McDonald’s CEO Steve Easterbrook has been ousted from the company and replaced with the president of the US business, Chris Kempczinski. Kempczinski’s relationship with franchisees in the US has been contentious, as he led the chain in rolling out costly initiatives such as store remodels.”Investors should be worried that Chris K. will have zero success in selling new initiatives to franchisees,” said Richard Adams, a former McDonald’s franchisee who now runs a franchise consulting firm. However, some franchisees are excited about Kempczinski’s promotion, especially as it means they’ll be working more directly with Joe Erlinger, the new president of the US business and a 17-year McDonald’s veteran.”I think Chris will be a better CEO than president,” franchisee Travis Heriaud told Business Insider. Sign up for Business Insider’s retail newsletter, The Drive-Thru, to get more stories like this in your inbox. Visit Business Insider’s homepage for more stories.McDonald’s CEO shakeup puts the relationship between the fast-food giant and franchisees in the spotlight. On Sunday, McDonald’s announced that CEO Steve Easterbrook was fired from the company due to his relationship with another employee. Chris Kempczinski, who was serving as president of the company’s US business, has replaced Easterbrook as CEO. Kempczinski’s relationship with McDonald’s franchisees has frequently been fraught since he joined the company from Kraft International in 2015. Since becoming president of the US business in 2016, Kempczinski has led a number of initiatives in the US that have been costly for franchisees to implement.With Kempczinski’s promotion, Joe Erlinger will become the president of McDonald’s US business. Erlinger has been at McDonald’s since 2002, most recently working internationally in high-growth markets. “Having spent the last six-and-a-half years abroad, this is a welcome homecoming for me — I am looking forward to reconnecting with many of you and getting to know others,” Erlinger said in a Monday email that was obtained by Business Insider. “It is great to be back.”Prior to Easterbrook’s termination, Kempczinski was supposed to spend this week attending field-office summits — essentially McDonald’s regional planning meetings — in Bethesda, Atlanta, and Dallas. Instead, Kempczinski sent a video message discussing his future plans as CEO, two franchisees told Business Insider. Erlinger is now set to attend the summits. And, according to the franchisees, the response to both promotions has been optimistic. “Chris talked about his continued desire to see the US win,” said Courtney Goodwin, a North Carolina-based franchisee who has worked with Kempczinski through the National Franchisee Leadership Alliance (NFLA). Goodwin watched the video at the Bethesda summit, where, she said, the roughly 200 owner-operators in attendance were excited to see Kempczinski in the new role. Travis Heriaud, a Phoenix, Arizona-based franchisee, said he had heard similarly positive responses from other franchisees, including out of the Dallas summit. According to Heriaud, many franchisees are excited about working with Erlinger in a more hands-on manner while Kempczinski takes on bigger-picture strategic thinking. “Whatever the narrative is that Chris has going about moving the business forward was very, very well received by the operators, which is interesting given a lot of energy out of Dallas and operator community the past few years,” Heriaud said of messages he received from people attending the Dallas summit on Monday. Dallas has previously been a hot spot for franchisee discontent, with an independent group of franchisees called the National Owners Association holding a conference in the city in 2018, the year the organization was founded. Despite past distaste for Kempczinski, Heriaud said operators on Monday remarked on Kempczinski’s “transformation” and his ability to step up into the role.”To be honest, those weren’t people that were necessarily fans of him as president,” Heriaud said of the messages he received. Many franchisees turned on Kempczinski soon after he arrived at McDonald’s
Kempczinski has found himself at odds with franchisees in the past.
Irene Jiang / Business Insider
As the chair of McDonald’s Operator’s National Advertising Fund, Heriaud worked with Kempczinski from the now-CEO’s early days at McDonald’s.”It was definitely interesting watching because he came in with a bold idea, worked with the operator leadership directly at that point, but didn’t understand sort of the cultural dynamics of McDonald’s and how much the operators are needed to bring along in a plan,” Heriaud said. Richard Adams, a former McDonald’s franchisee and the head of the Franchise Equity Group, had a blunter take on how McDonald’s franchisees responded to executives without past experience working at the company. “He’s known as nothing but a hatchet man,” Adams said. “McDonald’s franchisees are conditioned to working with corporate executives who have decades of experience in the business. Franchisees still call Chris K. ‘the new guy.'”Kempczinski’s outsider perspective, as well as his and Easterbrook’s push to aggressively modernize the company, rubbed some franchisees the wrong way. In 2018, a group of franchisees formed the NOA, in part to push back against the burden of the remodel program — which could cost up to $750,000 per location — and other expensive investments. The NOA did not respond to Business Insider’s request for comment on the CEO shakeup. “The greatest pushback we expect to Mr. Kempczinski’s appointment is weakened relationships with franchisees in 2018 that saw sales soften and traffic turn negative amid an accelerated pace of Experience of the Future (EOTF) remodel investments, the implementation of fresh beef that weighed on service times and the creation of the $1 $2 $3 Dollar Menu that pressured franchisee margins,” Cowen analyst Andrew Charles wrote in a note Sunday evening. Addressing franchisee tensions will be crucial
Franchisees are crucial to McDonald’s business.
Irene Jiang / Business Insider
McDonald’s, like all fast-food franchises, needs to maintain a delicate balance between keeping franchisees happy and profitable while also pushing them to make investments into the business.When McDonald’s balance has been off in recent years, many franchisees have blamed Kempczinski. As the head of the US business, franchisees have worked much more closely with Kempczinski than Easterbrook, despite the fact that both pushed for aggressive modernization — a strategy that is set to continue with Kempczinski as CEO. When asked for comment for this article, McDonald’s pointed to a statement from Enrique Hernandez Jr., chairman of McDonald’s board of directors, about Kempczinski’s success in leading McDonald’s US “transformation.” “He has the right mix of skills and experience to lead us forward having run our U.S. business, where franchisees are delivering strong financial and operational results, and overseen global strategy, business development and innovation,” Hernandez Jr. said. Goodwin and Heriaud — both of whom have worked with Kempczinski personally — say that the relationship between franchisees and corporate, as well as morale more generally, have improved over the last year. McDonald’s has worked with franchisees to adjust initiatives such as the remodeling schedule and its delivery partnerships.”He’s done a lot to really modernize the brand. And, he’s gotten some flack,” Goodwin said. “Now, since we’re seeing strong results, especially from the operator side, it helps move that relationship forward. I have a feeling there’s probably still some tension there,” Heriaud said. “But at the same time, everyone’s a embracing Chris because what he got credit for … wasn’t the ‘what.’ It was the ‘how.’ And he’s shown adjustments in the ‘how.'”Adams remains unconvinced that Kempczinski has done enough to repair franchisee relationships prior to his unexpected elevation to the role of CEO. “Investors should be worried that Chris K. will have zero success in selling new initiatives to franchisees,” Adams said. “The timing is interesting because they have the bi-annual, worldwide franchisee convention next spring and the CEO has to defend what he told franchisees,” Adams added. “It might not be pretty. After that, I would expect franchisees to start saying “NO” to everything presented at the convention.”The field office summits this week will be Kempczinski’s and Erlinger’s first chance to sell their vision for the future. And, while much of that strategy likely remains the same, Heriaud said that it could pay off to have Kempczinski applying his more analytical abilities to the big picture, while Erlinger may better understand the dynamics within the McDonald’s system. “I think this is a lot of change really fast. And the variable is people stepping into roles maybe earlier than it’s expected,” Heriaud said. “But the positive is, I think Chris will be a better CEO than president and Joe is the relational guy for the US.” Are you a McDonald’s franchisee with a story to share? Email email@example.com.