Photo: RetailWire
Will job cuts spur growth for McDonald’s?
The biggest U.S. fast food chain is planning some corporate job cuts even as it pursues a nationwide store expansion.
In a company-wide memo, McDonald’s CEO Chris Kempczinski announced an internal reorganization designed to refocus the chain’s priorities, citing an “outdated and self-limiting” approach currently in place, CNBC reported. He said that the impending job cuts will not be made to reduce costs, but rather to help promote innovation and efficiency.
Plans to accelerate restaurant openings throughout the year are intended to “fully capture the increased demand [McDonald’s has] driven over the past few years,” though the chain has not yet stated how many more restaurants it intends to open in 2023. McDonald’s plans to communicate specifics around layoffs by April 3.
McDonald’s has been discussing moving in a less-siloed direction to better meet customer needs for some time. In July of 2021 McDonald’s made similar statements to the recent ones, in conjunction with the introduction of company veteran Manu Steijart to the role of chief customer officer.
Before that, at the end of 2020, McDonald’s announced the launch of a comprehensive strategy for growth called “Accelerating the Arches,” according to a press release. That strategy touted three growth pillars: “Maximize our Marketing,” “Commit to the Core” and “Double Down on the Three D’s (Digital, Delivery and Drive-Thru).”
This month the chain announced the launch of its “Accelerating the Arches 2.0” strategy, which makes a few additions to the original strategy, including a fourth “D,” for “Development.”
While the corporate job cuts planned by April may not be cost-cutting measures, some of the other moves the chain is making are striking some as ways to save on labor costs.
At the end of 2022, McDonald’s launched its first automated restaurant, putting robots to work handling order taking and delivering customers their food on a conveyor belt, according to a Yahoo!Finance report. Online critics expressed concerns over mass job loss due to the roll out of the concept. The chain said that the store would continue to have a live crew on hand to help with food prep.
- McDonald’s plans reorganization, job cuts as it accelerates restaurant openings – CNBC
- McDonald’s reorg focuses on the fast feeder’s customers – RetailWire
- McDonald’s Announces New Growth Strategy – PR Newswire
- 5 Things To Know About Accelerating the Arches 2.0 – McDonald’s
- McDonald’s unveils first automated location, social media worried it will cut ‘millions’ of jobs – Yahoo!Finance
Discussion Questions
DISCUSSION QUESTIONS: Where do you see the biggest opportunities for McDonald’s to grow its business in the U.S. through its “Accelerating the Arches” strategy? Will a corporate reorganization, based on experience, more likely assist McDonald’s in achieving its financial goals or falling short of them?
Poll
Loading …BrainTrust
Tara Kirkpatrick
Mobile Trends Analyst, Apptopia
Ryan Mathews
Founder, CEO, Black Monk Consulting
It is a sound strategy, where more restaurants will be needed to serve guests via the 3Ds (Digital, Delivery, Drive-Thru) initiative.
McDonald’s was the most downloaded food and drink app in the U.S. in 2022, overtaking Uber Eats for the first time. I see that as proven success of “doubling down on the D’s” and therefore view the corporate reorganization as a reaction and tactic to support financial goals further.
Reorganizing in support of digital innovation is the reason behind many retail layoffs in the last six months, however, that more positive, morale-boosting message was often left out of corporate statements. That also stands out to me as a signal that McDonald’s will move forward confidently to succeed.
Pardon me for feeling like I have whiplash around this story. The “worker shortage” and “need to cut costs through layoffs” pendulum is swinging faster than ever. What’s interesting here is the quote that these cuts are not to reduce expenses (in a company McDonald’s size, corporate headcount is such a small part of the expense structure that I’m glad they’re not banking on them to save money). No, they’re saying the cuts are to “drive innovation.” Honestly, it’s a bit of a head-scratcher for me.
Are they trying to drive efficiency by fire — reduce headcount, increase the workload on the remaining staff, and hope they develop better processes? Have they somehow recognized that they have a lot of “fat” in their organization and will address it? McDonald’s is wildly successful in marketing and did a great job pivoting to new ordering and fulfillment models during COVID-19. Now they need to drive sales and grow financially. I’m sure they have an excellent plan for that. Their focus on the three D’s plays to their brand value proposition very well. My only thought is there also needs to be a focus on areas where they might need improvement, customer service, and consistency in their product quality.
