Yum! Brands keeping headquarters in Louisville, moving executives to Texas

March 1, 2016

Caitlin Bowling
INsider Louisville
February 24, 2016
http://insiderlouisville.com/business/yum-headquarters-louisville-moving-heads/

With Yum! Brands Inc. relocating five key C-suite executives to Plano, Texas, Louisville may become a show headquarters for the restaurant conglomerate, while employees in Texas are the ones actually steering the ship.

Yum Brands Inc. is headquartered at 1900 Colonel Sanders Lane. | Courtesy of Yum! Brands

Yum Brands Inc. is headquartered at 1900 Colonel Sanders Lane. | Courtesy of Yum! Brands

“Whenever you move your C-level team … in effect you are moving your headquarters because that is where your heads are,” said Darren Tristano, president at Technomic, a Chicago-based restaurant industry research firm.

Business First previously reported that Yum CEO Greg Creed, chief public affairs and global nutrition officer Jonathan Blum, chief legal officer Marc Kesselman, chief people officer Tracy Skeans, and a yet-to-be-named CFO will move to Plano, where Yum’s global operations team and its subsidiary Pizza Hut are located.

Yum’s former CFO Pat Grismer resigned effective Feb. 19, Insider Louisville previously reported.

The company is adamant that Louisville is and will remain Yum’s home. Virginia Ferguson, a spokeswoman for Yum, told IL that none of its nearly 1,000 Yum and KFC U.S. employees are moving to Texas.

“We are proud to be here,” Ferguson said.

IL was scheduled to interview Blum this afternoon about the impending move; however, a few minutes before the appointment, IL was told he was suddenly pulled away and would be unavailable for comment. Ferguson forwarded along statements from Yum explaining the decision.

Creed and the other four executives “will be highly mobile, traveling to many of our international markets and offices throughout the year, including Louisville for 1-2 weeks each month,” Ferguson said in an emailed statement. “Given the global nature of our business, which has transformed over the years, the YUM executive team’s office will be in Plano, but they will retain an office in Louisville.”

She also noted that Yum has based its international operations in Texas since 1997, when the company spun-off from PepsiCo.

It makes sense that the company’s leaders would want to be close to its overseas operations, Tristano said. “Today, a lot of the growth restaurant companies are seeing takes place outside our borders.”

Texas also is home to a number of other restaurant chains and restaurant-related businesses, including Pie Five Pizza, Dickey’s Barbecue Pit, Romano’s Macaroni Grill and Apex Restaurant Group.

“Dallas is considered a very big restaurant town,” Tristano said, noting that many industry events and restaurant innovation happens there. It also is warm, has a large population and is somewhat centrally located.

While Louisville city leaders often tout the city’s location and its proximity to other places, the truth is one of the few ways to get a direct flight is to be a box the United Parcel Service is shipping.

The Louisville International Airport has fewer than 20 nonstop flights to cities in the United States. The Dallas/Fort Worth International Airport is a major transportation hub; it has nearly 50 nonstop flights to international cities and countless more within the continental United States.

“There is no way to overlook that,” said Nat Irvin, the Strickler executive in residence and professor of management at the University of Louisville College of Business. “We can get to the airport in 20 minutes from any place in the city, but part of the downside is you can’t get to any place directly.”

And Dallas is closer to China — where Yum will spin-off its operations this year — offering a nonstop flight to Beijing. Although Yum China will technically operate as its own company, Yum leaders will no doubt be keeping a close eye on how the company is faring in China’s sometimes volatile market.

Already, Yum executives spend a good portion of their year abroad, according to the company.

“I think what (the move) represents is the importance of face-to-face communications when you are developing strategy,” Irvin said. “You like to see them; you like to hear them; you like to be close to them.”

The only factor in Yum’s decision, according to Ferguson, was the fact that the company’s global operations offices are in Texas

“Our business is a global business, and it makes sense,” she said.

Tristano said he wouldn’t be surprised if Yum moved more jobs to Texas in the future, but the company also has good reason to remain in Louisville. If the company said it planned to move its headquarters but keep jobs in Louisville, it could end up with a retention problem.

