomeonefromwithinwhohadbeenaroundMcDonald’simplementthenecessarystrategicchanges?345Mr.Thompson’sdeparturespurredJenkinsHolman,anopinioncolumnistforTheWallStreetJournal,tocommentthat,“IfthereisalessonforDonThompson,itisthateveryorganizationkeepsdoingwhatworksuntilitnolongerworks.McDonald’sproblemsareeminentlyfixable.TheideathatMcDonald’sisdoomedbecausefastfoodispasséissilly.Theeasiestpartistostopdoingwhatisn’tworking.”346OneanalystwaspositivelyimpressedthatMcDonald’smovedsoquicklytochangetheCEO.Afterall,DonThompsonhadbeenCEOfor2½years.Duringthattime,hehadnotbeenabletochangethetrajectoryofthebrand.HehadtheunfortunatepositionoftakingoverwhenJimSkinnertookretirement,thebeginningoftheMcDonald’sdownturn.McDonald’shadnotrecordedariseinsalesatestablishedstoressinceOctober2013.347

FINANCIALS 2015beganwithafeelingofunhappyfamiliarity.Itwas2002whenMcDonald’slastreportedafourth‐quarterloss.Whatfollowedwasoneofthemostimpressiveturnaroundsinbusinesshistory.CEOJackGreenbergwasfired;anewseniormanagementteamofCantalupo,Bell,andCFOPaullwerejoinedbyCMOLightindevelopingtheturnaroundPlantoWin;andthenewbrandcampaign“i’mlovin’it”launched.As2015started,thebrandwastroubledagain.AsTheWallStreetJournalstated,“Thingsmayhavetogetworsebeforeitgetsbetter.”348Withthestartof2015,McDonald’sseemedtoagreethatearningswould“remainunderpressureforthenextseveralmonths.”CEODonThompsonrepeatedhis2014statementthattherewouldcontinuetobemajorchallengesforthebrand.Hereiteratedthatthemanagementteamwasforcefullyattackingthesechallengesbutthatanalystsandinvestorsshouldunderstandthatitwouldtaketimeforthestrategiestobeeffectiveandshowresults.Hedidmentionthatalongwiththeslimmermenuandthecustomizedoptions,CMODeborahWahlintroducedanewadcampaign.Itwasveryshortlived.In

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contrasttoMcDonald’srelativelygoodperformanceduringtherecession(JimSkinner’sstatementthatthebrandwas“recessionresistant”),FinancialTimesreportedthatnowthattheworld’seconomieswereintorecovery,McDonald’swasnotattractingpeoplebacktothebrandtothesamedegreeaspreviously;inotherwords,McDonald’swasappearingtoberecoveryresistant.349So,thenewsforJanuary2015wasnotasurprise.McDonald’scontinuedonitsdownwardtrajectory.Januaryglobalsame‐storesalesdecreased1.8%.Thiswasalargerfallthanthe–1.2%analystshadpredicted.IntheU.S.,same‐storesaleswereupamere0.4%.McDonald’sblamedtheassertiveactionsofitscompetitorsthattookawayfromanysalegainsMcDonald’smadewithitsbreakfastitems.AnalystscontinuedtopointtotheMcDonald’smisstepsoftoomanyitems,toomuchoperationalcomplexitythatslowedsales,andtoomuchstandardizationthatfoughtthedesiredcustomizationMillennialswant.SomeoftheorganizationalchangesthatwerejustinitiatedweredesignedspecificallytoaddressChipotleandothers.However,asMikeAndres,McDonald’spresident,commented,“Therearepocketsofsuccess.”AlthoughDonThompsonsaidthechangeswouldtaketimetotakehold,manyinthefinancialcommunitysaidthesechangeswerenotenoughandnotintime.TherewasconcernamonginvestorsthatifMcDonald’swentforfrequentdealbehavior,discountingatanaggressivepace,thefranchiseeswouldfightback.Inthemeantime,Mr.Thompsonwasreceivingnoapplauseforhisstrategies,whichmanyanalystssawasundifferentiated.350Februarysalesdemonstratedhowdifficultthesituationwouldbeforthenewmanagementteam.U.S.same‐storesalesdropped4%.Analystshadexpectedthedeclinetobeonly–0.7%.Februaryglobalsame‐storesalesdeclined–1.7%versustheanalysts’estimatesofa–0.3%fall.ObserverswerequicktopointoutthatthesefigureswerereflectingthelastgaspofDonThompson’sCEOtenure.Butatthesametime,thepoorperformanceclearlyshowedtheneedforanimmediatestrategicshift.SteveEasterbrookreplacedDonThompsonasCEO.Mr.Easterbrook,theCEOasofMarch1,reiteratedthebrand’sneedtomorphintoa“modern,progressiveburgercompany.”McDonald’sissuedastatementtryingtoexplaintheproblemsfacingthebrand.Inastatement,McDonald’ssaid,“ConsumerneedsandpreferenceshavechangedandMcDonald’scurrentperformancereflectstheurgentneedtoevolvewithtoday’scustomers,resetstrategicprioritiesandrestorebusinessmomentum.”However,asTheNewYorkTimesremarked,McDonald’striedtochangecustomers’mindswithamarketingcampaign“PaywithLovin’”thatwasnotsuccessful.351(Seethelater“Marketing”sectiontounderstandhowunfortunatethiscampaignreallywas.)Marchearningswereratherdismal,withMcDonald’sprovidingaglobalwarningthatithadfewercustomersfrequentingitsrestaurants.IntheUnitedStates,same‐storesalesdropped–2.6%inthefirstquarter.ThisincludedaMarchdeclineof–3.9%,muchworsethananalystestimates.Totalprofitforthequarterplunged32%,alsoworsethananalystestimates.However,newCEOSteveEasterbrookstatedthathewouldbeannouncingsignificantstrategiesdefininghisplanforaMcDonald’sturnaround.Mr.Easterbrookwasquiteclearthatincrementalstepswouldnotbeacceptable;hewasaboldrisktaker,andhewouldprovidemajorstrategiestoimmediatelyfixthe“fundamentals.”Mr.Easterbrookbelievedthathisfirstactionsof“simplifyingofferings,introducingpremiumsirloinburgersandpromisingtolimitantibioticsinchicken”were

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indicationsoftheaggressivenesshewouldcontinuetodisplay.Hepromisedthatacriticalstrategywouldbefindingthebalancebetweenaddingnewimportantitemswhilereducingthecomplexityofanoverstuffedmenu.JanneyCapitalMarketsanalyst,MarkKalinowski,indicatedthatMr.EasterbrookmustaddressthefrustrationsoftheU.S.franchisees,whowerebecomingmoreandmoreirritatedwiththebrandleaders.352AMarchUBSinvestoreventgaveMcDonald’sanopportunitytoaddresssomeofthebigissuesthatwereplaguingthebrand.InattendancewerePeteBensen,chiefadministrativeofficer;KevinOzan,CFO;ChrisStent,VPofinvestorrelations;andJenniferHeiser,seniordirectorofinvestorrelations.Mr.KeithSiegnerofUBSwasthemoderator.

“PeteBensenstatedattheopeningthat2014wasa“disappointingyear.”Allkeyindicatorshaddeclined.HetoldtheaudiencethatMcDonald’swasintheprocessoffillingtheinnovationpipelinewhilelocalizingitemsalongwithmarketingefforts.AlloftheseeffortsweredesignedtomakeMcDonald’srelevanttotoday’scustomersregardlessofgeography.HealsoreiteratedthegoalofbecomingadestinationofferingmorepersonalizeditemsrightnowspecificallytheeffortsaroundtheCreateYourTastemenu.And,Mr.BensensaidthatMcDonald’swasbecomingamuchimprovedplayerinnewtechnologiesdesignedtomakeMcDonald’smorecontemporaryandconvenient.Mr.Bensencommentedonbrandtrust.HesaidthatMcDonald’stookthelossoftrustinitsfoodqualityveryseriously.HesaidthatMcDonald’swouldbemovingtotacklefoodqualityandglobalsustainabilitywithtargetedactions.“NewCFO,KevinOzancommentedontheeffortsMikeAndresandhisteamsweretakingtoredesignanew,moreagile“organizationalstructure.”TheaimofthenewreorganizationwouldbetoplaceaccountabilityintheregionsandinthepurviewofMcDonald’slocalteams.So,Mr.OzansaidthatMikeAndreswas“empoweringeachofour22regions”toshouldermoreaccountabilitywhenitcomestodevelopingnewproductsandcreatingproductpromotions.Theideawouldbetogenerateproductsthataremorerelevanttodifferentlocales.Mr.Ozanalsomadeanoteofthenew,simplifiedmenu.Additionally,hespokeaboutthe“Lovin’campaign”thatallarticlessaidwasafailure.But,Mr.Ozansaiditwashavingmajorpositiveaffect.HealsosaidtheadcampaignwasamajorfactorintheplantoenhanceMcDonald’squality:wewilltellpeoplethatwearequality.Mr.OzandidrepeatthestatementthatDonThompson,justfired‐CEO,wasreiterating:“turningthebusinessaroundintheUSwilltaketime.”ThishasbecomeMr.Easterbrook’smantra.“Mr.Bensenexplainedthe3‐prongedapproachMcDonald’swastakingtochangecustomerperceivedqualityatMcDonald’s.Theprogramfocusedon1)Educationandthatmeansbeingtransparent;2)antibioticfree,althoughjustforchicken;and3)innovatingaroundwhatcustomersaretellingustheywant.Mr.Bensenalsodiscussedtheneedformenusimplification,whichhasasitsgoalcustomereaseoforderingandcrewmembereaseofdelivering.Hedidsaythatitwastheintentiontoremovethoseitemsthatarenotsellingwell.”353

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AprilwasabettermonthforMcDonald’searnings.ResultsreportedinMayindicatedthatitwasthebestmonthlyperformancein2015.U.S.salesdeclined2.3%,whichmatchedanalystestimates.354NewsservicesreportedinJunethatMaysalesweredown.355AZacksEquityResearchonlinepieceinJulydiscussedtheviabilityofMcDonald’sshares:“CanMcDonald’s(MCD)KeeptheEarningsStreakAlive?”ThewriterstatedthatMcDonald’shadbeenshowing“sluggish”comparablesalesandhadbeenhitveryhardbythefoodqualitycrisisinChina.However,theauthorbelievedthatthestrategiesinplacewouldbesuccessful,includingeffortstofillthepipelinewithinnovations,offeravaluemenu,usemorepromotionalitemsaslimitedtimeoffers,andfurtherextendingbeverages.Also,thebloggersaidthatreducingtheitemsonthemenuandtestingtheCreateYourTastescustomizedmenuwouldhelpMcDonald’scompetewithpopularrestaurants.However,evenwithalltheseinitiatives,McDonald’sdidindicatethatsaleswouldcontinuetobeweak.356Thesecond‐quarterMcDonald’searningscalltookplaceonJuly23,2015.CEOSteveEasterbrookandCFOKevinOzanansweredquestionsaftertheiropeningremarks.Mr.Easterbrookidentifiedalltheinitiatives,frommenutrimmingtocustomizationtovalueinitiativestothefosteringofgreatrelationshipswithfranchisees.Regardlessofgeography,Mr.Easterbrooksaidthatthereweremanythingsongoingandtheseweredesignedtoturnaroundthebrand.Hesaidthatfixingthebrandwasnothisresponsibility;thelocalfranchiseesandtheregionalteamswerenowcompletelyresponsible.IntheU.S.,whichis40%ofthebusiness,thesituationwasmoreseverethanintherestoftheworld.Mr.Easterbrookrepeatedthatthiswasnothisfaultbutwasdueto“threeyearsofdecline”…happeningbeforehecameonboard;therefore,hewasdoinghisbest.Hestatedseveraltimethatheandthefranchiseeswerecompletelyaligned.HesaidintheU.S.,fixingthebrandmeantgoingbacktobasics.Ontheotherhand,hepushedcustomizationandincreasednumbersofbeverages.Mr.Easterbrooksaid,“Thereisnosilverbullet”fortheturnaround;itwouldtakealongtime.Therewasadiscussionaboutthe$2.50valueofferduringthesummerthatfailed.Mr.Easterbrooksaiditsfailurewasduetootherthingsfranchiseeswantedtodo.Mr.Easterbrookusedthewordenergyatleast20timestodescribehowbusytheywereintryingdifferentthingstojump‐startthebrandintheU.S.InoutliningtheCreateYourTastesAustraliatest,itwasclearthatitwasnotworkingasplanned.Whenaskedhowitwaspossibletoreducemenucomplexitywhileincreasingcomplexitywithdrinksandcustomization,Mr.Easterbrookhadnoclearanswerexceptthattheteamwasveryenergetic.357ByJuly,thepressreportedthatMr.Easterbrook’sinitiativeswerenothavingthedesiredeffect.McDonald’sreportedthatresultswere“disappointing.”SalesintheU.S.weredown2%inthesecondquarter,whileglobalsalesfell0.7%.McDonald’snetprofitsank13%inthesecondquarter.FinancialTimesstatedthatboth“salesandprofitssank.”And,thetumblingwasworstinthebrand’shomemarket.TheNewYorkTimesreportedthatallthenewproductshadnotgarneredtheresultseveryoneatMcDonald’sexpected.However,SteveEasterbrookcontinuedtosaythattherewasmomentum.Hismessageconfusedanalystsashestatedthathewasgoingforsimplificationwhileaddinginitiativesandproductsthatcreatedcomplexity.Furthermore,totheconcernoftheinvestorcommunity,Mr.Easterbrookdidnotputatimeframeforsuccessonthe

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programs.TheNewYorkTimesalsocontrastedthefeelingsoffranchisees,whohadsomeskininthegame,withinvestors.FranchiseeswerebeyondfrustratedwithEasterbrook’sinitiatives,whileinvestorswere“moreforgiving.”AsMr.Easterbrookcontinuedtostate,hewascompletelyconfidentthatthetransformationtoadifferentkindofburgerplacewouldhappen.358OnSeptember30,inthe“WallStreet”columnofFinancialTimes,therewasasmallblurbonaCreditSuissereport.AnalystsatCreditSuisseupgradedMcDonald’sstockto“outperform.”Inadvanceofthird‐quarterreportingfromMcDonald’s,CreditSuissesaidthatintheiropinion,CEOSteveEasterbrook’sturnaroundwasgainingtraction.McDonald’shadsaidthatitexpectedglobalcomparablesalestobepositiveinthirdquarter,andCreditSuisseresearchcheckssupportedMr.Easterbrook’spromise.359However,TheWallStreetJournal,inits“AheadoftheTape”columnonOctober22,indicatedthatthecurrentMcDonald’sapproachwasnotenough.McDonald’shadexperiencedthebestsame‐storesalesgrowthsince2012,thearticlereported.Butitalsoindicatedthattherewasnoplacetogobutup.TheAllDayBreakfastinitiativemaynotbeenough,asinvestorswerehopingforaREIT.Many,though,believedthatMcDonald’swouldnotcreatetheREITandinsteadwouldcontinuetosellrestaurantstofranchisees.360Forthird‐quarter2015,McDonald’sexperiencedaslightrecovery,butthecompany‐storeemployeewageraisesnegativelyaffectedprofits.Inareviewoftheresults,FinancialTimesreportedthattheincreaseinsalesgrowthhappenedinspiteofthefactthatMcDonald’sclosedmoreU.S.restaurantsin2015thanitopened.361InvestorsdidgettheirwishinregardstoMcDonald’sperformancewhenthird‐quarterresultswereannouncedthenextday.McDonald’ssaidthattheimprovedresultswereduetochangestothemenuandanewcorporatestructuredesignedtoreenergizethebrand’simage.However,withanimprovedshareprice,thepossibilityoftheREITseemeddimmer.Inthethird‐quarterreporting,McDonald’ssaidthatcustomersatisfactionscoreswererisingduetobetteroperations.TheinterestnowwasinthesuccessofAllDayBreakfast.362Foursquare,anapp‐basedgeo‐locationservice,said,“…visitstoMcDonald’sstoresaroundthecountryincreasedby9%ineachofthefirsttwoweeksthecompanybeganofferingbreakfastitemsallday—butbythethirdweek,visitswereontracktoberoughly2%higher.”FoursquarecomparedthiscustomerbehaviortotheTacoBellbreakfastinitiative,wherevisitsleaped25%foraboutthreeweeks.“Afterthenoveltyworeoff,trafficwentto5%to10%addingabout7%tosales.”InaninvestorcallonOctober22,CEOSteveEasterbrooksaid,“We’refocusingonfewer,biggerinitiatives,andtheprogresswe’vemadeinashortamountoftimegivesmeconfidencethatwearemakingtherightmoves.”Mr.Easterbrookcontinued,“Partofthebiggerpictureisrunningbetterrestaurants,runningbetterteams.”HealsoindicatedthatsimplificationwasacriticalfocusatMcDonald’snowandthatsimplificationwasmorethanjusttakingitemsoffthemenuboard.“…menuispartofitbutthereisalotmorewecandotohelpsimplifytherestaurantsonaday‐to‐daybasis,”hesaid.363Investorsandactivistsaswellasthelargerfinancialcommunitywereanticipatingastrongthird‐quarter2015performance.Aftertwoyearsofdeclines,itwasexpected

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thatthechangesinitiatedbyCEOSteveEasterbrookwouldhaveapositiveeffect.ThefinancialcommunitywasalsoanticipatingmorenewsonsharebuybacksaswellastheansweronspinningofftherealestateintoaREIT.364AsreportedinFinancialTimes,“investorswereeagerlyawaitingtheinvestormeetingonNovemberanalystsmeeting,”andalthoughthesharepricewaslittlechanged,itdidrisemorethan20%fortheyear.365WhilewaitingformoredetailontheeffectofAllDayBreakfast,CEOSteveEasterbrookprovided“optimism”thatitwouldbeaprofitableinitiativeandwouldbeaddingtosame‐storesales.TheNewYorkTimeswrote,“Franchisees,wholonglobbiedforAllDayBreakfast,arenowcomplainingthatwhileithasaddedincrementalsales,italsohascomplicatedoperations.”366

REIT Spinoff DuringaninvestormeetingonNovember10,McDonald’squashedtheideaofspinningoffitsrealestateandcreatingaREITasmanyactivistshareholdershadrecommended.TheCEO,SteveEasterbrook,saidthatMcDonald’swouldfindotherwaystofinanciallysatisfyshareholders.Hesaidthatafteradetailedreview,thecompanybelievedaREITwouldbetooriskyasMcDonald’sbusinessmodelwasbasedonrentalincomefromfranchisees;thiswasabigportionofMcDonald’srevenues.AndMr.EasterbrookpointedoutthatREITshavegeneratedenoughconcernthattheTreasuryDepartmentandtheIRSareinvestigatingtheREITconstruct.McDonald’swasclearthatthecompanywouldstillrewardinvestorswithcashbyaccumulatingdebteventhoughthiswouldharmitscreditrating.367

