McDonald's Turnaround Plan Bets Big On Refranchising

(RTTNews) - McDonald's Corp (MCD) on Monday revealed plans to restructure its business to focus more on franchises, and would recast its market segments and cut costs, as the fast food giant grapples with weak global sales. The turnaround plans include restructuring of McDonald's worldwide business and financial updates.

"Our new organization creates a structure under which leadership of McDonald's new segments will be able to more effectively address the common needs of their markets and customers," CEO Steve Easterbrook said.

"The immediate priority for our business is restoring growth under a new organizational structure and ownership mix designed to provide greater focus on the customer improve our operating fundamentals and drive a recommitment to running great restaurants."

McDonald's, based in Oak Brook, Illinois, said it expects to refranchise 3,500 restaurants by the end of 2018, and increasing the global franchised percentage to about 90 percent from the current 81 percent. Earlier, it planned to refranchise at least 1,500 restaurants by 2016.

Easterbrook said the company would review its corporate structure, indicating that some positions could be eliminated.

McDonald's, in order to become a nimbler organization, said it would operate under a new organizational structure beginning July 1, 2015, with the four market segments: U.S. Markets, International Lead Markets, High-Growth Markets, Foundational Markets.

The international Lead Markets include Australia, Canada, France, Germany and the U.K.; and the High-Growth Markets include China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands. The company also appointed leaders for its new segments, effective July 2015.

"Our new organization creates a structure under which leadership of McDonald's new segments will be able to more effectively address the common needs of their markets and customers," Easterbrook added.

McDonald's expect to deliver about $300 million in net annual G&A savings, most of which will be realized by the end of 2017, from the restructuring and cost saving measures.

The company expects to return up to $9 billion to shareholders in 2015 and to reach the top end of its 3-year $18 billion to $20 billion cash return to shareholders target by the end of 2016.

In April, McDonald's reported a 33 percent drop in first-quarter profit, hurt mainly by weak sales, and in December, said it would cut its menu offerings. The company has been struggling to attract new customers, and faces the heat from rivals like Burger King and Chipotle Mexican Grill.

MCD is trading at $98.60, up $0.80 or 0.82%, on a volume of 2.8 million shares on the NYSE.