McDonald's (MCD) stock could stay hot, but a sales lift from expanded all-day breakfast is not the only reason why.
The culture inside the Golden Arches is slowly changing, and that will likely help the company maintain the narrative on Wall Street. And it's important that McDonald's does maintain that narrative as it's in the midst of a supersized transformation around the globe. With such a transformation comes the inevitable sluggish quarter for profits as the company ramps up spending on technology or books charges to close underperforming restaurants. But I have to say, the cultural shift going on at McDonald's being led by CEO Steve Easterbrook is fascinating to watch.
Only recently have I started to detect such a cultural change. It's one where the giant restaurant company doesn't accept that its size is an inhibitor to innovation. It's one where it rejects that an infatuation with sticking to how things were done in the past is the correct strategy in the fast-paced and changing world.
Look at what McDonald's has accomplished in just about over a year of Easterbrook's leadership:
- Major cost savings plan enacted.
- Underperforming-restaurant store-closure plan enacted.
- All-day breakfast launched.
- All-day breakfast being expanded.
- Quality improvements taking place on food (Note: I will always take issue with McDonald's food, but I do notice the changes in presentation).
- Loyalty program likely to launch in early 2017.
- New value menu unveiled ¿ a new nationwide value menu is likely to arrive around the time of the Summer Olympics.
- Japan business being shopped.
This cultural shift is the single most important thing happening at McDonald's right now as it's driving badly needed operational change. As for where I have detected this cultural shift, there are numerous areas.
I believe McDonald's executives "nailed" their latest round of investment-banking presentations. Each member of the team sounded as if they were one person. I immediately thought this was a bunch of execs that have rallied around their new CEO and are excited to begin winning again. In this type of executive suite, things get done.
Second, I talked at length on Friday evening with McDonald's chief digital officer Atif Rafiq. Yes, the company is soon to pilot mobile ordering in several large overseas markets. My sense is that mobile ordering, combined with a first-ever loyalty program, will be two new sales drivers in 2017 (potentially huge sales drivers). But the biggest takeaway from my discussion with Rafiq (and what could immediately benefit investors) came from this exchange:
Question: McDonald's CEO Steve Easterbrook has been at the helm for just over a year. How has the approach to digital changed within the organization?
Rafiq: It has been very consistent because Steve has been the biggest advocate for digital since we began with the digital push. The reason for that is he hired me from Amazon (AMZN) and as Steve became CEO a year ago, his enthusiasm and passion for digital has remained very consistent and at a high level. That includes his engagement with it. On top of that, he is a change agent for the whole company now, which is great because digital is about changing our business to be more modern and progressive for the customer.
This was just a genuine response by Rafiq. I didn't get the sense it was rehearsed or forced in any way. And with a Dow component such as McDonald's already up about 5% this year after a monster gain in 2015, hearing optimistic comments like this and seeing actual change in the numbers encourages me that the market has it right.