STEVE EASTERBROOK SomebelievedthatSteveEasterbrookmightbetherightpersonfortheMcDonald’sjobbecause,althoughaMcDonald’sveteran,heseemedtohaveanoutsider’spointofview.AssomeonewhocamewithoverseasexperienceandwasaCEOattworestaurantchainswithinthepasttwoyears,hewasseenashavingtheabilitytorevivethebrand.Mr.EasterbrooktookcontrolonMarch1.ThereweresomeobserverswhosaidMr.EasterbrookwastheforcebehindMcDonald’sUKrevival,althoughthiswasnotaconsistentview.Ontheothersideoftheopinionequation,therewerethosewhothoughtMcDonald’splayeditsafeagainbyhiringaninsider.OutsideoftheCantalupo/Bellpairing,therehadnotbeenmanyrisktakersintheMcDonald’sCEOjob.AssomeonewhoknewwhataMcDonald’sturnaroundrequired,LarryLight,aconsultant,formerchiefmarketingofficerforMcDonald’sduring2002–2005,andco‐authorofthisbook,said,“Mr.EasterbrookwillneedtomovemorequicklythanMr.Thompsoninaddressingthecompany’sbloatedmenu,slowingcustomerserviceandothershortcomings.Idon’tblameDonfortheproblems[atMcDonald’s],buthedidn’tactfastenough,dramaticenoughanddecisivelyenough.”Mr.Easterbrookhadhisworkcutoutforhim:McDonald’swasexperiencingadownwardspiraloflossofcustomers,lossoftrust,poorservice,andcomplaintsaboutthequalityofthefood.Mr.LightaddedthatMcDonald’smust“focusonitsdirectcompetitors,includingBurgerKingandfast‐growingburgerchainslikeFiveGuysandShakeShack,andnotworrysomuchaboutrestaurantchainslikeChipotleMexicanGrillInc.andPaneraBreadCo.thatappealtohealth‐focusedconsumers.‘Inaturnaround,youhavetofocusonyourdirectcompetitivesets.Youdon’thavetheluxuryoffocusingontheindirectset.’”368

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UpontakingcontrolofMcDonald’s,onMarch2,SteveEasterbrookmadesurethatthebusinesscommunityunderstoodhispositionsonsavingMcDonald’s,beingthesaviorofthebrand.Hecontinuedtousehis2006visionfortheUKbrandashisnewmantrafortheglobalbrand:modern,progressiveburgercompany.Mr.Easterbrookdescribedhimselfasan“internalactivist”whowouldbeboldandaggressiveinchangingtheimageofthebrand.Inhisself‐introduction,hesaidthathewouldspeakofhisideasatan“internalturnaround”eventscheduledforthefollowingweek.TheWallStreetJournalwrotethatithadvieweda“draftagenda”forthismeeting.TheagendahighlightedMr.Easterbrook’sgoals:“gettheorderrighteverytime,”and“changetheconversationaboutMcDonald’s—counterattackbranddisparagerswithcontinuouspositivenewsonfoodqualityandemploymentimage.”369ManybelievedthatMr.EasterbrookwasthepersontoturnaroundMcDonald’s.WhoeverwrotetheApril27“SeekingAlpha”opinionpieceunder“TheSpecialist”columnsaidheorshebelievedinMr.Easterbrook.ThewritersaidthatitisaRayKroctypeofgoaltosaythatMcDonald’sshouldbeaburgercompanynotan“everything”company.“SeekingAlpha”wentonthelineforMr.Easterbrook.370OnMay3,TheWallStreetJournalreportedthatMr.EasterbrooksaidhewouldbeexplaininghisvisionforMcDonald’sshortly,anditwouldoutlineexactlyhowhewouldturnaroundthebrand.371

STEVE EASTERBROOK’S MCDONALD’S TURNAROUND PLAN May4,2015,wasthedaymanywerewaitingfor:Mr.Easterbrook’splanforrevitalizingMcDonald’s.HismainfocuswouldbearestructuringofMcDonald’sworldwidebusinessandfinancialupdates.Hesaid,“Todayweareannouncingtheinitialstepstoresetandturnaroundourbusiness.AswelooktoshapeMcDonald’sfutureasamodern,progressiveburgercompany,ourprioritiesarethreefold—drivingoperationalgrowth,returningexcitementtoourbrandandunlockingfinancialvalue.”Mr.Easterbrookwasquiteclearthathisvisionforbeingasuccesshadtobeginwithreorganizationinternallyandexternallywithfranchisees,changingtheownershipmix.Heexplainedthestructureasfollows:

1. UnitedStates(40%andmoreoftheCompany’s2014operatingincome)2. InternationalLeadMarkets(Australia,Canada,France,Germany,andtheUKand

+40%oftheCompany’s2014operatingincome)3. High‐GrowthMarkets(China,Italy,Poland,Russia,SouthKorea,Spain,

Switzerland,andtheNetherlands;accountingforabout10%oftheCompany’s2014operatingincome)

4. FoundationalMarkets(remainingmarketsintheMcDonald’ssystemMr.Easterbrookthenindicatedwhowouldbeinchargeofleadingeachofthesenewregions.

MikeAndreswouldcontinueaspresidentofMcDonald’sUnitedStates.

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DougGoare,currentlypresidentofMcDonald’sEurope,wouldnowbepresidentofInternationalLeadMarkets.

DaveHoffmann,currentlypresidentofMcDonald’sAsia/Pacific,MiddleEast,andAfrica(APMEA)wouldnowbepresidentofHigh‐GrowthMarkets.

IanBorden,currentlythechieffinancialofficerofMcDonald’sAPMEA,wouldbecomepresidentofFoundationalMarkets.

AsforthepossibilitythatMcDonald’swouldbecomean“assetlight”organization,Mr.EasterbrookindicatedthatMcDonald’swouldrefranchise3,500restaurantsbytheendof2018.ItwasalsohisdesirethatMcDonald’scontinuetoreturncashtoshareholdersthroughincreaseddividends.HesaidMcDonald’splannedtoreturn“$8to$9billiontoshareholdersin2015andtoreachthetopendofits3‐year$18to$20billioncashreturntoshareholderstargetbytheendof2016.”372TheNewYorkTimesreportedMr.Easterbrook’sperformanceas“operational”whenlistenerswereclearlyexpectingmore.Thereportersaidthattheinvestorcommunityaswellasfranchiseeswereexpectinghuge,boldnewsbutinsteadwereprovidedwithastraightforwardvideomessagedetailingorganizationalrestructuringandnothinginspirationalorbrand‐focused.Withtheseriousdeclineinallkeyperformancenumbersandthenownegativebrandperceptionsamongcustomers,thoselisteningheardaboutthewaythebusinesswouldbemanaged,asifcustomersreallythoughtaboutthat.Mr.Easterbrookpromisedamorphingintoa“modern,progressiveburgercompany.”TheNewYorkTimessaidthatMr.Easterbrook“initiallyappearedtomovequickly.”HedescribedhowMcDonald’swouldsimplifythemenutoaidinreducingcomplexityandshortenwaittimes,hepromiseda“personalizedmenuthatallowscustomerstocustom‐buildsandwichesfromamenuofhigher‐qualitymeats,toppingsandbuns.”Reportswerethatthetestsforthepersonalizedmenu,CreateYourTaste,werenotaspositiveasMr.Easterbrookmadeitsound.Hefinallyacknowledgedthatthisprojectwas“aworkinprogress.”TheNewYorkTimesalsosaidthatitlearnedhow“McDonald’sisalsotestingadownsizedversionofthatprogramthatissaidtoallowbothstoreanddrive‐thrucustomerstochooseabunandoneoffoursandwichtypes.”Mr.Easterbrookwassomewhatopaqueregardinghowhewouldfixthefoodqualityperceptions.Whenajournalistaskedaboutfoodquality,“Mr.Easterbrookwasnoncommittal.”373SusanBerfield,inBloombergBusinessweek,reportedthatthediscussionaboutthefutureofMcDonald’swas,infact,lightontheelementofthefood.Asshewrote,thevideoopenedwithpromisebutbecamean“underwhelming”talkfocusedsolelyon“McDonald’soperationsandfinances,notitsfood,whileimplicitlyacknowledgingthattheburgergiantreacheditsU.S.peakseveralyearsago.”Mr.EasterbrookpresentedaveryU.S.‐centricviewbysaying,“theUSstandsalone.”Toappeasehisactivists,Mr.Easterbrookfellintolinebysayingthat,“McDonald’swouldsellsomeoftherestaurantsitoperatestofranchisees.”HerewashowMs.Berfield,whofollowsMcDonald’s,statedthecurrentsituationafterMr.Easterbrook’disappointingsession:“TheimpressionEasterbrookleftisthatMcDonald’shopestokeepshareholdershappybyreducingexpenses(around$300millionayear)andgivingthembackcash($8billionto$9

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billionthisyear.)Duringacallwithinvestorslaterinthemorning,PeteBenson,thecompany’schiefadministrativeofficer,insisted:‘We’renotabandoninggrowth.’”Ms.Berfieldendedbysayingthatpeoplelisteningwantedtohearsomeexcitingnewsaboutmenuand“insteadwegotwordofaneworganizationalchart.”374MostreportersexpresseddismaythatMr.Easterbrook,whosaidhewouldbebold,gaveanewversionofhowthecompanywouldbeorganizedinsteadoffocusingonthekeycustomerissues.375Aftermonthsofdoubtsfromthefinancialcommunity,QSRMagazinereportedonCEOSteveEasterbrook’sturnaround,encapsulatingthepositiveresponsesfromMcDonald’sannouncements.AtaninvestormeetingonNovember10,2015,themanagementteamprovidedthisinformation:

Theexpectationofpositivefourth‐quartercomparablesalesinallsegments Globalrefranchisingofaround4,000restaurantsthrough2018withthegoalof

becoming95%franchised Anincreaseinthefourth‐quarterdividendby5% AnoptimizationleadingtoincreasedcashreturnstoshareholdersofaroundU.S.

$30billionforthethree‐yearperiodending2016.Theincrementalcashwouldbeacquiredthroughdebt.

ThedecisiontonotpursuetheREIT.Mr.Easterbrooksaid,“Thecornerstoneofoursystemisourpowerfulandenduringbrand.Whilewearestillintheearlystagesofturningaroundthebusiness,wearegainingmomentumbyfocusingonourcustomersandwhatmattersmosttothem—hotandfreshfood,fastandfriendlyservice,andacontemporaryrestaurantexperienceatthevalueofMcDonald’s.MyprioritiesforMcDonald’s—asamodern,progressiveburgercompany—arethree‐fold:drivingoperationalgrowth,creatingbrandexcitementandenhancingfinancialvalue.Wearetakingbold,urgentactiontoresetthebusinessandpreparethecompanyforthenextchapterofitshistory.”Hecontinuedbyaddingthatthecompanymustrungreatrestaurants.376

KEVIN OZAN DuringthefirstweekofFebruary,MattPaull’ssuccessorasCFOwasreplacedbyaSteveEasterbrookchoice,KevinOzan.Mr.Bensenwaspromotedtochiefadministrativeofficer.AnalystsunderstoodthenewappointmentsaspartofSteveEasterbrook’sbeginningmanagementshuffle.377

RICHARD GIBBS InJune,McDonald’shiredformerObamapresssecretaryRichardGibbs.Itwasfeltthatwiththelaborissuesandthefoodqualityissues,aformidablePRpersonwasneeded.378

CHRIS KEMPCZINSKI ChrisKempczinskiwaspreviouslytheexecutivevicepresidentofgrowthinitiativesKraftFoodsGroup,Inc.InhisnewMcDonald’srole,Mr.Kempczinski,wasnowpartofCEOSteveEasterbrook’snewteamasexecutivevicepresidentofstrategy,business

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development,andinnovation.Mr.Kempczinski’srolewasdescribedas“overseeingstrategydevelopment,planning,innovationandnewconcepts.”379

ADAM KRIEGER AspartofcreatinganewteamtotransformMcDonald’sintoamodern,progressiveburgercompany,CEOSteveEasterbrookfiredAdamKrieger,whohadbeentheheadofstrategyatMcDonald’s.Mr.Kriegerrosetothispositionduringthe2002–2005turnaround.Hewasa14‐yearMcDonald’sveteran.ChrisKempczinski(seetheprevioussection)filledhisrole.380

SILVIA LAGNADO CEOSteveEasterbrookhiredanewglobalCMO,SilviaLagnado.Ms.LagnadocamefromexecutivemarketingpositionsatBacardiLtdandUnileverPLC.381

RICH FLOERSCH Aspartofthe2003turnaroundteam,RichFloersch,McDonald’sheadofHR,playedacriticalroleinsupportingthepeoplePofthePlantoWin.Hewasresponsibleforhelpinggalvanizetheentireorganizationaround“i’mlovin’it”andthestrategicconceptof“ForeverYoung.”HeworkedtoinspireandimplementchangestotheperceptionofMcDonald’spositionsasMcJobs,includingairingcommercialswithfamousindividualswhosefirstjobwasatMcDonald’s.Mr.FloerschresignedonDecember31.382

DAVID FAIRHURST ReplacingMr.FloerschwasDavidFairhurst,whocamefromMcDonald’sUK.Hand‐pickedbyCEOSteveEasterbrook,Mr.FairhursttookonMr.Floersch’sresponsibilitiesandoversightofglobaltrainingonOctober1,2015.383

 MARKETING Chicken Nuggets Januaryisthemonthforchickenwingsandnowchickennuggets—thinkSuperBowlandcollegebowlgamesintheU.S.BurgerKingandMcDonald’swerefocusedonchickennuggetspromotionsratherthanhamburgers.Thedifferenceinpricewas15¢versus20¢.McDonald’sopenedwithits50‐pieceorderofnuggetsfor$9.99,or20¢pernugget.Notwantingtobetheloser,BurgerKingcounteredwithits10‐pieceboxofchickennuggetsfor$1.49(closetohalftheregularprice).ItwashopedbyMcDonald’sfranchiseesthatthe50‐pieceboxwouldbeabigwinnerforSuperBowlviewing,raisingsalesthatwereinaseriousslump.384(N.B.:BurgerKingranthe$1.49nuggetpromotionagaininDecember2015duringtheHolidaycollegefootballbowlseason.)

“You Get to Pay with Lovin’” Campaign InFebruary,KateBachelder,areporterwhofollowstherestaurantbusiness,stoppedbytheMcDonald’snearhergateatO’HareairportinChicago.Shedescribedinexcruciatingdetailtheembarrassmentofbeingcaughtintheoutputofacampaignshesaid,“…shouldneverhavelefttheconferenceroom.”Inherhighlightsoftheexperience,she

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recounted:“IwantedanEggMcMuffin.InsteadIfoundmyselfbeingurgedtoaskastrangertodance.”Fromherperspective,thiswasareallyunfortunatedevelopmentforthebrand.“McDonald’slookslikeit’stryingtoohardtolooktrendy.McDonald’sshoulddumpthe“love”mantraandgetbacktotheexcellencemantrathatmadetheEggMcMuffinaworldphenomenon.”385

Chef Geoffrey Zakarian  TheNewYorkTimesdecidedtotreatrestaurateurandFoodNetworkcelebritychefGeoffreyZakarian(chefandowneroftheLambsClubandculinarydirectorofthePlazaHotel)tolunchatMcDonald’s.Mr.Zakarianwasagoodsport.Hesaid,“McDonald’sshoulddowhatitdoeswell.Yougetthefeelingthatthey’rethrowingthingsagainstthewalltoseewhatsticks.Youcan’tbeallthingstoallpeople.”386

Our Food. Your Questions. TheWallStreetJournalpointedoutinMarchthattheissuessurroundingthe“transparency”campaignfromDeborahWahlhadnotgoneaway.SheappearedtobetakingdirectionfromSteveEasterbrookwho,asthearticlepointedout,usedsomethingsimilartothisintheUK.(WhatthearticleneglectedtosaywasthatthisQ&AapproachfailedintheUKandhadtobeyanked.)StephanieStrom,thereporter,described“OurFood.YourQuestions.”asa“marketingattempt”forMcDonald’stogaincontroloverthefoodqualityperceptionsstillplaguingthebrand.Ms.Stromsaid,“ConsumerscanwatchshortvideosthatanswerquestionssuchaswhethereachEggMcMuffinismadefromafreshlycrackedegg–itis–andaskingaboutthecomponentsofaChickenMcNugget(meatfromthechickenbreast,tenderloinandribsgroundwithasmallamountofchickenskin).”However,ashappenedin2014andwasstillhappeningwasthefactthatcustomerswerenotparticularlyhappywithwhattheywerelearningabouthowMcDonald’screateditsofferings.TheexampleusedbymarketersfocusedonMcDonald’sFrenchfries,itsiconiccoreproduct.TheexampleusedbymarketersfocusedonMcDonald’sFrenchfries,itsiconiccoreproduct.Whenthequestionwasposedonthewebsite,theanswerastowhatisinaMcDonald’sFrenchfrywasthatthereare19ingredients,includingdextroseanddimethylpolysiloxane.Worseyet,intheUK,thewebsitelistedonly5ingredients.Therearewaystodelivertransparencyandwaysnotto.SomeofthegraphicexposureappearstobeworkingagainstMcDonald’sascustomerssee“bigslabsofbeefbeinggroundintohamburger.”387AreporterforForbes.comsaidthatalthoughMcDonald’swasourfamiliarAmericaniconwithfriendlystaffandiseverywherewego,hehas“nointentionofeatingFrenchfrieswith19ingredients.”388

Deborah Wahl LewisLazare,thebluntreporterfortheChicagoBusinessJournalinMcDonald’shometown,reportedthathesatthroughavery“scripted”andmechanicalmarketingvisionfromCMODeborahWahl.Hestatedthatfor4minutes,hewassubjectedtoaDeborahWahlvideofilledwith“buzzwordsandphrases”toleteveryoneknowthatitwastimeforMcDonald’stochangecustomerperceptionsofthebrand.Mr.LazaresaidthatitwasMs.Wahl’svisiontomovefrom“billionsservedtobillionsheard.”389

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McDonald’s Brand Perceptions TheresearchcompanyYouGovreportedinMarchthatperceptionsofMcDonald’shaddeclined.However,italsostressedthatbecauseMcDonald’swassobig,ithadabiggercustomerbaseand,therefore,McDonald’sshouldcontinuetobeseenbyitscompetitionasapowerfulcompetitor.TheYouGovstandardizedBrandIndexreportsaidthatwhileMcDonald’scustomerperceptionshaddroppedoverthepasttwoyears,“theystillhavemorecustomersthanotherrivals.”390

Migrant Aid Workingwithotherlargeorganizations(DreamWorks,forexample),McDonald’swasraisingmoneytopromotetheUN’sWorldFoodprogram.TheNewYorkTimeswrotethatMcDonald’ssawthisinitiativeasawaytoreconnectwithitsyoungercustomersasittriedtochangeitscorporateimage.ThenewspaperalsopointedoutthatjustrecentlyCEOSteveEasterbrookrebuffedBurgerKingeffortsforjointCorporateSocialResponsibility,eventhoughBurgerKingwasalsoaparticipantinWorldFoodProgram.391

LARRY LIGHT: “HOW TO REVIVE MCDONALD’S” AstheformerCMOofMcDonald’sduringthe2002–2005turnaround,thepresscontinuedtoaskLarryLightwhathewoulddototurnaroundMcDonald’s.InanopinionpagearticleforTheWallStreetJournalonFebruary11,2015threeweeksbeforeSteveEasterbrook’sofficialstartdate,Mr.Lightlisted10actionsMcDonald’sshouldtaketorejuvenatethebrand.(Thefullarticleisavailableatwsj.com.)

