2017

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Emma Zoe

McDonalds Marketing Assignment

McDonalds Marketing Assignment

McDonald's just posted the worst sales decline in a decade. The brand faces
competition from fast-casual chains like Chipotle, Burger King and Panera Bread.
Results also show that young people, millennias and children, are rejecting the
brand for healthier, fresher food. But McDonald's isn't going down without a fight.

Financial Performance
McDonald's global sales at stores open at least 13 months declined 3.7% in August
2014.
That the worst same-store sales decline that the fast-food giant has reported since
March 2003, when global sales also fell 3.7%. It also marks the fourth straight
month of comparable sales declines in the U.S., which accounts for about 32% of
McDonald's revenue.

Same-store sales in the U.S. were down 2.8%, and in the Asia/Pacific, Middle
East, and Africa region they dropped 14.5%.

"During August, McDonald's global business faced several headwinds that

impacted sales performance," McDonald's President and Chief Executive Officer
Don Thompson said in a statement. "We are diligently working to effectively
navigate the current market conditions to regain momentum. For the long term,
we remain focused on strengthening the key foundational elements of our service,
operations and marketing to maximize the impact of our strategic growth
priorities for our customers and our business."
The company cited weak performance in Russia and ongoing fallout from a health
scandal that affected one of its food suppliers in China as key factors affecting its
sales. Domestic same-store sales dropped 3.2% in July and 3.5% in June.
2014 was a challenging year for McDonalds around the world. Our results
declined as unforeseen events and weak operating performance pressured
results in each of our geographic segments, said McDonalds President and
Chief Executive Officer Don Thompson. "As we begin 2015, we are taking
decisive action to regain momentum in sales, guest counts and market share.
This involves driving foundational improvements in our major markets and
continuing our recovery efforts in markets affected by unusual events. We are
accelerating our efforts behind solutions that capitalize on the investments
were making in our technology and our restaurants to bring McDonald are
Experience of the Future to life for our customers and deliver on our
commitment to drive sustained, profitable growth for all stakeholders.

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Full year results included:
Global comparable sales decrease of 1.0%, reflecting negative guest traffic
in all major segments
Consolidated revenues decrease of 2% (flat in constant currencies)
Consolidated operating income decrease of 9% (8% in constant
currencies), primarily due to the impact of the previously disclosed
supplier issue in APMEA (Asia/Pacific, Middle East and Africa) and
weak operating performance in the U.S.
Effective tax rate of 35.5%, primarily due to an increase in reserves related
to certain foreign tax matters
Diluted earnings per share of $4.82, a decrease of 13% (11% in
constant currencies). The following items, which total $0.54 per
share, negatively impacted diluted earnings per share by 10% (10%
in constant currencies) for the year:
$0.31 per share due to an increase in reserves related to certain foreign
tax matters
$0.23 per share due to the estimated impact of the supplier issue
resulting from lost sales and profitability in APMEA
Excluding the impact of these items, earnings per share for the year
would have been down 3% (1% in constant currencies) compared to
the prior year
Returned $6.4 billion to shareholders through dividends and share
repurchases, in connection with our $18-$20 billion, 3-year cash return
target for the years 2014-2016

Fourth quarter results included:

Global comparable sales decrease of 0.9%, reflecting negative guest traffic

in all major segments
Consolidated revenues decrease of 7% (1% in constant currencies)
Consolidated operating income decrease of 20% (15% in constant
currencies), primarily due to weak operating performance in the U.S.
and the impact of the supplier issue in APMEA
Diluted earnings per share of $1.13, a decrease of 19% (14% in
constant currencies), which includes a negative impact of $0.09 per
share due to the supplier issue in APMEA
Returned $1.8 billion to shareholders through dividends and share
repurchases
In the U.S., fourth quarter comparable sales decreased 1.7% and operating
income declined 15%, reflecting negative guest traffic amid ongoing

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 broad-based challenges, including sustained competitive activity. In
addition, results were impacted by higher selling, general and
administrative and other expenses associated with positioning the business
for the future.

McDonalds U.S. business begins 2015 evolving to a more nimble, customer-

led organization with a strategic roadmap focused on menu simplification and
local customer tastes and preferences.

