The McDonald’s Turnaround Plan - mbacasecomp.comRisks and Risk Mitigation Analysis Alternatives Recommendation Finances Risks • Custom menu has had nominal success, focus on what

The McDonald’s Turnaround Plan

ERIC POSTMA | TOM EPP | JESSE PERRY | AMANDA MACDONALD

ASPER SCHOOL OF BUSINESS

Agenda

Analysis of Opportunity

Evaluation of Alternatives

Recommendation

Financial Analysis

Risks and Risk Mitigation

Key Issue

Analysis Alternatives Recommendation Finances Risks

“Everything to Everyone” strategy has not worked, leading

to declining sales

Recommendation: Back to your roots, prepare for the future

Analysis: Context


Consumer Tastes • Health conscious • Desire customization

Changing Customer Base • Bifurcation of middle class • Core customer has less disposable income

Menu • Core menu • Create Your Own Taste • Premium McWrap and healthy choices • All day breakfast

Analysis: Sales Sources


Drive-Thru

In-Store

Analysis: Market Segments


US

International Lead Markets High-growth Markets Foundational Markets

Analysis


Strengths • Brand equity • Company history • Franchise model

Concerns • Declining sales • Size of

organization • Large menu

Threats • Healthy

consumer • Changing middle

class • Supply chain

problems

Opportunities • Technology • Healthy

consumer

Evaluating the Alternatives


•  Table Service, customized burger options •  Flexibility, focusing on the customer

experience

Customized Experience

• Purchase a start-up chain focused on healthy eating Acquisition

•  Simplify current menu, focus on drive-thru • Develop a new healthy sub-brand

Back to basics – prepare for the

future

Alternative 1: Customized Experience

Advantage Disadvantage

Higher Priced Menu

Smaller Market

Slower Service

Unhealthy

Unique Product

Better Experience


Alternative 2: Acquisition


Introducing competitor

Expensive

Cannibalization

Diversify risk

Expanding customer base


Alternative 3: Back to basics, Prepare for the future


Expands Customer base

Improves Brand Image

Addresses shift in

healthy eating

Capitalizes on strengths

Slow delivery

Changing customer attitudes


Evaluating Criteria


Customer Satisfaction

Increased Sales

Fits Culture

Brand Perception

Criteria matrix


Customer Satisfaction Increased Sales Fits Culture Brand Perception

Customized Experience Yes No No Yes

Acquisition No Yes Yes No

Back to basics, prepare for the future

Yes Yes Yes Yes

Recommendation


Back to Your Roots • Traditional McDonalds restaurants • Focus on core customers

Prepare for the Future • New McFresh brand and restaurants • Adapt to changing customer expectations

Back to Your Roots

• Return to basics • No customization

Simplified Menu

• Healthy and natural ingredients • Localized supply Higher Quality

• Double Lane Drive Thru • Countdown Clock Faster Service


Prepare for the Future

• Healthy Options • Customization • Fast Service

Customer Preferences

• Separate stores • New Identity • Healthy Alternatives - Wraps and Salads

McFresh

• Counter Experience • Easy Customization • To Go / Seating Area

Fast Service


Synergies

• Better Quality/Customer Satisfaction • Economies of Scale • McDonalds & McFresh

Healthier Ingredients

• Play structures “McPlay” • Healthy Happy Meals • Life Time Customers – McFresh

Family/Child Focus

• Loyalty Program • Apple Pay / Google Wallet • NFC – Personalized experience/customer preferences

Mobile Application


Implementation


!! 2015% 2016% 2017% 2018% 2019% 2020%New%Stores% !! !! !! !! !! !!

!!McDonalds! 40! 100! 200! 200! 200! 200!McFresh!

!!

60! 200! 600! 1000! 2000!!!

!! !!

!!

!! !!

Marke5ng%

!!

McFresh! !! !! !! !! !! !!Fast!Service!

!!

!! !! !! !! !! !!Ingredients!

!!

!!

!! !! !! !! !! !!!!

!!

!!

!!

Supply%Chain%

!!

Vegetables! !! !! !! !!Beef! !! !! !! !! !! !!Eggs! !! !! !! !! !! !! !! !!Chicken! !! !! !! !! !! !! !! !! !! !!

!!!! !!

!! !!

!! !!

Tech%&%Training%

!!

Training! !! !! !! !!Mobile!App!

!!

!! !! !!In!Store! !! !! !! !! !! !! !!

