Here’s his take on what’s working, what’s not and what’s next for the iconic brand.
When Kevin Ozan assumed the CFO role in March 2015, McDonald’s was a company that seemed to have lost its way. Sales were in a prolonged slump, once-loyal customers were going elsewhere, competitors were eating away at its market share.
But quickly, the top-management team — led by new CEO Steve Easterbrook (whose first day as CEO was also Ozan’s first day as CFO) — developed a turnaround plan, which started showing results within months. By early 2017, the company was ready to replace its turnaround plan with a growth strategy.
Fast forward to 2018: Easterbrook, Ozan, and the rest of the current leadership team have revitalized the fast-food chain. They’ve turned around a massive operation — encompassing 37,000-plus locations in more than 100 countries, with annual revenues exceeding $20 billion — and set it on a path to strong, profitable growth. As of late 2018, McDonald’s same-store sales had risen for 13 consecutive quarters.
Ozan takes pride in the company’s solid financial performance, but he knows there’s a lot more work to do. The 21-year company veteran now oversees more than 2,000 employees, about half of whom are in McDonald’s finance departments (accounting, internal audit, treasury, tax, global business services, and investor relations). The other half work in either the technology function or in the company’s global restaurant operations and development group — two departments that began reporting to Ozan on 1 January 2019. A Midwesterner who says he eats McDonald’s food about three times a week (favorite menu item: the Egg McMuffin), Ozan is candid about the challenges that the chain continues to face — including recent declines in US customer traffic, operational hiccups in its restaurant remodels, and an intensely competitive talent market.
In November 2018, he spoke with McKinsey senior partner Greg Kelly at McDonald’s new headquarters in Chicago. He shared his thoughts on the company’s growth to date, how to sustain it, and his role in making it all happen.
McKinsey: Not long after you became CFO, McDonald’s developed a three-part growth framework — retain, regain and convert customers. Tell us about that. What’s worked best? Which of the three is the most difficult?
Kevin Ozan: Our growth framework came out of research we conducted in our 10 largest markets. It was the biggest consumer-research effort we’d ever done in our history. The research showed that what consumers want and why they come to McDonald’s, whether they’re in Germany or Japan or the United States, is much more similar than different. So our framework is universal; it allows us to speak a common language across the organization while still allowing local management to bring it to life for customers in their markets.
“Retain” is about keeping the customers who have historically been our stronghold — families with young children and people who love McDonald’s breakfast.
“Convert” is about attracting new people to McDonald’s by pursuing growth opportunities in places where we’re not getting our fair share, so that’s areas like coffee and snacks. It’s probably the hardest of the three. We’re making progress, especially with our McCafé proposition and our new specialty coffees.
McKinsey: Let’s talk about the “retain” part. You could have just left it out of the growth framework, but you didn’t. How well has that worked?
Kevin Ozan: One of the challenges for big organizations like ours is to do multiple things successfully at the same time. I liken it to a kids’ soccer game: wherever the ball goes, that’s where everybody runs to. In most of the world, our growth framework has helped us fight that instinct. We’ve continued to build on our strengths with families and the breakfast daypart. In the US, we had a bold agenda that required us to execute across many levers and we didn’t pay as much attention to breakfast as we should have. We didn’t advertise and promote it as much, and we didn’t introduce any new breakfast products for years. So, in the past couple of years, we’ve had negative traffic during breakfast hours in the US market. We’ve learned that we do indeed need to keep a focus on the “retain” part of our strategy. We can’t take our strengths for granted. We’re learning how to keep our eye on the things that are working well even as we go all in on new areas.
McKinsey: Speaking of new areas, you’ve added some elements to the growth framework. You now have three “growth accelerators”: delivery, digital, and the store remodels that you’re calling Experience of the Future (EOTF). How do these accelerators relate to the retain-regain-convert framework?
Kevin Ozan: Once we had our baseline growth framework, as a leadership team we asked ourselves, “Are we OK with where we are now, or do we have a greater growth ambition?” We knew we could do more, so we generated ideas that would help us achieve more growth. To prioritize the ideas, our primary screen was what would have the biggest impact on the most people in the shortest amount of time. That’s how we came up with our three accelerators.
