Skinner: A tough act to follow at McDonald'sSkinner: A tough act to follow at McDonald's

Robin Lee Allen

Confidence is widespread that Don Thompson is the right man to take the reins at McDonald’s Corp. as the fast-food behemoth enters a new era of leadership.


But there’s also no doubting that Thompson, McDonald’s president and chief operating officer since 2010, has big shoes to fill when he replaces Jim Skinner, 67, who is retiring as chief executive, effective July 1.


During Skinner’s seven-plus-year tenure as CEO, the longtime McDonald’s veteran oversaw what Andy McKenna, the company’s chairman of the board, called “unprecedented momentum” propelled by remodels, a variety of new product introductions and a focus on what officials called “being better, not bigger.” 


“This success has benefited our valued shareholders, as McDonald’s compound annual total shareholder return was 21 percent during Jim’s tenure as CEO, and market capitalization surpassed $100 billion for the first time in the company’s history,” McKenna said in a statement.


Maintaining that momentum would be difficult under any circumstances, but Thompson will be taking control at a time that competition among the big guns of the quick-service segment is growing even fiercer. Wendy’s has said it is embarking on “the most intense period of change” in its history during the next three years. (See story in the Business Intel section on page 12.) Yum! Brands has grabbed headlines with a new First Meal breakfast program and taco offering at its Taco Bell brand, and Burger King has ramped up its focus on new products. 


Position of power


Still, the foundation laid during Skinner’s watch illustrates McDonald’s strength. The point is underscored in a comparison of some of the company’s key financial metrics for the year in which he became CEO and the last full year he was at the helm — fiscal 2011 versus fiscal 2004. According to documents filed with the U.S. Securities and Exchange Commission, for 2011 compared with 2004, McDonald’s total revenue grew 41.7 percent to $27.01 billion, and net income rose 141.5 percent to $5.50 billion, representing 20.4 percent of revenue. During that same time, the number of worldwide units grew 6.2 percent to 33,510.


While the number of company units shrank 5.9 percent to 12,870 from 2004 to 2011, the annual sales from those units rose markedly, up 28.6 percent to $18.29 billion.


During Skinner’s reign, McDonald’s focused steadfastly on its Plan to Win, a program launched in 2003 when the chain was in dire need of a turnaround. In early 2003, after years of sinking sales, McDonald’s posted its first quarterly loss of $343 million, and its stock was in the teens. The plan emphasized the five Ps: people, product, place, price and promotion.


Fast-forward to 2012, and McDonald’s can point to quantifiable success, including a plethora of products ranging from snack wraps and smoothies to premium burgers and coffee, a modernized look that is spreading through the system, and same-store sales that grew despite the recession.


At a conference call with analysts Jan. 24, Skinner, noting that rising commodity costs and slow economic growth in the United States and Europe would present some headwinds this year, pledged that the company would stick to its plan. In 2012 McDonald’s will focus on core menu items such as Big Macs and Chicken McNuggets, while also introducing more frozen beverages, breakfast items and snacks.


“Our overall business model continues to serve us well in any environment, as long as we propel ourselves with the proper levers of our business” he said. 


Last November, McDonald’s officials also said the company expected to spend $2.9 billion in 2012 on growth and reimaging worldwide, with $800 million of that to be spent in the United States. That figure was up from $2.7 billion in 2011.


And officials pointed to operational opportunities such as opening more units for 24-hour service, improved through-put times and practices that improve customer flow.


“Doing what’s right for our customers and our business has driven my passion as CEO of McDonald’s,” Skinner, a 41-year veteran of the company, said in a statement announcing his retirement.


By the numbers


The following figures, also culled from SEC documents, put McDonald’s growth during the past seven years in perspective compared with its top quick-service competitors, providing comparisons between their fiscal 2004 and 2011:


l Yum saw revenue grow 40.1 percent to $12.63 billion from 2004 to 2011, and net income jump 78.2 percent to $1.32 billion, representing 10.5 percent of revenue. Yum’s worldwide unit count grew to 37,121, up 10.5 percent. The number of company units fell 4 percent to 7,437. Sales at those units rose 36.3 percent to $10.89 billion.


l Burger King, which had multiple owners from 2004 to 2011 and recently changed its fiscal year end from June to December, saw revenue grow 33.2 percent to $2.34 billion between 2004 and 2011. Net income rose markedly, 2,040 percent, to $107.0 million, representing 4.6 percent of revenue. The number of worldwide units rose 11.4 percent to 12,512. The number of company units increased 19.1 percent to 1,295. Sales at company units increased 28.4 percent to $1.64 billion.


l Wendy’s, which has also had changes in ownership in the past seven years, in 2011 saw total revenue decline 33.1 percent to $2.43 billion compared with 2004 — primarily as a result of divestiture of several secondary concepts, including Arby’s and Tim Hortons. Compared with 2004, in 2011 net income fell 81 percent to $9.9 million, representing 0.41 percent of revenue. The number of worldwide systemwide Wendy’s units fell 1.2 percent to 6,594, while the number of company restaurants decreased 4.7 percent to 1,417 units. Meanwhile, sales at company units, which include the sales of buns to franchisees, fell 27.6 percent to $2.13 billion, including 2004 contributions from brands since divested.


Succession planning


Skinner assumed the role of chief executive during a dark time in McDonald’s history. Seven months earlier, in April 2004, CEO Jim Cantalupo died of a heart attack. A month later, Cantalupo’s successor Charlie Bell was diagnosed with cancer. Bell stepped aside in November 2004, when Skinner stepped up, and died a few months later in January 2005.


Those events put a spotlight on succession planning across the restaurant industry, and when Thompson, now 48, was named to his current position in 2010, it was broadly acknowledged that he was being groomed for the company’s top spot.


Observers say that Thompson, a 22-year McDonald’s veteran, is up to the challenge.


“He has demonstrated himself as a skilled operator who believes in the principles guiding the company’s Plan to Win,” Sara Senatore of Bernstein Research said in a note. “During his tenure as COO, he has extended his experience with the company’s strategy and operations to a global scale. … We do not expect any major changes to McDonald’s strategy or operations.”


Contact Robin Lee Allen at [email protected]

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Follow her on Twitter: @RobinLeeAllen.

Alan J. Liddle and Mark Brandau contributed to this report.