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McDonald's CEO: "This unprecedented situation is changing the world we live in, and we will need to adapt to a new reality in its aftermath."

McDonald's to save $1 billion by reducing remodels, halting new unit growth

Coronavirus impact: March same-store sales drop 13.4% in the U.S.; CEO Chris Kempczinski takes a 50% pay cut

McDonald’s Corp. CEO and President Chris Kempczinski said he is taking a 50% salary cut, reducing Experience of the Future remodels across the U.S. and halting new restaurant growth worldwide as a result of the coronavirus pandemic.

Kempczinski, who has been leading the company less than a year, announced the new strategies on Wednesday as part of a COVID-19 business update for the Chicago-based quick-service chain. While sales have been significantly impacted by the crisis, same-store sales at the brand held positive for the quarter ended March 31. Same-store sales in the U.S. were up .1%, compared to a increase of 4.5% for the previous year, same period. 

In March, which included the onset of the COVID-19 crisis, the U.S. division saw same-store sales decline 13.4%.

Global same-store sales for March declined 22.2%, reflecting the impact of COVID-19 in China. For the quarter, global same-store sales declined 3.4%

“This unprecedented situation is changing the world we live in, and we will need to adapt to a new reality in its aftermath,” Kempczinski said.

A KeyBanc Capital Markets report suggests that McDonald's was also hurt by Wendy's breakfast rollout in March: "Although breakfast seemed to help McDonald’s traffic trends during January and February, we believe the morning daypart is especially vulnerable to the disruption of consumer behavior. In addition, we believe Wendy’s breakfast rollout, which drove 15% SSS growth in the first week of March, likely weighed on McDonald’s breakfast trends ahead of the heavy quarantine period."

Though 98% of restaurants in China have resumed operations, McDonald’s said the “market continues to experience a reduced level of demand as consumers have not fully returned to their pre-COVID routines.”

In the U.S., 99% of restaurants remain open for carryout, drive-thru and delivery. But, with consumers sheltering in place, sales have been rocked as fewer people are dining out. 

“We entered 2020 in a strong position, but of course the world has since changed,” Kempczinski said. “While our January and February global comparable sales were strong, changes in consumer behavior and the various restrictions in place by governments around the world have led to a significant decline in sales.”

To ensure cash flow, the company has secured $6.5 billion of new financing. The company expects to reduce capital expenditures by about $1 billion for 2020 by building fewer Experience of the Future projects across the U.S. and a reducing new restaurant growth around the world. 

The remodeled restaurants have been the cornerstone of the company’s Velocity Growth plan. The makeovers, which often require operators to raze and rebuild, feature modern furniture, kiosks, curbside pick-up, upgraded drive-thrus lanes with digital AI-powered menu boards, dining room power outlets for charging devices and a pick up counter for delivery orders. 

Some remodel costs range from $160,000 to about $750,000, depending on the scope of the project.  Of the brand's nearly 14,000 U.S. restaurants, nearly 10,000 have been converted to EOTF.

Kempczinski, who became CEO in late 2019 after Steve Easterbrook was fired, has led the Velocity Growth plan while previously serving as president of the USA division.

He vowed to continue innovation. 

“While we’re not sure what a post COVID-19 world looks like yet, one thing I do know for certain is that we will keep innovating to elevate the experience of our customers and our crew,” he said. “And against that backdrop, our purpose remains unwavering: to feed and foster communities.”

Kempczinski has also volunteered to have his salary reduced by 50% through Sept. 30.  “These are unprecedented times, and simply put, I felt this was the right thing to do,” he said.

Other top executives including Kevin Ozan (chief financial officer), Ian Borden (president, international division), Joe Erlinger (president, USA division) and Jerry Krulewitch (EVP, general counsel) have volunteered to reduce their salaries by 25% through Sept. 30.

Kempczinski said McDonald’s will continue to lead by example as the brand continues to face an unprecedented global crisis. 

“The world is going through a historic event, with profound consequences for McDonald’s, for the restaurant industry and for humanity at large,” Kempczinski said. “We’re learning more about this situation by the day, and over the coming weeks and months, we’ll better understand the enduring consequences it presents. But I remain confident in our future because we have the right purpose, values, and most importantly, people, to help us emerge from this challenging time with strength.”

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McDonald's said 99% of U.S. restaurants remain open for delivery, carryout and drive thru service.

Other COVID-19 highlights:

  • The company, as previously reported, said it is continuing to work with franchisees around the world to support financial liquidity. Relief includes deferral of cash collection of rent and royalties.
  • International markets such as Australia, Canada, Germany and Russia continue to have limited operations.  
  • Restaurants in France, Italy, Spain and the United Kingdom have fully closed.
  • The company has suspended its share repurchase program in March 2020.
  • McDonald’s and its franchisees operate nearly 14,000 restaurants in the U.S. A majority of the restaurants have remained open for off-premise orders including delivery, carryout and drive-thru.
  • McDonald’s restaurants have trimmed the menu to make it easier on employees who continue to serve the public. The main cut includes temporarily eliminating all-day breakfast. 
  • McDonald’s is also screening employees prior to shifts. Managers are asking employees a series of coronavirus questions to ensure they are healthy before serving customers.
  • McDonald’s restaurants in Australia are now selling select groceries to customers such as milk and bread. The items are basics found on the regular menu.
  • McDonald’s this week donated 750,000 N-95 masks to the city of Chicago and 250,000 to the state of Illinois. Like other restaurant chains, many restaurants have been providing free meals to healthcare workers and other first responders across the U.S.

For our most up-to-date coverage, visit the coronavirus homepage.

Contact Nancy Luna at nancy.luna@informa.com 

Follow her on Twitter: @fastfoodmaven

Updated: This story was edited to include analyst commentary.

Correction: April 08, 2020
This story has been updated to fix quarterly same-store sales figures.
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