The EconomistNovember 14th 2020 Business 57C
hris kempczinskiis anything but supersized. One year into
his tenure, the ceoof McDonald’s is a lean-framed 52-year-old
who runs marathons. Hard to believe, then, that he eats a McDon-
ald’s meal twice a day, five days a week. “There are days when I’m
indulgent and days when I’m careful about what I’m eating, but I
eat a lot of McDonald’s,” he admits in an interview. Indeed he puts
many of his best customers to shame. On average, the top 10% of
Big Mac bingers visit his restaurants a fifth as regularly as he does.
Perhaps he is making up for lost time. Unusually for a McDon-
ald’s boss, he is not a company lifer. He joined in 2015, hired by his
predecessor, Steve Easterbrook, when McDonald’s was on the
verge of meltdown. It was floundering in its attempts to compete
with innovative American upstarts, such as Chipotle and Shake
Shack. Its premises were shabby even as it offered hundreds of
items on the menu that many of its customers could not afford.
Critics called it a parasite on society, paying low wages and pro-
moting obesity. Mr Kempczinski acknowledges that it suffered
from hubris. Under Mr Easterbrook, who took charge in 2015, the
mission was to shake it out of its complacency.
What followed was a lesson in corporate renewal that could
have made Mr Easterbrook a megastar ceo had he not been fired
last year for having a consensual relationship with an employee.
(McDonald’s has recently sued him for allegedly concealing other
sexual relationships and wants to recover a big pay-off.) Yet sensi-
bly Mr Kempczinski is sticking to the programme. Unlike many
new bosses overeager to tear up the legacy of their disgraced prede-
cessors, he unveiled a new strategy on November 9th that builds
on the work started in recent years. In the midst of a pandemic, it
offers a valuable lesson of its own. Never let a crisis go to waste.
The seeds of the revival of McDonald’s started with a simple de-
cision that is surprisingly easy to get wrong: go back to basics.
From 2015 onwards, it pared back its array of menu offerings and
focused on price and quality. It recommitted to Ray Kroc’s beloved
business model, increasing the share of franchises last year to 93%
(of almost 39,000 restaurants), up from 82% in 2015. That provided
it with higher-margin and steadier royalty and rental income. It
streamlined its sprawling international operations, selling con-
trol of its restaurants in China and Hong Kong. The results wereimpressive. Across McDonald’s sales exceeded $100bn last year; its
operating margins, thinner than a frazzled patty in most of the res-
taurant industry, ballooned to 43%. And its share price sizzled.
Since 2015 its market value has almost doubled to $160bn.
As it recovered its financial footing, it turned to investing in the
future. But counter-intuitively, it probably benefited by not rush-
ing. According to John Gordon, a San Diego-based restaurant con-
sultant, its franchisee model makes it hard to move fast—and im-
portant to build consensus. It tests new ideas out in local markets
before suggesting them to franchisees worldwide. Its ownership
of the land under franchisees’ restaurants gives it a joint interest
with them in co-investing in refurbishments and technological
upgrades. Not only does this help woo customers by reinforcing
the brand, it also supports the value of the land. In recent years Mc-
Donald’s and its franchisees have invested heavily in installing
kiosks for touchscreen ordering and making other improvements
such as two-lane drive-throughs. Last year the company made its
biggest acquisition in years, buying a tech firm that helps perso-
nalise the drive-through experience. The overhauls may have cost
franchisees a lot. But over the course of the covid-19 pandemic,
they have started to reap the benefits.
That is because McDonald’s has used the crisis to step up the
pace of its transformation, resulting in big sales surges in recent
months, especially in America. With the interiors of many of its
restaurants closed, it has relied on the roll-out of its digital, drive-
through and delivery initiatives, all of which encourage a more
“contactless” experience that it believes will outlast the pandemic.
Recalling Kroc’s aphorism that “We’re not in the hamburger busi-
ness. We’re in show business,” it has dazzled customers with cus-
tomised menus by superstar rappers such as Travis Scott. And it
has made old favourites, such as Big Macs and Quarter Pounders,
central to its menu, which adds to simplicity in the kitchen and
speeds up customer service. Over the next two years it hopes a
long-awaited digital loyalty programme will enhance sales growth
and maintain margins at their elevated levels of 2019. With a covid
vaccine, it could do even better.
Many challenges remain for Mr Kempczinski. On food, McDon-
ald’s is a laggard when it comes to chicken sandwiches and plant-
based products. It promises a Crispy Chicken Sandwich and non-
meat McPlant soon. The former is vital to catch up with competi-
tors such as Chick-fil-a. The company says it is shifting marketing
away from sales drives towards promoting itself as a community-
focused-brand, but not everyone likes the pious tone. “Social Jus-
tice Warriors are now running McDonald’s Corporation. Stuff that
has nothing to do with selling Big Macs,” says one franchisee
quoted in an analyst’s report. McDonald’s faces two lawsuits from
former and current black franchisees, alleging racial discrimina-
tion by pushing them into poor areas. It refutes the accusations.From Big Macs to big data
Its ubiquity means McDonald’s is often in the news for the wrong
reasons. But as a corporate turnaround, it is a compelling story. In-
stead of suffering from a tech onslaught as many bricks-and-mor-
tar chains have, it has turned itself into a digital pioneer. Instead of
hunkering down during the pandemic, it has embraced new ways
of doing business. Despite Mr Kempczinski’s baptism of fire, even
the leadership transition has been the best the industry has seen in
years, says Sara Senatore of Bernstein, an investment firm. He
should not be harshly judged for his frequency at the lunch coun-
ters. So far he has earned all the Quarter Pounders he can eat. 7Schumpeter The big McComeback
Takeaways from the revival of a fast-food behemoth