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article imageMcDonald's takes action after losing momentum

By Bill K. Anderson     May 20, 2015 in Business
McDonald's isn't looking too hot, and reform has run rampant in attempt to bring sales back to its previously revered position.
The diagnosis pronounced by the new CEO of McDonald's, Steve Easterbrook, says it’s too heavy in a video message. While the first fast food chain in the world accumulates poor results, the British leader, appointed there two months ago, unveiled the main lines of its strategic plan. It must restore the American group more reactivity to better meet the tastes of customers who turn the brand away more and more.
"Our recent performance has been poor, acknowledged Mr. Easterbrook. "The numbers do not lie," he added. In the first quarter, turnover had decreased yet again by 2.6 percent, while earnings fell 32 percent. This is the USA, where 40 percent of sales are made — the company knows its major challenges. Sales of McDonald's haven’t made progress since October 2013. "There is no company or brand that has a divine right to success, and the reality is that our results have been inadequate," said Mr. Easterbrook, who’s planning to take this challenge head on and try to get them back on track.
Once these findings were posted, the CEO announced a first key measure: even generalize the system into a bit of the franchise, which now affects 81 percent of chain restaurants. The rate will increase to 90 percent by 2018. This strategy is more proactive in its decision in this context to reduce the number of outlets. The group has announced on April 22, closing 700 restaurants deemed not profitable enough in the U.S., China and Japan.
The goal is to ensure a more stable and predictable cash flow. Franchise outlets will reduce structural costs, while ensuring a regular income from franchisees who are, themselves, paying royalties to the brand. It is a system that has been successfully generalized by the great competitor of McDonald's, Burger King — 99 percent of restaurants are now franchised. But while sales of the first declined between January and March, with the second jumped 6.9 percent.
The reorganization of the group into four geographic areas is another major change. The United States, the "leaders" markets (those of the UK, France or Germany), emerging countries and the rest of the world.
But these changes should also be immediately perceptible by the customer. McDonald’s leaders promise that the group will focus more on listening to consumers. For this, McDonald's will have to work to simplify the tasks of its employees to reduce wait times.
The chain also announced a renewal of its menu offering. It will also propose a grilled chicken sandwich, labeled "Artisan," and should no longer be used in preparations of high antibiotic poultry. In December 2014, the group had already announced they would not use food preservatives. These initiatives aim to demonstrate the intention of the brand to offer healthier food, like some of its rivals like Chipotle Mexican Grill, Shake Shack and Panera, who undercut them in these areas in the United States.
The group also reduced its costs to $300 million. The CEO, however, did not specify what would be the impact on employment, saying it was too early to determine this, but they shine with generalities.
The group impositions on the world's leading fast food have left investors unsatisfied. Monday, McDonald's share closed down 1.71 percent to $96.13. Aware that the strategic plan will not make short-term miracle, the company tried to wait for shareholders by announcing a program of dividends and share repurchases. The group plans to distribute $20 billion by the end of 2016, including $8.5 billion this year.
This decision not only failed to boost the share price, but it resulted in the lowering of the credit rating of the company. S&P downgraded its debt rating to A -, considering that "the returns to shareholders this year require a higher debt than we expect."
Many observers also question whether the announced changes are at the height of the situation. "On the basis of the presentation that was made, I defy anyone to find out what they want to do with the brand when the group returns to growth," pointed on CNBC Larry Light, who was the marketing manager McDonald's the time of the last crisis that the company has known in early 2000. "When it comes to the brand, they shine with generalities, but give no details," he regretted. " Being more efficient and less bureaucratic saves you time, but it's not allowing you to succeed in life," says Light, who recalls that one of the keys to recovery in 2002 was to put the quality of food at the center. In this regard, Mr. Easterbrook was evasive.
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