How A Change In Leadership Can Impact McDonald’s Turnaround Program?

Recently, McDonald’s (NYSE:MCD) announced that the President of its U.S. operations, Mike Andres, will retire at the end of this year and will be succeeded by Chris Kempczinski.  This President-to-be is the company’s current Executive Vice President of Strategy, Business Development and Innovation, who joined had McDonald’s last year.  Mr Andres a veteran at McDonald’s, having worked with the company for almost 30 years. He was a significant player in its turnaround program and instrumental in some of its key initiatives such as All Day Breakfast. While the company expects a smooth transition over the next few months, a change in leadership can impact the execution of McDonald’s turnaround program to some extent, especially given Mike’s strong relationships with the U.S. operators. However, we believe that, as McDonald’s works aggressively on its turnaround initiatives, new leadership will be a positive development.  Fresh perspective can help boost innovation, impacting the turnaround program positively.

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New Leadership Can Accelerate Turnaround Initiatives

McDonald’s embarked on a new journey last year, working on healthier food options (fewer preservatives, fresh patties) and its biggest initiative – All Day Breakfast.  From both initiatives,  the company has seen significantly positive results. Comparable sales in the U.S. turned positive in Q3 2015, after almost eight quarters of decline.  While the company’s new CEO Steve Easterbook has been the architect of this turnaround program, outgoing President Mike Andres was a critical player in this strategy. His exit, at a time when the company is still implementing the turnaround initiatives, appears unusual.  We believe this can impact the execution of the plan, given Mike’s efforts to build a strong partnership between the company and its U.S. operators.

However, as McDonald’s looks to transform itself, a new leadership can bring in fresh ideas that allow a move away from the traditional ways in which McDonald’s has done business. The company is looking to attract the younger generation through its healthier menu options, while retaining its “value” tag. It is trying out table service, gourmet burgers, a new loyalty program and digital initiatives such as a mobile order and pay app. These changes will eventually transform the McDonald’s brand and a new leadership with a fresh perspective can accelerate these changes and bring in new ideas.

We believe McDonald’s is on track to strengthen its brand and adapt to changing customer preferences. Its turnaround plan has shown promise.   Continuous innovation, along with efficient execution of turnaround initiatives, should enable the company to drive profitability over the long term. While a change in top leadership appears untimely and unusual, and could affect execution in the short term, it should not impact McDonald’s overall turnaround strategy, in our view. A fresh leadership with a new perspective can work to the company’s advantage and accelerate the pace of turnaround initiatives.