McDonald's franchisees to new CEO: back-to-basics, fast

By Lisa Baertlein

LOS ANGELES (Reuters) - McDonald's Corp <MCD.N> franchisees have an urgent order for the fast-food giant's new CEO - get back-to-basics. In interviews, franchisees and advisors to restaurant owners say they hope the new chief will shrink its huge menu to concentrate on burgers and fries.

McDonald's on Wednesday said Chief Brand Officer Steve Easterbrook would replace Don Thompson as chief executive after he had held the post just two and a half years.

Easterbrook, 47, turned around McDonald's operations in the UK, where he was born, by refocusing on burgers and burnishing the brand with an ad campaign that sought to debunk unflattering rumors about its food, the company said.

A cricket enthusiast who earned a reputation among former UK colleagues for being funny, fair and a lover of simplicity, Easterbrook will also be the rare McDonald's CEO with experience running other restaurant chains.

"I will be very curious to see if this new guy continues on with what Thompson has been doing ... or if he will put some new ideas in. I'm very hopeful," said Kathryn Slater-Carter, who operates one of McDonald's restaurants in Daly City, California.

She declined to elaborate.

The world's largest restaurant chain by sales has more than 36,000 restaurants around the globe. Revenue, net income and traffic all fell in 2014, as it struggled to appeal to younger and more upscale diners who demand fresher, healthier fare.

During the last few years, McDonald's has expanded menus to broaden appeal. While that effort initially boosted sales, franchisees now blame sprawling menus for slowing service and are calling on the chain to dump menu items ranging from espresso to McWraps.

Thompson had moved to trim McDonald's menu, but franchisees have said they want bigger changes, faster.

Even so, some skeptics questioned whether Easterbrook, an insider with some two decades at the chain who takes the helm on March 1, is the right person to make the tough decisions needed to fix what ails the company.

GLOBAL CHOPS

Supporters find hope that fact that from 2011 to 2013, Easterbrook ran PizzaExpress, a British chain that markets itself on quality and freshness, and then became CEO at Wagamama, a Japanese-inspired noodle chain, before returning to McDonald's to oversee marketing, menus and technology.

Easterbrook's global chops may come in handy as the chain fights to recover from a food scare in China that battered Asian sales and wrestles with economic weakness and political upheaval in Europe, its top revenue market. Its image in the United States is also getting a drubbing from McDonald's burger flippers, who have held frequent protests calling for higher wages.

Richard Adams, a former McDonald's franchisee who now consults current ones, said most U.S. McDonald's owners don't have personal experience with Easterbrook but that they are "cautiously optimistic" about his appointment.

Those same franchisees had a rough ride under Thompson.

Monthly sales at established U.S. restaurants increased in just 12 of the 30 months he has held the top job.

McDonald's attempted to stem market share losses to smaller and more nimble rivals ranging from Wendy's Co <WEN.O> and Burger King to Chipotle Mexican Grill <CMG.N>, Chic-fil-A and Five Guys Burgers and Fries with frequent specials and giveaways.

Shares in burger chain Shake Shack Inc <SHAK.N> more than doubled in its first day of trading on Friday, in a pointed contrast with the lackluster performance of McDonald's, whose shares are down 1.3 percent over the past year.

While discounting helped the parent company, which gets franchise royalties based on revenues, they squeezed the franchisee profits. Beyond that, a push to rebuild or remodel restaurants burdened many franchisees with debt but didn't always deliver a pop in sales.

'CHORUS OF NO'S'

Adams said morale among U.S. franchisees is at the lowest point since the late 1990s, when overbuilding hurt franchisees.

"Made For You", a 90s-era burger customization program that required investments of around $55,000 per outlet, made matters worse by battering service speed and sales, Adams said.

Thompson revived bad memories of that era with a project called "Create Your Taste," which he said would succeed where "Made for You" had failed due to improved technology.

While Thompson said the plan would allow McDonald's to become more like Chipotle and Subway by letting customers select sandwich toppings, Adams said franchisees aren't buying in. Their reaction to the plan, he said, has been "A chorus of No's."

While most franchisees are reluctant to speak to the press, they offered blunt recommendations in a survey published earlier this month by Janney Capital Markets analyst Mark Kalinowski.

Change is "moving too slow, let's bite the bullet," one survey respondent said.

They suggested dropping McCafe espresso drinks, which critics say don't sell enough to pay for the electricity used by the machines that make them. Thompson spearheaded McDonald's domestic McCafe expansion during his stint as head of the U.S. business.

They also want to cut the number of Happy Meal options, to get rid of the hard-to-make McWraps and other poorly performing menu items, and to eliminate redundant items such as the McDouble and Double Cheeseburger.

"We just have no momentum any more," one franchisee said.

(Additional reporting by Martinne Geller and Freya Berry in London; Editing by Christian Plumb)