“It would make sense for them to continue to have that (Louisville) location regardless of what they call it,” he said. “This is a less disruptive strategy for them.”

With its name plastered around the city (see KFC Yum! Center), Irvin said he is confident Yum will continue to maintain a large presence in Louisville.

“I think Yum is fully ensconced in this community. The company has a very broad footprint in this community, and I think the heart still remains right there,” Irvin said. “I think what they have made is a decision for the company. I don’t think it’s a detriment to the community — a good idea for them, not necessarily a bad idea for us.”

Still, the decision by Yum is an unusual one.

Tristano could not think of any comparable examples, except possibly Tim Horton’s and Burger King. However, the quandary over where to headquarter those two restaurant chains is the result of their merger back in 2014. As of now, Tim Horton’s base of operations remains in Canada, while Burger King resides in the United States.

Overall, Tristano said he thinks Yum is making good decisions to focus more globally and try to appeal to younger generations.

“They seem to be moving in the right direction strategically.”


McDonald’s reaps the benefit of all day breakfasts and table service

February 9, 2016

McDonald's signature rangeEven though we’re only into its second month, 2016 been rather a good year for Steve Easterbrook, McDonald’s chief executive. His football team, Watford, is enjoying its best season in years and much the same can be said for the US fast-food giant.

The company surprised analysts with its latest quarterly results last week, with sales up 5.7pc in the US – nearly twice as much as had been predicted. Global sales are up by 5pc.

It has taken a Briton – albeit one steeped in McDonald’s corporate culture – to revive the most American of institutions, which was in danger of being left behind by rather nimbler competitors in the fast food industry.

From introducing all-day breakfasts throughout the US to testing waiter service at some of its outlets, including in the UK, Easterbrook has overhauled how the company operates at a bewildering pace.

The chain was in something of a mess when Easterbrook took over as chief executive in March 2015. Last August, for the first time in more than 45 years, McDonald’s announced that it was closing more outlets than it was opening.

European sales had dropped by 1.4pc, between 2008-14. In the US, the decline was 3.3pc and in Asia, the Middle East and Africa, once considered a growth region, a rather frightening 9.9pc.

It was not just the dire figures which suggested that McDonald’s was in need of a cultural shift. The company was facing competition from not only its traditional rivals, such as Burger King and Wendy’s, but also from hipper new competitors entering the market, such as Honest, Byron, Five Guys and Shake Shack.

It was pretty clear that the golden arches had lost their sparkle. Within weeks of taking over the reins, Easterbrook appeared on CBS’s This Morning television progamme in the US to signal that the 60-year-old company was in for a radical overhaul.

“We really want to assert McDonald’s as a modern burger company. To do that you have to make meaningful changes in the business,” he said. “The pace of change outside McDonald’s has been a little quicker than the pace of change within. You act your way to success, you can’t talk your way to success.”

For once, this was not empty corporate-speak. All-day breakfasts were tested in San Diego in April, and within months were available at all the company’s 16,000 US restaurants. This has brought back customers who might have gone elsewhere and even tempted in newcomers.

Other changes have seen the introduction of a “McPick menu” where US customers can have two items for only $2, despite the wafer-thin profit margin the deal provides.

The range of burgers has also been increased to include Pico Guacamole and Buffalo Bacon, and diners are now being allowed to customise their burgers. McDonald’s has also launched its first loyalty programme for people who register their details, offering, for example, a free cup of coffee for every five bought at one of its restaurants.

Easterbrook has also done something to improve McDonald’s corporate image, announcing a 10pc pay rise for the 90,000 people who work in outlets directly owned by the company in the US. This has taken their hourly minimum wage to $9.90 an hour – increasing to more than $10 this year – considerably higher than the legal minimum of $7.95.

The one caveat, however, was that the pay rise was limited to those staff who work for the 10pc of restaurants which are owned by the company rather than franchisees. Even the white packaging is being ditched after more than a decade. Instead, food now comes in brown paper bags which, in theory, are seen as more environmentally friendly.

