McDonald’s (MCD) Systems (the precursor to McDonald’s Corporation) was founded in 1955 when Ray Kroc went into business with brothers Dick and Mac McDonald who ran a small but successful hamburger restaurant.
Today, McDonald’s is anything but small. The company is the largest restaurant in the world, with a market cap greater than $100 billion and over 36,000 locations in more than 100 countries around the world.
You wouldn’t think an established hamburger business would be capable of rapid growth. From 2002 through 2011 McDonald’s did just that – realizing a compound earnings-per-share growth rate of 16.6% a year.
McDonald’s struggled in the late 1990’s and early 2000’s under CEO Jack Greenberg. Greenberg initiated a ‘made for you’ campaign that increasedcooking times, resulting in negative growth for McDonald’s. Jack Greenberg was replaced at the beginning of 2003 by Jim Cantalupo,
Cantalupo was only CEO of McDonald’s from 2003 to April of 2004, when he died suddenly and tragically of a heart attack. Despite his short tenure, Cantalupo is credited with turning around McDonald’s. He didn’t do anything revolutionary. He focused on cleanliness, quality, and consistency. He slowed store expansion (which was cannibalizing sales), eliminated unprofitable stores, and stopped engaging in absurd price wars with Burger King.
Jim Skinner took over as CEO when Cantalupo passed. Skinner’s focus was similar to Cantalupo’s. Skinners (successful) plan was to:
“(Put) the focus on the customer and the restaurants, and the absolutely relentless focus on improving existing restaurants”.
This is really not a revolutionary strategy. When you are the industry leader with the strongest brand, you don’t have to be revolutionary; you just have to allocate capital efficiently and stick with the company’s underlying competitive advantages. Under Skinner, earnings-per-share rose from $1.93 in 2004 to $5.36 in 2012.
Skinner retired in 2012, and was replaced by Donald Thompson. Earnings-per-share declined to $4.82 by fiscal 2014 as McDonald’s customer service slowed. The company registered the longest wait times it had in 15 years in 2014.
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