Brand Turnarounds: McDonald's 2003-2005 | In Practise

Brand Turnarounds: McDonald's 2003-2005

Former Global CMO, McDonald's

Learning outcomes

  • How McDonald's lost its way (lack of customer-centricity, focus on new store openings to drive revenue vs driving revenue from existing footprint, failure to drive successful innovation)
  • The Pillars of the 2003-2005 turnaround (customer-centricity, change from focus on building new stores to focus on driving better economics from existing footprint, focus on franchisee success and profitability)
  • Obstacles To Implementing The Turnaround Plan (How cultural resistance to the turnaround plan was overcome by redefining McDonald's mission as a business: changing the mission statement)
  • A Framework For Turning a Brand Around: The Eight Ps (Purpose. Promise. People. Product. Place. Price. Promotion. Performance)
  • How McDonald's defined the success metrics for the 2003-2005 turnaround plan: more customers, more often, more loyal, more revenues, more profit
  • The Eight P Framework Applied to McDonald's 2003-2005 turnaround (Purpose, Promise, People, Product, Place, Price, Promotion, Performance)
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Executive Bio

Larry Light

Former Global CMO, McDonald's

Larry is CEO of Arcature, a marketing consulting company founded in 1988. Larry was Global CMO of McDonald's from 2002 to 2005. More recently, as the interim Global Chief Brands Officer of IHG, Larry led the global marketing organizational change to increase the effectiveness of IHG's global and local marketing. Read more

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To begin our conversation, can I ask you to share context on your career experience and your career history?

I worked on a variety of brands. I was head of the market research function. Then I moved to Ted Bates and I was in charge of the Mars business worldwide. I ran that account for a few years. Then Bates was purchased Saatchi. I left and got into the consulting business. I focused on troubled brands. I remember when people commented that this was a ridiculous way to build a consulting company. Why don’t you work for successful brands and successful companies? Won’t that be easier? I said, that’s exactly the reason why I didn’t choose that. There’s no incentive or real evidence that marketing works if you take something that’s successful, the best you can do is keep it successful. The real challenge of good marketing discipline is if you take a troubled brand and you bring it back to life. That’s what I have maintained as the focus of my consulting to this day.

Could you highlight some of the turnarounds you’ve been involved in before we dive into a couple of specific examples?

Nissan was a fascinating one. I think one of the most interesting ones. Nissan is, of course, a Japanese company. Had global challenges. In 1988, Nissan was in serious financial distress. Then later came McDonalds, which has become the most famous case I’ve worked on. Fast food of course is the number one retailer of food as an industry in the world. McDonalds is the biggest brand in that big industry. A lot of notoriety. Not just from the marketing industry, but from friends and relatives. Everybody has had an opinion. McDonalds in 2002 declared its first ever loss as a public company. Three years’ later because my approach to a turnaround plan is if you do a turnaround plan in a disciplined professional manner, you should be able to revitalize the brand within 36 months or less. My approach is always a three-year plan, like the Nissan NRP.

Larry, can you set a bit more context just for us to dive into McDonalds here, what was actually going wrong at the time?

McDonalds was a financially driven company. It was a finance company that happened to make hamburgers. It wasn’t a hamburger company that happened to make money. The focus wasn’t on the customer experience, it was on the Wall Street experience. The metric wasn’t sales, share, favorability, brand strength. It was stock price. That led to some seriously bad marketing decisions. I’ll just highlight one. The number one driver of sales was not sales per store. It was number of stores. Increasing distribution became the number one driver of sales. At the annual planning meetings, it wasn’t how do we increase the sales of an individual store or an individual franchisee? It was how many stores will we open up this year to meet our financial objectives? You started to develop a business model that was a real estate model, not a fast food restaurant model. Eventually, you ran out of places to build new stores. Then since the focus wasn’t on existing stores, it was on new stores, existing stores sales started to decline. You couldn’t open new stores fast enough to compensate for the decline of sales at existing stores. That’s when the business cratered in 2002.

When you say cratered, how substantial were these declines in activity?

It was substantial. I don’t remember the sales decline, but most dramatic number that people focus on, the stock was 45 in 2001. It was 13 in 2002.

The market had lost confidence in the strategy of the business.

The market lost confidence, franchisees lost confidence, employees lost confidence, as usual, what happens, your best talent leaves because they can easily get a job at another company. You had a talent decline, you had franchisee morale was terrible. It was inevitable. If you don’t focus on the business you have or the way I like to say it, love the customer you have more than the customer you don’t have.

How were customers responding?

Customers were going somewhere else because they [McDonalds] weren’t focused on the existing stores. They weren’t focused on quality innovations. I think they had introduced over a period of time, over 20 new products without one single success. The new products were there to generate awareness, keep us in the news. They weren’t marketing driven new products that were designed to satisfy customer needs and wants.

Give us a sense of the team that you came into, how big was that team? How big was the marketing budget? Who did you have around you?