According to a company spokesman, the change is “consistent with our vision to be a modern and progressive burger company” –a phrase now something of a corporate mantra.

“One of the things Easterbrook has done is create a sense of urgency in the the McDonald’s business culture,” said Mark Kalinowski, a restaurant analyst at Nomura in New York. “When the company started trialling the all-day breakfast in San Diego county in April, it only took until October before it went nationwide.

“He doesn’t want to waste time, he operates on speed to market and saw it was clearly something customers wanted.

“For McDonald’s, that is rather quick. Although it can be innovative, the company is traditionally slow- moving. I think it’s a reflection on its sheer size.” Even though Easterbrook has spent much of his career with McDonald’s, having joined in 1993, he also spent time with the rather more upmarket Wagamama and Pizza Express chains. He returned to McDonald’s in 2013 as chief brand officer, having held previous roles including its head of Europe.

“Most of the presidents and chief executives at McDonald’s we have seen have been promoted from within. Having somebody with an outside perspective is exactly what the company needed” said Darren Tristano, president of Technomic, a Chicago-based company specialising in the food industry.

Tristano believes that Easterbrook’s strategy has been shrewd. “He has aggressively marketed the all-day breakfast, which has put McDonald’s back at the top of the mind of consumers.

“The price point appeals to lower and middle-income consumers who are looking for something which is less expensive than the dinner menu. This has helped McDonald’s get back some of the market share which it had been losing to rivals.”

McDonald’s has also been helped by the rehabilitation of the egg in the mind of the consumer, Tristano added.

“If you go back a few years, eggs were seen as high-cholesterol. Now they are seen as high-protein and eggs are a key part of breakfast.

“The sales growth on a year over year basis is over a few years of weak sales performance, so the numbers are good but we should expect to see sustainable growth and especially year over year, fourth quarter 2016 would signal McDonald’s is officially back.

“McDonald’s appears to be listening to their customers and staying more true to their brand under Easterbrook.”

The consensus appears to that Easterbrook has enabled McDonald’s to regain its mojo. “He has brought a sense of strategic clarity, said John Quelch, professor of marketing at Harvard Business School.

“There is a tendency when a company gets into trouble to sling products at the wall and see what sticks. All that does is adds complexity. If you reach a point when you can’t explain to an employee or a franchisee what the point of a product is, then how can you expect them to explain that to a customer?

“The bench strength of McDonald’s is enormously good. It is no surprise that they were able to find somebody like him to step up,” added Quelch.


Immigrants to Get Wage Boost from Job Mobility Under Obama Plan

December 10, 2014

Copyright 2014 Daily HeraldiVfER3CaVAIA

President Barack Obama’s decision to lift the economic ceiling on almost half the nation’s 11.4 million undocumented immigrants will give those workers a chance at higher pay and better jobs.

That means it will also raise costs for businesses that rely on off-the-books labor.

Dishwashers will become waiters, and day laborers will move to full-time work on farms, forcing employers to pay higher wages for new workers. A 1986 immigration law covering 2 million people pushed up pay by 15 percent in the first six years for those workers.

Those are some of the effects of the president’s plan to protect about 5 million people from deportation.

“We’re going to see these people do better in the job market,” said Sherrie Kossoudji, an associate professor at the University of Michigan in Ann Arbor. “They’re going to be more mobile.”

On the higher end of the economic scale, workers with specialized technical expertise will have more freedom to change employers. And their spouses — often highly skilled themselves — will be allowed to work, too.

The consequences for the broader economy will be slight. The order has the potential to boost U.S. output by between 0.4 percent and 0.9 percent over the next 10 years, according to a report from the White House Council of Economic Advisers.

In contrast, the sweeping, bipartisan immigration legislation passed by the U.S. Senate last year would raise the gross domestic product by 3.3 percent by 2023, according to the Congressional Budget Office. That bill failed to advance in the Republican-controlled House.

Wage Pressures

Obama’s plan, which he outlined this week, will defer for three years the deportation of those who came to the country as children, as well as the parents of children who are citizens or legal permanent residents.