1. Stopthehemorrhaging.2. Focusonthedirectcompetition.3. Fixthefood.4. Restorefastfoodservicetofastfood.5. Focusisfundamental.6. Restorerelevance.7. Re‐energizethePlantoWin.8. Adoptadisciplinednewproductprocess.9. Internalmarketingcomesfirst.10. Rebuildtrust.

Responsetothearticleacrossabroadswathofindividualswasextremelypositive.TheonlinecommentssupportedthetenactionsandgeneratedahighlyfocusedlistofcurrentproblemsMcDonald’sfaces.Withthecaveatthatthe“sample”of300websiteresponderswerereadersofTheWallStreetJournal,alloftherespondersindicatedfamiliaritywiththebrandandindicatedthattheirexperienceswererelativelyrecent.Thecommentscreateablueprintfor“fixing”thebrand:statingareaswhereMcDonald’smustquicklyreform.392HereisaviewofhowthesepeoplefeltaboutMcDonald’sasofFebruary2015.(Pleasenotethatthese“problems”arenotinanyparticularorderofimportance.)393

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BREAKFASTThehashbrownellipseisunhealthy.Thehashbrownellipseisgross.Thereisnoappealingbreakfastsideitem.YoucannothaveanEggMcMuffinallday.Theorangejuiceistooexpensive.Theyonlyoffermargarinewiththehotcakes.Breakfastisnot24hours.MyEggMcMuffinwasfrozenontheinside.MyEggMcMuffinwascookedinoilthatturnedrancidandbitter.MyEggMcMuffinwasawful.COFFEETherearetoomanyfancycoffeedrinks.Thefancycoffeedrinksslowdownthedrive‐thruline.FOODThefoodisnothighquality.Thefoodiscold.Theburgersdonotusefreshmeat.Thefriesarenotmadefromfreshpotatoes.Thefoodtastesawful.Theyloweredthequalityoverall.Theymicrowavetheburgers.Theburgerstastelikecardboard.TheMcRibismadefromcowstomach.Theburgersarenotample.Thefriesarenotliketheyusedtobe.Thefoodqualityhasdeclined.Thefoodisinconsistent.Thefoodisroomtemperature.Thefoodisstale.Thefriesaremadefromfrozenpotatoes.Thefriesareinferior.Thefoodistooartificial.Themeatpattyisnotreal.Itisbadfood.Theyusesyntheticingredientsinthefood.Thepattiesaremadewithfillers.Thepattyisnotrecognizableasaburger.Theburgerdoesnotresemblea100%beefpatty.Theydonothavefreshcutfries.Thequalityofthebeefissuspect.Thefoodisinconsistent.Theyservemysterymeat.Thesandwichesaremadewithsimulatedmeatdisks.Thefriesaresoggyafter10minutes.Theburgertasteslikecardboard.

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TheMcNuggetsaremadewithprocessedchicken.Thefriestastebland.Thefoodisdriedup.Theoriginalshakeformulatastedbetter.DYINGBRAND/LOSTITSWAYThebrandisindecline.Thebrandwanderedawayfromitsstrengths.Itisabrandthatwillnotbearoundverymuchlonger.Theyhavechangedthe1950sambiance.Thebrandhasnoidentity.TheyhavechangedfromtheclassicMcDonald’s.TheyhaveforgottenRayKroc’srules.McDonald’sispassé.McDonald’sforgotitsoriginalconcept.SERVICEThefoodisnotservedfast.Thefoodisnotservedinapleasantenvironment.Thereissloppyservice.Theypayattentiontothedrive‐thrucustomersfirst.TheymakemefeelthatIamalowerprioritythanadrive‐thrucustomer.Thelinesaretoolong.Ihavetoendurealongwait.Iamtotallyputoffbythewait.Theserviceisnotfriendly.Theserviceisnotpolite.Idonotgetmymealquickly.Theserviceisinconsistent.Youhavetowaittoolongatthepeakhours.Theserviceisterrible.Therearetoomanypeopletakingtoolongtodecideatthecounter.Ifyouorderformorethantwopeople,somethingisalwaysmissinginthebag.Theserviceisnotcheerful.Therearetoomanyordersnafus.Therearetoomanyerrors.Theydonotcheckthecontentsofthebagbeforetheyhandittome.VALUEThepricesarenolongerreasonable.Ifeelrippedoff.Theychargeyouforextracondiments.Thepricesaretoohigh.Theportionsarenotagoodvalue.Theburgerpattiesaresmallerthanthebuns.Icangetthesamemealbutbetteratacompetitor.

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CLEANThefloorsaredirty.Therestaurantsarefilthy.Icannotdrymyhands.Theairdryerisunsanitary.Therearenopapertowels.Therestaurantsarenotclean.Therestaurantsarenotbright.Therearedirtytables.Thebathroomsarenasty.ThePlayPlacesareahavenforstaphinfections.Theydonotcleanuptherestaurantsduringtheday.Theairdryersintherestroomsarenasty.Thecleanlinessisinconsistent.Icannoteatinsuchadirtyenvironment.Theyhavestoppedcleaningthebathrooms.Adirtyfrontofstoremeansadirtybackofstorewheretheymakethefood.OPERATIONS&FACILITIESMANAGEMENTThestoresarepoorlyoperated.Thestoreslackoperationaldiscipline.Therearehomelesspeopleoutside.Theirrestaurantpracticesaresloppy.Thefacilitiesmaintenanceisinconsistent.Idislikeusingthelittleketchuppackages.Theoperationsareinconsistent.Itisanunattractiveplacetobe.Newstoresaredull.Newstoresareugly.Theysacrificedproductqualityforlowcosts.Theysacrificedtheirprocessesforlowcosts.Newstoresaredesignedforefficiencyonly.Thestoresneedfixing.MENUTheybecametootrickywiththefoodofferings.Themenuboardconfusesme.Themenuistooextensive.ThemenuissobusythatIcannotfindwhatIwant.Therestaurantpanderstothefoodradicals.Theyloadedupthemenuwithhealthystuff.Themenuisnotwelledited.Theygaveintothefoodpoliceregardingthemenuoptions.Themenuisajumbledmess.

CREWThestaffbehindthecounterlooksrathersad.Thereisusuallyanuptightmanagerbarkingorders.

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Thestaffhaslosttheirdignity.Thestaffcannotcountmoney.Thestaffislistless.Theemployeesarerude.Theemployeesareinattentive.Therearesurlyemployees.Thestaffisnotwelltrained.ThestaffdoesnotspeakEnglish.Theemployeesdonotengagethecustomers.Thestaffisdimwitted.Noonewhoworkstherespeaksproperly.DRIVE‐THRUTheaudioisbadatthedrive‐thru.Therearenohigh‐qualityaudiospeakersatthedrive‐thru.Theemployeesatthedrive‐thrudonotspeakEnglish.Theemployeesatthedrive‐thrudonotspeakclearly.Thedrive‐thrutakestoolong.Ihavetorepeatmyselfatthedrive‐thru.Thestaffatthedrive‐thrualwaysasksme“isthatall?”Noonelistensatthedrive‐thru.Thedrive‐thruisanirritatingexperience.Atthedrive‐thruIamgreetedbyacommercialthatendswithaskingformyorder.Therearesomanyerrorsatthedrive‐thru.HEALTHTheypromotepoorhealthwiththeirproducts.Theyareareasonforchronicdiseasesuchasobesity.Theburgershavetransfats.Itisnothealthy.EXPERIENCEItisnotfuntogothereanymore.Itisnolongeratreattogothere.Theexperienceisinconsistent.ThereisnowarmthatMcDonald’s.Youdonotfeelwelcome.Itisnolongerasimpleplace.Itisnotacheerfulplace.Youarelikeacoginaproductionline:justorder,pay,andstandaside.Itisaglorifiedvendingmachineexperience.MARKETINGThe“payitwithlove”marketingisasinine.Themarketingisstupid.Theyfocusonthemarketingbutnotthefood.Idonotlikebeingeducatedaboutthesyntheticingredientsinthefood.RonaldMcDonaldandhisfriendsarenolongerthere.

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INTERNATIONAL GROWTH SeveralissuesaroseinFebruarythataffectedMcDonald’sinternationalgrowth.InIndia,potentialbusinessat185restaurantscametoahaltduetoalegalbattlewithafranchisee,VikramBakshi.AndintheUK,McDonald’swasscrutinizedandaccusedofskippingpaymentof1billionEurosintaxes.394EvenwiththepoliticalissuesinRussiaandtheUkraine,McDonald’sannouncedinAugust2015thatitwasplanningtoopen20newrestaurantsinRussia.FinancialTimesreportedthatthiswasabitofgoodnewsbecauseMcDonald’shashadtotemporarilyclose200restaurantsover‘foodsafety”issuesthatmayhavebeenaresultofgeopoliticalirritationonbehalfofRussia.395

FOOD 

Additives AspartofMr.Easterbrook’sagendaintheUK,hewassupportiveofecologicalissuessuchasreusingcookingoil.IntheU.S.,withthefoodlandscapechangingrightunderthenoseofMcDonald’s,Mr.EasterbrookannouncedthatMcDonald’swouldaimtoeliminateallantibioticsinthechickenituses.Theannouncementcoveredonlyantibioticsthatwereusedforhumanmedicineanddidnotcoverantibioticsthatwere“nonessentialtohumanmedicine.”Additionally,beefwasnotmentionedasatargetforantibioticelimination.396

Angus Burger EventhoughtheAngusBurgerwasrecentlyremovedfromMcDonald’smenuboardbecauseitwasconsideredtobetooexpensiveat$4–$5,Mr.Easterbrook’steamsaidtheywerebringingbackthepremiumburgerlineasalimitedtimeoffer.Onceagain,itwouldbeaone‐thirdpoundpatty,onewithbacon,onewithmushrooms,andonewithlettuceandtomato.However,franchiseespointedoutthattheAngusburgersaddedcomplexitytothemenuastherewerethreeoptions,andtheburgerhadtobeservedonawoodenboardtoconnotethe“freshness”associatedwithacuttingboard.397

Kale HavingadvertisedthatMcDonald’swouldneverhavekale,afewmonthslaterMcDonald’sdecidedit,too,wouldhaveakaleoffering.Itwasunclearwhethercustomerswhofrequentthebranddesirekale.398

Cooking the Burger SeveralnewsorganizationsreportedinJunethatMcDonald’swould“tinker’withthewayitcookeditsburgers.McDonald’ssaiditwouldfirstfocusonthebunbytoastingitlonger.Sandwicheswouldremainwarmer.AndMcDonald’swouldchangeitssearingandgrillingprocesses.Itwasunclearhowfranchiseeswouldreact:atthetimeofthearticles,franchiseeswerequitefrustratedwithMr.Easterbrook’sprograms.Infact,theirpersonal“disgust”mayhinderhismomentum.399

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Cage‐Free Eggs McDonald’susedabout4%ofallshelleggsproducedintheU.S.in2014.Foryears,animalwelfaregroupshadpressuredMcDonald’stostopusingcagedhensfortheireggsandmovetocage‐freehens.OnSeptember10,McDonald’sannouncedthatitwouldstopusingcagedchickensforitseggs.BecauseMcDonald’susessomanyeggs,itwouldprobablytakeitssuppliers10yearstomeetthenewMcDonald’spronouncement.Since2011,about10%ofMcDonald’seggshavebeenfromcage‐freehens.Thedecisiontogo100%cagefreewouldhaveanenormouseffectontheeggindustryandonMcDonald’srivals.400InNovember,TacoBellannouncedthatitwouldonlyuseeggsfromcage‐freechickensanditwouldmakethe100%switchinayear.Havingfacedcriticismformovingtooslowly,TacoBellsaidithadbeenstrategizingitseggpolicyandwasconfidentitcouldtransitionin12months.401

Germany Organic Burger OnSeptember26,TheNewYorkTimesreportedthatMcDonald’swouldoffera100%organicbeefburgerasalimitedtimeofferinGermany.Reuterssaid,“ItispartofCEOSteveEasterbrook’stransformationofMcDonald’sintoamodernprogressiveburgercompany.”402

Premium Crispy Buttermilk Chicken Sandwich InAugust,McDonald’sintroducedacrispybuttermilkchickensandwichthatappearedtocompetedirectlywithChick‐fil‐Asandwiches.403Thesandwichreplacedtheregulargrilledchickensandwich.404Thisnewsandwichwascreditedwithhelpingmodernizethemenuofferingsandcontributingtothepositiveperformanceofsame‐storesalesinthird‐quarter2015.

Monster Energy Drinks InOctober,McDonald’sannouncedthatitwastestingMonsterenergydrinksinabout20U.S.restaurants.Long‐timeMcDonald’spartnerCoca‐Colahada16.7%stakeinMonster.McDonald’ssoldotherCoca‐Colabeveragesasidefromtheiconiccola,suchasDasaniwaterandMinuteMaidjuices.Energydrinkssatisfytheneedsofthecustomer,McDonald’ssaid.However,theenergydrinkcategoryisunderFDAscrutinyasithasreceivedhundredsofcomplaintsaboutbadreactions,includingdeathsandheartevents.405

MODERN PROGRESSIVE BURGER COMPANY SteveEasterbrookhadavisionofMcDonald’sasa“modernprogressiveburgercompany”sinceatleast2006whenhewasintheUKoffice.Butwhatisthatexactly,andwhatdoesitmeanforthebrand?AsexpressedbyStephanieStrominTheWallStreetJournal,“McDonald’sishavinganidentitycrisis.”Ms.Stromaskswhetheritwaspossibletobecheap,highquality,andpersonalizedquickly.Assheobserved,ontheonehandMcDonald’shasbeenintroducingallsortsofnewproductsandyetsellingcheapcoreproducts.Ontheotherhand,itwantstocompetewiththenewbetter‐burgerrestaurantssuchasSmashburgerandShakeShackwhilefendingoffdefectionstocustomized,qualityingredientrestaurantssuchasChipotleandPaneraBread.Attheheartofthe“modern,progressiveburgercompany”conceptisthesatisfactionofallofthesecustomerneedsatthesametime.Attherecent(March1)“turnaround”meeting,

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Mr.EasterbrookannouncedhisvisionforMcDonald’swherehereiteratedhisideaandsaiditwouldhappenthroughmakingMcDonald’sa“destination,”offeringbreakfast,customized,made‐to‐orderfoodsandbeverages,ofhigh‐qualityingredientsandattremendousvalue.Mr.Easterbrookwasclearthathedidnotbelieveintheideaoffocusingonthecoremenufirst.Inhisopinion,theonlywaytoimproveintermsoffoodandperceptionswastooffernewproductstojump‐startgrowth.AnalystssaidthatMr.Easterbrook“pushedback”ontheideaoffixingthecoreproducts.HeseemedfocusedonChipotle,believingitsdrawwascustomization.However,thecompetitivelandscapeisnowmuchmorediversethancafeteria‐stylecustomization.Newburgerrestaurantsareattractingthosewhowantqualityburgers.SoatSmashburger,forexample,customerscanordertheClassicSmashburger(“handcrafted”and“searedandseasonedtoorder”)atapriceof$5.99.FoodatChipotleisalsohigherpricedthanatMcDonald’s.Butthebrandisaboutmuchmorethanjustcustomization.Itisperceivedtobepreparedfromnatural,high‐qualityingredients.ItisalsoanorganizationalculturecommittedtobehavinginaresponsiblemannerconsistentwithitssloganofFoodwithIntegrity.ObserverspointoutthatMcDonald’scorecustomerwantssomethingofqualitythatisaffordable:a$6burgerisbeyondtheirmeans.(Oneex‐McDonald’sseniormanagerwhoisunabletospeakforattributionduetoaclauseinthecontractposedtheconundrumasfollows:“Theproblemisnotthatconsumersdon’twanthamburgers,asanyonewho’sbeentoFiveGuysrecentlycantellyou.Whatthey’rewaitingforisabetterhamburgerfromMcDonald’s.”)And,mostofMcDonald’scustomersorderthroughthedrive‐thruwindow;theydonotcomeintotherestaurantforacustomizedorderingexperience.406Therearethoseex‐McDonald’sseniormanagerslikeMikeDonahuewhocanlistallthetimesMcDonald’sfocusedonupscaleofferingsatupscaleprices.(NeilGolden’srecentAngusBurgerwasremovedfromthemenuasitwassimplytoooverpricedforcustomers.)LarryLight(co‐authorofthisbook)saidtoMs.Strom,“Thetwokeywordsinfastfoodarefastandfood,andMcDonald’sisnolongerfast,anditsburgersrankedlastinaConsumerReportssurveyrecently.ThosearetheirNo.1andNo.2challenges,butI’mnotsuretheyknowit.”McDonald’sneedstosatisfyacustomerin37seconds:missthatthreshold,andMcDonald’srunstheriskofdefection.Currently,TheWallStreetJournalreported,adrive‐thruordertakesslightlymorethan3minutes(189.5seconds).Everysecondreallydoesmatter.Andcustomersacknowledgethatifthedrive‐thrulookstoolongwithtoomanycars,theywilldrivesomewhereelse.Ex‐franchiseeandcurrentfranchiseeconsultantRichardAdamssaysthat13carsrepresentthelimit.Ifthereare13carsinline,othercarsleave.ThisisoneoftheproblemsbehindMs.Strom’soriginalquestion:ifMcDonald’sbecomesmorecustomized,itrunstheriskofbeingslowerfood,andthismightalienateanextremelylargenumberofcustomers.ThisiswhythePremiumMcWrap“flopped”intheU.S.:itwasahigherpriced,long‐wait‐timeoffering.Mr.Easterbrook’sdesireforcustomizationhasforcedfranchiseestofacethefactthattheysoonwillhavetorampupstaffnumbersandequipmenttoaccommodatetheCreateYourTastemenu.Thevisionisacustomercomingintotherestaurant,customizingherchoiceonakiosk,andwaitingfortheorderataspecifiedtable.Thewaitiswhatfranchiseesareconcernedabout.Atthemomentitisclockedat8minutes.Thatis8minuteswaitinginsideaMcDonald’s.TheentireprogramwillcostfranchiseesaboutU.S.$100,000perstore.Eachfranchiseewillneedto“haveshavedParmesanonhand,inadditiontotheshreddedlettuceusedforregular

