McDonald's plans to revamp, counter competition

By Chuck Hutchcraft.

Chicago Tribune; 20th May 1997

The news was big, but there was none of the hype that propelled Teenie Beanie Babies and Campaign 55 into the national consciousness. In fact, there was no hype, just a leaked internal memo outlining a major restructuring of McDonald's Corp.'s U.S. business operations.

Like the two promotions, the revamping is geared to boost the Oak Brook-based corporation's profitability in the face of fierce competition from Burger King and Wendy's.

Reports Monday described the plan as "the most significant shakeup of the company's top-heavy United States management since Ray Kroc joined the company in the early 1950s." But some critics saw the plan as nothing more than a smoke-and-mirrors maneuver. Others, while saying the reorganization certainly wouldn't hurt, said it failed to address the core problems facing the fast-food giant - declining quality and a glut of restaurants in this country.

"It's just another sign that McDonald's U.S.A. is something other than a well-oiled machine," said Damon Brundage, an analyst with NatWest Securities Ltd. in New York.

The company's basic problem is that "its food isn't very good," Brundage said. Meanwhile, "Burger King and Wendy's have gotten better while McDonald's at best has run in place." "What they have essentially told people is the reason you want to come to McDonald's is you can get a Beanie Baby or price discounts, a la Campaign 55," Brundage said.

While the Beanie Babies promotion was a big hit - it was supposed to last five weeks, but the supply of the little stuffed creatures was depleted after 10 days - by almost all accounts the effort to boost sales by offering Big Macs for 55 cents, if purchased with fries and soft drink, has fallen flat.

Meanwhile, McDonald's U.S. expansion, "two to three times its historical growth rate," has "cannibalized existing restaurants" and "made it impossible to achieve significant same-store sales increases in the U.S.," said Dick Adams, chairman of the McDonald's Consortium, an independent association of the chain's franchisees.

There are approximately 12,000 McDonald's restaurants in the U.S. and 2,700 franchisees.

The restructuring, Adams added, is "a stunt. It's basically something just prior to (Thursday's) shareholder meeting." To which Chuck Ebeling, a spokesman for McDonald's, said Monday, "That's not true." Ebeling, however, declined to discuss the reorganization in any depth. "We haven't disclosed anything on this up to this time," Ebeling said. "As a matter of fact, this U.S. reorganization plan is in a very early phase of development." According to published reports citing an internal memo, within a few months McDonald's U.S. operations will more closely resemble its overseas structure. The plan calls for replacing the current eight management zones with fewer, but more autonomous, national divisions.

Each division will be headed by a president with "the authority, responsibility and accountability for the success of that business unit," according to the memo attributed to Jack M. Greenberg, McDonald's vice chairman who heads its U.S. operations.

The memo also stressed that the company plans no layoffs, dismissals or wholesale overhaul.

Allan Hickok, an analyst with Piper Jaffray in Minneapolis said, "I think what they're doing is correct. I would view (the reorganization) very positively, that McDonald's recognizes it has issues and it intends to do something about them." Brundage of NatWest said it does "sound like they're trying to make the management infrastructure a little more user friendly to franchisees," so that "people won't have to go through eight different layers of bureaucracy if they want to change the type of straw they have in stock." But, he added, it doesn't go far enough.

"I'd be building new stores more slowly, more methodically, than going recklessly to impress Wall Street," said Adams.

Adams said McDonald's built 1,100 new restaurants in 1995 and 726 in 1996, but at the same time "more (restaurants) are hurting now than there have been in the history of the system."

Back to Media Page

Press Index