McDonald’s marketing budget is enormous. That’s never a problem. I felt with confidence that one of the first things I could do was cut the marketing budget. When your marketing budget is publicly announced to be over two billion dollars, I was very confident under the circumstances that I inherited, that at least ten percent was a waste of money. I didn’t know how it was wasted, but I was confident that it was being misspent. That’s 200 million dollars. We cut the budget by that and nobody noticed. Budgeting was not my problem. I had enough money to do what needed to be done. The problem is, having the money and doing the right things. Not having enough money. We need more money to spend on advertising. No, we don’t, if we’re advertising the wrong thing, we should spend less money. The leadership team was a handful of people. The CEO got fired. A new CEO was brought in out of retirement, Jim Cantalupo. He signed a contract for three years and then agreed he would go back into retirement. The COO was a guy who came from Australia, Charlie Bell, he became number two, the COO. The CFO was a member that joined the team. The head of operations in that and there was a new HR person. That was the team. The two key people were Charlie and Jim Cantalupo. I had consulted to Charlie Bell when he was head of Australia, on a new service idea he had, called Mc Café. Mc Café, the first store was in Sydney Australia.

He was the leader believing that coffee was a big opportunity and McDonalds shouldn’t leave that to Starbucks for itself. He developed Mc Café and brought me in from halfway across the planet for some reason. I consulted on how to position Mc Café. Eventually, as you know, Mc Café went global and Charlie went global along with it. That’s how he was brought to the attention in Chicago. When he became COO, he asked me to consult and join to consult on the turnaround because that had been my specialty. I did. I made a few presentations. There was a lot of cultural resistance at McDonalds to what I was promoting. As things I thought they should do. One day, Charlie got me aside, we went out to dinner. He said, “Maybe a consulting relationship doesn’t work because you tell us what to do but you’re not accountable for success. You consultants are all the same, you tell us what to do, if it works you take credit. If it fails, you blame us for poor execution. My challenge to you is, would you like to come in and be the global chief marketing officer? Then you’ll consult to yourself. I assume you’ll agree and then you’ll implement what you want us to do. You will be accountable.”

“This is a unique opportunity because for the first time, you can say, I not only consulted on this project, I was publicly accountable for results.” I found that to be enticing. I said, I really don’t want to be an employee forever, I love the idea of my independence. Jim Cantalupo who I mentioned earlier had dinner with me and said, “I didn’t want to come out of retirement. You don’t want to come out of consulting. Why don’t we each sign a three-year contract. We’ll start together and we’ll leave together. I want you to promise you won’t quit before three years.” I agreed. As you may have read, the unfortunate thing is in the second year, Jim Cantalupo died of a heart attack. At a global meeting of 16,000 people where we were about to celebrate the turnaround of McDonalds. He would have made the opening speech that morning. At five in the morning, he died. It wasn’t a great moment. Then I left a year later, but I would have left anyway. Some people suspect that I left because Jim was no longer there. I appreciate Jim because when I did make my first presentation to the board, the board unanimously rejected what my strategy, what I was proposing. Unanimous rejection.

I got rejected when I was a consultant. I got rejected as an employee. It didn’t seem to make a difference. I went back to my office assuming I was going to pack up and go home. Cantalupo came into my office and said, “You didn’t succeed with the board.” I said, I know. He said, “A member of the board is going to come down and talk to you and see if they can change your mind.” I said, fine, I’ll listen. The messenger from the board came down. We met for a few hours. I said, I believe the turnaround, this is how I would approach it. He then went to Jim Cantalupo and said, “I’ve talked to Larry and Larry won’t change his mind.” Jim then came down to talk to me and said, “How do you feel?” I said, the board feels this is the way we’ve done it; therefore, this is what made us great. This is what we should do. I said, a turnaround means what we’ve been doing is not working. Doing more of what we’ve been doing will not work. We need change. We need to do something different. The change I’m proposing, I strongly believe is the only answer, but it means a change from focusing on Wall Street, focusing on the customer. It means a change from focusing on building new stores as fast as we can, to building stores that the market needs and can satisfy profitably. It means focusing on the franchisee who are the real owners of the brand, not focusing on the corporation.

Unless our franchisees are profitable, we will not be profitable. Focusing on the customer and developing new products that the customer wants and needs. Not focusing on new products that we just need so we have something to say in our advertising. If we don’t do those things, I don’t want to be apart of the turnaround. The turnaround in my mind which that sentence will stay in my mind for the rest of my life. Jim Cantalupo turned to me and said, “I hear you. You’re here to take care of the brand. I’m here to take care of the board. I will take care of the board. You take care of the brand.” Then I remember calling my wife and saying, this will work.

As you described the pillars of the turnaround, as you had developed the strategy and you are describing this clear break where you go the support of the CEO. What were some of the greatest challenges you experienced in implementing the strategy?

The biggest challenge in a turnaround, McDonalds is no different, in every company, whether it was General Motors or Ford Motor Company, or Renault, or Nissan, or McDonalds, or Intercontinental Hotels. The common thread is cultural resistance. When there’s a conflict between strategy and culture and you want to change the strategy, if it requires a change in culture, culture resistance will always win if you don’t address it head on. Culture is a powerful force. “This is what made us great.” Well, that’s wonderful to hear, but it might not help us create a great future. Reproducing the past is not a formula for success in the future. “This is how we’ve always done it.” Well, maybe that’s what’s wrong. Leaders are uncomfortable challenging culture head on because it is so powerful. If you don’t put cultural change first, you will not change anything.

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Brand Turnarounds: McDonald's 2003-2005

April 16, 2020

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