McDonald sturnaround. Back to Basics. HEC Consul*ng Group Christopher Sharp Kim Bergeron Deniz Eras Gert Konghel

Transcription

1 McDonald sturnaround Back to Basics HEC Consul*ng Group Christopher Sharp Kim Bergeron Deniz Eras Gert Konghel

2 Context and Problem Statement Context: McDonald s is in the midst of a string of poor performance results, that is mainly brought on by: 1. ShiF in consumer trends 2. Diverging middle class target 3. Increased Prices Problem Statement: How to restore McDonald s value proposi*on given the current socio- economic context to increase sales and profits

3 Execu:ve Summary 1. Return to McDonald s core business model 1. Reduce menu items & focus on quality burgers and sides 2. Increase store throughput by reducing prepara*on/wait *mes & improving drive- through efficiency 2. Improve Supplier Rela*onship Management (SRM) (Cost: 3.65m USD) 1. Foster partnerships and rela*ons through common interests 2. Develop quality audits 3. Reduce prices through product reduc*on 3. Acquisi*on of premium fast food chain (Cost: 5.8m USD; Rev: +1.7m) 1. Latch onto upper por*on of market that moved away from core business

4 Environmental Scan Make at home Buyer Power Supplier Power Concentrated supply base Heavily dependent Common interest Many new entries into market Market flooded New Entrants Low Medium High

5 Environmental Scan Ea*ng at home Healthier menu items Subs*tu*on Threat Compe**ve Rivalry Compe*tors on all fronts Market fragmented and specialized

6 Key Success Factors 1. Quality Products 2. Streamline Processes 3. Enhance Drive- through service 4. Branding and image 5. Rebuild relaaonships with franchisees and suppliers Choice of suppliers and enhanced quality control on products OpAmize food preparaaon, number of items on menu and logisacs to increase number of clients and reduce waiang Ame Monitoring: volume of sales CreaAon of mobile applicaaon preorder online Going back to core and measure the traffic to observe promoaon effects. Adapt to changing taste of consumers. Trust and good relaaonships are key in Mcdonald s Franchise model. Suppliers implement audit to enforce stringent quality control

7 Turnaround alterna:ves analysis AlternaAves 1. Back- to- Basics convenient, fast and cheap 2. Acquisi*ons premium fast food exis*ng restaurants 3. Revolu*onize customiza*on and menu diversity 4. High- end food McDonald s Alignment with Key success factors Low Medium High

8 Turnaround alterna:ves analysis AlternaAve 1 Back- to- basic Quality Process Drive- Through Branding RelaAonships Focus on core items, and quality Less items, ease logis*cs and management Facilitate orders and higher volume, less items on menu + applica*on Vintage retro branding. Appeal to families. Focus on history Facilitate franchise management

9 Turnaround alterna:ves analysis AlternaAve 2 AcquisiAons Quality Process Drive- Through Branding RelaAonships Higher- end product sold, premium food Acquisi*on of other brand increases logis*cs No focus on drive- through Appeal to millenials and middle- class

10 Turnaround alterna:ves analysis AlternaAve 3 RevoluAonize Quality Process Drive- Through Branding RelaAonships More products offerec, customiza*on, poten*al to offer bejer products Mul*ply items creates poten*al issues with logis*cs and processes No improvements and may reduce quality of service (slow) McDonald s image to much spread, no focus on core target market More products, less ajrac*ve to franchisees, lower profits

11 Turnaround alterna:ves analysis AlternaAve 1 High- end McD0 Quality Process Drive- Through Branding RelaAonships Increase quality products In line if reduce number of items but only high quality product Would nt focus on improving drive- through Would show adapta*on to changing demand but difficulty in brand management May need to develop new rela*onships with new suppliers. Franchisees would not be sa*sfied

12 Turnaround alterna:ves analysis 1. Back- to- Basics AlternaAves 2. Acquisi*ons premium fast food exis*ng restaurant 3. Revolu*onize customiza*on and diversity X 4. High- end food McDonald s X ü ü..

