White smoke is billowing from the grills at McDonald's (MCD) HQ in Oak Brook, Illinois. That can only mean one thing: a new Burger Pope has been elected by McDonald's. The new head of the world's largest fast food chain is 48-year-old Brit Steve Easterbrook. Easterbrook replaces Don Thompson who announced his *ahem* retirement after three semi-disastrous years at the helm.
Thompson's fate was sealed at a board meeting after the announcement of yet another real of declining sales and profits for McDonald's. The stock was roughly unchanged during Thompson's tenure and Micky-D's made $4.7b last year. Ronald hasn't been reduced to slinging meth on the side, but the company has missed several massive shifts in the food industry and failed to capitalize on economic tailwinds like the falling gas prices. Rivals like Jack in the Box (JACK) and Sonic (SONC) have ridden those breezes to all-time highs while McDonald's has been reduced to confusing menu initiatives and labor disputes over entry level pay.
There's going to be a lot of talk today about whether or not McDonald's can be saved. That's just silly. This company isn't dying. If he keeps it simple Steve Easterbrook can have this company cranking again in 18 months and get paid tens of millions for doing very little. He's the luckiest Brit since Prince Harry went through puberty.
1. Simplify
McDonald's has lost itself in the din of complaints over what it should be. The company has no perspective on how good it actually is. Let me make this simple. French fires. Mr. Easterbrook, every person reading this knows what that french fry tastes like. It's salty, warm and delicious. Your goal is to see to it that these french fries taste exactly the same in 36,000 locations spread across 120 countries. Everything else is noise. Your franchisees don't want to change and neither do your customers. Stop fussing with your menu. Embrace what you are.
2. Pay people more
This is going to be a tough one to get your franchisees to buy into, Steve. That's no small matter considering 80% of McDonald's are franchised, mostly by people with five or more units. That's a powerful group of very wealthy people. Janney Capital Markets does the best work on the Street regarding your franchisees. They say the average unit pulls in $2.7 million gross and spends about a fifth of that on crew payroll. At first that number will go to maybe as much as 25% and the franchisees will hate it. Tough. History is not on the side of those arguing in favor of paying $8.50 an hour. McDonald's doesn't want to be the face of miserly pay. De-politicize the issue and pay above the industry average for your workers. You'll get great PR our of it and five years from now the amount you pay your total crew will be down to about 15% or less. Which brings me to point number three.
3. Automate
Here's how you lower wage expenses, simplify, improve consistency chain wide and scare the crap out of Elon Musk. Have you ever heard of Momentum Machines? It's a San Francisco start-up making machines that can turn out 360 burgers an hour and it takes up just 24 square feet. Momentum Machines will be to McDonald's what Xerox Park was to Apple. You're either going to buy them or steal their ideas and roll them out chain wide. When the machine is perfect, when every Quarter Pounder tastes exactly right, McDonald's corporate will start leasing the machines out to franchisees for next to nothing. Their 10 person crew making $8.50 an hour will become two food technicians making $20 an hour and quality will improve. Luddites will complain but you already know that, Steve Easterbrook. After all, the original Luddites were 19th century English textile workers. History wasn't on their side, either.
You're done. That's it. Just three items. Know why the list is so short? Because the best menus always are, Steve Easterbrook. Somehow McDonald's forgot that basic fact. Now you get to remind them. Congrats, Lad. Go have a ball.
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