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burgers,nottomentiongrilledonions,jalapeños,avocadoand30othertoppings.”FranchiseesseeMr.Easterbrook’scompulsiontocompetewithcustomizationrestaurants,specificallyChipotle,asawaytowalkawayfromMcDonald’scorestrengths.Affordable,qualityburgersandfriesarestrengths,asisbreakfast,whichMcDonald’spioneeredinthe1970s.However,franchiseesseetheintroductionoftheespressodrinksasawasteofmoney:theU.S.$13,000(perrestaurant)machinesareusuallyidle.ItappearstobeanoutcomeofastrategythatorderedthemtocompetewithStarbucks.407Beyondthemarketing,analyst,financial,andinvestorcommunities’comments,foodcommentatorshadsomethingtosayabouttheideaofMcDonald’sasa“modern,progressiveburgercompany.”MarkBittman,atthetimeaNewYorkTimesopinion‐pagecontributorandfoodcommenter,tookMr.EasterbrooktotaskintheApril8issue.Hesaid,“McDonald’shasmadeseveralwell‐publicized,bigannouncementsthatwerewidelygreetedwithyawnsorjeers.Thatnon‐antibioticmoveissoincomplete—thereisnothingaboutbeeforpork—thatseemspathetic.AllthemovesdemonstratethatMcDonald’sishardlyaprogressivecompanybutonethatismerelytryingtocatchupwithchangingmarketnormsandtoanticipateinevitableregulation.”408

LABOR 2015didnotamelioratetheissuesurroundingminimumwageintheUnitedStates.AsreportedinTheWallStreetJournalinearlyMarch,laborwasstillcontinuingtoputheavyandvocalpressureonMcDonald’stochangethewayallitsemployeesarepaid.409OneoftheissuesnowraisedwiththecourtsfocusesonwhetherMcDonald’scorporateis“jointlyresponsible”fordecisionsthataffecteachstore’slaborpoliciesandpositions.410OnApril2,SteveEasterbrookmadeabigannouncementthatMcDonald’swouldraiseemployeepayatitsU.S.company‐ownedstores.WhatMr.Easterbrookdidnotsaybutwaspointedoutinseveralnewspaperswasthatthepayraisesdidnotincludethemorethan70,000employeeswhoworkforU.S.franchisees.Mr.Easterbrookindicatedthatheandhisteamhadbeenlisteningtoemployeesandsawthatiftheyweretorejuvenatethebrand,theywouldneedtheemployees.Mr.Easterbrookwasconvincedthatpayraiseswerecritical.“Motivatedteamsdeliverbettercustomerserviceanddeliveringcustomerbetterserviceinourrestaurantsisclearlygoingtobeavitalpartofourturnaround,”saidMr.Easterbrook.411So,inApril,Mr.Easterbrookranafull‐pageadinTheNewYorkTimestoannouncethecompany‐ownedstorepayraises.Inthead,heremindedreadersthatMcDonald’swouldbecomea“modern,progressiveburgercompany.”412Inmid‐April,laborannouncedthattherewouldbeanationalstrikeatMcDonald’sovernotbeingpaidthe$15minimumwage.ThestrikewouldfocusonMcDonald’sbutinessencewouldapplytoworkersatallrestaurants.413

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OPERATIONS 

All‐Day Breakfast Test OnMarch31,McDonald’sannouncedthatitwouldbetestingall‐daybreakfastinSanDiego.McDonald’sdidindicatethatcurrentlyall‐daybreakfastwasnotpossibleasitwouldrequiredifferentequipment.However,theideaforofferingbreakfastpastthe10:30AMcut‐offtimewasconsideredtobeasignthatMr.Easterbrookwas“opentonewideas.”414TheWallStreetJournalwroteonJuly22thattheSanDiegotestwasprobablyleadingtotherealityofall‐daybreakfastatMcDonald’s.JulieJargonwrotethatMcDonald’scorporatewas“pushing”thisinitiativethroughthesystem.Thearticledidstatethatthedeliveryofbreakfastalldaywascomplexandneededmorereview.Additionally,franchiseesmustbealigned,asthisinitiativewouldnotbecheap.415

All‐Day Breakfast National Expansion SeptemberbroughtthenewsthatMcDonald’swouldbeofferingbreakfastalldayinallofitsU.S.restaurants.U.S.presidentMikeAndressaidthatall‐daybreakfastwasthebiggeststrategicinitiativesincetheintroductionoftheMcCafé.Heremindedpeoplethatall‐daybreakfastwas“theconsumer’sidea.”Oneofthestumblingblockshadbeenequipment:McDonald’sgrillsweredesignedtomanagelunchanddinner.Additionally,theraweggsusedintheMcMuffincouldcreateproblemswithcross‐contamination,sogrillsneededtobekeptseparate.Thismeantoperatorsneededtobuynewequipmenttohandlebreakfastsandwichesonanall‐daybasis.Thenewequipmentwouldcostasmuchas$5,000dependingonwhatwasalreadyinplace.Therewouldbesomemenumodifications.EggMcMuffinandotherbiscuitsandwichesmaynotbeavailableeverywhereallday,andtheall‐daymenuwouldbelimitedtoasmallnumberofitems.Thebiscuitstake18–20minutestomake,andthistimedoesnotincludetherisingandkneadingofthedough.Fromapreparationprocess,all‐day‐breakfastwouldmoveMcDonald’stoa“made‐to‐order”operation.Thismeantthatasthedayprogressed,breakfastitemswouldhavetobemadeatthetimeofordering,leadingtodrive‐thrucustomerspullingoutoflineandwaiting.TheSanDiegotestindicatedthatasthedayworeon,breakfastorderingbecamehighlyunpredictable.McDonald’shadtoldfranchiseesthatall‐daybreakfastwouldgenerateanadditional200customersaweekforeachrestaurant.416InOctober,aheadofthethird‐quarterresults,ADWEEKreported,“McDonald’sBreakfastIsaBust.”ThearticlecitedastudybyNomuraofthe29franchiseesinthecontinuingsurveywhereemployeesreportslowservice,lowercustomeraveragebills,andaddedextralaborcosts.However,McDonald’sremainsupbeat.Thelaunchisdescribedassuccessfulwithagreatplantofollow.417

Drive‐thrus AMayWallStreetJournalreportbylong‐timeMcDonald’sjournalistJulieJargonannouncedthatMcDonald’swasplanningto“simplifyitsdrive‐thrumenu,andrevampitsmid‐priceofferingsasitseekstoturnarounditsstrugglingU.S.operations.”Inafranchiseewebcast,McDonald’ssaidthatitintendedtoonlydisplaytop‐selling

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productsondrive‐thrumenuboards.Ithopedthatthiswouldspeedupthedrive‐thru.McDonald’ssaidalsoitwasaddressingthemid‐tierofitsmenubyaddingitemsatthe$1.50to$3pricepoint.ThiswasmorethantheDollarMenubutlessthanthepricesofitspremiumproducts.McDonald’ssawthisasawaytostoppeoplefrombuyingeitheratthelowendorthehighendornotatallbecausetherewerenomedium‐sized,medium‐pricedproducts:themenuwastooskewedtobeappealing.AsreportedinTheWallStreetJournal,thefranchiseemeetingoffered“moremenudetailsaboutthecompany’splansthanlastweek’sinvestorpresentation,whichhadbeenmuchanticipated.ThepresentationhadleftmanyanalystsandinvestorswantingtoknowmoreabouthowMcDonald’swouldimproveitsfoodandserviceatatimewhenshiftingconsumertastesandfiercecompetitionwerepressuringsales.”Onthewebcast,McDonald’sexecutivessaidthecompanyplannedtoaddaMcChickensandwichwithleaflettuceandtomato,aswellasadoubleburgerwithleaflettuceandtomatoforaround$1.50,upfromthecurrentrangeof$1.19to$1.39forsimilarsandwiches.Theupgradedsandwicheswouldbesoldinadditiontothelower‐priceversionsnowavailable,accordingtooneofthepeoplefamiliarwiththewebcast.Executivesalsosaidtheywouldexpandatestofall‐day‐breakfast,whichwascurrentlyavailableinSanDiegoandwouldrollouttoNashville.ThecompanyhadbeenexperimentingwithaCreateYourOwnTasteconcept,offeredonlyinsiderestaurants,inwhichpeoplecouldcustomizetheirownburgers.Butwithmorethan60%ofsalescomingthroughtheMcDonald’sdrive‐thrus,manyfranchiseespushedback,andtheconcepthassincelargelymorphedintowhatthecompanyiscalling“tastecrafted,”inwhichdrive‐thrucustomerscanchoosefromamongasetnumberofdifferentburgertoppingsandbuns.ExecutivessaidMcDonald’swouldexpandthemoredrive‐thrufriendlyversionofburgercustomization.AspokeswomanforMcDonald’sdeclinedtocommentonthewebcast.“We’realwaysinnovatingaroundMcDonald’sfood,drinksandrestaurantexperience,andwe’llsharenewsontheseinitiativeswhenthetimeisright,”shesaid.418

Sweden: Reserve a Table AdvertisingAgereportedonSeptember28thatinStockholm,topromoteanewMaestroClassicburger,McDonald’sinvitedcustomerstoreserveatableinadvanceviaBookatableandreceivea2‐hour,wait‐serviceburgermealwithcoffeeorteaanddessert.419

FRANCHISEES 

Franchisee Survey InApril,MarkKalinowskireportedonthelatestMcDonald’sfranchiseesurveythatJanneyCapitalmarketsconducts.Mr.Kalinowskisaidthatthesurveycontinuestoshowfranchiseedisenchantmentandirritation.ThefranchiseeswhowerepolledsaidintheiropiniontheMcDonald’sbusinessoutlookwassomewherebetweenpoorandfair.Inevaluatingthebrand,thisfranchiseegroupratedthebrand“1.81outof5,theworstassessmentinthehistoryofthesurveyspanningmorethan11years.”420

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InJuly,TheWallStreetJournalreportedthatthefranchiseesintheJanneysurveywere“souronthecompany.”Thesurveyresultsweretheworstinthesurvey’shistory.Thefranchiseeswereveryclear:theinitiativesfromSteveEasterbrookwerenotworking.421

Selling Restaurants to Franchisees Mr.Easterbrookunderstandsthevirtueofbecomingan“assetlight”organizationastheactivistshavebeensuggesting.Hesaidinhis23‐minute“vision”videothatMcDonald’splannedtosellmorerestaurantstofranchisees.Andheintendedtorestructureinternationaloperations,cutting$300millioninannualcosts.Thevisionwastocreateamoreagileorganization.Insteadofdiscussingthefoodandthebrandreputation,aswasexpected,Mr.Easterbrooklookedatfinancialengineeringbycuttingcostsandreturningmoneytoshareholdersandthe“organizationchart”forhissalvation.HesaidthatMcDonald’swouldsell3,500restaurantsgloballytofranchiseesby2018.Thisrepresentedmorethanthe1,500restaurantsexpected.Mr.Easterbrooksaidthathisaimwastohave90%franchised.422

Franchisee Discontent BloombergBusinessweeknotedthatSteveEasterbrookmayhavecompetitiontoworryabout,buthealsohasaggressiveunhappinessclosertohomewithhisfranchiseecommunity.AsofMay,theirritationfranchiseeshavewithMcDonald’shasgeneratedbadfeelingsonallsides.FranchiseesbelievethatMr.Easterbrookandhisteamaresorelyoutoftouchwithfranchiseesconcernsatthestorelevel.Additionally,franchisees“accusethecompanyofignoringtheirconcernsoneverythingfrombloatedmenustoever‐more‐costlykitchenequipmenttowagesforcounterworkers.”Mr.Easterbrookhasnotadmittedtoanydiscontentwithfranchisees,norhashefocusedontheirissues.Hisvisionbeganandendedwiththeorganizationalrestructuring.TherearefewerfranchiseesintheUK.Itwaseasierthentoachievefranchiseealignment.PeopleareconcernedthatMr.Easterbrookhasnotrecognizedhowvitalitistogarnerfranchiseesupport.Asonefranchiseestated,“Ifmoreofthecorporatepeoplewouldtaketheirlunchhourandworkthelineandinthekitchen,wewouldn’tbeinthepositionwe’reintoday.Theykeptrepeatingthemselvesinexpandingthemenu;weknewthiswasonlymakingtheproblemworse.”Itisunfortunate,butafterthe“vision”video,“manyfranchiseesalsocomplainedthatMr.Easterbrook,afternotmentioninghisplansforwagesatwhatthecompanycalledaTurnaroundSummitinMarch,blindsidedthembyannouncinginAprilthatitwouldpayabout90,000workersat1,400company‐ownedstoresintheU.S.atleast$1morethantheminimumwageintheirlocalities.”423

COMPETITION 

In‐N‐Out Burger OnApril30,BloombergBusinessweekrananarticleonthestateofMcDonald’s.OneofthepointsthatthereportermadefocusedonthecomplexityofMcDonald’s.TheauthorwroteaboutRayKrocandhowhefocusedondoingafewthingsthatalotofpeoplelikeanddoingthemreallywell.NowMcDonald’shasgoneintheoppositedirection:doingalotofthingsforeverybodybyofferingthingsthatonlycertainpeoplelike.ThereportersaidthatIn‐N‐OutBurgerhasonly300U.S.locations.However,thesearecrowded.The

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reporterobservedthatfromwherehewasparked,hesaw“62carsintheparkinglotand10inthedrive‐thruline.Everytablewastaken.”AtIn‐N‐OutBurgerthereareonlyfourthingsonthemenunotincludingbeverages:“ahamburger,acheeseburger,fries,andthefamousDouble‐Double(twopatties,twoslicesofcheese)—withvariationsonhoweachisserved.”Hementionedthathedidhavetowait10minutesforaDouble‐DoubleProteinStyle(sansbun).And,somehow,theorderseemedhealthierthanMcDonald’seventhoughitdidnothavefriesthattasteasgoodasMcDonald’s.424

Can McDonald’s Compete? InthesameBloombergBusinessweekarticle,thejournalistnoticedthataMcDonald’srestaurantnearhimhad12carsinthelot.HesaidtheMcDonald’smenuwas“bloatedandill‐defined.”Headded,“Salesatexistinglocationshavedroppedinfiveofthepastsixquarters.”ForthisjournalistatBloomberg,the“excitement”infastandcasualeatingisnolongeratMcDonald’s;itissomewhereelse,specificallythemorefocusedstores:“In‐N‐Outanditskindred“better‐burger”purveyorssuchasFiveGuysandShakeShack,andevenmoresoat“fast‐casual”restaurantssuchasChipotleMexicanGrillandPaneraBread.”Fromthejournalist’spointofview,McDonald’shasnotbeenabletokeepupandworseyet,allofitsattemptstobecontemporaryhavefailedeventhoughMcDonald’spaintsarosypicture.425

Which Brands Are McDonald’s Competition? AJunepiecebyBusinessInsiderquotedLarryLight,formerCMOandco‐authorofthisbook,assaying,“McDonald’sisgoingafterthewrongcustomers.”Mr.LightstatedthatitappearsasifthenewMcDonald’sCEO“seemstobeobsessedwithChipotle.”Mr.EasterbrookwassofocusedonthefastcasualsegmenthenevergaveanyindicationofwhyMcDonald’swaslosingcustomersandtowhichbrandsthesecustomersweredefecting.Mr.LightpointedoutthatsalesatBurgerKing,JackintheBox,Wendy’s,andPopeye’swereallgrowing.Infact,the“onlymajorburgerbrandindeclineisMcDonald’s.”Mr.LightsaidthatMcDonald’smustfocusonitstwomostimportantissues:“hemorrhagingofthecustomerbaseandthedeteriorationofthebrand.”426InJuly,thewell‐respectedtradepressintheU.S.,Nation’sRestaurantNews,rananarticleshowinghowlimitedMcDonald’sperspectiveon“thecompetitiveset”mightactuallybe.TheauthorsaidthatMcDonald’shadaveryshortsightedviewifitthoughtitwaslosingcustomersonlytoChipotleandothercustomizedrestaurantbrands.Infact,thelandscapeforfoodhadchangedsosignificantlythatMcDonald’swasmissingtheworldofpreparedfooddeliveredbygrocerystores.TheperimeterofmostgrocerystoresintheU.S.hasbecomeafoodmallinandofitselfwithallsortsofpreparedfoodsthatcanbebroughthomefordinner.ThedatacitedinNation’sRestaurantNewsindicatedthatMcDonald’shadbetterbelookingatgroceryasthistypeofvenuewasalsoprovidingsolutionsforcustomers.427

Burger King and “The Truce” OnAugust26,BurgerKingranfull‐pageadsinTheNewYorkTimesandTheChicagoTribuneaskingMcDonald’stojointhemforasingledaytocommemorateInternationalDayofPeace,somethingtheUNGeneralassemblyinitiatedin1981.Toshowsupportforthisday,BurgerKingsuggestedinitsadsthatthetworivalsrunonepop‐uprestaurantwithemployeeswearingspecialuniformsandnametagscombiningelements

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frombothchainstosellahamburgercalledMcWhopper.CEOSteveEasterbrookansweredtherequestinaFacebookpostwithwhatFinancialTimessaidwas“humorless…asniffyreply…thatmightsuggestcertainMcBozoscannotseeaneasyPRwinwhenitsplatsapieintheirface.”Mr.Easterbrooksaidpublically,“Let’sacknowledgethatbetweenusthereissimplyfriendlybusinesscompetitionandcertainlynottheunequalledcircumstancesoftherealpainandsufferingofwar.P.S.Asimplephonecallwilldonexttime.”SeeinganopportunityforgreatPR,theU.S.“diner”chainDenny’srananadcallingouttoBurgerKingthatDenny’swasavailable.TheDenny’sheadlinesaid:“Hey@BurgerKing,welovetheideaofaPeaceBurger.We’rejustnotsurewhattocallthisthing.Anyideas?@Denny’sDiner.”Mr.Easterbrook’s“sad”replyledtradepublicationAdweektorunapictureofRonaldMcDonaldwearingaBurgerKingcrownandsayingoveramobilephone,”Hello?King?Idon’tthinkIcanmakeit….”428

2 FOR $2 MENU OnNovember17,McDonald’sannouncedthatitwasreplacingtheDollarMenu&Morewithafeaturecalled“McPick2.”StartingJanuary4,2016,theMcPick2would“allowcustomerstopickapairofitemsforatotalof$2fromamongfourchoices:theMcDouble,McChickensandwiches,asmallorderoffriesandmozzarellasticks.”AspointedoutinTheWallStreetJournal,McDonald’shasstruggledwithitsDollarMenuanditsiterations.TheNewYorkTimessaidthatMcDonald’shopesthisnewideawillrevivesalesandattractcustomers.429

 

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QUESTIONS  

1. Howdidthemarketingworldchangesince2005?

2. WhatwerethecriticalexternalfactorsthatledtoMcDonald’sdecline?Howcouldthishavebeenavoided?

3. Whatweretheinternalfactorsthatcontributedtothedeclineofthe

McDonald’sbusiness?

