McDonald’s is going for healthier fare and greater digitisation

IN A newly released film, “The Founder”, the character of Ray Kroc promises that the startup he had taken over from the McDonald brothers “can be the new American church”. Portrayed by Michael Keaton as a turbo-charged egomaniac whose scruples diminish as his success increases, Kroc understood the power of branding, the advantages of franchising and the attraction of speed in food retailing. McDonald’s is now one of the country’s biggest food chains, with more than 14,200 outlets.

The domestic market is still its most important one, despite the firm’s massive global presence. When it reported this week that global sales had dropped by only 5% in the fourth quarter, the number beat expectations. News of a drop in sales in America of just 1.3% was received more gloomily. Hopes had risen because of the previous six consecutive quarters of domestic growth. At the end of 2015 and in early 2016 the chain had reaped the rewards of introducing the popular all-day breakfast in America. A year or so later, Egg McMuffins and sausage biscuits have shed some of their allure.

Still, Steve Easterbrook, the firm’s British boss, who took over in March 2015, has lots to be proud of. He has streamlined a bloated menu, which in America had grown to almost 200 items, by, for instance, ditching sandwich wraps and offering one type of quarter-pounder with cheese rather than four. He also made the fare on offer healthier by, for example, taking high-fructose corn syrup out of buns. He removed artificial preservatives from Chicken McNuggets.

Most analysts approve of his plan to lift the share of restaurants that are franchised even higher, from 83% to 95%. He sold 1,750 struggling company-owned outlets in China and Hong Kong to a consortium (retaining a 20% stake) and put the firm’s Japanese outlets up for sale. True, the trend to become a brand manager rather than an owner of restaurants was started by Burger King, a rival, but McDonald’s has excelled at it. The advantage is a predictable revenue stream.

It has taken an outsider to shift McDonald’s culture. Mr Easterbrook is only the second non-American to run the company. So far he is succeeding in making it more accountable and nimble, says R.J. Hottovy of Morningstar, an investment-research firm. Its bureaucracy, known for its stodginess, has speeded up. The firm has become more open to experimentation. It has recently introduced touch-screen self-service kiosks, customised burgers and question-and-answer sessions with clients through social media.

This year and next it is planning to introduce mobile ordering and payment in as many as 25,000 outlets worldwide by enhancing its app, which now mainly features only menus and discounts. It is late but it is at last jumping on the digital bandwagon, says John Gordon, a restaurant expert at Pacific Management Consulting Group, who points out that even Dunkin’ Donuts, a doughnut chain, offers an advance order-and-pay app. Starbucks, the world’s biggest coffee chain, launched its app in 2009 and by autumn 2013 was making 11% of its sales through mobile channels. That is not the only reason for McDonald’s to envy the coffee giant: analysts reckon that it will soon overtake Mr Kroc’s creation to become the world’s most valuable restaurant chain.

Despite the prospect of losing the top spot, Mr Easterbrook is reckoned to have a good chance of lasting longer in his job than his predecessor, Don Thompson, who served two-and-a-half years. He knows the business extremely well but cut his teeth outside McDonald’s, an advantage, says Neil Saunders at Conlumino, a retail researcher.“Persistence!” cries Kroc in his biopic. Mr Easterbrook will no doubt watch the film and draw lessons.