As a result of the order, the agricultural industry, which relies heavily on immigrant labor, could face rising wage pressures. Once workers are documented, they won’t stay in seasonal work for long, said Baldemar Velasquez, president and founder of the Farm Labor Organizing Committee of the AFL-CIO.

“How are you going to replace the people you’re losing?” Velasquez said. “Farmers will still be looking for workers to harvest their short-term crops.”

Restaurant Workers

An estimated 18 percent of undocumented workers — about 1.5 million — are employed in low-paying restaurant and hospitality jobs, according to the Migration Policy Institute, a Washington-based research group. Another 1.3 million work in construction and 723,000 in retail.

For restaurants, Obama’s action will make it easier for those employing undocumented workers to follow the law, said Darren Tristano, an analyst at Technomic Inc., a research firm in Chicago.

“It will help the operators who are not compliant, who are running the risk of being closed or fined,” Tristano said. “It should take some of the complexity and pressure out of a business that is hugely labor oriented.”

One of the smaller groups aided by Obama’s directive may see the biggest gains: Some 40,000 foreign students who earn graduate degrees to get jobs in technology industries will be allowed to work in the U.S. for up to 29 months.

These students, who have degrees in science, technology, engineering and math, would have a significant effect on productivity and innovation, said Giovanni Peri, an economist at the University of California at Davis.

“It involves few people, but very crucial people,” said Peri, whose research shows that undocumented labor complements, rather than competes with, U.S. workers. “Those workers will go beyond the effect of matching the right person to the right job and increasing efficiency. They’ll create innovation.”

Good Start

For employers, the steps are a good start toward addressing the shortage of skilled workers, said Emily Lam, vice president of federal issues for the Silicon Valley Leadership Group, a San Jose, California, trade association. Still, the effect is limited because it’s only a temporary fix, she said.

Another large impact might result from a provision that expands opportunities for skilled immigrants and their spouses. Workers with specialized technical expertise would have more freedom to change employers. Their spouses would also be allowed to work.

Settled Debate

While Obama’s order has sparked a clash with Republicans over its legality, the economic debate over easing immigration laws is largely settled: Decades of research shows the economy benefits from greater worker mobility.

The 1986 amnesty law signed by President Ronald Reagan raised wages and boosted the economy. Almost 2 million undocumented immigrants living in the U.S. were given legal status, as were about a million seasonal workers.

By 1992, real hourly wages for those workers had risen an average of 15.1 percent as they moved out of low-status, low- paying jobs, according to a Department of Labor survey. Wages continued to rise, according to a 2012 study by the Economic Policy Institute in Washington, even as the nation entered a recession that lasted from July 1990 to March 1991.

Obama’s plan is even less controversial from an economic viewpoint because it mostly applies to people already working in the U.S. For them, the move brings opportunity.

“It’s quite a small effect in the aggregate,” Peri said. “There’s no harm done to the American worker and a big gain for the immigrants who can take these opportunities. That’s the big picture.”

Cumbersome Process

Peri was one of those immigrants, moving to the U.S. from Italy to study in 1993. He earned a doctorate degree and landed an H-1B visa, which are set aside for highly skilled people. The system made it almost impossible for him to get his green card granting permission to live and work in the U.S.

“It was so long and cumbersome I had to marry an American,” he said with a laugh. Now he’s a citizen raising three children. “I’ve invested in the U.S.”

For undocumented workers, moving up the economic ladder can be difficult, if not impossible. The economy creates and destroys millions of jobs a month, and that churn is one key to raising wages. Companies hired more than 5 million employees in September, according to Labor Department data, and almost 2.8 million people voluntarily quit their jobs, the most since April 2008.

The threat of deportation typically discourages workers from switching jobs, even within an off-the-books economy. Many don’t consider more visible jobs with their current employers to reduce the risk of detection, cutting off the easiest route to better wages, Kossoudji said.

With the danger of deportation at least temporarily lifted, “it releases them from having to be in the back of the restaurant,” she said.