Europes fourth quarter comparable sales declined 1.1% and operating income
decreased 14% (down 6% in constant currencies). While consumer confidence
issues, particularly in Russia and Ukraine, and weakness in France and

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Germany negatively impacted the segments quarterly results, the U.K.
delivered positive comparable sales and operating income results.

APMEA's fourth quarter comparable sales decreased 4.8% and operating

income declined 44% (down 40% in constant currencies) primarily due to the
lingering impact of the supplier issue on sales and profitability in China, Japan
and certain other markets.

Sales and operating income benefited from solid performance in Australia.

Pete Bensen, McDonalds Chief Financial Officer noted, Last year, we
announced a set of financial goals for the three-year period from 2014 through
2016. We outlined specific targets to return $18-$20 billion to shareholders
through a combination of dividends and share repurchases, refranchise at least
1,500 restaurants and reallocate resources to higher growth initiatives. These
targets are designed to enhance long-term shareholder value while supporting
the work underway to reignite our business results, and we remain on track to
meet these targets.
Benson continued, As we begin 2015, were exercising further financial
discipline - starting with a capital expenditure plan for the year of
approximately $2.0 billion - our lowest capital budget in more than 5 years - as
we're strategically targeting fewer openings in our most challenged markets.
We believe this lower level of capital spending is prudent while we work to
regain our business momentum and improve the sales and profitability at our
more than 36,000 restaurants around the world.

Don Thompson concluded, Our business continues to face meaningful headwinds.

As the worlds leading food service organization, we will continue to evolve,
focusing on the customer as our first priority. Over the next 12 months, our charge
is to ensure that we are adapting to the changing marketplace and maximizing the
potential of our global growth priorities to serve our customers favourite food and
drink, create memorable experiences, offer unparalleled convenience and become
an even more trusted brand. While January comparable sales are expected to be
negative and results are expected to remain pressured, particularly in the first half
of the year, I am energized by the opportunities ahead for McDonalds and remain
confident that we can regain our momentum and build value for shareholders over
the long term.

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The Chipotle Strategy

McDonald's just expanded a test for burgers that are 100% customizable. The
brand hopes the strategy, which is currently in four restaurants in San Diego,
California, could help attract a younger crowd and revive lagging sales. Many
analysts believe that the customization will soon become widespread at
McDonald's and allow it to better compete with fast-casual competitors like
Chipotle.

Chipotle is largely successful because the ingredients for its burritos, bowls,
tacos, and salads are entirely selected by customers, who increasingly crave
tailored options and high-quality ingredients.
Here are some drastic changes to the McDonald brand is making to improve
business.

Changing up the menu.

McDonald's is testing customizable burgers that can be topped with

guacamole, bacon, or tortilla chips. This nod to Chipotle's strategy, where
customers build burritos to their exact specifications. In a bid to appeal to
millennias last year, the brand introduced the McWrap. The wrap has between
360 and 600 calories and comes stuffed with chicken, veggies, cheese, and
sauce.
McDonald's hopes that customization and healthier options will bring in a
younger crowd. McDonalds bacon clubhouse burger McDonald's Facebook
Page McDonald's new burgers are part of a more upscale image. But the menu
will also get smaller.

McDonald's CEO Don Thompson has said the company is going to start
paring down on items. The chain's offerings have expanded by 70% since
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2007, which has contributed to an overwhelmed staff and longer wait times.
Some of the recent menu items to go are the Chicken Selects and Angus Third
Pounders.
Improving customer service.
In addition to trimming the menu, McDonald's is working on speeding up
drive-thru wait times. The company is redesigning kitchens to be more
efficient for workers and testing a mobile ordering app that allows customers
to place orders from their phones and pick up in restaurants. Thompson said
that the company was sending corporate representatives in for a "service
reset." This could include adding more workers and assigning new tasks to
existing ones. The company is retraining workers to improve customer service.

Revamping marketing.

Thompson is aware that many view McDonald's as unhealthy junk food. This
problem has been exacerbated by a food factory scandal in China. To improve
public perception of the company, McDonald's is doing a global audit of the
marketing department. Thompson said he planned to make new internal hires.
"We are also strengthening our creative messages by placing greater emphasis
on the quality of our food and again re- establishing the emotional connection
that our customers associate with the McDonalds experience," Thompson
said.

