McDonald's reveals $8.5 billion restaurant turnaround plan
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A McDonald's restaurant in Pittsburgh. Photo: Paul Weaver/SOPA Images/LightRocket via Getty Images
McDonald's outlined a comprehensive turnaround strategy on Wednesday predicated on a major investment in its franchised restaurants, AI and new products, including hand-breaded chicken items.
Why it matters: The fast-food chain has been struggling to capitalize on the value proposition that has long distinguished its brand among budget-conscious consumers.
Zoom in: McDonald's executives said at their investor day in Illinois that they'll invest $8.5 billion over the next decade in the "NEXT" plan, which includes:
- Modernizing stores with features like lockers for delivery and pickup.
- Retraining millions of workers through what global chief people officer Tiffanie Boyd described as the largest upskilling effort in the brand's history.
- Adopting a new AI-powered ordering system nicknamed Archy.
- Developing and rolling out new products, including hand-breaded chicken and new protein-based items geared toward GLP-1 users.
Friction point: The investment plan calls attention to the natural conflict in a largely franchised business between corporate ownership and local proprietors, who are often reluctant to embrace investment plans without a clear ROI.
- Borden projected that the plan for technology and operational improvements would boost gross annual cash flow for the average McDonald's U.S. restaurant by about $100,000.
- But "we expect a portion of that will be reinvested" in the business, he added.
Follow the money: The investment will cost about $800,000 per U.S. location, Borden estimated, with McDonald's helping franchisees shoulder the added cost through rent relief and capital support.
- He said the "level of support will vary by market and be flexible and targeted to the realities that franchisees face locally."
State of play: Fast-food franchisees are facing a stiff competitive atmosphere with inflation driving increases in the cost of labor and materials, while consumers are picky about where they're spending.
- A company that owns 314 Wendy's franchises filed for bankruptcy protection this month after what it said was a significant decline in earnings.
What they're saying: "We are more bullish on opportunities to improve U.S. traffic via operations, chicken, and specialty beverages as opposed to entry-level value price points, though we note the challenged state of the low-income consumer does not make it easier," TD Cowen analyst Andrew Charles wrote in a recent research note.
What's next: The McDonald's near you may soon get a new look.
- Jill McDonald, the company's global chief restaurant experience officer, said the chain will prioritize "upgraded play places, improved dining rooms and more open kitchens with visible McCafe beverage preparation that will strengthen customer perception of great taste and quality."