4. DiscusstheissuesrelatingtoMcDonald’smenuchoicesbothproandcon.Howdidthemenuchoicesaffectthebrand’sabilitytocompeteagainstitscompetitiveset?

5. CreateanewPlantoWinforMcDonald’sgoingforward.Addresseachofthe

EightPs.

 

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ENDNOTES 1Staffreporter,TheStreet.com,December14,2005.2DowJonesNewswires,“PershingSquaretoIssueaRevisedMcDonald’sProposal,”TheWallStreetJournalOnline,January12,2006.3TheWallStreetJournalOnline,“McDonald’sPressRelease,”January17,2006.4Ibid.5Ibid.6Tomassi,KateDuBose,“McDonald’sGetsaSurpriseLiftfromEurope,”Forbes.com,January17,2006.7DowJonesNewswires,“McDonald’sJapanUpsLastFYGroupNetProfitViewtoY60M,”TheWallStreetJournalOnline,January20,2006.8MSNDellMoney,January18,2006.9Ibid.10MSNDellMoney,“PershingOffersGlimpseofMcDonald’sPlan,”January18,2006.11Observer@ft.com,FinancialTimes,January19,2006.12Gibson,Richard,“AnalystsSplitonMeritsofAckman’sPlanforMcDonald’s,”TheWallStreetJournalOnline,January19,2006.13MSNDellMoney,“McDonald’sInvestorsUnswayedbyActivistProposal,”January19,2006.14Grant,Jeremy,“InvestorUrgesMcDonald’stoDoMoreDespiteItsTastyResults:EvenThoughtheRestaurantChain’sEarningsAreExpectedtoBeMuchBetterThanLastYear,ShareholderPershingSquareCapitalBelievesTheyAreNotGoodEnough,”FinancialTimes,January23,2006.15Gibson,Richard,“McDonald’s:800UKCompanyStoresRefranchisingFocus,”WallStreetJournalOnline,January24,2006.16Grant,Jeremy,“McD’stoExpandLicensees,”FinancialTimes,January25,2006.17Gray,Steven,“FundManagerDeclaresTrucewithMcDonald’s,”WallStreetJournalOnline,January25,2006.18Bennett,Johanna,“McDonald’sOffersSomeBeef,”Barron’sOnline,July6,2006.19Spain,William,“Update:McDonald’s2QNetRisesHelpedbyEuropeanOps,”TheWallStreetJournalOnline,July25,2006.20Adamy,Janet,“McDonald’sJulySalesShowSignsofConsumerPullBack,”TheWallStreetJournalOnline,August8,2006.21Newswires,“McDonald’sBoostsAnnualDividend,”TheWallStreetJournalOnline,September27,2006;and,Moore,Angela,“McDonald’sHikesDividendto$1aShare,”MarketWatch,September27,2006;and,Gibson,Richard,“PayDate:McDonald’sRevivesSuper‐SizingonDividend,”TheWallStreetJournalOnline,September28,2006;and,Lazo,ShirleyA.,“SupersizedandStarved,”Barron’sOnline,October2,2006.22Sachdev,Ameet,“McDonald’sDividendUp,“ChicagoTribune,September28,2006.23FinancialTimes,“McDonald’sFeastsonBreakfastItems,“October13,2006;and,Newswires,“McDonald’sExpectsJumpinThirdQuarterProfit,”TheWallStreetJournal,October12,2006;and,Gibson,Richard,“McDonald’s3QReflectsGlobalOperatingMarginGains,”TheWallStreetJournal,October19,2006;and;Reuters,“McDonald’sReportsSalesWereUp7.7%inSeptember,”TheNewYorkTimes,October13,2006;andGibson,Richard,“ImprovedSalesDriveUpProfitatMcDonald’s,”TheWallStreetJournal,October20,2006.24Moore,Angela,“McDonald’sUSSameStoreSalesUp5.1%,”MarketWatchDecember82006.25Lazare,Lewis,“NotLovin’ThislazyMcDonald’sEffort,”ChicagoSunTimes,January24,2006.

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26MSNDellMoney,“McDonald’sUnveilsNewOlympicGamesAdvertising,”January24,2006.27TheWallStreetJournal,January9,2006.28Grant,Jeremy,“McDonald’sSmellsNewApproach:TheFastFoodGiantPlanstoExpandaRe‐ImagingCampaign.NewPrototypeRestaurantsThatTakeSensoryBrandingintoAccount,”FinancialTimes,February6,2006.29MacArthur,Kate,“McD’stoShops:MakeLovin’ItMoreThanTag:TrafficUpatFast‐FeederButAnalystsHard‐PressedtoCreditAdsastheCause,”AdvertisingAge,March13,2006.30Hein,Kenneth,InterviewwithMaryDillon;“McD’sDillononFood,Folks,FastFoodNation,”Brandweek,April17,2006.31MacArthur,Kate,“McD’stoShops:MakeLovin’ItMoreThanTag:TrafficUpatFast‐FeederButAnalystsHard‐PressedtoCreditAdsastheCause,”AdvertisingAge,March13,2006.32MacArthur,Kate,“PeaceBreaksOut:BKQuellsFranchiseeFeud:FranchiseeBoardRenewsRelationsAfterFightsOverChain’sMarketingTack,”AdvertisingAge,January9,2006.33Gray,Steven,“BeyondBurgers—McDonald’sMenuUpgradeBoostsMealPricesandResults:TurnaroundofGiantChainHelpedbyUpscaleItems;a$4.50CobbSalad;ItLookedAlmostHealthy,”TheWallStreetJournal,February18–19,2006.34Goodison,Donna,OnlineReview,“Fast‐FoodFatFight:McDonald’sBKsay:HaveItOurWay,”January22,2006.35Gibson,Richard,“BKSeesNationalBreakfastValueMealOpportunity,”TheWallStreetJournalOnline,November1,2006.36Warner,Melanie,“SaladsorNo,CheapBurgersReviveMcDonald’s,”TheNewYorkTimes,April19,2006.37Gray,Steven,“BeyondBurgers—McDonald’sMenuUpgradeBoostsMealPricesandResults:TurnaroundofGiantChainHelpedbyUpscaleItems;a$4.50CobbSalad;ItLookedAlmostHealthy,”TheWallStreetJournal,February18–19,2006.38Wallop,Harry,“McDonald’sSaladsGoodfortheBottomLine,”LondonTelegraph,February7,2006.39MacArthur,Kate,“Fast‐FeedersWakeUptoLateNightPotential:ExpandedHours,CateringtoNocturnalNoshersBoostSameStoreSales,”AdvertisingAge,April24,2006.40Reuters,“McDonald’sMaySellBreakfastAllDay,”AOLMoney&Finance,September20,2006.41MacArthur,Kate,“BKRebelsFallinLovewithKing:AsIPONears,FranchiseesWarmtoCrispin’sEdgyTargetingofTeens,“AdvertisingAge,May1,2006.42Halliday,Jean,“LicensetoDriveSales:WhyGMIsPuttingHummersinHappyMeals,”AdvertisingAge,August14,2006;and,Warner,Melanie,“WouldYouLikeaGasGuzzlerwithThat?”TheNewYorkTimes,August10,2006.43Hamilton,DavidP.,“McD’sFrenchFriesContainPossibleAllergensWheat,Milk.”TheWallStreetJournalOnline,February13,2006.44TheWallStreetJournalOnline,“McDonald’sFacesLawsuitsOverFrenchFryIngredients,”February19,2006.45Newswire,TheWallStreetJournalOnline,February8,2006.46Teicholz,Nina,“NuggetsofDeath.”AHeart‐PunishingFat(TransFat)HidesinAmericanFastFood,”TheNewYorkTimes,Op‐Edpage,April16,2006.47Newswires,“McDonald’sDirectorWantsBeefCattleTraceback,Now,”TheWallStreetJournalOnline,April28,2006.

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48Newswires,“McDonald’sFebruaryCompSalesUp4.7%,”TheWallStreetJournalOnline,March8,2006.49Gibson,Richard,“McDonald’sCEO:RecentCoffeeSalesHaveSkyrocketed,”TheWallStreetJournal,April17,2006.50Gibson,Richard,“McDonald’sAddingYetAnotherChickenItemtoItsMenu,”TheWallStreetJournalOnline,April12,2006.51Gray,Steven,“BeyondBurgers—McDonald’sMenuUpgradeBoostsMealPricesandResults:TurnaroundofGiantChainHelpedbyUpscaleItems;a$4.50CobbSalad;ItLookedAlmostHealthy,”TheWallStreetJournal,February18–19,2006.52Schmelzer,John,“NewMcD’sBrew:FastFoodGiantSeeksMoreofBreakfast,CoffeeMarketswithPremiumRoast.”ChicagoTribune,February28,2006.53Waters,Jennifer,“Update:McDonald’sAprilSalesRiseonPremiumSandwiches,”TheWallStreetJournalOnline,May9,2006.54Bosman,Julie,“ThisJoe’sforYou:3FastFoodChainsMakeTheirPitchesasUn‐Starbucks,”TheNewYorkTimes,June8,2006.55Foster,Lauren,andAndrewWard,“McDonald’sDrinksMenuMayGrow,”FinancialTimes,June19,2006.56Moore,Angela,“McDonald’sAugustSalesRiseonBreakfastMenu,SnackWrap,”TheWallStreetJournal,September12,2006.57MacArthur,Kate,“WhyMcDonald’sHasn’tCuttheFat:FastFoodLeaderFearsOilChangeWillLeaveBadTasteAmongItsFryFans,“AdvertisingAge,November6,2006.58Wiggins,Jenny,“McDonald’stoCutTransFats,”FinancialTimes,November8,2006.59Newswires,“McDonald’sGivesBeresfordNewGlobalMarketingRole,”TheWallStreetJournalOnline,April26,2006;and,Newswires“McDonald’sNamesSteveEasterbrookCEOofUKBusiness,”TheWallStreetJournalOnline,April28,2006.60Arndt,Michael,“Buyer’sRemorseatMickeyD’s,”BusinessWeek,June12,2006.61Kingsbury,Kevin,“McDonald’sGlobalSalesRose7.2%inDecember,”TheWallStreetJournalOnline,January17,2007;and,AssociatedPressFinancialWire,“McDonald’sPosts7.2PercentRiseinDec.Same‐StoreSales,Sees$1Per‐ShareProfitin4Q,”January17,2007.62Foley,Stephen,“McDonald’sHealthDriveWinsBackCustomers,”TheIndependent(London),January18,2007.63Gibson,Richard,“SaleofChipotleChainBoostsMcDonald’sNet,”TheWallStreetJournalOnline,January24,2007;and,AssociatedPressOnline,“McDonald’s4QProfitSkyrocketsto$1.2B,”January24,2007;and,AFXInternationalFocus,“McDonald’sQ4EPS1.0usd,”January24,2007.64Martin,Andrew,“McDonald’sSaysLatestResultsAreStrongestin30Years,”TheNewYorkTimes,January25,2007;and,Ward,Andrew,“McDonald’sRecoverstoSeeBestResultsfor30Years,”FinancialTimes,January25,2007Ward;and,Gibson,Richard,“McDonald’stoContinueGrowthPush:StrongGainsOverseas,ChipotleSpinoffFuelQuarter’sProfitSurge,”TheWallStreetJournal,January25,2007;and,Lockyer,SarahE.,“McDonald’sSees30‐YearHighfromChipotleSpinoff,GlobalSales,”Nation’sRestaurantNews,February5,2007.65CNBC,AnalystWire,“McDonald’sEarningsAnalysis,”January24,2007.66AssociatedPressInternational,“McDonald’sGlobalSame‐StoreSalesRise5.7PercentinFebruary,”March8,2007.67AP,“McDonald’sSharesHit7‐YearHigh,”April11,2007;and,TheAssociatedPressState&LocalWire,“McDonald’sSeesU.S.Same‐StoreSalesClimb6.2PercentinMarch,”April13,2007.

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68DatamonitorNewsWire,“McDonald’sQ1ProfitRises,”April20,2007;andFXInternationalFocus,“McDonald’sQ1EPS0.62usdvs.0.49usd;SalesUp11Pctto5.464BlnUSD,”April20,2007.69AFXInternationalFocus,“SectorGlance:FastFood,”April20,2007.70AFXInternationalFocus,“McDonald’sGlobalComparableSalesUp4.8Pct.inApril,”May8,2007;and,AssociatedPressInternational,“McDonald’sSame‐StoreSalesRise4.8PercentWorldwideinApril,”May8,2007;and,CashflowNews,“McDonald’sCashFlowfromOperationsHitsNineYearHigh,”May8,2007.71CNNMoney.com,“ShrekWorksLikeaCharmforMickeyD’s,”June8,2007.72AssociatedPressOnline,“McDonald’sJulySame‐storesalesRise,”August9,2007.73Barris,Mike,“McDonald’sAugustSalesRoseonOverseasJump,Breakfast,”TheWallStreetJournalOnline,September11,2007;and,TheAssociatedPress,“McDonald’sSharesJumponAugustSame‐StoreSalesGains,”September11,2007.74FinancialWire,“McDonald’sUpsDividendBy50%”September13,2007,©2007InvestrendCommunications,Inc.;and,Lockyer,SarahE.,“McD’sReportsOngoingSalesSurgeDespiteToughEconomy,”Nation’sRestaurantNews,September24,2007.75Reuters,“McDonald’sSeesProfitUp,”TheNewYorkTimes,October12,2007;and,TheWallStreetJournalOnline,“McDonald’sIsLovin’ItsResults,”October13,2007.76TheWallStreetJournalOnline,“3rdUPDATE:McDonald’s3QNetUp27%ButRevenueIsLight,”October19,2007;and,Newswires,TheWallStreetJournalOnline,“McDonald’sUSDairyCostsRose20%–30%in3Q,”October19,2007.77CashflowNews,“CashFlowfromOperationsforMcDonald’sReachesNineYearHigh,”November7,2007.78TheM&CReport,“McDonald’sReports6.4%RiseinSales,”December2007.79Flowers,John,“BreakfastMenu,PremiumCoffeeBoostMcDonald’sNovemberSales,”TheWallStreetJournalOnline,December10,2007.80PRNewswire,“McDonald’stoInvestors:PTWPositionsCompanyforFutureSuccess,”November13,2007.81Martin,Richard,andPeterRomeo,“BostonMarket’sCEOSaysMcDonald’sMaySellChain,”Nation’sRestaurantNews,January22,2007.82DailyNewsFax,“McD’sHasAgreedtoSellthe630‐UnitBostonMarketFast‐CasualChaintothePrivate‐EquityFirmSunCapitalPartners,ParentofSuchChainsasFazoli’s,ChevysFreshMex,ElToritoandBruegger’sBagels,”Nation’sRestaurantNews,August7,2007.83Gibson,Richard,“ComplaintsRiseatMcDonald’s,”TheWallStreetJournal,February28,2007.Also,reportedbyRichardGibsoninTheWallStreetJournalOnlineonFebruary26,2007.84Adamy,Janet,“McDonald’sIsPoisedforLattes,”TheWallStreetJournal,March1,2007.85Walkup,Carolyn,“Subway,withOmeletItem,FurthersRacetoNarrowMcDonald’sBreakfastLead,”Nation’sRestaurantNews,March5,2007.86Ibid.87Adamy,Janet,“McDonald’sSetsWake‐UpCallforBreakfastRush,”TheWallStreetJournal,July27,2007.88Holliday,Dan,“BritainBitesintoPoshBurgers,”TheSundayTimes(London),May6,2007.89UPI,“McDonald’sTest‐MarketsThirdPounder,”March7,2007.90Hein,Kenneth,“WhyConsumersDon’tComeBackforSeconds:Food,ServiceFailstoKeepCustomersHungryforRestaurantBrands,”BrandWeek,March12,2007.91Nation’sRestaurantNews,“McDRevealsSmoothie,‘SpecialtyCoffee’Plans,”March12,2007.

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92TheAssociatedPressState&LocalWire,“Report:McDonald’sSpecialtyCoffeesComingby2008,”October1,2007.93UPI,“McDonaldsSharesTabforCoffeeVenture,”December7,2007.94HeraldNewsServices,“McDonald’sFeastsonChicken,”TheCalgaryHerald(Alberta),May9,2007.95Yavorcik,Carin,“AngusLabelDoesn’tNecessarilyEnsureHighQuality,”TheColumbusDispatch(Ohio),August29,2007.96BloombergNews,“ChaintoAddBurritotoBreakfastMenu,”ChicagoTribune,November10,2007.97Nation’sRestaurantNews,“McDAddsBreakfastItems,ConfirmsBeverageRollouts,”November26,2007.98UPI,“McDonald’s:NoPlansforAll‐DayBreakfast,”November28,2007.99Gibson,Richard,“McDonald’sIsWorkingonHealthierHappyMeal,”TheWallStreetJournal,April7,2007.100Elliott,Stuart,“StraightA’swithaBurgerasaPrize,”TheNewYorkTimes,December6,2007;and,Birchall,Jonathan,“BurgerChainGetsPoorMarkforSchoolMealDeal,”FinancialTimes,December7,2007.101MacArthur,Kate,“GoldenArchesEnlistsanArmyofMcMommies:FastFeederHopestoTurnNaysayersintoFansbyGivingThemInsideAccess,”AdvertisingAge,June11,2007.102ProgressiveGrocer,“McDonald’s’Moms’QualityCorrespondents’TourBeefSupplier,”August21,2007.103Martin,Andrew,TheFeed,“DidMcDonald’sGiveIntoTemptation?”TheNewYorkTimes,July22,2007.104Clark,Nicola,“McDonald’sAskingforTrouble,”Marketing,April25,2007.105Ebrahimi,Helia,‘INearlyHadtoShuttheDoorsatMcDonald’s.TheInterview:AnOilBlastLefttheFast‐FoodChain’sUKChiefwiththeProspectofRestaurantsWithoutFood,”MailonSunday(London),July29,2007.106Bakalar,Nicholas,“IfItSaysMcDonald’sThenItMustBeGood,”TheNewYorkTimes,August14,2007.107Cebrzynski,Gregg,“McDonald’sSeeksto‘Enrich’KidswithItsBeijingOlympicsInitiative,”Nation’sRestaurantNews,August20,2007.108Gibson,Richard,“SomeFranchiseesQuestionValueofMcDonald’sDollarMenu,”TheWallStreetJournalOnline,November6,2007.109Newswires,“McDonald’sUSAMarketingChiefLamartoRetirein1Q,”TheWallStreetJournalOnline,November29,2007;and,Newswires,“NeilGoldenNamedSrVPMktgChiefatMcDonald’sUSA,”TheWallStreetJournalOnline,November29,2007.110Tribunestaff,“TopU.S.MarketingExecutiveAnnouncesHe’llRetirein‘08,”ChicagoTribune,November30,2007;and,M2EquityBites,“McDonald’sNamesNeilGoldenasSVPandCMOofMcDonald’sUSA,”November30,2007.111AdAgestaff,“MeettheNewestHigh‐PowerCMOs,”AdvertisingAge,December3,2007.112AgenceFrancePresse—English,“McDonald’sPlansMajorInvestmentinEurope,”August21,2007.113Werdigier,Julie,“McDonald’s,ButwithFlair:GoingUpscale,with‘SlowFood’EuropeansinMind,”TheNewYorkTimes,August25,2007.114PRNewswire,“McDonald’sContinuestoDeliverStrongGlobalResults—JanuaryComparableSalesRise5.7%;U.S.ComparableSalesRose1.9%fortheMonth;EuropeComparableSalesUp8.2%fortheMonth;APMEAComparableSalesIncreased7.8%fortheMonth,”February8,2008.115AgenceFrancePresse—English,“McDonald’sServesUpHigherProfit,”January28,2008.