Business Integration Role

McDonalds Europe has announced that Patricia Abril, currently President and

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Managing Director of McDonalds Spain, will be appointed Vice President,
Business Development & Integration Europe. The move, effective 1 October
2014, will see Abril join McDonalds European Management Team.

Patricias responsibilities will include developing design concepts for new and
existing restaurants and leading the strategic planning of new restaurants on a
pan-European basis. She will also help to implement digital solutions in
McDonalds restaurants, building on her successful leadership in Spain over
the last ten years.
In the role, Patricia will bring together McDonalds Development function
within the European team and will work closely with other functions such as
Finance, Brand & Strategy, Digital and Operations. Doug Goare, President,
McDonalds Europe said:

Patricias strategic customer-focused thinking, her understanding of our

business and her strong leadership skills will be invaluable in this increasingly
important area and she will be a great addition to the European Management
Team.

New Chief People Officer

5th December 2014 - McDonalds Corporation has announced that David
Fairhurst, currently Chief People Officer, McDonalds Europe, has been
promoted to Senior Vice President, International Human Resources and
Strategy, McDonalds Corporation, effective 1st May 2015.
In his new role Fairhurst will be responsible for international Human
Resources which include Europe, Asia Pacific Middle East and Africa
(APMEA), and Latin America, as well as the global Human Resources
functions of Systems, Strategy and Design. He will continue to be based in
London and will report to Rich Floersch, Executive Vice President and Chief
Human Resources Officer, McDonalds Corporation.
Floersch, said: With his strategic vision, passion for the business and his
international experience, David will be a valuable addition to our corporate
team. His keen insights on development will benefit us greatly as we continue
to strengthen our talent pool to drive our business for the future.

Fairhurst joined McDonalds UK in 2005 as Vice President of People and was

promoted to Chief People Officer, Northern Europe, in 2007 with
responsibility for HR, training, education, customer services and environment.
In 2011 he was appointed to the newly created position of Chief People
Officer, Europe.
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Doug Goare, President, McDonalds Europe, said:
David is a highly innovative leader who has made a significant impact on our
business. He has led the creation and implementation of a ground breaking
People strategy that has played a critical role in driving our results and
building trust in our brand across Europe.

New CEO
28th January 2015 CNBC reported - Amid a tumultuous past year for
McDonald's, the world's biggest restaurant chain's CEO Don Thompson is
retiring after two years on the job, effective March 1 2015. The fast food is
also getting a new CFO. The restaurant's Senior Executive Vice President and
Chief Brand Officer Steve Easterbrook will replace Thompson, who is a 25-
year veteran of the company, the company announced on Wednesday.

Previously, Easterbrook served as president of McDonald's Europe and led the

chain's "efforts to elevate its marketing, advance menu innovation, and create
an infrastructure for its digital initiatives," it said in a release. The company's
CFO Pete Bensen will also transition to the role of chief administrative officer
while Kevin Ozan, the company's current corporate controller, will become the
chain's new CFO.

On Friday, the company delivered its latest update on its continuing U.S.
turnaround, ongoing problems in Asia and the currency headwinds it faces.

Following the CEO departure news, the company's stock ticked up 3 percent.
As McDonald's continues its turnaround effort, Bill Smead, CEO and chief
investment officer of Smead Capital Management, said he'd like to see the
company take more risks and focus more on what customers want. The firm is
a long-term shareholder in the company with about 180,000 shares.

"Trying to please everybody is one of the issues that they're dealing with," he
said in a phone interview. He also added he thinks the current low interest
environment and McDonald's high dividend yield has kept McDonald's stock
higher than it typically would be. McDonald's stock is nearly flat during
Thompson's tenure as CEO, compared to a 33 percent surge in the Dow and a
47 percent jump in the S&P 500.
In fiscal year 2014, global comparable sales growth, a key restaurant industry
metric, dropped 1 percent, and its U.S. unit delivered a 2.1 percent decrease in
comps. In fiscal year 2013, global comparable sales growth, a key restaurant
industry metric, rose just 0.2 percent.
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