The McDonald's Turnaround Story

            
 
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Case Details:

Case Code : BSTR142
Case Length : 17 Pages
Period : 1999-2004
Organization : McDonald's
Pub Date : 2004
Teaching Note : Available
Countries : U.S.A
Industry : Fast-Food

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"The basis of McDonald's success is serving low-priced value-oriented product fast and efficiently in clean and pleasant surroundings."

- Fourteen Research Co., in its report on McDonald's in 1974.1

"We've been distracted from running great restaurants by our growing complexity."

- Jack Greenberg, former CEO of McDonald's in 2001. 2

"The world has changed. Our customers have changed. We have to change too."

- Jim Cantalupo, former chairman and CEO of McDonald's in 2003.3

'Happy' Days Again

By the late 1990s, after years of declining earnings and poor customer ratings, McDonald's Corp. (McDonalds), the largest fast food chain in the world, seemed to have lost its claim to providing the 'Great American Meal'.

The company, which was once the favorite destination of fast food lovers around the world, had been receiving low ratings on quality and customer satisfaction since the early 1990s. Its trademark Big Macs and Happy Meals were the target of law suits as critics claimed that McDonald's was responsible for ruining America's health. Matters came to a head in January 2003, when it posted a loss of $343.8 million for the last quarter of 2002, making it the first quarterly loss for the company since it went public in 1965. Following the announcement of the loss, the share price fell to an all-time low of $12 and McDonald's seemed to have lost its magic. However, under the leadership of Jim Cantalupo (Cantalupo), who was made CEO in early 2003, and Charlie Bell (Bell), the president and COO, McDonald's managed a relatively quick turnaround.

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In the quarter ended July 2004, the company announced a 25 percent increase in profits over the corresponding quarter of the previous year, and sales reached a 17-year high.

Analysts and company insiders attributed this to the successful implementation of the 'Plan to Win' turnaround program that was adopted by the company in early 2003. Discussing the company's progress, Bell said, "We are encouraged by this progress and confident that our service, food, value and marketing initiatives will generate steady improvements over the long term."4 Under the turnaround plan, McDonald's introduced substantial system-wide changes that overhauled the company's products, operations and marketing. The new plan eliminated the negative elements in the system, while retaining and building on the positive aspects. The company moved quickly to tailor its operations to the changing trends in the fast food industry, confounding critics who had been skeptical about the company's ability to revive.

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1] Grainger David, "Can McDonald's Cook Again?" Fortune, April 14, 2003.

2] "Where's the beef?" The Economist, November 1, 2001.

3] "Cowed into change," The Economist, April 8, 2003.

4] Jennifer Waters, "McDonald's posts 25% profit gain", www.licenseenews.com, July 22, 2004.

 

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