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116AgenceFrancePresse—English,“McDonald’sPostsSizzling80PctProfitRisein2008,”January26,2009.117TheSundayTimes(London),“BigMacLookstoRuletheWorld,”January27,2008.118Ibid.119Tibken,Shara,“McDonald’sOlympicOfferingsHelpBoostSame‐StoreSales,”TheWallStreetJournalOnline,September9,2008.120TheAssociatedPress,“OntheWatch:McDonald’stoReport1st‐QuarterResults,”April21,2008.121Hughlett,Mike,“McDonald’sGainsCloudedbySalesBlip;ProfitTopsEstimates,ButU.S.GaugeSlips,”ChicagoTribune,April23,2008.122Pett,David,“McDonald’sMaySurpriseonEarningsGrowth,AnalystSays,”NationalPost’sFinancialPost&FPInvesting(Canada),July18,2008.123Gongloff,Mark,“GoldenArchesOfferShelterinStorm,”Nation’sRestaurantNews,July23,2008.124Tibken,Shara,“McDonald’sOlympicOfferingsHelpBoostSame‐storesales,”TheWallStreetJournalOnline,September9,2008.125DailyNewsFax,“McDonald’s,”Nation’sRestaurantNews,October14,2004.126Birchall,Jonathan,“McDonald’sClaimsFastFoodSalesFightingOffSlowdown:BurgersandFriesRecessionResistant,EarningsRiseby11%to$1.2Billion,”FinancialTimes,October23,2008.127Theflyonthewall.com,“EarningsPreview:McDonald’sReportsWednesday,October22BeforeMarketOpen,ComtexNewsNetwork,Inc.,October21,2008.128Adamy,Janet,“McDonald’sSalesKeeponGrowing,”TheWallStreetJournal,December9,2008.129Birchall,Jonathan,“StrongGrowthContinuesatMcDonald’s.”FinancialTimes,December9,2008.130API,“McDonald’sReportsBigSalesGrowth,”TheNewYorkTimes,November11,2008.131Hoover,Ken,“GoldenArchesGlitterBrightlyinToughTimes,”Investor’sBusinessDaily,November26,2008.132Luna,Nancy,Registerblogger,“McDonald’sTweaks$1CheeseburgerinTesttoSaveMoney,”TheOrangeCountyRegister(California),August8,2008.133Adamy,JanetatTheWallStreetJournal,“ConsumersTradeDown,McDonald’sSalesGoUp,”TheGlobeandMail(Canada),December9,2008.134BloombergNews,“McDonald’sMadeProfitwithAssistfromDollarMenu,”TheNewYorkTimes,October23,2008.135Horovitz,Bruce,“WouldYouLikeaMochawithThat?McDonald’stoRollOutCoffeeDrinksThisYear,”USATODAY,January8,2008.136Ibid.137Adamy,Janet,“McDonald’sCoffeeStrategyIsToughSell:IntroductionofPremiumCoffeeDrinksComesataWeakEconomicTime,ButExecutivesSayRolloutIsonTrack,TheWallStreetJournal,October27,2008.138Ratner,Jonathan,“McDonald’sDrinkStrategytoAdd5%toEarningsGrowth(UBSReport),”NationalPost’sFinancialPost&FPInvesting(Canada),June26,2008.139Adamy,Janet,“McDonald’sTestsChangesin$1BurgerasCostsRise,”TheWallStreetJournal,August4,2008.140PRNewswire,”McDonald’s(R)OffersChickenOptionsfromMorningtoNightwithLaunchofSouthernStyleChickenBiscuitandSandwich;CustomersintheNewYorkTri‐StateAreatoEnjoyNewestSouthernStyleMenuChoices,IncludingFirst‐EverMcDonald’sChickenBreakfastonMay15,”May14,2008.PRNewswire,”McDonald’s(R)OffersChickenOptions

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fromMorningtoNightwithLaunchofSouthernStyleChickenBiscuitandSandwich;CustomersintheNewYorkTri‐StateAreatoEnjoyNewestSouthernStyleMenuChoices,IncludingFirst‐EverMcDonald’sChickenBreakfastonMay15,”May14,2008.141Hanacek,Andy,“TeamworkKeysSuccess:Interview:DanCoudreaut,ExecutiveChefandDirectorofCulinaryInnovationofMcDonald’sUSA,SpeakswithAndyHanacek,ExecutiveEditorofTheNationalProvisionerAbouttheDevelopmentProcessThatCreatedtheRestaurant’sLatestSuccessStory,theSouthernStyleChickenSandwich,”TheNationalProvisioner,August1,2008.142Jackson,CherylV.,“HowMuchIsThatPop?GottaAsk;NoRoomtoListPrices,”ChicagoSunTimes,March4,2008.143Walker,Elaine,“BurgerKingGrillsUpNewProducts;GrowthIstheStoryfortheFutureatBurgerKing,WhichContinuestoOpenNewRestaurants,LaunchNewProductsandImproveSalesatExistingStores,”TheMiamiHerald,February28,2008.144York,EmilyBryson,“Economy,RivalsNoMatchforBK’sMarketing;FastFeederNotchesSalesGainof5.4%,TrouncingEvenAscendantMcD’s,”AdvertisingAge,May5,2008.145Nation’sRestaurantNews,“Wendy’sBeefsUpValuewith99CentsDoubleStack,”September8,2008.146DailyNewsFax,“McDonald’s;FinancialBriefs;Survey,”Nation’sRestaurantNews,April17,2008.147Adamy,Janet,andPaulZiobro,“TighterLoanConditionsWon’tCrimpMcDonald’s,”TheWallStreetJournal,September24,2008.148York,EmilyBryson,“CreditCrunchTakesBiteOutofMcDonald’s;PlannedCoffeeRolloutHitbyBankingCrisisThatIsRestrictingLoanCapital,”AdvertisingAge,September29,2008.149Gibson,Richard,“OwnersSayFranchisersArePassingOnMoreCosts,”TheWallStreetJournal,October21,2008.150Adamy,Janet,“McDonald’stoRaiseBurger’sPrice,”TheWallStreetJournal,November11,2008.151PRNewswire,“McDonald’sGlobalComparableSalesFuelStrongThirdQuarterResults,”October22,2008.152Adamy,Janet,atTheWallStreetJournal,“ConsumersTradeDown;McDonald’sSalesGoUp,”TheGlobeandMail(Canada),December9,2008.153Charles,Gemma,“BigMacIsBack,”Marketing,March5,2008.154ThaiNewsService,“UnitedStates/World:McDonald’sRollsOutNewGenerationofGlobalPackaging,”October31,2008.155AgenceFrancePresse—English,“McDonald’sPostsSizzling80Pct.ProfitRisein2008,”January26,2009.156Miller,JamesP.,“McDonald’sProfitRisesasChainProvesRecession‐Resistant,”ChicagoTribune,January27,2009.157Theflyonthewall.com,“MCD:Earnings,”ComtexNewsNetwork,Inc.,January23,2009.158Martin,Andrew,“TheHappiestMeal:HotProfits,”TheNewYorkTimes,January11,2009.159Nation’sRestaurantNews,“McDonald’sWarnson1stQ.;SalesStillRise,”March23,2009.160RTENews,“McDonald’s4%AheadDespiteSalesDrop:FastFoodGiantMcDonald’sHasReporteda4%RiseinProfitsfortheFirstQuarterof2009,”April22,2009.161Nation’sRestaurantNews,“McD’sGlobalSame‐StoreSalesUp5.1%inMay,”June22,2009.162Nation’sRestaurantNews,“McD’s2nd‐QProfitFallsonStrongerU.S.Dollar,”August3,2009.163PRNewswire,“McDonald’sThirdQuarterEarningsRiseonStrongGlobalResults,”October22,2009.

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164Birchall,Jonathan,“StrongDollartoHitMcDonald’sProfits,”FinancialTimes,March10,2009.165Ziobro,Paul,“McDonald’sPoundsOutGoodQuarter,”TheWallStreetJournal,April23,2009.166TheNewYorkTimes,“6.9%SalesIncreaseatMcDonald’sBeatsEstimates,”May9,2009;and,TheWallStreetJournal,“SameStoreSalesUpatMcDonald’s,”May9,2009.167Birchall,Jonathan,“McDonald’sBenefitsfromBudgetConsciousClimate:RobustDemandforLowPriceMenus,”FinancialTimes,June9,2009.168Birchall,Jonathan,“McDonald’sSalesKeepGrowing,”FinancialTimes,July24,2009.169Jargon,Julie,andPaulZiobro,“McDonald’sProfitDeclines,”TheWallStreetJournal,July24,2009.170TheNewYorkTimes,“StrongSalesinEuropeHelpedMcDonald’sinJuly,”August11,2009.171Reuters,“McDonald’sSalesRise2.2%ButMissAnalysts’Targets,”TheNewYorkTimes,September10,2009;and,TheWallStreetJournal,“McDonald’sSalesGrowthSlows,”September10,2009.172Ziobro,Paul,“McDonald’s:ThirdQuarterEarningsRose5.9%HelpedbyStrongSeptemberSales,”TheWallStreetJournal,October22,2009.173Theflyonthewall.com,”MCD:Earnings,”ComtexNewsNetwork,Inc.,July22,2009.174TheNewYorkTimes,“WantSaladwithThat?MakeItFries,”April6,2009.175Wiggins,Jenny,andJonathanBirchall,“McDonald’sDefiesDownturnwithPlansfor240MoreRestaurants,”FinancialTimes,January24–25,2009.176Adamy,Janet,“McDonald’stoExpandPostingStrongResults,”TheWallStreetJournal,January27,2009.177Birchall,Jonathan,“McDonald’sTakesaKnifetoChinaExpansion,“FinancialTimes,April23,2009.178Bellman,Eric,“McDonald’sPlansExpansioninIndia,”TheWallStreetJournal,June30,2009.179Jargon,Julie,“WillFastFoodSlow?InvestorsFocusonMcDonald’sResultsasRecessionEbbs,”TheWallStreetJournal,October22,2009;and,Reuters,NewYorkTimes,October23,2009.180Liu,Leona,“Europe’sNewMcCaféCulture;LowCostExpansionIsHelpingMcDonald’sViewithStarbucksastheContinent’sNo.1CoffeeChain,”BusinessWeek,October5,2009.181Marcial,Gene,“McDonald’s:SettoSizzle?”BusinessWeek,November16,2009.182Adamy,Janet,“McDonald’stoExpandPostingStrongResults,”TheWallStreetJournal,January27,2009.183Barron’sOnline,“HotResearchA.M.:SlightSetbackforBigMac,”March6,2009.184Adamy,Janet,“McDonald’sSeeksWaystoKeepSizzling,”TheWallStreetJournal,March10,2009.185PRNewswire,“McDonald’sChiefOperatingOfficerRalphAlvareztoRetire,”December1,2009;and,Neuman,William,“AtMcDonald’s,ARetirementStirsQuestionsOnSuccession,”TheNewYorkTimes,December31,2009.186Lander,Nicolas,“FastFoodAssignation:RestaurantInsider:NicolasLanderMeetsSteveEasterbrook,McDonald’sUKChiefExecutive,”FinancialTimes,March28–29,2009.187Wiggins,Jenny,“McDonald’sLaystheGroundtoMugStarbucksinEurope”FinancialTimes,May27,2009.188Wiggins,Jenny,“FancyCoffeeHelpsBoostMcDonald’sGlobalSales:MoveintoMochasLiftsFiguresby4.3%inJuly;ResultsShowResilienceofBusinessModel,”FinancialTimes,August11,2009.

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189Gibson,Richard,“USFranchiseesFindOpportunitytoGrowAbroad:SaturatedHomeEconomyEncouragesMcDonald’s,OtherstoLookOverseas,WereInvestorsOftenProvidetheBankroll,”TheWallStreetJournal,August11,2009.190FD(FairDisclosure)Wire,“McDonald’sCorporationatSanfordC.BernsteinStrategicDecisionsConference—Final,”June2,2010.191PRNewswire,“McDonald’sDeliversAnotherYearofStrongResultsIn2009,”January22,2010.192TheWallStreetJournal,“McDonald’s,”April22,2010.193BloombergBusinessWeek,“InBrief:McDonald’s.”ProfitingfromSnackAttacks,”June14–20,2010.194York,EmilyBryson,“The(Burger)WorldIsNotEnoughforMcDonald’s:NotContentwithDominatingFastFoodCompetition,theChainMakesaMovetoBestStarbucks,Dunkin’andOthersasaBeverageDestination,”AdvertisingAge,June28,2010.195Farrell,Greg,“MenuPriceCutStrategyProvesRecessionBusteratMcDonald’s,”FinancialTimes,July24–25,2010;and,Ziobro,Paul,“DrinksCushionMcDonald’sSalesButCautionRemains.”TheWallStreetJournal,July24–25,2010;andZiobro,Paul,andJulieJargon,“McDonald’sCupRunsOver,”TheWallStreetJournal,August10,2010;and,FinancialTimes,“McDonald’sSeesRiseinSales,”September10,2010.196MotleyFool,fool.com,August26,2010.197FinancialTimes,“McDonald’sinDividendRaise,”September24,2010.198Korn,Melissa,andTessStynes,“McDonald’sSalesUp,”TheWallStreetJournal,November9,2010.199Stynes,Tess,andPaulZiobro,“McDonald’sNovemberSalesRoseLessThanExpected,”TheWallStreetJournal,December9,2010.200‘Leary,Noreen,“Design:ToKeepGuests,FastFoodLosestheFiberglassDécor,”BrandWeek,March8,2010.201Ziobro,Paul,“McDonald’sBetsPricingDrinksat$1WillHeatUpSummerSales,”TheWallStreetJournal,March18,2010.202Ziobro,Paul,“McDonald’sIntendstoRaisePrices,”TheWallStreetJournal,October22,2010.203Fung,Esther,“McDonald’sSetsPlanforChina,”TheWallStreetJournal,March31,2010.204Farrell,Greg,“McDonald’sContinuestoRelyonEuropeanRestaurantsforGrowth:USRevenuesDeclineby5%,”FinancialTimes,April20,2010.205Jargon,Julie,“OnMcDonald’sMenu:Variety,Caution,”TheWallStreetJournal,December27,2010.206Ibid.207Ibid.208Brandfreak,“Study:Fast‐FoodBrandsMakeYouMoveFast,”BrandWeek,April20,2010.Brandfreak,“SeeingRed:IsRonaldClowningwithYourKids’Health?”BrandWeek,May31,2010.AdvertisingAge,April12,2010,Editorial,“RonaldMcDonaldWon’tBeRetiringAnyTimeSoon.”Ziobro,Paul,“McDonald’sRecallsGlassesUsedinShrekPromotion:PresenceofCadmiumPromptsVoluntaryRepurchaseof12MillionCollectibles,”TheWallStreetJournal,June5–6,2010.Relatedarticle,Neuman,William,“McDonald’stoRecallGlasses,CitingCadmium,”TheNewYorkTimes,June5,2010,and,Farrell,Greg,“McDonald’sInitiatesShrekGlassesRecall:CSPCConcernOverCadmiumLevel;ExposuretoMetalaHotTopicintheUS,”FinancialTimes,June5–6,2010.Ziobro,Paul,“FastFoodChainBlastsCriticismofHappyMeal,”TheWallStreetJournal,July7,2010.

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209Morrision,Maureen,“JustHowHappyDoestheHappyMealMakeMcDonald’s?EvenatUnder10%ofSales,theIconicKids’LineIsBiggerThanPanera,IHOP,”AdvertisingAge,November29,2010.210Farrell,Greg,andHalWeitzman,“McDonald’sChiefAttacksChildren’sMealFoodPolice,”FinancialTimes,December14,2010.211Farrell,Greg,“McDonald’sSuedOverToyswithMeals:USGroupClaimsAdsLureChildren;ChainPreparedtoDefendReputation,”FinancialTimes,December16,2010.212QSRweb,“McDonald’sReportsPositive2010Numbers;McDonald’sCorp.HadNothingButGoodNewsThisMorninginItsFourthQuarter2010andYear‐End,”January24,2011.213BloombergNews,“SalesRise,LiftingMcDonald’sProfit2%,”TheNewYorkTimes,January25,2011.214Nachman,Roger,“InvestorsAreLovin’ItFromMcDonald’s,”Benzinga.com,April21,2011.215York,EmilyBryson,“McDonald’sProfitRises;PricestoArchUp,”ChicagoTribune,April22,2011.216Rappeport,Alan,“StrugglingConsumersLiftMcDonald’sSharestoRecord:ExpandedMenuHelpsSecond‐QuarterProfitsTopWallStreetExpectations,”FinancialTimes,July23–24,2011;and,Weise,Karen,“McDonald’s:SlowGrowthinaToughEconomy,”BloombergBusinessWeek,June13–19,2011.217Kelso,Alicia,“InvestorsAreLovin’It:McDonald’sQ2NetIncomeUp15%;Europe,McCafeOfferingsBoostCompany’sResults,”QSRweb,July22,2011.218Chen,Jonathan,“IsMcDonald’sHeadedtotheDollarMenu?”Benzinga.com,September09,2011.219BenzingaStaff,“McDonald’sPositionedforContinuedGrowthUnderthePlantoWin,”Benzinga.com,November10,2011.220Gasparro,Annie,andMelanieWarner,“McDonald’sSell,24/7;SalesJump7.4%asMenuDrawsCustomersfromBreakfastPastDinner,”TheWallStreetJournal,December9,2011.221Nachman,Roger,“InvestorsAreLovin’ItfromMcDonald’s,”Benzinga.com,April21,2011.222Benzinga.com,“McDonald’sEarnings:ThirdConsecutiveQuarterofProfitGrowth;FinancialReport,”July22,2011.223BenzingaStaff,“McDonald’sPositionedforContinuedGrowthUnderthePlantoWin,”Benzinga.com,November10,2011.224Ibid.225Rappeport,Alan,“BigMacChainWarnsonCostRises,”FinancialTimes,January25,2011;and,Gasparo,Annie,andTessStynes,“McDonald’sProfitEdgesUp:FastFoodChaintoRaisePricesin2011toOffsetRisingCommoditiesCosts,”TheWallStreetJournal,January25,2011;andPiller,Dan,“HotBeef,CornMarketsPushMcDonald’stoRaisePrices,”DesMoinesRegister,January25,2011.226AP,“McDonald’sProfitIsUp;SoAreCosts,”TheNewYorkTimes,April22,2011.227Jannarone,John,HeardontheStreetColumn,“McDonald’s:aShake‐UpwithItsFries,”TheWallStreetJournal,May24,2011.228Kelso,Alicia,“InvestorsAreLovin’It:McDonald’sQ2NetIncomeUp15%;Europe,McCafeOfferingsBoostCompany’sResults,”QSRweb,July22,2011.229LEX,“McDonald’s,”FinancialTimes,January1,2011.230Rappeport,Alan,“McDonald’sDefendRonaldasAmbassadorforGood,”FinancialTimes,May20,2011;and,Jargon,Julie,andIlanBrat,“NoPinkSlipforRonaldMcDonald:HamburgerChainDefendsPitchman,PilloriedforHisRoleinMarketingasWellasHisAgingImage,”TheWallStreetJournal,May20,2011.