Così CEO Carin Stutz resigns

June 28, 2013

carin-stutzmainCompany names executive chair Stephen Edwards president, CEO

Carin Stutz has resigned as chief executive of Così 18 months after taking the top post at the long-struggling brand.

The Deerfield, Ill.-based company’s board of directors has named executive chair Stephen Edwards president and chief executive.

“On behalf of the board,” Edwards said in a statement, “I would like to thank Carin for her service to Così. We wish Carin well in her future endeavors.”

Edwards and the board indicated that the 124-unit fast-casual chain’s first priorities under the new management structure would be to shrink its cost structures by focusing on unit-level profitability and exiting unprofitable locations, preferably through refranchising.

Accelerating franchise growth had been a key goal for the company when it raised $12.8 million last year in a secondary-rights offering to shareholders, which it completed on July 9, 2012.

“Our franchise partners have proven that they can operate successful restaurants under our brand,” Edwards said. “Our focus will be to give these partners and other entrepreneurs like them the tools they need to grow the Così system. … Così is a great brand. Our mission is to create a business model that builds on the strength of our brand while generating profits for our shareholders. And to do so quickly.”

The company’s first-quarter earnings, which it reported last month, reflected franchisees’ outperformance in Così’s uneven operating results. For the April 1-ended quarter, franchisees’ same-store sales decreased only 1.3 percent, compared with a 6.6-percent drop in company-owned restaurants, leading to an overall 4.5-percent decrease for the chain’s entire system.

Così Inc.’s first-quarter net loss widened to $2.74 million, or negative 15 cents per share, compared with $1.13 million, or negative 9 cents per share, a year earlier.

In that filing, the company reported pockets of success, including several franchised locations and an aggregate same-store sales increase in the New York City market, where reimaging efforts and a program designed to improve unit-level operations had started to return positive results. The company’s home market of Chicago also had been completely remodeled, and one downtown location served as a “pop-up” unit last winter, where an extensive new menu was tested.

Darren Tristano, executive vice president of Chicago-based Technomic Inc., acknowledged that Così had fallen behind competitors in the bakery-café segment, but still characterized Stutz’s resignation as a “sudden decision.”

“I had just spoken to Carin during the NRA Show and she was excited about the direction Così was going,” Tristano said. “So her decision is evidence that this is a very competitive segment of the industry, not just in bakery-café or sandwich, but, in general, breakfast. Even with a good product and good locations, it’s been difficult to build profitability.”

With more transition in leadership, Così’s path back to profitability and growth will probably be a little longer, he added. The sustained focus on refranchising could bring much-needed capital to Così Inc. and allow it to focus on building the brand rather than running restaurants, Tristano said.

“This decision can help narrow down what Così focuses on,” he said. “I don’t think it has to do with the menu, because they have a good product and their pricing is competitive and the décor is appropriate.

“They still have to tweak the service format and better understand what dayparts they want to own,” he continued. “I think it very likely comes down to service when competing with Panera Bread and Corner Bakery.”

In addition to Stutz’s resignation, Così layed off some administrative staff, which the company said would result in annual savings of approximately $1 million.

Così operates 74 company-owned locations and franchises another 50 restaurants in 16 states, the District of Columbia and the United Arab Emirates.


Change made atop U.S. unit amid sales slide, hungry rivals

November 29, 2012

Copyright 2012, Chicago Tribune. All Rights Reserved.

McDonald’s Corp. sent a strong signal to Wall Street and the company that a recent slide in U.S. sales isn’t being taken lightly, announcing Thursday that it is replacing the head of its U.S. business with another longtime company veteran who is charged with overseeing a massive remodeling of its restaurants worldwide.

Jan Fields, 57, who has been with the company more than 35 years, will be succeeded by Jeff Stratton, also 57, currently global chief restaurant officer. The change is effective Dec. 1, McDonald’s said.

“This was a business decision,” said McDonald’s spokeswoman Heidi Barker Sa Shekhem. She added that Fields and new CEO Don Thompson had “some long discussions about the state of the business and the decision was made that it was time to make a change in the leadership of the U.S. business.”