Financial Analysis


2015 2016 2017 2018 2019 2020 TotalIncremental4Cash4InflowsFranchise*Conversions 750,000,000$********** 1,350,000,000$******** 1,500,000,000$******** 1,650,000,000$******** 6$************************* 6$************************* 5,250,000,000$44444444444444Operational*Savings 100,000,000$********** 200,000,000$************ 25,000,000$************** 300,000,000$************ 300,000,000$******** 300,000,000$******** 1,225,000,000$44444444444444

Total 850,000,000$4444444444 1,550,000,000$44444444 1,525,000,000$44444444 1,950,000,000$44444444 300,000,000$44444444 300,000,000$44444444 6,475,000,000$44444444444444

Incremental4CostsMcFresh*Store*Openings 6$*************************** 48,000,000$************** 16,000,000$************** 48,000,000$************** 80,000,000$********** 160,000,000$******** 352,000,000$444444444444444444Mcdonald*Openings 4,000,000$*************** 10,000,000$************** 20,000,000$************** 20,000,000$************** 20,000,000$********** 20,000,000$********** 94,000,000$44444444444444444444Service*Improvements 75,000,000$************ 50,000,000$************** 25,000,000$************** 6$***************************** 6$************************* 6$************************* 150,000,000$444444444444444444Supply*Chain 100,000,000$********** 100,000,000$************ 50,000,000$************** 6$***************************** 6$************************* 6$************************* 250,000,000$444444444444444444Technology 100,000,000$********** 50,000,000$************** 6$***************************** 6$***************************** 6$************************* 6$************************* 150,000,000$444444444444444444Marketing*Costs 100,000,000$********** 100,000,000$************ 100,000,000$************ 100,000,000$************ 100,000,000$******** 100,000,000$******** 600,000,000$444444444444444444

Total 379,000,000$4444444444 258,000,000$444444444444 111,000,000$444444444444 68,000,000$44444444444444 100,000,000$44444444 180,000,000$44444444 1,096,000,000$44444444444444

McDonald’s & McFresh Store Openings


New$Store$Openings 2015 2016 2017 2018 2019 2020McFresh 0 60 200 600 1000 2000 3860

U.S 0 30 100 300 500 1000International3Lead3Markets 0 30 100 300 500 1000

McDonalds$High3Growth3Markets 20 50 100 100 100 100 450Foundational3Markets 20 50 100 100 100 100 450

Total3Franchise3Conversions 500 900 1000 1100 0 0 3000

Revenue & Net Income Projections


$-

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00

$35,000.00

2014 2015 2016 2017 2018 2019 2020

Controls & Measures


Controls(&(Measures 2015 2016 2017 2018 2019 2020Sales&Growth >2% >4% >4% >5% >5%McFresh&stores 60 200 600 1000 2000Customer&Satisfaction >80% >80% >80% >80% >80% >80%Technology&Use&(new&users) E&&&&&&&&&&&&&&&& 1,000,000&&&& 1,000,000& 1,000,000& 1,000,000& 1,000,000&

Risks and Risk Mitigation


• Custom menu has had nominal success, focus on what customers want

• Custom options available at McFresh stores

Sales lost from removal of custom menu

•  Transition customer base • Attract new customers McFresh could split

customer base

• Marketing & supply chain will focus on fresh and high-quality food

• New McFresh stores Brand image

Conclusion


Confused strategy

Back to your roots

Prepare for the future

Appendix

!  Split strategy


2014 2015 2016 2017 2018 2019 2020Total&Revenues 27,441$&&&&&&& 26,484$&&&&&&& 27,013$&&&&&&& 28,364$&&&&&&& 29,215$&&&&&&& 29,799$&&&&&&& 30,395$&&&&&&&Company 66% 55% 45% 40% 30% 25% 20%Franchise 34% 45% 55% 60% 70% 75% 80%

Company 18,169$&&&&&&& 14,566$&&&&&&& 12,156$&&&&&&& 11,346$&&&&&&& 8,764$&&&&&&&&&& 7,450$&&&&&&&&&& 6,079$&&&&&&&&&&Franchise 9,272$&&&&&&&&&& 11,918$&&&&&&& 14,857$&&&&&&& 17,018$&&&&&&& 20,450$&&&&&&& 22,349$&&&&&&& 24,316$&&&&&&&

Net Present Value


$6.2 Billion

Appendix


Incremental*Net*Income -$******************* 229$******* 207$******* 216$******* 280$******* 295$*******Incremental*Costs 379$****************** 258$******* 111$******* 68$********** 100$******* 180$*******Net*Benefit 379$****************** 487$******* 318$******* 284$******* 380$******* 475$*******

$350.93 $417.93 $252.81 $208.57 $258.95 $299.02NPV $6,208.40Rate 8%Growth 3%

Store Opening


New$Store$Openings 2015 2016 2017 2018 2019 2020Total&McFresh&(Franchise&&&Corporate) 0 60 200 600 1000 2000 3860Total&Mcdonalds&(Franchise&&&Corporate) 40 100 200 200 200 200 940Total&Franchise&Conversions 500 900 1000 1100 0 0 3000

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The McDonald’s Turnaround Plan - mbacasecomp.comRisks and Risk Mitigation Analysis Alternatives Recommendation Finances Risks • Custom menu has had nominal success, focus on what