Why some aren't lovin' McDonald's "progressive" plan
McDonald's (MCD) new turnaround plan has some analysts and labor advocates feeling less than happy.
The ailing fast-food giant on Monday unveiled its latest blueprint for reviving the business, which has struggled with waning sales and labor unrest over its low wages for rank-and-file workers. The chain will become a "modern, progressive burger company," chief executive officer Steve Easterbrook said in a statement.
That might conjure up images of McDonald's turning into another Shake Shack (SHAK), a smaller rival that serves up Angus beef burgers on non-GMO buns and pays a baseline wage of $9.50 an hour. But McDonald's said its focus would be on encouraging "more innovation" and cutting out bureaucracy, while also adding more franchisees over the next several years.
That fell short of some labor activists' demands for wages of $15 an hour, with Corporate Accountability International calling the plan "mostly hot air."
"When they talk about being a progressive company, they mean propelling more innovation and entrepreneurship," Jared Meyer, a fellow at Economics21 at the conservative-leaning Manhattan Institute for Policy Research, told CBS MoneyWatch. "McDonald's isn't a Shake Shack and it doesn't have to be. They cater to a different customer."
In a video announcement, Easterbrook highlighted the changes he's making at the company, highlighting how layers of bureaucracy will be pared down while refocusing on the needs of customers. While he noted that the plan includes a "recommitment to fresh, hot food," the plan stressed organizational change rather than addressing hot-button topics such as labor practices and the quality of its food.
Even so, McDonald's has taken some steps to address employee concerns, announcing last month that it will boost pay at its company-owned U.S. restaurants and hike the average hourly wage for 90,000 workers to $10 an hour by the end of 2016. Workers will also receive paid time off. But the pay hike won't apply to the 90 percent of McDonald's workers that are employed by franchisees.
The turnaround plan announced this week "ignores the substantive changes the public is demanding," said Sriram Madhusoodanan, director, Value [the] Meal campaign at Corporate Accountability International, in a statement. "To truly turn around, McDonald's must respect its workers and the public at-large, starting with paying its workers a living wage and ending its exploitative kid-targeted marketing practices."
While low-wage employers are increasingly under pressure to boost pay and conditions for workers, some smaller rivals are elbowing in on McDonald's territory. Take Shake Shack, which has drawn positive support for its wage policy, given that its baseline wage is almost one-third higher than the federal minimum wage of $7.25 per hour.
That works for a specialized burger chain whose customers are willing to pay more, but it's not likely to be a winning recipe for McDonald's, which caters to diners with fewer dollars in their pockets, Meyer said.
"If you are more affluent, you can afford to spend $20 for a meal, but other people don't have that luxury," he noted. "McDonald's sells its Dollar Menu at or below cost," so if it raised wages to $15 an hour, as the Fight for $15 movement is demanding, it would likely have to eliminate the Dollar Menu, he added.
Still, McDonald's menu isn't exactly pulling in hungry hordes. Its flagship burger was voted the worst in America by Consumer Reports last year. While sales have been slipping at its U.S. restaurants, rivals such as Chipotle (CMG), which emphasizes its humanely raised meat and premium ingredients.
McDonald's might be better served by focusing on strengthening its relationship with lower-income customers, marketing consultant Faith Popcorn told Reuters. That could include steps such as providing healthier fast food and pushing franchisees to also raise wages, she said.
What kind of "progressive" company McDonald's evolves into isn't exactly clear, although Easterbrook underscored that he's aware of the obstacles facing the fast-food icon.
"In the past five years the world has moved faster outside the business than inside," he said. "We're not on our game."