McDonald’s Dumps CEO and its Stock Vaults Higher

AP Photo/Eugene Hoshiko
AP Photo/Eugene Hoshiko
Newport Beach, CA

The ultimate professional insult to a CEO is to be fired and then watch your former company’s stock jump 3.5% on the announcement. That was the story for Don Thompson, who was dumped by McDonald’s Corporation (MCD) late Wednesday.

McDonald’s stock price has been flat during Thompson’s tenure as CEO, compared to the post-firing 33% surge in the Dow Industrials and 47% jump in the S&P 500 Index.

The ouster of Thompson comes after McDonald’s stock was down 14.5% from its highest point in the past year and the company posted disastrous 21% fourth-quarter earnings plunge. Global store traffic in 2014, which is a key industry measure, declined by 3.6% and an even worse 4.1% U.S. decline. On a monthly basis, comparable store sales declined in 10 of 12 months in 2014.

Thompson’s four biggest mistakes were: 1. An unsuccessful experiment with high-end items like Angus beef burgers and Chicken Selects that were not in McDonald’s core “value-price” customers’ budget; 2. Longer drive-thru wait because of an expanded number of complex menu items; 3. Menu selections grew by 70% since 2007; and 4. a food scandal in China emphasized that the company sells “junk food”.

The vast majority of the changes under Thompson might have been appropriate for a sit-down restaurant, but franchisees hated the cost of the equipment to expand the menu, as well as the resulting crash in employee productivity handling extra ingredients and preparation.

Thompson also failed in trying to follow millennials’ penchant for so-called “fast-casual” concepts like Chipotle and Panera, where the food is high-quality, the atmosphere is si- down and the prices for a full meal are several bucks higher than McDonalds.

In an effort to try to paint being dumped in a better light, Thompson announced he was leaving due to retirement. In an awkward comment he said, “It’s tough to say goodbye to the McFamily, but there is a time and season for everything.”

The new CEO is Steve Easterbrook, 48, the company’s Chief Brand Officer. The company said that he had been focused on efforts to elevate McDonald’s advanced menu innovation and in creating an infrastructure for its digital initiatives.

The challenge in turning around the brand will be daunting. The company has over 36,000 locations in more than 100 countries, with about 80% of the restaurants owned and run as franchises.

Thompson’s tried to focus the company as an adult venue. That means a whole generation of young families did not “grow up with the brand.” At 66 years old, McDonald’s has lost much of its relevance as cheap, quick and good-tasting food for families and teenagers. Reinventing this senior citizen will be more than challenging.