Last week, McDonald’s reported that U.S. same-store sales declined 2.2 percent during October because of increasing competition as well as sluggish demand in the U.S. The drop in year-over-year sales was the first in nine years, although sales have been decelerating throughout 2012.

Sa Shekhem emphasized that the decision was not made based on one month of sales, but looking at the total business with an eye on the future.

As McDonald’s has struggled, hamburger competitors such as Wendy’s and Burger King have shown signs of resurgence with the addition of new products. The world’s largest restaurant chain is also seeing competition at breakfast from Starbucks, Dunkin’ Donuts and Subway, with chains like Panera and Chipotle posing threats later in the day.

The same-store sales decline and the departure of Fields are two of the most visible developments since the ascension of Thompson, who took over as CEO in July.

“I’m a little disappointed in this move because it feels a little bit like Wall Street analysts driving this,” said one McDonald’s franchisee who asked not to be named.

While the chain has reported smaller increases and the first sales decrease, the franchisee said, “We came off nine consecutive years, and I’ve experienced it all, and Jan was a big part of that.”

R.J. Hottovy, an analyst with Morningstar, said “it’s tough to read” into the reasons behind Fields’ departure, but the shake-up won’t affect his short-term view.

“I still think the company is going to have a difficult next several months,” he said, adding that “2013 is going to be a better year.” He pointed to expected abatement in food costs and a “stronger pipeline” for new products.

McDonald’s has announced several tests for 2013, including wrap sandwiches, egg whites on breakfast sandwiches and grilled chicken in Happy Meals.

Hottovy added that he also expects sales to increase when the U.S. remodels more of its restaurants, a massive program well under way.

Darren Tristano, executive vice president of Technomic, said the chain has been seeing increased competition and that consumers are still watching small purchases very closely. But for McDonald’s, after nine years of increasing sales, they could be hitting a ceiling, he said.

“At some point you look at $2.5 million (in sales per average U.S. McDonald’s), and they’re doing pretty well,” he said. “Unless you do a double-decker drive-thru and a second kitchen, there’s a level of efficiency they’ve hit that you have to look and say ‘How big can a restaurant get?'”

Despite increased competition, McDonald’s thoroughly dominates the burger market, with a 49.5 percent share of the $65.4 billion segment, as measured by Technomic in 2011. Burger King and Wendy’s had 13.3 percent and 12.8 percent shares, respectively, at the time.

Fields became president of the U.S. business in 2010, succeeding Thompson. She previously was chief operating officer of McDonald’s USA, stepping into that role in 2006. Fields is a 35-year veteran of McDonald’s who began her career with the company behind the restaurant counter.

Her legacy as U.S. president includes a number of health-and-wellness initiatives, including fruit or vegetables in every Happy Meal, pushing to cut sodium levels in the food, and posting calorie counts on menu boards.

As global chief restaurant officer, Stratton has been charged with keeping McDonald’s decade-long, multibillion-dollar global renovation and rebuilding project on track. Restaurants undergoing simultaneous interior and exterior remodels are expected to see a 6 to 7 percent increase in same-store sales upon reopening, no matter where they are located.

Shares in the company closed Thursday at $84.05, down less than 1 percent.


Burger King, the Cash Cow

September 17, 2012

By: JOE NOCERA, Published: June 22, 2012

Earlier this week, a well-known company went public in a complicated transaction that involved a handful of Wall Street sharpies and a mysterious investment vehicle called a SPAC. The company was Burger King.

If you are surprised to learn that the home of the Whopper — not to mention the bacon sundae — would find itself the subject of complex financial machinations, you shouldn’t be. Burger King has long been an enrichment scheme for clever financiers, who have sucked hundreds of millions of dollars out of it over the years. Maybe it will be different this time. Or maybe not.

Financial engineering has been part of the Burger King story for so long that it’s hard to believe there is still anything worth plucking from its carcass. “It’s been run as a cash cow for Wall Street,” said Bob Goldin, an executive vice president of Technomic, a food service consulting firm. Along the way it’s had 13 chief executives in 25 years, numerous strategy shifts and marketing campaigns — and has been constantly starved for cash. But, hey, the private equity guys got theirs. And isn’t that what really matters?

