‘Our Menu Is Very Darwinian.’ Leading McDonald’s in 2021.
As chief executive of McDonald’s, Chris Kempczinski occupies one of the most powerful posts in the corporate world. There are more than 39,000 McDonald’s restaurants in 120 countries, employing some two million people. Small changes at McDonald’s have vast ripple effects, affecting supply chains, wages and consumer behavior around the globe.
Yet in many of the areas where McDonald’s has outsize power, Mr. Kempczinski is proceeding cautiously.
Asked in a recent interview about McDonald’s notoriously unhealthy menu, he said he was simply in the business of giving people what they want, rather than telling people what to eat. “It’s not up to me to make those choices,” he said.
While McDonald’s was among the many corporations that expressed solidarity with the Black Lives Matter movement last summer, it is under fire from both Black franchisees and Black media executives for what they say is systemic discrimination.
Questioned about the company’s silence on the issue of voting rights, Mr. Kempczinski explained it was not a core issue for the company. “We chose not to weigh in on it,” he said.
And although McDonald’s recently raised the minimum wage at company-owned restaurants, Mr. Kempczinski explains that he does not control wages at the vast majority of restaurants, which are owned by franchisees.
“It always ends up being a balancing act,” he said. “How do you try to satisfy lots of different constituents, and do it in a way that ultimately enhances the brand?”
Mr. Kempczinski took over as C.E.O. from Steve Easterbrook, who was ousted after having a consensual sexual relationship with a McDonald’s employee. Though Mr. Easterbrook violated company policy, the board still awarded him a $44 million exit package. Then more accusations against Mr. Easterbrook surfaced, and the company sued him in an attempt to claw back his compensation.
The company’s handling of the scandal prompted some large shareholders to vote against re-electing some directors at the McDonald’s annual meeting in May.
In the midst of that, Mr. Kempczinski had to deal with the pandemic. With so many drive-through restaurants, McDonald’s was well prepared for the era of social distancing. Sales boomed over the last year and a half, and the company managed to avoid major layoffs.
Now Mr. Kempczinski — who says he eats at McDonald’s five days a week — is trying to prepare his company for a world where wages are rising, consumer behavior is changing and the expectations about how companies ought to behave are constantly evolving.
This interview was condensed and edited for clarity.
While you were at Pepsi you worked on noncarbonated beverages, which was part of that company’s push into healthier products. Do you think about a similar evolution taking place at McDonald’s?
We’re in the business of meeting the needs of customers. At Pepsi, we would try to go into schools and parks and put in only a healthy vending machine, with only water or juice. And what we discovered was we didn’t sell as much as we did when we had carbonated soft drinks.
You could argue, “Well, you know what? We should just do that because it’s quote unquote the right thing to go do.” Well, the knock-on effect that we had is the school districts actually take a pretty significant cut of the sales out of the vending machines. So we had school districts saying, “Well, now I’m getting less and less funding from you because you’ve made a switch to the vending machines and I’m not selling as much.”
The way I approach the job today is: whatever the customer wants to buy. If they want to buy plant-based and they want to buy enough of it, I could make my whole menu plant-based. If they want to be able to buy a burger, we’ll sell a burger.
What was your relationship with Steve like before everything happened, and how is it now?
Steve brought me into the company, so there’s certainly gratitude. And I bought into the vision that Steve outlined, which I think he was proved correct on. It was time for a turnaround. McDonald’s was a great business that just had not been executing as well as it needed to.
How it unfolded was obviously disorienting and disappointing and upsetting on a number of dimensions. That’s not what you expect of a leader in an organization and certainly not the culture of the company. So there was that disconnect. But there was also that sense of: I know his family. I know his kids. You wouldn’t be a human being if you didn’t think about them as well in all of this.
Were you satisfied with the board’s handling of the situation?
I was in the room when the board was having those deliberations. They fully knew and expected that there was going to be a lot of scrutiny that came from that decision. But there was also no equivocating about whether that was something that should or shouldn’t be done. It was like, “Now that we know this, there is no other choice. We have to go down this road and we know we’re going to get criticized for it.” I thought they handled it as best as they could.
How do you think the pandemic will change the way the business operates in a lasting way?
We had to pivot to basically being an entirely drive-through, delivery and curbside pickup business, and I think that’s going to still be an enduring part of this. The app is going to now be the center of that relationship with the customer. So in the past, it would be about having birthday parties in the restaurant. Well, if the app is now the center of the experience, how do you deliver fun and excitement and interest through an app?
We build about a thousand restaurants a year. Should the dining room be as big? Probably not. Should we have a separate pickup area for delivery drivers versus regular customers? Probably a good idea. Should we have an area where loyal customers can go and get a different type of service? Worth considering.
A lot of those costs are falling to the franchisees, who maybe feel like they can’t afford it. How do you see that tension getting resolved?
Our U.S. franchisees have never been in a better financial position than they are right now. The average franchisee in the U.S. is going to have record cash flow in 2021. They’ve had three consecutive years of compounding record cash flow. So our franchisees absolutely have the firepower to make these investments.
Our franchisees are motivated by making more money. If there is an investment to be made that’s going to help them make more money, they’ll go do it.
You raised the minimum wage at company-owned restaurants. Why do you think franchisees haven’t made a similar commitment?
We made a commitment around raising all the wages for our company restaurant employees by 10 percent, on a pathway to $15 an hour. We need to lead the way.
