Monday, 8 August 2011

Turnaround at McDonald's

During the late 1990s the world’s leading fast food chain, McDonald's, witnessed a significant slump in its sales. The taste of consumers had undergone a major change with there being a shift from fries, burgers and sodas to healthy salads and sandwiches. McDonald's was perceived to be a significant contributor to obesity in the United States with unhealthy obesity causing foods such as fries, burgers and sodas. Brands like Subway and Taco Bell had made significant progress in the U.S. market and were eating into McDonald's
share of the fast-food business.

The CEO of McDonald’s at that time, Jack Greenberg, was unable to check the declining sales of McDonald’s. He was recommending a huge $1 billion investment in technology to make McDonald’s processes more efficient. Jack Greenberg was asked to resign as CEO in end 2002.

Jim Cantalupo

Jim Cantalupo, who had successfully worked on McDonald’s rapid international expansion in the 1980s and 1990s, was recalled and appointed CEO from 1st January, 2003. Cantalupo also had a holistic view of McDonald’s as he had worked as an auditor of McDonald’s.
Cantalupo created a “Plan to Win” strategy which was put down as a one page document, which talked about People, Products, Price, Place and Promotion. One may feel that a one-page document would not suffice for a strategic purpose, but it is important to know that this “Plan to Win” strategy actually worked and brought about a significant turnaround for McDonald’s because of sound implementation. McDonald’s appeared to have been influenced by partner brands such as Chipotle Mexican Grill and Donato’s Pizza. Cantalupo felt that McDonald’s needed to return to the basics of “Quality, Service, Cleanliness and Value” (QSCV) which had brought success to McDonald’s.
Cantalupo felt that the old system of grading individual stores needed to be recovered. This  would make individual stores concentrate on serving customers better. New groups of  store owners with expertise in food, service, marketing and finance were recruited. Rapid opening of new outlets were curtailed. Whereas McDonald’s used to open around 2,000 outlets in a year, only 513 outlets were opened in 2003. The idea was to focus on enhancing QSCV to elevate customer experience. A concept of “Revitalization” was brought in by Cantalupo and his Chief Operating Officer, Charlie Bell, which conveyed the message to McDonald’s outlets that their No.1 and only job was to improve their restaurant and in case of any obstacles, senior executives of McDonald’s were to be called promptly. Marketing spends were cut down and an innovative menu was brought into place, consisting of healthier salads and sandwiches. As marketing spends were cut down, a system of regions bidding against each other for a limited pool of cash was incorporated and winners were chosen on the expected rate of return on investment.
Their closest rival, Burger King, which was No.2 at that point of time behind McDonald’s as a fast-food chain suffered to a greater extent because of shifting consumer tastes towards healthier food because of their smaller infrastructure which they could not adequately use to bring about a change. Burger King had to close down hundreds of outlets and previous customers of Burger King now flocked to McDonald’s.
As Cantalupo and Bell were successful in leveraging the QSCV model and were able to develop and deliver an innovative menu for customers in a short span of time, McDonald’s turnaround was realized by early 2004. In April 2004, Jim Cantalupo died suddenly of a heart attack. Charlie Bell was chosen as the new CEO, but unfortunately, a couple of weeks later he was diagnosed with colon cancer. He worked as CEO till November 2004 with conviction and belief to instill the changes that he and Cantalupo had envisioned. When he had to retire in end 2004 (because of being terminally ill), he was happy that he had a number of capable deputies in place who would continue to build upon the good work that he and Cantalupo had done to turn around McDonald’s.  

Charlie Bell

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