McDonald’s to add restaurants while eyeing corporate job cuts

McDonald’s is planning to accelerate the pace of new restaurant openings while embarking on a cost-cutting programme expected to lead to job losses under a strategy announced on Friday.

“Systemwide sales”, which include revenues from franchised restaurants as well as those owned by the fast-food chain, had risen by $20bn to $120bn a year since the start of the coronavirus pandemic, Chris Kempczinski, chief executive since November 2019, said in an interview.

With comparable-store sales growth hitting 9.5 per cent year on year in its latest quarter, “we’ve got markets where . . . they’re out of capacity: they can’t get any more cars through the drive-through”, he said. After two years of focusing its $2.5bn annual capital expenditure budget on refurbishing its outlets, “we have the need and the opportunity to add more units”.

Other new investments, notably in digital ordering and loyalty apps, would be funded from savings from simplifying menus and standardising technology, he said, adding that there would be “tough conversations” about staffing.

In a note to staff, Kempczinski said McDonald’s would “evaluate roles and staffing levels”, with the aim of telling those affected by April 3.

McDonald’s had shown that it could be faster and more innovative by overhauling its offerings during the pandemic, Kempczinski said, but he did not want it to lapse into “old behaviours” of being “siloed and bureaucratic”.

The group’s model, which has given local franchisees latitude to customise menus beyond core items such as Big Macs and french fries, had allowed innovation but also duplication, he noted.

“We had across the globe 70 different, distinct versions of what a crispy chicken sandwich would look like,” Kempczinski said. “I don’t need 70 different permutations of a chicken sandwich.”

The growth of digital ordering, which drives one-third of sales in its six biggest markets, also pointed to the need for more centralisation, he added.

“You cannot do digital tech at a local level, a market level, yet that’s what we did,” he said, noting that McDonald’s at one point had 11 different loyalty programmes around the world. A global approach to technology would be “much more efficient”, he predicted.

At the same time, however, Kempczinski is looking at global rollouts for some of the newer formats that it has tested locally. Citing an experiment with dessert-only stores in Latin America and an “order-ahead lane” in Fort Worth, Texas, he said a new business ventures unit would be studying which could work on a global scale.

Four executives will be promoted to new roles under the plan, an update of Kempczinski’s November 2020 “accelerating the arches” strategy. It comes as McDonald’s stock is close to historic highs, valuing the group at almost $200bn.

At the company’s last earnings announcement, in October, executives cautioned that inflation was putting “significant pressure” on consumers and on its industry, which faces higher wage bills and ingredient costs.

However, Kempczinski signalled that a tougher economy could create opportunities for it to take over retail space vacated by weaker competitors. “In the post-Covid world, particularly in a world where we may be in recession in a lot of major markets, I think there are going to be a lot of real estate opportunities for us.”