I will be very curious to see how this plan plays out. I would never bet against McDonald’s, no company that’s been as wildly successful for as long as they have, has done so without excellent planning and strategic vision.
More stores in the U.S. — really? Where are they going to find prime locations that aren’t in close proximity to existing stores? Global expansion would appear to be a better option where density and competition are less intense.
I really don’t see much innovation coming from McDonald’s, at least in terms of their menu. Is there anyone who doesn’t know what they serve? The quality is predictably ok, but after 60 years or whatever it has been they still haven’t figured out how to melt cheese on a burger, so I think their biggest opportunities are consistency, speed, and maybe taking a few more chances with their menu.
Al I believe you have many valid points here, however didn’t McDonald’s already go down the “varied menu” approach? And didn’t that end up lowering quality and confusing the “core” who wanted — a burger, fries and a Coke?
As to not knowing how to melt the cheese, given that cheeseburgers are a core offering, that is scandalous.
Innovation is moving much faster at overseas McDonald’s operations — I would love to see some of the East Asian, South Asian, and African menu ideas percolate back to the U.S., but of course that cuts across franchisee efficiency and menu simplification.
An operation like Culver’s with a menu as long as your arm, slower service, and higher prices, but with high quality, is growing by leaps and bounds. Seems like there is plenty of upside for McDonald’s to get more interesting. Who will lead — the bean counters or the marketers?
The irony, Al, is that in my classes we look at how the unique brand value of McDonald’s is — consistently average food. And, we look at how incredibly important that value is. Seems they have to balance an appearance of innovation to keep in the headlines with the reality that they don’t need much innovation. At least they aren’t following Taco Bell with the 1,000 ways to combine taco ingredients into headliner innovations.
I believe they are being proactive in getting ready to take on higher wages in their stores. While technology is a good thing, you still need people to manage or serve customers.
The lesson that is never learned: when labor costs go up, the incentive to automate goes up with higher wages. IF McDonald’s can automate WITHOUT lower quality, they will continue to automate out jobs that are seen as “not adding to the customer experience.”
As for the corporate reorganization, my take is no matter how effectively run a corporate HQ is, there is “fat” and “complacency” present. The second thought I have is related to WFH — I do not know how big of a campus McDonald’s has in Illinois, but I would guess that it is not as vibrant as it used to be. So — IF they reorganize (and compensate) effectively, I think this has a high chance of working.
Time will tell…
The biggest opportunity McDonald’s has to grow its business is to make its food taste better. This announcement makes no sense to me. They want to expand by cutting heads at the same time the industry is suffering with high labor costs and worker shortages? I get that many of the cuts will come from headquarters, but the real problem is at the stores. Opening locations in secondary spots that are likely to be short-staffed isn’t exactly the path to success.
“He said that the impending job cuts will not be made to reduce costs, but rather to help promote innovation and efficiency.” HA HA HA! …that’s a good one!
McDonald’s has the same problem as any company which has reached market saturation: it’s virtually impossible to see “significant” store growth.
Superficially, McD’s might seem to be well positioned — if we assume the low end of the market will continue to grow — but this isn’t 1960 anymore … there are lots of other options.
With the current post-pandemic pace of more people out of the house, cooking less at home, and many to normal in-office hours again, fast meal options are naturally in high demand.
McDonald’s strategy of more to push and promotion, in meeting the customers where they want their food should pay off nicely if executed well. But cutting labor to innovate and increase efficiency … not sure how this jibes. Sometimes customers want to talk to a real person and know their order is being made correctly.
The key to McDonald’s success is innovation and execution at store level. Tired menus and tired staff need to be addressed. The company cannot save itself to prosperity through cost savings alone.
Having worked with McDonald’s as an outside vendor in the past, I can totally see the goal. Their organization as it stands is incredibly bloated and disorganized. Too many layers of management, multiple divisions trying to procure the same thing, etc. The more important part is not the workforce reduction, but rather the organizational restructuring. In order for them to accelerate on menu development (as many others have pointed out), speed of service, or environment, they need to be able to execute a lot faster. It’s an uphill battle, as other brands have now lapped them, but they do have the resources and brand power to charge ahead once again.