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231Strom,Stephanie,“McDonald’sTrimsItsHappyMeal:BowingtoCritics,CompanyAddsFruitandReducesFries,”TheNewYorkTimes,July27,2011;and,Jargon,Julie,“UnderPressure,McDonald’sAddsApplestoKidsMeals,”TheWallStreetJournal,July27,2011.232TheNewYorkTimes,December1,2011.233Trefis,GuestContributor,“McDonald’sSalesGrowthHasHitch,”TheStreet.com,January13,2011.234Ibid.235Karp,Gregory,andEmilyBrysonYork,“GoldenArguments;AtAnnualMeeting,Fast‐FoodGiantDefendsAdvertisingCriticizedforTargetingChildren,”ChicagoTribune,May20,2011.236Ibid.237Klein,Barry,“BurgerWarsWillHeatUpAgain;Wendy’sandBurgerKingHavetheRightLeadershipinPlacetoGetBacktoPositiveSalesandCompetitiveness,”QSRweb,November14,2011.238QSRweb,“McDonald’sAddsBoardMember,GlobalCBO;McDonald’sCorp.HasNamedDonThompson,PresidentandChiefOperatingOfficer,toItsBoard,”January28,2011.239MacArthur,Kate,“McChiefinWaiting;AfterSteadyClimb,BigMac’sThompsonNeedsPatience,”Crain’sChicagoBusiness,October3,2011.240ImagesRetail,“KevinNewell,McDonald’sNewGlobalChiefBrandOfficer,”January27,2011.241Staley,Eddie,“McDonald’sAnnouncesPresidentofMcDonald’sEuropetoResign,”Benzinga.com,August16,2011;and,Marketwire,“McDonald’sAnnouncesSeniorManagementChanges,”August16,2011.242Kelso,Alicia,“InvestorsAreLovin’It:McDonald’sQ2NetIncomeUp15%;Europe,McCafeOfferingsBoostCompany’sResults,”QSRweb,July22,2011.243MacArthur,Kate,“LunchCrunchStymiesMcD’sGrowth;Fast‐FoodChainLookstoTechandAsphalttoBoostPeakCapacity,Crain’sChicagoBusiness,November212011.244Trefis,GuestContributor,“McDonald’sLaunches$1BillionMakeover,”TheStreet.com,May12,2011.245Kelso,Alicia,“InvestorsAreLovin’It:McDonald’sQ2NetIncomeUp15%;Europe,McCafeOfferingsBoostCompany’sResults,”QSRweb,July22,2011.246Harlin,Kevin,“Fast‐FoodKingThrivesonUpdatedMenuandForeignSales,”Investor’sBusinessDaily,September7,2011.247MacArthur,Kate,“McDonald’sLookstoComputersandAsphalttoBoostPeakHoursCapacity,”Crain’sChicagoBusiness,November19,2011.248Eaton,Dan,“Wendy’sRollingOutBreakfastBeyondLouisville,OtherTestMarkets,”BusinessFirstofLouisville(Kentucky),January28,2011;and,Eaton,Dan,“AnalystsSeePromiseinArby’s‐FreeWendy’s,”ColumbusBusinessFirst(Ohio),February4,2011.249Censky,Annalyn,“Wendy’stoSellOffArby’s,”CNNMoney.com,June13,2011.250Turner,Tracy,“AnalystsLikeWhatTheySeeatWendy’s;CompanyCouldBumpBurgerKingfromNo.2,OneSays,”TheColumbusDispatch(Ohio),August7,2011.251AikenStandard(SouthCarolina),“Wendy’s:YouCan’tReinventtheBurger;YouCanRemakeIt,”September20,2011.252FOX‐2WJBK(Detroit),“Wendy’sSettoSurpassBurgerKingasNo.2inFastFoodSales,”December21,2011.253Kelson,Alicia,“HowWendy’sDethronedTheKing;BurgerKing’sIdentityCrisisin2008andtheCommensurateSalesSlideLefttheChainVulnerableforaRevolution,”QSRweb,December22,2011.

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254O’Reilly,Lara,“BurgerKingCombinesGlobalOperationsandMarketing,”MarketingWeekOnline,March1,2011.255Parsons,Russell,“Appointment:BurgerKingHandsMarketingReinstoEx‐McDonald’sBoss;BurgerChainRampsUpEffortstoBoostMarketSharebyHiringMarketingChief,”MarketingWeek,May5,2011.256Walker,Elaine,“BurgerKingGoesforNewLook,Menu;FastFood,”TheMiamiHerald,May30,2011.257Sachs,Robert,“High‐EndBurgerJointsRaisetheStakes,”NationalPublicRadio,MorningEdition,April21,2011.258Kumar,Katvia,“BetterBurgers’TakeBiggerBiteofMarketFresher,PremiumIngredientsAttractDinersForcedtoCutTheirSpending,”St.LouisPost‐Dispatch(Missouri),July31,2011.259Ibid.260Morrison,Maureen,“Fast‐CasualBurgerJointsSnagaSeatattheTable;WhileMcD’s,BK,Wendy’sFocusonBroaderMenus,SmallLimited‐ServiceChainsDriveCategoryGrowth,”AdvertisingAge,September26,2011.261Morrison,Maureen,“BangforItsStarbucks:HitsNo.3DespiteLimitedSpend;HowCoffeeChainReversedStrugglesandStormedPastFast‐FeederRivals,”AdvertisingAge,May2,2011.262Ibid.263Rappeport,Alan,“McDonald’sSalesBeefedUpbyBreakfasts,”FinancialTimes,January25,2012;and,ThePostDaily,“McDonald’sMomentumDeliversAnotherYearofStrongResultsfor2011;CompanyOverview,”February5,2012.264Jargon,Julie,“LateNightSalesonaRollforUSFastFoodOutlets:McDonald’sProfitIncreases11%;Midnightto5AMShines,”TheWallStreetJournal,January25,2012;and,ThePostDaily,“McDonald’sMomentumDeliversAnotherYearofStrongResultsfor2011;CompanyOverview,”February5,2012.265Staley,Eddie,“McDonald’sDeliversaJanuaryComparableSalesIncreaseof6.7%,”Benzinga.com,February8,2012.266Staley,Eddie,“McDonald’sUp2.85%AfterQ1EarningsAnnouncement;FinancialReport,”Benzinga.com,April20,2012.267Levin,Lisa,“Update:McDonald’sQ2NetIncomeDown4.5%;FinancialReport,”Benzinga.com,July23,2012.268Theflyonthewall.com,“MCD:HotStocks,”ComtexNewsNetwork,Inc.,July23,2012.269Staley,Eddie,“McDonald’sReportsGlobalComparableUSSalesDownforJuly;FinancialReport,”Benzinga.com,August8,2012;and,Shek,Alex,“McDonald’sSharesDeclineonFlatMonthlyComparableSales,”Benzinga.com,August08,2012.270Katz,David,RealMoneyContributor,“McDonald’sTradingataTastyPrice,”TheStreet.com,September10,2012.271Theflyonthewall.com,“MCD:Earnings,”ComtexNewsNetwork,Inc.,October18,2012.272ChicagoBusinessJournal(Chicago,IL),“McDonald’sEarningsDisappoint,”October19,2012.273Reuters,“McDonald’sProfitFallsasSalesGrowthSlows,”TheNewYorkTimes,October20,2012.274ThePostDaily,“McDonald’sMomentumDeliversAnotherYearofStrongResultsfor2011;CompanyOverview,”February5,2012.275FinancialTimes,“KeepYourEyesontheFries,”January25,2012.

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276Burkitt,Laurie,“McDonald’sPushesforMoreGainsinChina:InNodtoConcernsAboutFoodSafety,theFastFoodRestaurantChain’sComingAdCampaignStressesMenuQuality,”TheWallStreetJournal,February29,2012.277Bradshaw,Tim,andAlanRappeport,“McDonald’sTwitterAdCampaignBackfiresasCustomersVentAnger:GroupPullsPromotedTweetsWithinHours,”FinancialTimes,January25,2012.278Morrison,Maureen,“CanadianSocialMediaPushHasHaloEffectforMcDonald’sintheUS:FastFoodGiant’sHash‐TagCampaignBackfiredintheStatesButItsVideoProgramNorthoftheBorderHasBeenWellReceivedinBothCountries,”AdvertisingAge,August20,2012.279Issard,Marion,“ToTailorBurgersforFrance,McDonald’sEnlistsBaguette,”TheWallStreetJournal,February24,2012.280CommodityOnline,“McDonald’sInnovativeStrategiesDriveCorporateEarningsShareValue:ProfitConfidential,”March17,2012.281Morrison,Maureen,“CantheMcRibSaveChristmas?McDonald’sDelaysCultFavoritetoBoostDecemberComps,”AdvertisingAge,September17,2012.282O’Brien,Keith,“Supersize:HowMcDonald’sCameBackfromtheBrinkofaPublicRelationsNightmareBiggerThanEver,”TheNewYorkTimes,May4,2012.283Ibid.284St.LouisAmerican,“McDonald’sNamesFirstAfrican‐AmericanCEO,”March2012;and,BenzingaStaff,“McDonald’sCEOJimSkinnertoRetire;BoardElectsDonThompsonasSuccessor,”benzinga.com,March21,2012.285Nicholls,Luke,“SteveEasterbrookLeavesPizzaExpresstoJoinWagamama,”www.bighospitality.co.uk,August2,2012.286Lazare,Lewis,“WhyMcDonald’sDumpedJanFields,”ChicagoBusinessJournal(Chicago,IL),November15,2012;and,Guy,SandrawithAP,“NotLovin’It:McDonald’sExecOut,”ChicagoSun‐Times,November16,2012.287York,EmilyBryson,Tribunereporter,“Focus:Renovations,”ChicagoTribune,January25,2012.288QSRweb,“McDonald’sChickenMcBitesHittheMenu;AfterTestinginaHandfulofMarkets,theLimitedTimeMcDonald’sChickenMcBitesRolledOutThisWeek,”January25,2012.289PRNewswire,“McDonald’sIntroducesaNewAutomaticOfferingofFruitinEveryHappyMeal;NewHappyMealAimstoHelpParentsEncourageTheirChildren’sNutrition‐MindedChoices,”January20,2012;and,Marketwire,“TheHappyMealGetsaMakeover,”April26,2012.290MarketNewsPublishing,”FredL.Turner,McDonald’sHonoraryChairmanandFormerCEO,PassesAway,”January7,2013.291 Ibid.292Kanterman,Matthew,“McDonald’sPostsBetterThanExpectedEarnings,McRibBoosts,SharesEdgeHigher;FinancialReport,”Benzinga.com,January23,2013.293Food&BeverageClose‐Up,“McDonald’sPostsGlobalComparableSalesforJanuary;FinancialReport,”February13,2013.294BusinessWorld(Digest),“McDonald’sProfitsMissEstimates;McDonaldsQ1,”April19,2013;and,MarketLineNewsWire,“McDonald’sReportsFlatEarningsforQ1,”May1,2013.295TribuneNewspapersandNewsServices,“McDonald’sEarningsDisappoint,”Sun‐Sentinel(FortLauderdale,Florida),PalmBeachEdition,July23,2013;and,Kulikowski,Laurie,Small

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BusinessReporter,“McDonald’sCEO:2013EarningsWillRemain‘Challenged,’”TheStreet.com,July22,2013.296Investing.com,“FastFoodGiantMcDonald’sReportedBetter‐Than‐ExpectedThirdQuarterEarnings,DespiteMissingSlightlyonRevenueFigures,ItAnnouncedEarlyMonday,”October21,2013.297Jargon,Julie,“McDonald’sSays‘ServiceIsBroken,’TacklesRepair,”TheWallStreetJournal,April11,2013.298Morrison,Maureen,“McDonald’sBlamesAdsforWeakSales,PutsShopsonHotSeat;TroubleinMcDonaldland:ChainTurnstoMarketingtoRestoreLostMomentum,”AdvertisingAge,November18,2013.299Channick,Robert,TribuneReporter,“AMarketingShiftforMcDonald’s?Exec’sRetirementComesAmidChangeatFast‐FoodGiant’sChicagoAdAgency,”ChicagoTribune,September25,2013.300PRNewswire,“SouthernCaliforniaMcDonald’sRestaurantsIntroduceaNewCatchwithLaunchofFishMcBites;LimitedTimeMenuItemMarksFirstNewFishOfferinginMoreThan50YearsandFirstEverFishHappyMealChoiceintheUnitedStates,”February11,2013.301Berfield,Susan,“WhytheMcWrapIsSoImportanttoMcDonald’s,” BloombergBusinessweek,July03,2013;and,NationalPublicRadio,“TheMcWrapStory:‘CucumbersAreMagical,’”RobinYoungInterviewsDanCoudreaut,SusanBerfield,July24,2013.302PRNewswire,“McDonald’sExpandsWholesomeBreakfastChoiceswithNewEggWhiteDelightMcMuffininNewYorkTri‐State;OlympicGoldMedalistGabrielleDouglastoHostExclusiveLaunchEventat220W42ndStreetMcDonald’s,”April23,2013.303Kelso,Alicia,“IsMcDonald’sHintingataBrandingChange?TheCompany’sChef‐CenteredEventTonightWillExplore‘GoodFoodServedFast,’”QSRweb,September26,2013.304ChoiCandace;ApFoodIndustryWriter,“McDonald’sExploringChangestoDollarMenu,”HighPointEnterprise(NorthCarolina),September8,2013.305 York,EmilyBryson,“McDonald’stoLaunchNewQuarterPounders,DropAngusThirdPounders,”ChicagoTribune:Food&DrinkDigital,May13,2013.306York,EmilyBryson,“McDonald’sFranchiseesAllFedUp.SurveyFindsDollarMenu,CouponingAreWearingonStoreOperators,”ChicagoTribune,April17,2013.307York,EmilyBryson,“McDonald’sRatingCutAfterOperatorsVent,”ChicagoTribune,July18,2013.308York,EmilyBryson,“DoublingDownontheDollar;AmidaRareSalesDecline,McDonald’sIsRe‐EmphasizingtheDollarMenu,a10‐Year‐OldFeatureThatBecametheLinchpinoftheLastTurnaroundinItsAmericanBusiness,”TheBaltimoreSun,March14,2013.309DePillis,Lydia,“McDonald’sDollarMenuIsTooRichforItsRegulars,”Washingtonpost.com,July28,2013.310Ibid.311ChoiCandace;ApFoodIndustryWriter,“McDonald’sExploringChangestoDollarMenu,”HighPointEnterprise(NorthCarolina),September8,2013;and,Li,DavidK.,withAP,“Dollar&ChangeatMcD’s,”TheNewYorkPost,October23,2013.312Baertlein,Lisa,Reuters,“McD’sServesUpaWarning;BurgerGiantSaysJanuaryisLikelytoContinueStringofLukewarmSales,”ChicagoTribune,January24,2014.313M2EquityBites,“McDonald’sNetIncomeDeclinedby5%inQ12014,”April23,2014.314BusinessWorld(Digest),“McDonald’sProfitsSliponWeakerSales;McDonald’s,”July22,2014.

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315RTENews,“McDonald’sBusiness‘Hurt’byChineseFoodScandal,”August5,2014.316Patton,Leslie,BloombergNews,“McDonald’sSlumpHitsNewLow,”NationalPost’sFinancialPost&FPInvesting(Canada),September10,2014.317DowJonesNewswires,“McDonald’sQ3EarningsPlunge30%,”BusinessSpectator,October21,2014.318Dulaney,Chelsey,“McDonald’sSalesFaredBetterThanExpectedinOctober,”TheWallStreetJournal,November11,2014.319Jargon,Julie,andChelseyDulaney,“SalesDropatMcDonald’sWorsens,”TheWallStreetJournal,December9,2014;and,QSRweb,“McDonald’sSalesWoesDeepeninNovember,”December31,2014.320 WirelessNews,“Fitch:MCDDetailsU.S.Plan,GradualImprovementLikelyin2015,”December31,2014.321AdvertisingAge,“SteveEasterbrookReturnstoMcDonald’sGlobalBrandOfficerRole:HeWillOverseeGlobalMarketing,MenuDevelopmentandInsights,”April12,2014.322Jargon,Julie,“MillennialsLoseTasteforMcDonald’s,”TheWallStreetJournal,August25,2014.323Jargon,Julie,“McDonald’sHacksatItsBureaucracy,”TheWallStreetJournal,October31,2014.324QSRweb,“McDonald’sPlanstoShrinkMenu,IngredientLists,”December31,2014.325Jargon,Julie,“MillennialsLoseTasteforMcDonald’s,”TheWallStreetJournal,August25,2014.326Johnson,Luke,“ABigMac,CokeandSideOrderofDecline,”FinancialTimes,September10,2014.327 QSRweb,“Chick‐fil‐A,WhataburgerRankHighforMillennialLoyalty,”December31,2014.328QSRweb,“McDonald’sPlanstoShrinkMenu,IngredientLists,”December31,2014.329Patton,Leslie,“HaveWeReachedOurPeakBurger?America’sOnceInsatiableAppetiteforHamburgerJointsMayFinallyBeSatisfied,”BloombergBusinessWeek,September8–14,2014.330Munshi,Neil,“EatingTheirLunch:WiththeRiseofFastCasualFoodOutlets,theWorld’sLargestRestaurantChainHasMissedaDramaticShiftinWhatConsumersWanttoEat.CanItReinventItselfbyAbandoninga60‐YearOldFormula?”FinancialTimes,October25–26,2014.331Ibid.332QSRweb,“Wendy’sCEO:BreakfastWillNotBeRuledOut,”December31,2014.333Jargon,Julie,“McDonald’sMenuProblem:It’sSupersized,”TheWallStreetJournal,December4,2014.334Ibid.335Jargon,Julie,“McDonald’stoWhittleDownMenu,”TheWallStreetJournal,December11,2014;and,QSRweb,“McDonald’sPlanstoShrinkMenu,IngredientLists,”December31,2014.336 Bradwell,Matt,“McDonald’stoCutMenuSizeandOfferCustomOptionsinAttempttoPrioritizeMillennials,”UPI,December10,2014.337Jargon,Julie,“McDonald’sMenuProblem:It’sSupersized,”TheWallStreetJournal,December4,2014.338 QSRweb,“McDonald’sSalesWoesDeepeninNovember,”December31,2014.339QSRweb,“McDonald’sPlanstoShrinkMenu,IngredientLists,”December31,2014.340 QSRweb,“NLRBIssuesComplaintsAgainstMcDonald’sasJointEmployer,”December31,2014.

