Don Thompson Stepping Down And Steve Easterbrook Stepping Into The World's Largest Burger Shop

Author's Avatar
Jan 30, 2015

At a time when fast foods seem to be facing a lot of flak on health and nutrition grounds, one may want to watch out for the big daddy trying to reinvent itself. McDonald’s Corporation (MCD, Financial) has been looking at various options, from a healthier menu to sacking its CEO, to increase its sagging popularity, especially among its home crowd. Looking at how the company failed to create much excitement over the past year, these new drastic changes may see the company occupy a steadier position. Following the board’s announcement of the change in guard, shares jumped 3.1% to $91.59 in extended trading and a good option to buy at current levels.

If one has to go by the brand, MCD may be looking at broader changes to boost its image. Its aggressive advertising campaign backfired pretty badly with most disparaging the content, and the social media damaging the brand extensively. Therefore, it makes sense to promote Steve Easterbrook, its chief brand officer in UK who had scripted a success story, to replace the outgoing Chief Executive Officer Don Thompson from March 1, 2015.

03May20171159171493830757.jpg

Downfall of the burger giant

There are several factors which led to MCD’s decline in popularity and sales over this past decade. The recession took a big toll on this company, especially in Europe where it got caught up in political and economic upheavals. Moreover, when china was hit by the food safety scare, which affected supply in Japan also, it triggered doubts about the production standards and hygiene which further cost the company dearly. Adding to it the advertising fiasco, the brand took a severe beating, and may some major motivation to plug the damage.

Some analysts believe that it is the company’s unyielding system which has slowly spelled its doom. The management has concentrated on series of dynamo-like steps for the smooth function of its 36,000 outlets in over 100 countries. The outgoing CEO, Don Thompson, who has spent 25 years with the company, may have been seen as a product of this system, and therefore unable to change it. Easterbrook, on the other hand, left MCD for almost 2 years before making a comeback, and may be a rebel-outsider the company needs for a fresh perspective.

03May20171159181493830758.jpg

However, the greatest blow dealt to the company was by its home audience. MCD failed to keep pace with the consumer base in the US becoming increasingly health conscious and aware. Not only were they looking at the health aspect, but also interest had considerably waned over the mushrooming of smaller, regional brands. Food at Chipotle Mexican Grill (CMG, Financial), Five Guys Burgers and Fries, Sonic Corporation (SONC, Financial) and Shake Shack (SHAK, Financial) seems to be more appealing with their slightly diverse menu and local tastes. Also, the US franchisers seem to be losing their faith in the management, refusing to implement some company changes, which eventually hits productivity.

In order to boost the confidence of the shareholders, stakeholders and the consumers, MCD decided to bring in a new man to deliver the goods.

Oh Captain, My Captain…

As the company’s first British CEO, he is all set to take charge of steering the company out of troubled waters surely is no novice. Although essentially a MCD man, Easterbrook had short but successful stints as the CEO of both Pizza Express and Wagamama. With a more diverse resume, he comes with a better understanding of the fast food world which will help him devise real-time strategies to attract consumer attention.

03May20171159181493830758.jpg

In 2006, Easterbrook took charge of the UK market with 1,200 outlets. In the next 5 years, he undertook several daring measures which propelled the brand. From 2006 to 2011, sales in UK, where the recession hit harder than US, rose 14% as compared to 12% growth in MCD’s home turf. Easterbrook tweaked the menu, took the fight to the critics and opened an online forum for consumer complaints, thereby satisfying not only the palates but also the people. According to Sara Senatore, an analyst at Sanford C. Bernstein in New York, “That turnaround was very successful, so it’s not surprising they elevated him.”

The course ahead

Last week, the company had announced a budget of $1 billion for FY15 to spend on restaurant infrastructure, adding mobile payment and service at the table options in Europe and also in expansion of its pilot project, customizable burger, in the US. In a statement by the Oak Brook, Illinois-based company, Easterbrook has been at helm of these efforts to “elevate marketing, advance menu innovation and create an infrastructure for its digital initiatives.”

With a well-established track record, Easterbrook now has a larger ship to steer. With the immediate as well as long-term future of the company in his hands, he is also expected to hit the ground running. With analysts seeing this in a positive mood and the markets in cheer over the move, the stocks have not only risen but may also embark on a upward trajectory once Easterbrook takes up the mantle, digs in and starts shaking it up this March onwards.