McDonald's plots an overhaul. Can it return to fast food dominance?

Steve Easterbrook had little good news to offer in his first quarterly earning call as McDonald’s Corp. president and CEO, but he promised to emphasize the positive in a special webcast on May 4, when he will detail the initial steps of the company’s global turnaround plan.

Yesterday, the discussion was about another down quarter. Global comparable sales were down 2.3%, with U.S. comp sales down 2.6% for the quarter and down 3.9% in March. April comps will be negative as well. But the worst performance came from Japan where supplier issues have destroyed McDonald’s brand trust. Comp sales there were down nearly 33%. China is down but recovering. Russia, of course, remains an economic sinkhole.

The company said it is closing 350 under-performing restaurants, primarily in the U.S., Japan and China. These are in addition to 350 closings already planned for 2015. Those 700 closures mean a loss of roughly 2% of its 36,290 stores open at the beginning of the year.

Easterbrook explained the problem areas straightforwardly and without excessive jargon. He repeated his vision of McDonald’s as “a modern, progressive burger company delivering a contemporary experience” but explained it. Being modern, he said, “is about getting the brand to where we need to be today, and ‘progressive’ is about doing what it takes to provide what our customers will expect tomorrow.” That will require allowing local markets to develop and sell the food their customers want.

Most of all, Easterbrook said, McDonald’s needs to change its thinking. “We can’t afford to carry legacy attitudes or legacy thinking. And we won’t.”

While the first steps of the turnaround strategy won’t be disclosed until May 4, Easterbrook outlined the four principles of his approach going forward:

• Greater Emphasis on Accountability: “Where we need to fix the fundamental, we need to act. Now,” he said, adding that everyone, including himself, is accountable for making those necessary changes.
• Grounded in the Customer: “As a retail business, we must be even more customer-centric,” he said, adding, “We need to be the best at selling what matters most to our customers.
• Progress Over Perfection: “We will try new things; move fast if it works, even faster away from what doesn’t.”
• Champion Simplicity: Beyond uncluttering the menu, this means using the brand’s scale to making the business more responsive to market conditions.

New CFO Kevin Ozan summed up the company’s muscular self-assessment: “We’re taking a close look at our organization, challenging ourselves and the status quo. Our goal is to position the company for enduring, profitable growth. We must get back to leveraging the benefits of our business model, including the entrepreneurial spirit of our franchisees. We must utilize our considerable resources more efficiently and we must meet our customers evolving needs more consistently.”

Janney analyst Mark Kalinowski offered this takeaway from the announced plan for a turnaround call: “We’ll see what McDonald’s has to say on May 4th. The Star Wars fan in us remarks, ‘May the 4th be with them.’ May 4th is Star Wars Day, after all.”