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341Davidson,Lauren,“McDonald’sLyingLowAsItTestsMenus,”TheDailyTelegraph(London),December31,2014.342QSRweb,“NLRBIssuesComplaintsAgainstMcDonald’sasJointEmployer,”December31,2014.343Jargon,Julie,“FromtheGrill:WaystoRescueMcDonald’s.IndustryAuthoritiesSuggestHowBrandCanPreserveItsBaseWhileWooingMillennials;FriesShouldAlwaysBeCrispy,”TheWallStreetJournal,December24,2014.344Lachapelle,Tara,Bloomberg,“McDonald’sVulnerabletoActivistInvestors?”EdmontonJournal(Alberta),October29,2014.345Tabuchi,Hiroko,“AsSalesDip,McDonald’sIsReplacingItsLeader,TheNewYorkTimes,January29,2015;and,Brat,Ilan,andGasparro,Annie,“McDonald’sCEOIsOutAmidSalesDecline,”TheWallStreetJournal,January29,2015;and,Munshi,Neil,“McDonald’sNewChiefFacesHeatintheKitchen:IncomingHeadWillNeedAllHisUKTurnaroundExperiencetoArrestYearsofTepidSalesGrowthattheFastFoodChain,”FinancialTimes,January30,2015;and,Munshi,Neil,“NewMcDonald’sChiefFacesToughTestOverStallingSales,”FinancialTimes,January31–February1,2015.346Jenkins,Jr.,HolmanW.,Op‐Edpage,“TheNextMcDonald’sTurnaround,”TheWallStreetJournal,January31–February1,2015.347TheEconomist,“McDonald’s:ASenseofUrgency.DonThompsonResigns,”January31,2015.348Jakab,Spencer,“AheadoftheTapeColumn:GoldenArchesLoseSomeLuster,”TheWallStreetJournal,January23,2015.349Gasparro,Annie,“McDonald’sExtendsSlump,”TheWallStreetJournal,January24–25,2015;and,Munshi,Neil,andGarySilverman,“McDonald’sAppetiteforExpansionCurbedbyFirstSalesDeclinein12Years,”FinancialTimes,January24–25,2015.350Gasparro,Annie,andChelseyDulaney,“McDonald’sAsianWoesGrindDownItsSales,”TheWallStreetJournal,February10,2015.351Gasparro,Annie,“McDonald’sSalesAreTestforCEO,”TheWallStreetJournal,March10,2015;and,Munshi,Neil,andMarkOdell,“NotLovin’It:McDonald’sWarnsofUrgentNeedforChange,”FinancialTimes,March10,2015;and,TheNewYorkTimes,“ChangingTastesBlamedforSharpFallinMcDonald’sSales,”March10,2015.352Tabuchi,Hiroko,withStephanieStromcontributing,“McDonald’sSalesSlide,AsChiefVowsChanges:SignalingUrgencyAfterRivalsMakeGains,”TheNewYorkTimes,April23,2015;and,Gasparro,Annie,withChelseyDulaney,contributing,“SalesatMcDonald’sRemainSoggy:BurgerChainWillClose700RestaurantsinYear,DoubleEarlierEstimate,ProfitDecreases32%,”TheWallStreetJournal,April23,2015.353McDonald’sCorporation,UBSGlobalConsumerTranscript,March3,2015.354Dulaney,Chelsey,“McDonald’sImprovedLastMonth,”TheWallStreetJournal,May9–10,2015.355Strom,Stephanie,“SalesandKaleatMcDonald’s,”TheNewYorkTimes,June8,2015;and,FinancialTimes,LacklusterUSSalesWeighedonMcDonald’sWhereSalesFell0.2%AfterItReportedaSteeperThanExpectedDropinUSSame‐Store‐Sales,”June9,2015.356ZacksEquityResearch,“CanMcDonald’s(MCD)KeeptheEarningsStreakAlive?”Zacks.com,July20,2015.357McDonald’sEarningCallTranscript;SteveEasterbrookonQ22015Results,SeekingAlpha,July23,2015.358Jargon,Julie,withChelseyDulaneycontributing,“McDonald’sInitiativesHaveYettoTurntheTide,”TheWallStreetJournal,July24,2015;and,Strom,Stephanie,“McDonald’sEarningsFalterDespiteTurnaroundEfforts,TheNewYorkTimes,July24,2015;and,Whipp,

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Lindsay,“McDonald’sDisappointedasGroupStrugglestoAdapttoChangingTastes,”FinancialTimes,July24,2015.359Badkafr,Mamta,WallStreetcolumnreporter,“McDonald’sMovesHigherasSame‐Store‐SalesPromptUpgrade,FinancialTimes,September30,2015.360Jakab,Spencer,“McDonald’sPlanIsn’tEnough,”AheadoftheTape,TheWallStreetJournal,October22,2015.361Whipp,Lindsay,“McDonald’sNewMenuCooksUpTasteofRecovery,”FinancialTimes,October23,2015.362Jargon,Julie,“McDonald’sGetsSomeSizzleBack,”TheWallStreetJournal,October23,2015.363Strom,Stephanie,“Aftera2‐YearFunk,McDonald’sPostsaSalesGain,andInvestorsApplaud,”TheNewYorkTimes,October23,2015.364Strom,Stephanie,“McDonald’sInvestorsAwaitMoreTreats,”TheNewYorkTimes,November9,2015.365FinancialTimes,November11,2015.366Strom,Stephanie,“McDonald’sSaysIt’sActingtoEndSlump,”TheNewYorkTimes,November11,2015.367Jargon,Julie,“McDonald’sKeepsProperty:ChaintoIncreaseCashPayoutsbyAboutaThirdtoShareholders,ButMoveHurtsRating,”TheWallStreetJournal,November11,2015.368Kesmodel,David,andIlanBrat,“OnMcDonald’sMenu,CEOwithaFreshView.AsaCompanyVeteran,IncomingChiefExecutiveEasterbrookFacesSkepticism,”TheWallStreetJournal,January30,2015.369Gasparro,Annie,“McDonald’sNewChiefPlotsCounterAttack,”TheWallStreetJournal,March2,2015.370SeekingAlpha,“TheSpecialist:McDonald’sIsAimingforShockandAwe—What’sontheMenu?”April27,2015.371Gasparro,Annie,“McDonald’sPutsItsPlanonDisplay,”TheWallStreetJournal,May3,2015.372 PRNewswire,“McDonald’sAnnouncesInitialStepsinTurnaroundPlanIncludingWorldwideBusinessRestructuringandFinancialUpdates,”May4,2015.373HirokoTabuchi,“FacedwithSaggingSales,McDonald’sChiefAnnouncesReorganization,”TheNewYorkTimes,May4,2015.374Berfield,Susan,“McDonald’sRevampHasMissingIngredients:It’sHeavyonOrganizationalChangeButLightonaKeyElement—TheFood;HowDoTheyGetMoreCustomersThroughtheDoor?”BloombergBusinessWeek,May4,2015.375Fiegerman,Seth,“McDonald’sCEOMakesPassionlessVideoPepTalkandItsStockDipsinResponse.”http://Mashable.com/2015/05/04mcdonalds‐ceo‐turnround/,May4,2015;and,ColoradoWealthManagementFund,“WhoNeedsGoodFood?McDonald’sShiftsManagementAroundandCallsItaStrategy,”SeekingAlpha,http://seekingalpha.com/article/3152216,May7,2015;and,Choi,Candace,APFoodIndustryWriter,“McDonald’stoSimplifyStructure,FocusonCustomers;McDonald’sMapsOutRevivalPlan—SimplifiedStructure,SharperCustomerFocus,”YahooFinance,May5,2015;and,Maze,Jonathan,“McDonald’sAimstoSave$300MillionAnnuallyThroughReorganization;CompanytoSell3500RestaurantstoFranchisees,”Nation’sRestaurantNews,May4,2015;and,Munshi,Neil,“NewMcDonald’sChief’sLong‐AwaitedStrategyforRevivalFailstoImpress,”FinancialTimes,May5,2015;and,Whipp,Lindsay,“CautionOverMcDonald’sRecipeforRevival:ChiefFacesChallengingTasktoEmulateHisSuccessintheUKbyRevivingGlobalBrand,”FinancialTimes,May6,2015.

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376QSRMagazine,“McDonald’sTurnaroundtoIncludeRefranchising,NoREIT,”November12,2015.377Kester,John,“Credits&DebitsColumn,”TheWallStreetJournal,February3,2015.378Ndzamela,Phakamisa,“McDonald’sHiresEx‐ObamaPressSecretary,RichardGibbs,”FinancialTimes,June11,2015;and,Tabuchi,Hiroko,“AFormerTopSpokesmanfortheObamaWhiteHouseHeadstotheGoldenArches:McDonald’sIsattheCenterofDebatesonHealthandWages,”TheNewYorkTimes,June10,2015;and,Jargon,Julie,andChelseyDulaney,“McDonald’sTapsOutsidersforPublicityRoles:Ex‐WhiteHousePressSecretaryJoinsFirm;LagnadoBecomesChiefGlobalMarketingOfficer,”TheWallStreetJournal,June10,2015.379Jargon,Julie,“McDonald’sBringsInNewStrategyChief,”TheWallStreetJournal,September25,2015.380Ibid.381Ibid.382Ibid.383Ibid.384Giammona,Craig,andLesliePatton,“FastFood:PlayingChickenintheBurgerWars;WithBeefPricesSoaring,CheapNuggetsAretheLatestWeapon;“You’llDriveSomeVisits,ButYou’reNotMakingaWholeLot,”BloombergBusinessweek,January19–25,2015.385Bachelder,Kate,“I’mNotLovin’It,McDonald’s,”TheWallStreetJournal,February4,2015.386Stewart,JamesB.,“AVisittoMcDonald’swithaCelebrityChefinTow,”TheNewYorkTimes,February6,2015.387Strom,Stephanie,“McDonald’sSeeksItsFastFoodSoul,”TheNewYorkTimes,March8,2015.388Wolf,Clark,“WhyWeAllTalkAboutMcDonald’s,”Forbes.com,April22,2015.389Lazare,Lewis,“McDonald’sDeborahWahlDeliversHerMarketingMessageinControlledFashion,”ChicagoBusinessJournal,January5,2015.390Marzilli,Ted,“McDonald’sPerceptionDeclinesButItRemainsaFormidableCompetitor.CallIttheMcDonald’sParadoxoraTestamenttotheUbiquityoftheBrand,”YouGov.com,March24,2015.391Abrams,Rachel,“McDonald’sLeadsEfforttoPromoteMigrantAid,”TheNewYorkTimes,September21,2015.392Light,Larry,Opinionpage,“HowtoReviveMcDonald’s,”TheWallStreetJournal,February11,2015.393ArcatureanalysisofonlinecommentsfromLarryLightopinionpiece,February2015.394Kazmin,Amy,“IndianPartnershipLeavesSourTasteforMcDonald’s,”FinancialTimes,February13,2015;and,Robinson,Duncan,“McDonald’sAvoided1BillionEurosinTaxes,SaysReport,”FinancialTimes,February26,2015.395Whipp,Lindsay,“McDonald’stoOpen20RestaurantsinRussia,”FinancialTimes,August22–23,2015.396Strom,Stephanie,“McDonald’sMovingtoLimitAntibioticUseinChickens,”TheNewYorkTimes,March5,2015;and,Kesmodel,David,JacobBunge,andAnnieGasparro,“McDonald’stoLimitAntibioticsinChicken,”TheWallStreetJournal,March5,2015.397Gasparro,Annie,“McDonald’sTriesAgainwithUpscaleBurger,”TheWallStreetJournal,April8,2015.398Reuters,“WhileIt’sNotontheBurger,McDonald’sAddsKale,”TheNewYorkTimes,May7,2015.

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399Reuters,“McDonald’sWillChangeHowBurgersAreCooked,“TheNewYorkTimes,May28,2015;and,JulieJargon,“WillWarmerBunsHelpMcDonald’sLiftSales?”TheWallStreetJournal,May28,2015;and,Jargon,Julie,“GoldenArches—NoLongeraGoldenTicket?ShrinkingSalesandRisingCostsAddtoTensionBetweenMcDonald’sandItsFranchiseOwners,”TheWallStreetJournal,June3,2015.400Strom,Stephanie,“McDonald’sIsPlanningtoStopUsingEggsfromCagedChickens,”TheNewYorkTimes,September10,2015;and,Jargon,Julie,andLisaBeifuss,“McDonald’sTurnstoCage‐FreeEggs,”TheWallStreetJournal,September10,2015.401Gasparro,Annie,“TacoBellIsNexttoGoCage‐Free,”TheWallStreetJournal,November17,2015.402Reuters,“McDonald’stoServeOrganicBurgerinGermany,”TheNewYorkTimes,September26,2015.403Johnson,Hollis,BusinessInsider,September3,2015.404Wang,Venessa,“McDonald’sCapitalizesonFriedChickenSandwichTrend,”BuzzFeed,August28,2015.Alsosee,FoodBeast,“McDonald’sUpgradesCrispyChickenwithNewButtermilkRecipe,”August28,2015,andHuffingtonPost,“McDonald’sAddsButtermilkChicken,August12,2015.405Esterl,Mike,“McDonald’sIsTestingMonsterEnergyDrinks,”TheWallStreetJournal,October21,2015.406Strom,Stephanie,“McDonald’sSeeksItsFastFoodSoul,”TheNewYorkTimes,March8,2015.407Ibid.408Bittman,Mark,Op‐Edpage,“McDonald’sTurnsProgressive,”TheNewYorkTimes,April8,2015.409Berzon,Alexandra,andAnnieGasparro,“LaborGroupTakesonMcDonald’s,”TheWallStreetJournal,March17,2015.410Gershman,Jacob,“McDonald’sFacesJudgeinLabor‐LiabilityCase,”TheWallStreetJournal,March31,2015.411Strom,Stephanie,“McDonald’stoRaisePayatOutletsItOperates,”TheWallStreetJournal,April2,2015;and,Gasparro,Annie,andEricMorath,“McDonald’stoRaisePayinItsStores,JoiningOthers.”TheWallStreetJournal,April2,2015.412TheNewYorkTimes,“McDonald’sAdRetheWageIncreasesatUSCompany‐OwnedStores,”April2,2015.413Scheiber,Noam,“InTestforUnionsandPoliticians,aNationwideProtestOverPay,”TheNewYorkTimes,April16,2015.414Brat,Ilan,“McDonald’sTestsAll‐DayBreakfast,”TheWallStreetJournal,March31,2015.415Jargon,Julie,“McDonald’sPushingAheadonAll‐DayBreakfastforAll,”TheWallStreetJournal,July22.2015.416Jargon,Julie,“McDonald’sRetoolstoEgg‐Celerate,”TheWallStreetJournal,September2,2015;and,Reuters,“McDonald’sAll‐DayBreakfastSettoStartonOctober6,”TheNewYorkTimes,September2,2015.417ADWEEK,“McDonald’sBreakfastIsaBust,October19,2015.418Jargon,Julie,“McDonald’stoSpeedUpwithSmallerDrive‐ThruMenu,”TheWallStreetJournal,May12,2015.419GlobalNews,“Stockholm,”AdvertisingAge,September28,2015.420Gasparro,Annie,“McDonald’sFranchiseesUpinArms,”TheWallStreetJournal,April16,2015.421Jargon,Julie,“McDonald’s:Survey:FranchiseesSouronCompany,”TheWallStreetJournal,July17,2015.

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422Gasparro,Annie,“McDonald’stoSpeedRefranchising,CutCosts:Fast‐FoodCompanytoReorganizeUnderFourSegments,”TheWallStreetJournal,May4,2015.423Giammona,Craig,“McGrumpy:InaLongSlump,McDonald’sNeedsFranchiseeHelp.GoodLuck.PeopleAreHappyWhenSalesAreGood,”BloombergBusinessWeek,May25‐31,2015.424Fox,Justin,“TheOnceButNotFutureBurger:BurdenedbySuccessandSize,McDonald’sIsLosingCustomerstoSmaller,NimblerRivals.IsItTooLateforaTurnaround?”BloombergBusinessWeek,April30,2015.425Ibid.426Peterson,Haley,“McDonald’sCEOHasaMisguidedObsessionwithChipotleThatCouldDriveBusinessintotheGround,”BusinessInsider,June18,2015.427Maze,Jonathan,“McDonald’sIsn’tJustLosingBusinesstoRestaurants,”Nation’sRestaurantNews,July24,2015.428BurgerKing,“AnOpenLetterfromBurgerKingtoMcDonald’s,TheNewYorkTimes,August26,2015;and,Strom,Stephanie,“BurgerKingFloatsIdeatoItsGolden‐ArchRival,”TheNewYorkTimes,August26,2015;and,Moore,Malcolm,“UnhappyMeal:McDonald’sFriesRival’s‘PeaceBurger,’”FinancialTimes,August27,2015;and,FinancialTimes,NewsoftheWeekcolumn,August28–30,2015;and,Denny’s,“Hey@BurgerKing,welovetheideaofaPeaceBurger.We’rejustnotsurewhattocallthisthing.Anyideas?@Denny’sDiner,”TheNewYorkTimes,August30,2015;andBazilian,Emma,“WhopperofanIdea,”Adweek,August31,2015.429Jargon,Julie,“McDonald’s:NewValueMealIsintheWorks,”TheWallStreetJournal,November17,2015;andAP,“McDonald’sExchanging$1Menufor2for$2,”TheNewYorkTimes,November17,2015.