McDonald's to Speed Refranchising, Cut Costs -- Update

By Annie Gasparro 

McDonald's Corp. announced plans to restructure its global business, selling more restaurants to franchise operators and regrouping overseas markets in different categories to make a more nimble organization that will cut $300 million in annual costs.

Chief Executive Steve Easterbrook, nine weeks into his tenure, delivered the news in a video posted on McDonald's website Monday morning, as he gave the first thorough look at his turnaround plan for the burger giant.

Mr. Easterbrook said McDonald's, which has some 36,000 restaurants world-wide, plans by 2018 to sell to franchisees 3,500 outlets that the company currently owns. That is an increase from a previous goal of 1,500 by 2016, and would mean that about 90% of McDonald's restaurants would be franchised, from about 81% currently, a change Mr. Easterbrook said will provide more stable, predictable revenue.

The CEO also said McDonald's will reorganize its global business starting July 1 under four segments: the U.S., "international lead markets" such as Australia and the U.K., "high-growth markets" such as China and Poland, and the remainder in a group called "foundational markets." The goal is to group together markets that have similar dynamics and challenges, rather than simply geographical proximity.

Mr. Easterbrook said the reorganization will help respond faster to changing consumer needs, and the company expects the various moves to save $300 million a year in general and administrative costs, most of which will be realized by the end of 2017.

Mr. Easterbrook has vowed to reverse McDonald's struggles in recent years due to changes in consumer tastes and increased competition in the U.S., as well as food safety issues in Asia, and economic slowdowns in parts of Europe.

Mr. Easterbrook also emphasized the importance of improving food quality and customer service, and was blunt about McDonald's challenges and the need for bold action.

"Our business-model strength is enduring," he said in the 23-minute video. "But no business or brand has a divine right to succeed. And the reality is our recent performance has been poor. The numbers don't lie."

"In the last five years, the world has moved faster outside the business than inside," he said. "I will not shy away from the urgent need to reset this business."

Still, the details he offered--focused on operational structure--appeared initially to disappoint investors, who were widely anticipating Monday's discussion. McDonald's shares fell nearly 1.3% in early morning trading Monday.

Mr. Easterbrook said the company will conduct a review of its corporate structure in coming weeks, signaling that some positions could be eliminated. "Layers of bureaucracy will be stripped away to allow more nimble decision making and action," Mr. Easterbrook said. However, he didn't specifically discuss the possibility of layoffs.

In the U.S., Mr. Easterbrook already has announced several changes, such as curbing antibiotic use in chicken and testing all-day breakfast.

"Progress will be bumpy and uneven," he said Monday. "But the U.S. is now on the right path."

Chelsey Dulaney contributed to this article.

Write to Annie Gasparro at [e-mail]

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