McDonald's stock surges with CEO's resignation (+video)
McDonald's announced the resignation of CEO Don Thompson Wednesday, as the world's largest hamburger chain struggles with sliding sales and negative image perception. McDonald's shares jumped 3 percent in after-hours trading.
The company said Thompson, who has been CEO for two-and-a-half years, will be replaced by Steve Easterbrook, its chief brand officer. Easterbrook has led efforts related to marketing and menus and served as president of McDonald's Europe.
McDonald's Corp., which has more than 35,000 locations around the world, is struggling amid intensifying competition and changing attitudes about food. Earlier this month, the company said traffic in the U.S. fell 4.1 percent last year, after a 1.6 percent decline in 2013. The company said it's making major changes to bring back customers, including simplifying its menu and even examining the ingredients it uses. To save money, it said it would slow down new restaurant openings in some markets.
On Wednesday, McDonald's said Thompson will leave his post March 1 after nearly 25 years with the company. Thompson was the first African-American to head the company since it was founded in 1955.
In after-hours trading, shares of McDonald's jumped 3 percent to $91.55. The stock has declined about 6 percent in the past year while broader markets are up in the double digits.
Richard Adams, a consultant for McDonald's franchisees in San Diego, said Thompson's departure was a bit of a surprise considering the numerous plans McDonald's recently announced to turn around its business. Adams noted that a change in the CEO seat also leaves open the question of whether the company will shift course on its latest initiatives.
"Is everything going to change, or are Don's plans going forward?" Adams said.
Here's a look at the challenges Easterbrook will inherit as McDonald's new CEO, and the changes that are already under way.
FAST FOOD IS JUNK FOOD
McDonald's is trying to shake the image that its food is cheap, greasy and made with mysterious ingredients. During talks with investors in recent months, Thompson has made a point of stressing that McDonald's is a restaurant company that cooks food in kitchens and cracks fresh eggs to make its McMuffins.
To dispel myths about its food, McDonald's recently launched a campaign inviting people to ask questions about its offerings, such as "Do McDonald's buns contain the same chemicals used to make yoga mats?" and "Are your burgers fresh or frozen?"
Part of the problem for McDonald's and other traditional fast-food chains is that people are increasingly gravitating toward food they feel is more wholesome or made with higher quality ingredients. And newer places like Chipotle and Panera are positioning their food as just that, for just a little extra money.
BLOATED MENU, MESSY SERVICE
McDonald's has conceded its menu in the U.S. has gotten bloated. That slows down service because it takes customers longer to figure out what they want, while also complicating kitchen operations in the back. It also increases the chances that orders will be wrong.
As such, McDonald's is rolling out a simplified menu that reduces the number of Value Meals, and trims items that may be repetitive, such as various flavors for its Quarter Pounder.
The ability to customize orders is gaining popularity as well. At Chipotle, for instance, people like that they can walk down a line and dictate exactly what goes into their bowls and burritos.
In hopes of giving customers more flexibility in adjusting their burgers and sandwiches to taste, McDonald's recently rolled out new prep tables that can hold more condiments and toppings. It also has more dramatic plans in the works.
McDonald's plans to roll out an option that lets people build their own burgers by tapping a touchscreen. The food takes a bit longer to prepare, but the company is hoping customers will think it's worth the wait. McDonald's said the "Create Your Taste" option will be in 2,000 of its more than 14,000 U.S. locations by later this year.
PRICES TOO HIGH
A major attraction of McDonald's is that the food is supposed to be affordable. But prices on core menu items like Big Mac meals have gotten a bit high for some people.
Part of the problem is the popular Dollar Menu. To offset the deals on that menu, McDonald's has admitted that other parts of the menu got too expensive.
In turn, the company has said that prompted people tend to "trade down" to the Dollar Menu. And that left many customers associating the McDonald's brand with its cheapest items.