McDonalds at a cross road- Meeting the future LEONARD, NICOLE, NIKLAS & SOFIE LUND CONSULTANCY GROUP

McDonalds at a cross road- Meeting the future LEONARD, NICOLE, NIKLAS & SOFIE LUND CONSULTANCY GROUP

Agenda 2! Analysis! Alternative actions! Recommendation! Implementation! Financial implications! Risks! Conclusion

3 Main Challenge How should McDonalds focus and structure its business in order to meet changing customer preferences while not diluting the brand Recommendation Regain brand identity by introducing Green by McDonalds targeting conscious consumers in developed markets, while going back to the roots with the mother brand

The McDonalds brand identity at it s core 4 Internal Value proposition Great burgers Fast Cheap Relationships Short but loyal Franchise focus Position The number one stop for fast food in a fast moving world Expression Strong colours Packaging Slogan Great burgers Consistent taste Convenience, Affordable Personality Young and vibrant External Mission & Vision Serve tasty food at a very fast pace to the world Culture Young Fast paced Competencies Sourcing Market knowledge World presence

McDonalds the mother brand at it s roots 5 For whom Fast moving consumers looking for a quick meal of great tasting burgers All ages focused on middle class In the market of Fast food Burgers, fries and add-ons Promise Best possible price for burgers and fast food with great taste Im loving it Proven by World presence, history, American burger heritage

McDonalds core identity and its reputation is not aligned 6 Identity Fast, cheap, healthy and premium Communication Marketing and menu updates Reputation Cheap, greasy and unhealthy

7 Internal Strengths Global reach Economies of scale Brand awareness Weaknesses Reputation problems too big Franchise dissatisfaction External Opportunities Health trends Sustainability Scalability in franchise concept Threats Health trends Increased competition Food safety scandals

The competition is increasing from more premium players 8 Price level Jimmy john s Habit Burger Shake Shack Green by McD Mcdonald s Panera Chipotle Perceived quality and/or health

Market segments in different phases and hence with different needs for the QSR* market 9 Growth Take-off Evolving Stagnation Decline USA Foundational High growth Int. Lead *QSR: Quick service restaurant Time

The customer preference is changing in the more developed markets 10 Demand for heathy options in QSR Japan Europe North America China Russia India Country development

11 Stakeholders have different demands Employees and society Work environment Sustainability Franchisers Initial investment at minimum Operational efficiency Stability Stakeholder needs Customers Value for money In-line with self perception Fast and tasty Shareholders Returns and sustainability

12 Main Challenge How should McDonalds focus and structure its business in order to meet changing customer preferences while not diluting the brand

Three alternatives for future operations 13 1 Status quo 2 Revolutionize the business model and move towards being a healthy alternative 3 Introduce Green by McDonalds and go back to the roots with the mother brand

Alternative 1, Focus on the development of current business 14 1 Status quo - Continue with a heavily franchised business model - Focus on improving efficiency and effectiveness by streamlining global resources - Satisfying both healthy trend and original core customers under one brand 2 3 Revolutionize the business model and move towards being a healthy alternative Introduce Green by McDonalds and go back to the roots with the mother brand

Alternative 2, is about going all-in on the healthy trend 15 1 2 Status quo Revolutionize the business model and move towards being a healthy alternative - Rebrand the company as a healthy food chain - Focus on high quality, trend sensitivity and sustainability - High prices but with focus on value for money 3 Introduce Green by McDonalds and go back to the roots with the mother brand

Alternative 3, Green by McDonalds and go back to the roots with the mother brand 16 1 2 3 Status quo Revolutionize the business model and move towards being a healthy alternative Introduce Green by McDonalds and go back to the roots with the mother brand - Daughter brand with focus on healthy and sustainable food - Daughter brand green by McDonalds targeting conscious consumers in developed countries - Mother brand focusing on simplification and quality burgers

Four critical factors for success 17 Brand Identity - Is the alternative facilitating an improved brand identity? Meeting customer demand - Is the alternative in line with what consumers want? Corporate flexibility - Is the alternative enabling for the company to be agile in it s operations? Sustainability - Is the alternative a step towards environmental friendliness?

Alternative 3 is the most favorable 18 1. Status quo 2. Going all green 3. Introduce daughter brand and go back to roots Brand Identity NO SEMI YES Meeting customer demand NO YES YES Corporate flexibility SEMI NO YES Sustainability SEMI YES YES

19 Recommendation Regain brand identity by introducing Green by McDonalds targeting conscious consumers in developed markets, while going back to the roots with the mother brand

The daughter brands position meets a growing demand 20 For whom Conscious consumers looking for convenient food In the market of Healthy fast food Promise Fast and healthy food at a convenient location Proven by Track record, company size, food knowledge

Overview: Implementation overview 21 YEAR 1 - Research and development - Internal communication - Preparation of external roll out YEAR 2-3 - Worldwide roll-out of McDonalds Back to the roots - Roll-out of Green by McDonalds in developed countries - Marketing campaigns YEAR 4-5 - Expand Green by McDonalds to new markets - Monitor and evaluate

The three step process of our strategy 22 INTERNAL OPERATIONS - Internal communication - Change management - Franchise platform - Aligning brand identity VALUE PROPOSITION Restructure and redefine! Same core, different offerings - McDonalds - Green by McDonalds MARKETING ACTIONS - Communicate brand image. - Target existing and new customers - Increase brand awareness

For every big external change, it has to start with going internally 23 CHANGE MANAGEMENT Recruit group to work with research, development and communication of new changes. INTERNAL INFORMATION AND COMMUNICATION Be transparent to stakeholders and employees. Inform, explain, support and motivate to get everyone on board with the changes. BRAND IDENTITY ALIGNMENT Look to the corporate identity looking to history, track record, internal organization and future goals. Refocus in order to match all parts with McDonalds core promise. FRANCHISE PLATFORM Decrease gap to local franchisers through introducing an online platform where franchisers can connect. Platform can be used to monitor, communicate change and support and motivate.

