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McDonald's Has A Turnaround Plan, But The Details Are Vague

The company's sales have been falling for more than a year, and its CEO has announced its plan to get things back on track. But specifics are in short supply.

Posted on May 4, 2015, at 11:29 a.m. ET

Spencer Platt / Getty Images

McDonald's new chief executive Steve Easterbrook this morning announced his plans to turn around the lagging performance of the world's largest fast food chain. The CEO will restructure the business, but appears to be largely sticking with ideas that had been laid out by his predecessor Don Thompson, who stepped down on March 1.

Those in the restaurant business had hoped for greater details on new initiatives such as custom burgers or all-day breakfast. "There is no more clarity on new products or changes in operations," says Richard Adams, owner of Franchise Equity Group, a consulting firm focused on McDonald's franchisees.

This is McDonald's first major turnaround initiative in over a decade. In 2003, the company appointed Jim Cantalupo as CEO to revive growth under what was then called the "Plan to Win," which resulted in sales gains.

Easterbrook did not veer dramatically from McDonald's previously announced plans. Restaurants will continue to pursue what has been called the McDonald's Experience of the Future. It focuses on improving the chain's food quality, faster and more accurate service, new ordering technology such as apps and kiosks, and restoring trust in the brand, which has been damaged by deteriorating views on fast food and competition from other chains touting better ingredients.

The company is set to announce more details on the turnaround plan in a call with investors on Monday morning.

Easterbrook announced a number of organizational changes, including a reorganization of McDonald's market segments, which are currently divided into geographic regions. That is set to change; as of July, the business will be divided into four segments: the U.S., international lead markets (Australia, Canada, France, Germany, and the U.K.), high-growth markets (China, Italy, Poland, Russia, South Korea, Spain, Switzerland, and the Netherlands), and foundational markets (all the rest).

McDonald's will also refranchise about 3,500 company-owned stores by the end of 2018, increasing the share of franchised restaurants to 90% from 81%. This initiative is part of efforts to turn over more control of restaurant operations to franchisees, who have a better understanding of what works in local markets. The company last year announced a restructuring of its U.S. business to give franchisees greater decision-making power. The company expects the reorganization and refranchising will result in about $300 million in annual cost savings.

This doesn't, however, translate directly into winning back young consumers who are eating elsewhere. "You can't cost-cut to the hearts of millennials," said Aaron Allen, a restaurant industry consultant.

Easterbrook has been charged with turning around the company's performance. McDonald's domestic same-store sales have fallen for six consecutive quarters, and global comparable sales have fallen for four straight quarters.