Steve Easterbrook, the chief executive of McDonald’s, at the New York Stock Exchange on Nov. 12, 2015. Eight months into the job, Easterbook is trying to persuade investors that the fast food giant is pulling out of a prolonged slump.
Photo: Bryan Thomas
Photo: Bryan Thomas

A conversation with chief executive of McDonald’s

A little more than eight months after he took the helm as chief executive of the McDonald’s Corp., Steve Easterbrook spent this week in New York trying to persuade investors that the company is pulling itself out of a prolonged slump. Below is an edited transcript of a brief interview with The New York Times.

Q: What is the single most important thing you’ve done since you became chief executive of McDonald’s?

A: I think the most important role I have played has been to try and lead the business through defining the sense of urgency and purpose that it’s going to take to establish a turnaround. My priority is to first of all call it a turnaround and then start to deliver actions to get the business moving. We’re a large business, a global business in more than 100 countries, and we had gotten used to a certain way of doing things. What I’ve looked to do is try and become a change agent for good, to create the behavioral changes, the cultural changes to really embrace emergency, adopt a higher tolerance to risk and just encourage people to make decisions.

Q: Why do you think people were afraid to take risks?

A: We’ve been so successful for the best part of 60 years, so a lot of our people, their careers have developed through McDonald’s, and they’ve had that success working in a certain way. But my observation is that the pace of change outside McDonald’s has been quicker than the pace of change within over the last few years, and consumers started to notice. What I’ve tried to do is just add that sense of urgency. We have a huge amount of talent in the business, and we just encourage people to feel confident in their convictions and alter their decision-making — and let’s get going!

Q: What what’s been the biggest surprise or shock to you? What didn’t you expect?

A: I think what I found most rewarding — I’m not sure if it’s a surprise — but what I’ve found most rewarding is the speed with which the organization has embraced the challenge. We’ve done certain things internally like restructuring our global business, which was a fundamental change in the way our operating business is structured. Which after 40-plus years of having the business structured in that way, the manner in which all of our people embraced the change, recognized the need and the benefit of it, has been really rewarding to me. It kind of encourages me to go harder and faster because I sense the organization, we are all rallying around each other and enthused by the sense of energy we’re creating.

Q: The nature of competition has changed. It’s no longer just the two who shall go unnamed; it’s the better burger business, it’s Panera, it’s Chipotle, it’s every new little restaurant that’s popping up. What does McDonald’s need to do to respond to that competition?

A: There’s absolutely no doubt consumers have more choice than ever, and the standards of all that provide food have improved over time. Our No. 1 priority is — and it’s as simple as it sounds — is to run better restaurants and consistently.

We’re fortunate enough here in the U.S. to serve 27 million customers a day, around the world nearly 69 million customers a day, and we know that the biggest difference we can make to positively influence customer choice is deliver a higher standard, a more consistent standard, of day-to-day restaurant experience. And that’s the fundamentals — we call it QS&C — fundamentals of hot, fresh, tasty food; fast, accurate and friendly service and in a clean and inviting environment, and we have focused very hard on just that concept of just running better restaurants on a day-to-day basis that’s the way you can provide the most visible, immediate change to customers.

Q: I’ve noticed myself, because I order things from restaurants all the time, I can honestly say the accuracy level at McDonald’s has improved over the past three or four months.

A: The U.S. team identified as its No. 1 priority in improving the service experience was to improve on accuracy. There are a number of things they’ve done. We have simplified merchandise in the restaurants so there is a sharper focus to the menu we offer. We’ve also reduced the range of the menu, and we’ve eliminated some of the slower-moving items that customers clearly weren’t appreciating as much. So that’s enabled us to streamline the menu.

The operations team is then working on the training programs, reiterating some of the operations procedures for the drive-through and the front counter about effective clarifying orders with customers when they place them, double-checking that when you assemble people’s orders that we’ve got it right. It’s real nuts and bolts operational stuff.

Your experience has actually been recognized in the mystery shopper feedback we get — we call it The Voice. We get feedback from tens and tens of thousands of customers every month, and customers are telling us we are delivering a more consistent and better experience than we were a year ago. Within that, accuracy is where the greatest improvement is.

Q: There’s a lot of pressure on higher wages in the United States, both from people screaming and yelling for it and from the economy itself, with more people being employed. You all have taken steps to improve the pay of your employees in the stores you control, but what impact does this pressure have on your franchisees?

A: Our franchisees are independent businessmen and businesswomen. They set their own pay scales, and over time, they’ve been expert at that. They, just like the company, we recognize we’re in the service business and therefore we want to hire and train and retain the best front-line staff we can, and pay is part of that package to attract the best and retain the best. But there’s no doubt there’s upward pressure on the operating business as a result. It’s an above-inflation cost increase, and therefore in order to manage that, we then need to grow the topline of the business to help accommodate those costs.