Increase relevance and competitiveness through redefining value proposition 24 McDonalds Back to the roots: Great products at any time - Re-evaluate menu - Focus on what you are famous for. Simple food, no hassle. - Same price, new improved menu. - Food safety and value for money Green by McDonalds - Same core values, different concept. - Target conscious consumers - Millennials - Sustainable approach - Limited menu - 50% vegetarian - Higher price but value for money Franchise Selection Criteria - Track Record - QSR Experience - Creative mindset - I m loving it attitude - Team person - Take initiatives - Global thinking, local adaptiveness

Gain awareness and successfully perceived image through multichannel marketing 25 McDonalds Same products, same price, better quality - McClassics - Online marketing - Highlight classics - Bring back oldies but goodies - Heritage stamps - 80+ years of knowledge in business I m lovin it every day at any time and place Green by McDonalds Sustainability campaign Green the earth Pop-up concept Presence at events, festivals Online marketing Social marketing campaigns McGreen Community

Timeline 26 McDonalds! 2016! 2017! 2018! 2019! 2020! Internal organisation! Recruit change mgmt!! Develop guidelines!! Brand Identity!! Internal communication!! Value Proposition! Development of new concept!! Roll-out of concept!!! Development of Green by McDonalds!! Roll-out of Green by McDonalds!!! Marketing! McDonalds Marketing Campaign!!! Green by McDonalds campaign!!! Monitor!!!

Assumptions reaching future profit 27 Assumptions! 2016! 2017! 2018! Ownership strategy selling off 3 500 restaurants to franschisees by 2018! 1167! 1167! 1167! Green by McDonalds 5 % new, 1 600 restaurants by 2018! 533! 533! 534! Increased revenue growth 8 %! SG&A $300 Million savings to 2017! -150! -150! Revenue from Green McDonalds 20 % increase

Split view of change in ownership strategy introducing Green franchise 28 Overview restaurants (Million USD)! 2015! 2016! 2017! 2018! Total franchise! 25,300! 26,467! 27,633! 28,800! Revenue per franchise! 0.396! 0.409! 0.423! 0.438! Total owned restaurants! 6,700! 6,066! 5,433! 4,800! Revenue per owned! 2.93! 3.49! 4.21! 5.15! Green franchised! -! 533! 533! 533! Revenue per green franchise! -! 0.49! 0.51! 0.57! Total restaurants! 32,000! 32,533! 33,066! 33,600! Total revenue increase! 29,636! 32,269! 34,838! 37,637!

New investments to secure the implementation of future success 29 Investments (Million USD)! 2016! 2017! 2018! R&D of menu both existing and Green! 10! 2! 2! Sustainibility campaign! 3! 3! 3! Online! 0,5! 0,5! 0,5! TV comercial! 2! 2! 2! Green sponsored events! "! 2! 2! Green concept marketing! 1! 1! 1! Green online! 0,5! 0,5! 0,5! Employee training! 10! 5! 1! Change-management-group! 0.8! 0.8! 0.8! Total investment costs! 26.8! 15.8! 11.8!

High future increase in net income 30 Income Statements! US$ Millions! 2012! 2013! 2014! 2015E! 2016E! 2017E! 2018E! Sales by company owned restaurants! 18602! 18874! 18169! 19622.5! 21192! 22887.7! 24718.72! Revenues from franchised restaurants! 8964! 9231! 9272! 10013.8! 10815! 11680! 12614.45! Revenues from Green franchises! -! -! -! -! 261.4! 270.3! 303.5! Total Revenues! 27567! 28105! 27441! 29636! 32269! 34838! 37637! Operating costs and expenses! Food & Paper! 6318! 6361! 6129! 6190! 6252! 6315! 6378! Payroll etc.! 4710! 4824! 4756! 4804! 4852! 4900! 4949! Occupancy etc.! 4195! 4393! 4402! 4446! 4490! 4535! 4581! Franchised restaurants! 1527! 1624! 1697! 1714! 1731! 1748! 1766! SG&A! 2455! 2385! 2487! 2512! 2414! 2304! 2189! Other operating costs! -243! -247! 18! 18! 18! 19! 19! Total operating costs! 18962! 19341! 19492! 19687! 19884! 20083! 20283! Operating income! 8604! 8764! 7949! 9949! 12385! 14755! 17353! Interest expense etc.! 525! 558! 577! 583! 589! 594! 600! Provision for taxes! 2614! 2618! 2614! 2640! 2667! 2693! 2720! Net income! 5464! 5586! 4757! 6726! 9130! 11468! 14033! 37 % Increase More than doubled!

Risks are manageable 31 RISKS 1. Daughter brand not able to wash off McD s image of being unhealthy 2. Loyal customer not supporting McD stepping away from their core 3. Long start-up time to find suitable franchisers 4. Problems with monitoring the increased number of franchisers MITIGATION 1. Marketing campaigns together with research reports on new healthy food alternative 2. Inform about benefits of healthy food and that the daughter brand is an addon 3. Take advantage of McDs global reach to ensure franchisers fulfilling criteria 4. Setup clear milestones

No risk at high 32 Impact 3 4 1 2 Probability

33 Main Challenge How should McDonalds focus and structure its business in order to meet changing customer preferences while not diluting the brand Recommendation Regain brand identity by introducing Green by McDonalds targeting conscious consumers in developed markets, while going back to the roots with the mother brand

Presentation overview 34 Analysis Alternatives Implementation Finance Risks