Bloomberg Businessweek USA 09.30.2019

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Bloomberg Businessweek September 30, 2019

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easterbrook conceDes hIs rollout hasn’t been perfect.

“Wewerejustgoingsohardatit,it provedtobea bitofa hand-

ful,”hesaysofintroducingthefeaturesintheU.S.,manyof

whichhadalreadybeenphasedinyearsbeforeinFranceand

Australia.Whilefranchiseeswererighttoputoffremodeling

toensuretheyweren’tdistractedfromefficientlyrunningtheir

restaurants,thedomesticbusinesswasindireneedofa signif-

icantrevamp,hesays.ThenumberofcustomersvisitingU.S.

storeshadbeendeclininginthelasthalfofhispredecessor’s

tenure.“Itwasprettyobviouswewereoperatingandmov-

ingslowerthantheoutsideworld,andcustomerswerevot-

ingwiththeirfeet.”

InNovember,McDonald’ssaidit wasslowingthepaceof

remodelsintheU.S.Theconversationsareoftenfraught.When

Easterbrookinvitedeightfranchiseestobreakbreadwitha

groupofMcDonald’sexecutivesata steakhouseinWashington,

D.C.,inApril,oneoperatoraccusedhimofsaddlingstores

withimpossibledemands.Forlongtimemanagerswhoback

Easterbrook’sgoalandenjoytheinternalenergyit’screated,

theprospectthathisplanscouldfallthroughis unthinkable.

“Whentheyaska questionthat’sa bitofanattack,I sit

thereandgeta littlepissed,becauseI’mreadytoleanin,”says

CharlieStrong,a 66-year-oldMcDonald’sexecutivewhoover-

seesmorethan5,700restaurantsacrossthewesternU.S.He

affixesa lapelpinoftheletter“M”inthestyleofthegolden

archeslogotoa navyBrooksBrothersblazer,andhisright

pinkieis weigheddownbya 14-karatyellow

goldringinsetwithfivediamonds,onyx,and

thegoldenarches.Thecompanygaveit to

himtocelebratehis25thanniversarywith

McDonald’s.Heexpectstoreceiveanother

forhis50thintwoyears.

StrongsaysoneofEasterbrook’skeyquali-

tiesis thathedoesn’ttakeanycriticismofhis

strategypersonally.“Hejustrollswithit and

swingsit backtowhat’simportantaboutthe

business,what’simportantaboutthevision,

andtonotgetboggeddownwiththeselittle

thingsalongtheway.”

Easterbrook’sstrategysofarhasbeen

vindicatedbythenumbers.Thattailwindis

breathingnewlifeintothebusiness.Strong

drives 40 milesfromhishomeinAurora,Ill.,

everymorningtobeathisdeskby 6 a.m.,whereheanda

handfulofothermasochisticearlyrisersblastrousingtunesby

JourneyorAdeleona Bosesoundsystemtogetthedaygoing.

It’sa routinetheybeganaftermovingintothenewheadoffice,

a $250millionbuildingrepletewithsofapodsintheredand

yellowMcDonald’scolorscheme,anamphitheater, rooftop

terraces, and thousands of antique and modern Happy Meal

toys locked inside cased glass like priceless museum speci-

mens. Easterbrook opened the office in June of last year in a

bid to attract young, tech-forward talent.

In March, McDonald’s acquired artificial intelligence

startup Dynamic Yield, headquartered in New York and Tel

Aviv,for$300million—thecompany’slargestacquisitionin

20 years. The burger chain had been testing the machine

learning software on drive-thrus at four restaurants in

Florida, where screens automatically updated with different

items based on the time of day, restaurant traffic, weather,

and trending purchases at comparable locations. That tech-

nology has been deployed at 8,000 McDonald’s and count-

ing, with plans to be in almost all drive-thrus in the U.S. and

Australiabytheendoftheyear,Easterbrooksays.Thedeal

signaledanambitiontoalignthechainwiththesamepredic-

tivealgorithmsthatpowerimpulsivepurchasingonAmazon

.com or streaming preferences on Netflix. In April, McDonald’s

acquired a minority stake in New Zealand-based mobile app

vendorPlexureGroupLtd.,whichhelpsrestaurantsengage

withdinersontheirphonewithtailoredofferingsandloy-

altyprograms.Theeffortfallsintotheconsumer-goodsindus-

try’swidertrendtowardmicromarketing, which has proved

effectiveindrivingsales.

InearlySeptember,McDonald’ssaidit wasbuyingSilicon

ValleystartupApprenteInc.,a developerofvoice-recognition

technology. The idea is to help speed up lines by eventually

having a machine, instead of a person, on the other side of

the intercom to relay orders to kitchen staff. The deal for

Apprente is McDonald’s third such investment in a technol-

ogy business in the past six months as the company shakes

offa tamer takeover strategy that for decades had focused

on buying and selling restaurants from or to

operators. McDonald’s is pursuing this new

business model even as the latest burger

trends steal the buzz from its offerings.

Beyond fashionable vegan patties, a new

and daunting foe is the fried chicken sand-

wich at Popeyes Louisiana Kitchen (a Miami-

based chain owned by the same company

that controls Burger King), which became a

national obsession when it was introduced

in the U.S. in August.

McDonald’s has leased space in a discreet

industrial complex more than an hour away

from headquarters, where a gray building

aboutthesizeofanaircrafthangar,witha

singlecolumnpaintedyellowanddotted

withsesame-seed stencils, has become a test-

inggroundfor putting Easterbrook’s thoughts into practice.

But for all the technological breakthroughs, the deals, and

the jousting with franchisees, the company’s guiding light has

barely changed. Inside a room beyond a corridor stamped

with the word “innovate” in block capital letters, the hum of

computers and data processing towers is drowned out by a

cacophony of test-kitchen staff running trials on secret pro-

cesses that aim to shave seconds off a Big Mac’s assembly,

much like in the old days, when McDonald’s first upended

the food industry. “In old-school business logic, the big eats

the small,” Easterbrook says. “In the modern day, the fast

eats the slow.” <BW>

$20b

10

0

1997 2019

ESTIMATED

McDonald’s revenue

Share price

$212

$24