13 Marke:ng Plan Place: Restaurants, TV, Social Media, Drive- through Applica*on Product: Convinient, fast and cheap food Good quality ingredients Simplified menu Target market: lower disposable income popula*on Price: Maintain prices affordable Maintain value items Promo*on: Contest and games World events Community events and Founda*on Vintage Marke*ng 60th anniversary

14 Communica:on Plan Who How and what When Where Franchisees Suppliers Employees Customers Joint analysis of menu items to be eliminated and methods to streamline process. Build rela*onship of trust and collabora*on Audit and score cards circulated, s and trainings Inform changes in menu, quality improvements and improved processes Advers*sing the enhanced value proposi*on of core products, annual report, promo*on by employees Year 1 Year 1 Year 1 Year 1 In- store and corporate franchisees mee*ngs Formal mee*ngs and periodic reports Training and in- store management In person, web

15 GanC - :meline Year 1 Year 2 Year 3 Quarter Eliminate non core menu items Revamp supply chain to ensure quality of ingredients Communication plan for stakeholders Marketing Plan for Back- to- basics rebranding Streamlined processes to obtain higher throuput Negotiation of franchise acquisitions Addition and renovation of drive- through location Launch of drive- through mobile app

16 Risks and Mi:ga:on Risks 1. Customers not reac*ng well to new image of McDonald s 2. Unsuccessful nego*a*on for purchase of franchise 3. Supply of ingredients not mee*ng quality standards High impact their youth 1 2 MiAgaAon 3 1. Promo*on with ahtletes who worked at Mcdonald s in 2. Organic establishment of premium fast food chain 3. Implement stringent audit and score card for suppliers Low High Probability

17 Key Assump:ons OPEX in 2014 improving by 2% per year 62% Low Performing Items 2014 sales 5% Drive- Thru Revenue of 2014 revenue 70% Y1 Y2 Y3 Drive- Thru improvement New Locations 0% 3% 3% Optimization 5% 7% 8% Store Sales Optimization 3% 4% 5%

18 Improvement Costs Costs of Improvements Y1 Y2 Y3 Total New Ordering App Marketing Communication Plan Audit Team (30 emp.) ,081.8 Hiring Costs OH ,080 VP Store Improvements Stores Cost per Store Total Improvements Cost ,841

19 Sales Forecast Drive Through Services 19,209 20,169 22,228 24,727 New Locations 0% 3% 3% Growth in Efficiency 5% 7% 8% Total Impact 5% 10% 11% Store Sales 8,232 8,479 8,818 9,259 Growth in Efficiency 3% 4% 5% Product Pullout Total Lost Revenue ,372 Total Revenue 27,441 28,191 30,589 33,529 22% 2.7% 8.5% 9.6%

20 Acquisi:on Size Revenues EBITDA Valuation Multiple Shake Shack 1/40 $686 $425 $1,987 10X Panera 1/25 $1,098 $680 $3,816 12X Total Acquisition Impact $1,784 $1,105 $5,803 Acquisi*on strategy to be planned through an LBO type acquisi*on to make use of current cost of debt Previous Example of 3G Capital Acquisi*on of Tim Hortons, Yumm Brands Avoids Dilu*on

21 P&L Consolidated

22 P&L Consolidated Revenue 27,441 28,191 30,589 33,529 Acquisition $686 $1,784 Total 27,441 28,191 31,276 35,313 OPEX 62.0% 60.0% 58.0% 56.0% Improvement Costs Operating Income 10,436 10,617 12,220 14,226

23 Key Take Aways 1. Return to McDonald s core business model Streamlining & focusing store opera*ons 2. Improve Supplier Rela*onship Management (SRM) Transparency and common interests 3. Acquisi*on of premium fast food chain Ensure McDonald s is able to maintain and grow revenues moving forward