But also what we’re working really hard on is to see it less as just a cost but more, if you like, as an investment. Because if we get a more high-trained, high-motivated staff in our restaurants, turnover comes down, our productivity improves and we deliver a better day-to-day customer experience. Ultimately, the customer benefits from the investment we’re making. So does it generate P&L pressure? Absolutely, it’s real cost.

Q: How have you been meeting with or addressing the franchisees, who’ve been disgruntled for the past couple of years? They’ve felt like corporate was out of touch with operations.

A: Being relatively newer to the U.S. business, one of the priorities I’ve made is to really work on being visible and approachable right across the U.S. I visit all of the highest-priority markets around the world, clearly, because that’s fundamental to our turnaround, but nowhere more so than the U.S. I wanted to expose myself to them so I can learn and listen and understand the frustrations they have but also share my experience of having led turnarounds, albeit on a smaller level, around U.K. and Europe, and just see what I can do to help.

We’ve had such open conversation, such robust dialogue, and the alignment really is becoming strong. And, frankly, my role is to encourage the U.S. team to do that. It’s the U.S. leadership team who have worked really well with the representative leadership owner-operators, and I have certainly lent my support and experience where required. The progress that has been made is, frankly, showing today in decisions being made today. As we look at something like the All Day Breakfast platform that we’ve recently launched back in, well, a month ago, Oct. 6, when we develop initiatives of that scale, we actually take a vote from the operators to support it. We went to the field for a vote to support it, and we achieved a 98 percent approval from the field. I think that speaks volumes to the alignment and the unity that the owner-operators have among themselves and with management. When we have that strength of unity, our execution in the restaurants is noticeably better. I think they’ve done a fantastic job of launching and delivering the initial phases of the All Day Breakfast plan.

Q: What is the biggest misunderstanding that the investment community has about what you’re trying to do at McDonald’s?

A: It’s interesting, because we’re here in New York and had our investment meeting on Tuesday, which was a significant point in time for us to calibrate where we’re taking the business decisions we’re making. I’ve been really pleased at the way across the last seven or eight months that I believe we’ve delivered a really consistent message, an approach to how we’re managing the business and the expectations we have and, frankly, where we’ll create value and where we’re going to grow.

Through the quarterly earnings calls and through the investor day, I’m sensing there’s a deep understanding across the investment community, across Wall Street for where we’re heading. I’ve been unequivocal that this is an operating growth led turnaround, you know, grow the business, that’s where the greatest value can be created, it’s where the long-term interests of all of our stakeholders are and, at the same time, we have taken a challenging look at other aspects of our business that we think is good for the business, will support the turnaround but also reward shareholders.

We’ve taken some tough decisions on our cost base. We’ve made assertive and proactive decisions on supporting a greater acceleration of franchising some of our company-owned restaurants. We’ve taken a good look at the strength of the balance sheet and believe our capital structure can change in a way that actually helps take advantage of the markets at the moment, provides us strength and takes a little debt going forward. And we’ve taken a look at our real estate and decided the best place for our real estate is within the business model as it stands. So we’ve had a really rigorous look at our business, but the fundamental headline is this will be an operating growth-led turnaround, and I believe Wall Street has heard that and appreciates it.

Q: You’ve said it’s going to take time; you’ve said that repeatedly and consistently. How much time should we give you?

A: I think the greatest demand actually comes from within, not from outside. We are challenging ourselves to act earnestly and actually get some traction in the business. Part of the risk I want to avoid in the business is coming off the turnaround agenda sooner than is right. So we achieved growth in the third quarter, which was a little sooner and a little stronger than most people expected.

But one quarter does not make a turnaround, so I’m keeping a relentless focus within the organization and within my communication broadly that we are going to stick to the turnaround plan until it’s truly embedded. At the same time, in parallel, we’ve got a talented team working on what the future growth plan will look like. I was able to share on Tuesday that I expect to share that future growth plan in the second quarter of 2016, first of all internally and then we’ll share it externally, but that will be subject to maintaining our momentum.

I have had the confidence in our trailing momentum to indicate that I believe the fourth quarter will be a growth quarter, we’re going to grow in all four segments of the business across the world. We’re now five to six weeks into the quarter, and I reiterate my confidence that this will be a good solid quarter as well. That will be a second proof point. And then we want to head into 2016, maintain our momentum, and at the right time, we’ll move from a turnaround plan to a longer-term strategic growth plan.

Q: Finally, what’s your favorite item from McDonald’s menu?

A: A Quarter Pounder with cheese.

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