If you’re a franchisee who believes that the people working in your restaurant are a cost, and that you want to minimize that cost, we’re out to prove that investing in higher wages can grow your business, because you’re going to drive better customer satisfaction and actually make more money. It’s a mind-set shift.
We do have franchisees that are out there doing the right thing. But there are a group of franchisees that still focus too much on the cost side, and don’t see investment in people as a way actually to grow their cash flow over time.
I’m reminded of what you said about how the franchisees have enjoyed these record profits. And yet many McDonald’s employees qualify for food stamps. There’s a disconnect there. Are you talking to franchisees about that?
Our people deserve to be paid well. The question is what is the living wage? Is there one living wage? Is it a different living wage depending on where you are? Those are all complicated and important questions.
Do you want that to be something that’s legislated? Do you want the market to set that? Right now in the U.S., the decision has been made to largely let the market set that. But you’re seeing legislation at a state level. Twenty-eight states now have gone to some pathway to $15 an hour, and we’re not opposing that in any place.
Does the company’s commitment to buybacks and dividends make it harder to invest in your employees?
No. I don’t think it’s an either-or. The world is evolving. Go back to the ’80s and it was all about Milton Friedman — the shareholders are the only responsibility of a corporation. Compare that to the conversation today. There’s a lot more conversation about stakeholders. We think about it from a stakeholder perspective — franchisees, crew in the restaurant, company employees and shareholders. It always ends up being a balancing act. If we’re not seen as a company that’s doing the right thing, ultimately it’s going to affect our brand and that’s going to affect our business.
Beyond making statements, what are you doing to really engage with the Black community and try to share some of the wealth we’ve been talking about with that community?
McDonald’s has a long history of Black franchisees owning restaurants in their communities. And we have a pretty diverse group of suppliers. So on the one hand, we have a lot of things in our history there that you would say, “We should feel really good about ourselves.”
I learned through the last year that while we have a lot of things that we should be proud of, there are a lot of places where we’re still falling short. We did an employee town hall right after the George Floyd incident — murder — and we had employees talk about ways that they still didn’t feel comfortable bringing their whole self to work, or ways that the company wasn’t being appropriately sensitive to their concerns. For example, “The place where you had the company event didn’t have any public transportation, and I didn’t feel included because if I didn’t have a car, I wasn’t able to participate.”
So you just heard all these things that opened my eyes. Maybe shouldn’t be as confident or as proud of our history, because we can get a lot better on this.
Where is the company on the issue of voting rights?
We have not made a statement on that. I’ve heard from people from both sides.
Any of the topics that are going on today from a from a social standpoint — inequality issues, education issues, opioids, etc. — we are asked to opine on all of them. One of the things that I’ve had to think about is, where do we speak up on an issue, and where do we not speak up? The way we’ve looked at it is: Is it either directly in our industry — which is an obvious one that we would comment on — or does it go specifically to the pillars that we’ve said are going to matter to us? So we’ve talked about jobs and opportunity. We’ve talked about helping communities in crisis. We’ve talked about planet. And we’ve talked about supporting local farmers and ranchers. Those are the areas that we’ve said are specific to our business where we feel like we’ve got a role to play. If it’s outside of that, then there has to be a really good reason that us saying something can also be part of the solution. And in the case of voting rights, it wasn’t our business. It wasn’t aligned with one of our leadership platforms. And we didn’t feel like our voice was going to be particularly helpful to addressing the issues.
When a lot of people think about McDonald’s, the image is unhealthy fast food. To put it plainly, why doesn’t McDonald’s serve more healthy food?
Our menu is very Darwinian. We will put on the menu what our customers are looking to buy. We do have healthier choice options on the menu. And we have more indulgent choices on the menu. Ultimately, we leave it to the customer to make those choices.
I do feel strongly that we need to be 100 percent transparent on nutritional information. And we do try to do things, for example, particularly as it relates to marketing to kids, to promote healthier choices. We do try to nudge from a little behavioral economics standpoint to better-for-you choices. But ultimately we do leave it to the customer.
One area we are making an investment is plant-based. Plant-based is inherently a more costly product today than a conventional protein — chicken, beef, etc. We’ve made it a focus to make sure that we parity-price all of those things. We don’t see someone choosing to go with a hamburger versus a plant-based burger because of price.
I have many friends who will say, “Well, you’re just not moving fast enough. Just change out the menu tomorrow and leave people with these choices. That’s how you’re going to get there.” Well, the reality is that’s not going to force people to make the right choices. That’s just going to drive them to go in a different direction. They’re just not going to come to your restaurant. They’re going to go somewhere else. These things have to be done also at the pace that a customer is willing to be nudged. Just radically making these decisions and saying, “Well, now these are your options. Take it or leave it,” is not how we as consumers are conditioned. We live now in a world of infinite choices.
What kinds of jobs do you see being phased out and replaced by automation? Is it going to go beyond the order-taking and get into the back of the house as well?
Right now you could automate a lot of the back of the kitchen. Technically, it’s possible. The challenge is can you automate it in a way that is economically feasible for a franchisee? Some of this equipment is really expensive to go build. Way more expensive than any type of savings that you would get from a labor standpoint. So I actually don’t think five years from now you’re going to see some huge amount of our restaurant operations that have been automated.
An area that we are investing that we do think has some potential is around voice recognition in the drive-through, where perhaps you have an Alexa-type of service that takes your order. But I don’t think you’re going to walk in to a McDonald’s restaurant at the end of this decade and see that it’s running largely through automation. People are still going to be a really significant part of our restaurant operations.
Source: Read Full Article