By Emily Bryson York, Chicago Tribune –
CHICAGO — Big Macs aren’t going anywhere, nor is the Egg McMuffin. As McDonald’s begins its CEO transition, expect very little to change in the short term.
The Oak Brook, Ill.-based company announced late Wednesday that longtime CEO Jim Skinner would retire at the end of June and his chief operating officer Don Thompson, long considered heir apparent, will take his place.
“He’s 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 US 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 story.
“I’m excited to see where he takes the business,” said Morningstar analyst R.J. Hottovy. “I’ve been impressed with his moves the last couple of years.” Hottovy sees Thompson, as president of the 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 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.
At present, McDonald’s is embroiled in a number of multi-year initiatives, including overhauling the look of its 33,000 global restaurant base. The chain has more than 14,000 in the U.S., of which only about 33 percent have been remodeled.
“They’re going to be doing a lot more remodeling and re-engineering at existing units which will continue to give them some increases at (store) level,” said Darren Tristano, executive vice president of Technomic, a Chicago-based food industry consulting firm. “They’ve got a lot of stores to get through, which will probably take three years.”
When asked about the chain’s opportunities, he said, “China, China, China.” Although Louisville, KY-based Yum Brands, with chains like Pizza Hut and KFC have become ubiquitous in China, Tristano argued that can be an opportunity for McDonald’s in one of the world’s most coveted markets, rather than a hindrance.
“Yum has opened the door for the Chinese to look at American brands and fast food,” he said, adding that burgers don’t necessarily compete with pizza and chicken. “Yum has laid a lot of groundwork for fast-food chains to move in.”
The chain is also facing pressure from rising commodity costs. While 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 like 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.”
Company watchers are wondering how the gregarious Thompson’s tenure will stack up against that of Skinner, a reserved executive with a dry sense of humor.
“He has an extremely leadership aura,” said Michael Donahue, a former McDonald’s executive. “He’s tall and affable, really outgoing, warm and inspiring.”
Donahue described Thompson as a “homespun” guy, “ready to roll up his sleeves with anyone.” He recalled a motivational speech Thompson made called “Pick Up the Cup,” another way of saying everybody has a job to do — that is, if anyone is walking in a parking lot and sees a cup, pick it up.