Burger King first became financial fodder in 1967 when it was bought by Pillsbury, which didn’t have a clue about how to run a restaurant chain. Then in 1988, a British company, Grand Metropolitan, initiated a hostile takeover and won Pillsbury. The new owners vowed to turn Burger King around.

It didn’t happen. Nine years later, Grand Met merged with Guinness to form Diageo, by which time Burger King’s role was well established. It shipped cash to headquarters, even as it lagged ever further behind McDonald’s.

Enter — ta-da! — private equity. In 2002, Goldman Sachs, along with two private equity firms, TGP and … hmmm … Bain Capital, teamed up to buy Burger King. This is exactly the kind of situation private equity firms like to trumpet: taking over a downtrodden company and nursing it back to health. And to get them their due, Burger King’s new owners did some good, stabilizing both the company and the franchisees, many of whom were in worse shape than Burger King itself.

But the private equity investors also cut themselves an incredibly sweet deal. Their $1.5 billion purchase price included only $210 million of their own money; the rest was borrowed. They immediately began taking out tens of millions of dollars in fees. Four years later, they took Burger King public. But, first, they rewarded themselves with a $448 million dividend. In all, according to The Wall Street Journal, “the firms received $511 million in dividend, fees, expense reimbursements and interest” — while still retaining a 76 percent stake.

Does it need to be said that Burger King was soon back to its old struggling self? Or that the solution, once again, was to sell to another private equity firm? Of course not! In 2010, Bain, Goldman and TPG cashed out, selling Burger King to 3G Capital, for $3.3 billion. In sum, the original private equity troika reaped a fortune by selling a company that was in nearly as much trouble as it had been when they first bought it. Surely this represents the apotheosis of financial engineering.

What has 3G done? According to Howard Penney, the managing director at Hedgeye, it has prettied up the pig by laying off a large percentage of the staff in Burger King’s Miami headquarters. Burger King’s owners grew earnings, he said, “by cutting expenses. They have not improved the business one iota.” And, of course, 3G pulled out fees and dividends, too. In all, Penney wrote recently, private equity firms have taken for themselves “$1 billion or more in capital that could have been used to improve the company’s relative standing versus its competitors, many of whom Burger King struggles to keep up with.”

This latest deal is just as complicated as the ones that have come before. Three financiers, including William Ackman, the well-known shareholder activist, put together a special purpose acquisition company, or SPAC — a vehicle that allows them to raise money, buy a company and take it public without the hassle of an I.P.O. The SPAC then bought a stake in Burger King, though 3G is still in charge. On its first day of trading, Burger King had a market value of $3.3 billion. When you include its fees and dividends, 3G has already made a tidy sum on its original investment.

Ackman told me that the 3G guys are “the best operators around, bar none.” He sent me a presentation for investors that suggests that the owners are prepared to modernize the stores, expand abroad and make other moves that are necessary for Burger King to remain competitive.

For the sake of all the people whose livelihoods depend on Burger King, let’s hope that happens. And if it doesn’t? The financiers will still make money. They always do.


McDonald’s CEO James Skinner retiring

March 23, 2012

The retirement of 41-year veteran James Skinner comes as a surprise to many in the industry. His success at the helm has seen stock prices soar nearly 300 percent over the last eight years as the world’s largest restaurant brand succeeds in growing globally and domestically in a very difficult economic period. He has done a very nice” McJob” and it appears time for McDonald’s to make a “McMove”!

As Skinner steps down on June 30th, he will be succeeded by 22-year veteran Donald Thompson. Thompson will become the first African American in McDonald’s history to lead the chain and should provide strong continuity in the transition. His experience in global strategy and operations will certainly be a strength in supporting McDonald’s continued growth.

With a string of annual growth successes stories, Skinner will leave McDonald’s with the brand at the top of their game. Like many sports champions, it will not only take the talent, but the effective coaching to continue their momentum. Stay Tuned!