McDonald's Needs More Than Hugs and a New CEO
Last week the chain announced that a new CEO will be taking over in March. It also kicked off a two-week promotional campaign on Monday whereby select customers will get to pay for their food through random acts of kindness, following last month's emotion-tugging "Signs" campaign that was both praised and widely lampooned.
After seeing revenue and earnings decline last year for the first time in more than a decade, it's easy to see why McDonald's is trying to reposition itself. You have to go all the way back to 2009 to find the last time that the restaurant industry bellwether's profit was lower than the $4.8 billion that it scored in 2014. If a new helmsman and back-to-back months of image-sprucing promotions seem desperate to you, you wouldn't be wrong.
Meet the New Boss
Shares of McDonald's moved higher last week after it announced that Don Thompson will be retiring as president and CEO at the end of this month. He will also be stepping down from the burger behemoth's board of directors.
Steve Easterbrook will be replacing Thompson at all three posts. Easterbrook's an internal hire, and while the market often objects to a reeling company promoting from within, industry experts are generally upbeat about the incoming CEO's prospects. Easterbrook is currently heading up the chain's marketing department, and before that he was instrumental in improving the eatery's European operations.
Yes, he's an insider, but he's also seen as a turnaround expert with strong ideas about restoring the brand's image and integrity.
Ad It Up
McDonald's turned heads with an unusual commercial during Super Bowl Sunday. It announced that from Feb. 2 through Valentine's Day, it will cover the bill for randomly chosen customers after asking them to engage in acts of kindness including calling a loved one, hugging a family member or simply fist-bumping a cashier. Every restaurant will be giving away 100 of these prizes.
It's the kind of campaign that would seem daring at most chains, but with the commercial generating nearly 6 million views on YouTube alone, it could be the feel-good campaign that it needs after the brand got battered through 2014.
It's been too easy to knock the company these days. Activists have been campaigning to get McDonald's to boost its starting wage to $15 an hour. It's a move the unionization advocates have been championing on the basis of the chain's hefty profitability, but that ignores the fact that 80 percent of the chain's restaurants are owned by small franchisees that don't necessarily have that kind of cost-expanding flexibility.
The quality of the chain's food has also come under fire. Its signature burger was rated the worst in taste among 21 rival chains in a Consumer Reports survey last year of more than 30,000 fast-food buffs.
McDonald's is addressing the quality issue. It is simplifying its menu this year. Now it just needs for consumers to warm up to the brand again. A freshly crowned CEO singing a new tune and a marketing blitz that's more about community building than sandwich assembly seem to be good places to start a turnaround. However, McDonald's will still need to do more if it wants to win the war.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 a winning investment year? Check out The Motley Fool's one great stock to buy for 2015 and beyond.