McDonald's Chief Operating Officer Don Thompson, shown in 2010,… (Yves Logghe, Associated…)
Reporting from Chicago —
Big Macs aren't going anywhere, of course, nor is the Egg McMuffin. As McDonald's Corp. begins its chief executive transition, expect very little to change in the short term.
But down the road, future CEO Don Thompson will have to sell more of them and in more places overseas, as Asia and international expansion loom large.
The Oak Brook, Ill., company announced late Wednesday that longtime CEO Jim Skinner will retire at the end of June and that his chief operating officer, Thompson, long considered heir apparent, will take his place.
Thompson is "a very talented executive for McDonald's, a very bright individual who's been around 22 years and held many jobs that have allowed him to contribute great value to the system, including COO and president of the U.S. job, a very important job," Skinner said in an interview. "He's the real deal."
The new CEO will be taking over McDonald's during a period of undeniable strength, with nearly nine years of sales growth in every part of the world. Thompson, through a spokesperson, declined to comment for this article.
"I'm excited to see where he takes the business," Morningstar analyst R.J. Hottovy said. "I've been impressed with his moves the last couple of years."
Hottovy sees Thompson, who was president of the company's U.S. business until 2010, as a big force behind the McCafe beverage rollout, which added smoothies, frappes and espresso-based beverages to the menu and boosted sales.
"I'm curious to see how he can take that success and apply it to other parts of the business, how well he navigates international growth, which will probably be his legacy," Hottovy said, adding that he sees Thompson as being up to that challenge.
"He's been jet-setting the last couple of years in the global markets for McDonald's and has gotten to know them and identify talent in each one of them," he said.
McDonald's is embroiled in a number of multiyear initiatives, including overhauling the look of its 33,000 restaurants. The chain has more than 14,000 in the U.S., of which about one-third have been remodeled so far.
"They're going to be doing a lot more remodeling and re-engineering at existing units, which will continue to give them some [sales] increases at [store] level," said Darren Tristano, executive vice president of Technomic, a Chicago food industry consulting firm. "They've got a lot of stores to get through, which will probably take three years."
Asked about the chain's opportunities, Tristano said, "China, China, China." Although Louisville, Ky.-based Yum Brands, with chains including Pizza Hut and KFC, has become ubiquitous in China, he said that could be an opportunity — rather than a hindrance — for McDonald's in one of the world's most coveted markets.
The chain is also facing pressure from rising commodity costs. Although McDonald's, as the world's largest restaurant chain by sales, enjoys significant leverage of scale in its purchasing, it's constantly working to keep prices low.
"This is the first two-year period where commodities have gone up consecutively, as they did in 2011 and will in 2012," Skinner said.
Tristano said he was taking a cue from McDonald's recent tweaks to its value proposition, removing small drinks and fries from the dollar menu, and introducing an Extra Value menu with items such as snack wraps, double cheeseburgers and 20-piece chicken nuggets. The items will cost more than $1 but are expected to represent value for the money.
Hottovy added that McDonald's may also face earnings pressure as the U.S. dollar recovers. While the dollar has been weak, the company has done well in international markets. And those profits have looked even better expressed in U.S. dollars.
"They're getting gains not just from growing sales, but from currency translation," Tristano said. "The dollar at some point will strengthen, and when that happens, some of those currency translations may impact the success they've had internationally."
McDonald's shares fell 0.95% on Thursday to $95.80.