McDonald’s Corp. executives emphasized the company’s brand reimaging and menu innovation as winning business strategies Thursday at its annual shareholder meeting, while deflecting criticism from animal rights and nutrition activists and defeating a procurement resolution proposed by the Humane Society.
Chief executive Jim Skinner said McDonald’s Plan to Win, which it began to undertake years ago, and which the company credits for its continued strong performance, has revolved around updating the chain’s restaurants, bolstering the menu’s value proposition, growing operational capacity, and recognizing the company’s people.
Reimaging, in particular, is a major initiative this year, Skinner said. McDonald’s has said earlier that between 400 and 500 restaurants in the United States would have their interiors and exteriors remodeled throughout the year.
“Our restaurants are the heart of our business,” Skinner said. “We’re going to send a strong signal that McDonald’s is relevant. Our research tells us that reimaging benefits all [of] our brand attributes, from the quality of the food to the friendliness of the crew. We’re allocating nearly $1 billion [to the effort], and our owner-operators are contributing as well.”
Skinner and Don Thompson, McDonald’s president and chief operating officer, also said McDonald’s slate of new products, from the continuing extension of the McCafe beverage line to premium burgers, would carry over the brand’s momentum and help it withstand increased pressure from competitors. Skinner highlighted the recent launch of Frappes, which “already are exceeding expectations without much national advertising,” as well as the upcoming introduction of two flavors of Real Fruit Smoothies.
Thompson added that McDonald’s U.S. division soon could explore adding decaf options to the McCafe line of espresso-based drinks.
When asked about the threat from fast-casual burger chains like Five Guys Burgers and Fries, Thompson said McDonald’s Angus Third Pounder burgers could match up against more expensive products at “better-burger” upstarts.
“We have a lot of premium burgers, but we also have value across the menu board, with our Double Cheeseburger, for example,” Thompson said. “So we’ve got a lot of beef value, as well as new formats. But we’re less focused on the competition and more focused on what customers say they want from McDonald’s.”
One item that won’t be added to McDonald’s menu any time soon, however, is cage-free eggs. McDonald’s shareholders rejected a resolution from the Humane Society of the United States calling for McDonald’s to procure 5 percent of its eggs from hens not confined to cages – only 4.4 percent of preliminary votes supported the measure. While McDonald’s uses cage-free eggs in the United Kingdom and will procure only cage-free eggs for the entire European Union by the end of the year, activists have targeted the company for not adopting similar practices in the United States.
In recent years, some restaurant companies have moved toward using more cage-free eggs either to allay or pre-empt activists’ criticism, including Burger King, Wendy’s, Carl’s Jr., Hardee’s, Red Robin, Subway, Sonic, Quiznos Sub and Denny’s.
McDonald’s also has been under for years from nutrition watchdogs, who allege that its advertising toward children, in particular the use of brand mascot Ronald McDonald, is predatory and a factor contributing to the nation’s high incidence of childhood obesity. At Thursday’s meeting, several questioners, including a registered nurse and a retired physician, asked Skinner if McDonald’s would retire Ronald, to which the chief executive emphatically responded no.
“Ronald is not retiring,” Skinner said to applause from shareholders. “He’s the trusted face of Ronald McDonald House Charities and has been an important ambassador for many years. He’s a force for good … and he doesn’t hawk food.”
Two shareholder resolutions that received preliminary approval were the election of all nominees for open seats on the company’s board of directors and the naming of Ernst & Young as independent auditors for 2010.
Shareholders did not vote to approve a resolution recommending an advisory vote on executive compensation, with 60 percent of preliminary votes not supporting the measure. McDonald’s board recommended a vote against the “say on pay” measure in part because such actions don’t allow meaningful opinions to be expressed to the board, according to the company’s proxy statement.
In recent years, institutional investors and corporate governance watchdogs have expressed concern over executive compensation at several restaurant companies, including Yum! Brands Inc., The Cheesecake Factory Inc., and Landry’s Restaurants Inc.
McDonald’s also announced a quarterly dividend of 55 cents per share of common stock, payable June 15 to stockholders of record as of June 1. Chief financial officer Peter Bensen said the company’s board has not discussed the possibility of a stock split at this time.
McDonald’s Corp. operates or franchises more than 32,000 restaurants in more than 100 countries.
Contact Mark Brandau at [email protected]