China, chicken, fresh food options on menu for McDonald’s new CEO
BY SANDRA GUY Business Reporter sguy@suntimes.com July 4, 2012 3:00PM
Don Thompson took over as CEO of McDonald's Monday, July 2. AP file photo
Updated: August 6, 2012 12:06PM
Don Thompson quietly took over the reins of McDonald’s Corp. this week, reaching the pinnacle of his 22-year career at the hamburger chain and becoming the company’s first African-American CEO.
Now he has to prove himself amid slowing sales, increasing burger-chain competition, a No. 2 position to rival Yum Brands in fast-growing China and the need to constantly reinvent the American menu, analysts say.
Thompson takes over from Jim Skinner, who had been CEO since 2004. Under Skinner, McDonald’s remodeled restaurants, greatly expanded its food and beverage menus and posted strong results through the recession by attracting cash-strapped customers with low prices and limited-time specials.
Analysts expect Thompson, 49, to create a legacy along the lines of what he has done as McDonald’s president and chief operating officer — a post he assumed in January 2010 to oversee 33,500 restaurants in 119 countries.
Thompson, who was unavailable for an interview, was known for introducing a shrimp burger in Japan, expanding Chicken McBites snacks into the United States from Australia and Europe, and leading the introduction of McCafes and their profitable premium coffees, cappuccinos, shakes, fruit smoothies and iced and hot mochas.
Sales slowing
The burger chain’s sales are still growing, but at a less rapid pace in the past two months than in the previous 10 months. Morningstar analyst R.J. Hottovy said sales growth at restaurants open at least a year has slowed to a 3.3 percent increase globally in the past two months from 5 to 7.5 percent gain in the previous 10 months, and to 3 to 4 percent growth in the United States from a previous 4 to 11 percent rate.
Yet McDonald’s remains the strongest revenue generator, with average yearly sales of $2.7 million per restaurant compared with the industry average of $1 million per restaurant, according to Hottovy’s analysis. And the McCafes have exceeded McDonald’s original goal of generating $125,000 in additional yearly revenues for each restaurant that has a McCafe menu. The company doesn’t disclose how much the goal has been exceeded, but some estimates say the extra revenues have reached $175,000 per restaurant with a McCafe menu.
Yet McDonald’s faces increased competition from the fastest-growing segment of the restaurant industry — independent chains such as Five Guys, In-N-Out Burger and Smashburger, Hottovy said.
“Sales and profitability numbers are coming down, so what’s going to get McDonald’s growing again?” Hottovy asked.
Hottovy thinks Thompson will reach back to his success in choosing menu items from far-flung parts of the world that sell well in America.
New burger
McDonald’s has introduced a new premium burger and it’s called the Clubhouse Angus. GrubGrade has published reviews of the burger, which has one-third pound of Angus beef, hickory-smoked bacon, white cheddar and American cheese, grilled onions, steak sauce and Dijon mustard wrapped in an artisan roll.
“There are more opportunities for McDonald’s to apply ideas such as the Chicken McBites to new regions and keep the menu innovation going,” Hottovy said.
Chicken is expected to play a big role in new menu items because it can be priced lower than other meats for recession-squeezed consumers and is perceived by health-conscious eaters as preferable to beef, experts say.
But Hottovy foresees Thompson’s legacy as taking McDonald’s to No. 1 in the hottest market the chain has yet to conquer: China.
McDonald’s 1,500 restaurants in China are dwarfed by Yum Brands’ combined 4,700 sites of KFC and Pizza Hut.
“China is such a potentially lucrative consumer market,” Hottovy said. “I think Don [Thompson] has to narrow the gap to make his mark. That will really be his legacy — making McDonald’s competitive in China.”
Thompson is creating high expectations elsewhere. Roger Hardy, founder and CEO of Vancouver-based Coastal.com, an online contact-lens retailer, included Thompson on his fantasy “Executive Dream Team” of “disruptors” in an interview published July 2 in Fortune magazine’s online edition. The dream team is part of Fortune’s Fantasy Sports Executive League.
Hardy said Thompson had shown his talents as chief operating officer at McDonald’s, which he called “one of the most complicated jobs in America,” by engineering “an amazing regeneration” of the McDonald’s chain.
Thompson has a solid base from which to work.
Motley Fool analyst Andrew Tonner has cited McDonald’s status as the world’s sixth-most valuable brand, its $770 million in marketing spending, its profitable franchise system (81 percent of the restaurants are franchised with the rest company-owned) and its clout in negotiating with suppliers as factors that should help buffer the chain from global economic ups and downs.