Delivery is one of them. Steve [Easterbrook] and I had visited a few countries where we could see that delivery was clearly a growth opportunity. We wanted to move faster than what would have been a typical approach for McDonald’s, so we set up a “fast action” team — bringing together some of our best talent from different business units and different regions. We took them out of their day jobs and had them focus exclusively on getting into the delivery game and building momentum as quickly as possible. We launched McDelivery in three or four months, which, for McDonald’s, was an incredibly short period of time; in the past, we would have tested it in one market and then another, and maybe rolled it out years later.
We partnered with Uber Eats in most of our markets because it had the broadest scale across multiple countries and was in the best position to help us launch, scale, and grow our delivery business the fastest.
McKinsey: Uber Eats is taking the orders and making the deliveries, so Uber — not McDonald’s — is getting the customer data, right?
Kevin Ozan: It’s true that data is a gold mine for learning more about our customers and giving them a more personalized experience. If I know that you like a Big Mac for lunch every Tuesday, for example, we can tailor our offer to your individual tastes. Right now, Uber does have the more detailed data on individual customers. We get summarized data such as time of day and location. We have a strong partnership with Uber and are exploring opportunities to share more information. We’re also integrating delivery into our mobile app, which will help us gain insights that will allow us to develop one-on-one relationships with our customers. That’s the goal.
We knew that McDelivery wasn’t going to be perfect on day one. But it’s proven to be a highly incremental business for us. It skews to a younger demographic, it generates a higher average check, we’re seeing a high rate of repeat business, and most of the orders are placed in the evenings, when our restaurants have more capacity. Now that we’ve launched it, our focus is on optimizing that business. How do we grow awareness? How do we improve the packaging for items like fries and drinks? How do we make our operations more efficient? We’re tackling all of those things now.
McKinsey: Did you have the same philosophy in developing your mobile app? Get the app out there and then improve it as you go?
Kevin Ozan: Yes. Some of our competitors already had an app, so we wanted to move quickly. If you think about your apps, you get updates constantly; consumers are used to that. An app doesn’t have to have every bell and whistle on day one. Again, that wasn’t an easy concept for our system given our historical strength in testing and “fail-proofing” initiatives before introducing them in our restaurants.
We’re now working on improving the digital experience for customers. For example, if I order and pay through the app but I still have to line up at the drive-through and wait for my food, there’s no payoff; I haven’t really saved myself any time. So we’ve introduced curbside service: you order and pay through the app, then you park in a designated parking spot at the restaurant and the food is brought out to your car. Now there’s a payoff of added convenience for the customer.
I see digital as a “greens fee” these days. You need digital offerings. But ultimately the winners are going to be the companies that can best integrate the physical and the digital, and make the overall customer experience as pleasurable as possible. That’s what our third accelerator, Experience of the Future, is about — giving customers more choice in the way they order, pay, and receive their favorite food. EOTF has a number of components: one is modernizing and updating the physical restaurants — the décor, the seating — another is putting in digital self-order kiosks, and another is table service. So whether you’re ordering from the kiosk or the front counter, you can just sit down, relax and have the food brought to you. Table service is a great example of how we’re trying to increase the level of hospitality that customers experience in our restaurants.
McKinsey: EOTF is a lot more capital intensive than the other two accelerators. How did you decide it was worth the investment?
Kevin Ozan: One advantage of having a large system like ours is that once we started implementing EOTF internationally, in places like Australia and Canada, we consistently saw that it resulted in sales lifts of roughly 4 to 6 percent, so we knew we were getting good returns on our investments. We’re spending more than $1 billion this year on remodeling US restaurants. We’re trying to do it at a quick pace, about 1,000 restaurants per quarter, because McDonald’s customers expect consistency. If you go to one restaurant that’s remodeled, and then the next day you go to a restaurant down the street that isn’t, that’s a confusing and disappointing customer experience.
What we’re seeing in the US is that our remodels are taking a little longer, partly because the restaurants are older and need more work. It’s also taking longer for customers to come back after a remodeled restaurant reopens. The good news is that once they do come back, we’re seeing sales lifts similar to what we saw in international markets.