Restaurant executives and investors had their share of stumbles last year even without a pandemic to mess everything up. There were failed discounts, failed efforts to pay bills, failed proxy fights, failed fakeries and, perhaps most prominently, failed efforts to hide certain illicit affairs with co-workers.
As we look back on 2020, let’s take a look at some of these most notable failures.
Steve Easterbrook’s affair-hiding capabilities
In November 2019, Steve Easterbrook was stunningly ousted from his post as McDonald’s CEO after admitting that he had a consensual affair with a staffer. The board of directors, eager to get the issue behind them, agreed to let Easterbrook keep $57 million in severance in exchange for an agreement that he not work at a competitor for a couple of years.
So much for that idea. In August, McDonald’s sued Easterbrook to get that severance back, saying that its former CEO lied to the company about exactly how many affairs he had. Apparently, Easterbrook had multiple affairs with staffers, one of whom received stock options from the CEO.
Apparently, once Easterbrook handed his phone to investigators, they searched his email and didn’t find anything nefarious. But upon searching company servers after complaints were submitted to the board in July, investigators found naked photos in Easterbrook’s emails and other proof of affairs, according to the company’s lawsuit.
The burger giant also accused Easterbrook of covering activities of his former chief people officer, David Fairhurst, who left the company the day after Easterbrook.
The entire episode has upended much of McDonald’s leadership, leading to a complete overhaul of the human resources function and reorganization of the executive team.
Luckin Coffee’s plan to fake transactions
In 2017, Luckin Coffee opened its first location in China. By the end of 2019, the company would be one of the fastest growing businesses in the world, with more locations than any other coffee concept in the country—more even than Starbucks.
It would also go public in the U.S., which enabled it to raise well over $800 million in equity and debt financing. Luckin would also be viewed as a glimpse into the future of the restaurant business, with its tech-enabled takeout-focused locations serving a consumer increasingly on the go.
Yeah, about all that. It seems as if Luckin Coffee made much of its growth up, using a series of schemes designed to inflate its transactions and expenses and make it appear as if its coffee was far more popular than it really was.
A short-seller questioned its numbers in February, by April the company acknowledged a massive fraud and ousted key executives. In July it was delisted. In December it agreed to pay a $180 million fine to the SEC—a slap on the wrist considering how much money the company made.
Subway’s $5 Footlong redo
Like many fast-food restaurant chains, Subway’s sales improved in April after consumers started getting their stimulus checks. In May, the sandwich giant decided it was time to dust off an old concept: the $5 Footlong.
Specifically, Subway would sell you $5 Footlongs if you bought two. The offer generated an almost immediate uprising from franchisees—three quarters of whom said in a survey that they opposed the offer.
The deal didn’t work. Customers found the offer confusing—$5 Footlongs when you buy two doesn’t quite roll off the tongue. More to the point: Customers had a lot of money in 2020 and weren’t necessarily looking for deals back in May. Some of the chain’s biggest franchisees pulled back on the offer quickly and it soon went to a digital-only promotion.
Sardar Biglari’s latest proxy fight
It’s hard to believe now, but Sardar Biglari was once the envy of young, upstart activist investors. The investor was just 31 years old when he won a proxy fight for a pair of board seats at Steak ‘n Shake, a position he used to effectively take over the company, rename it Biglari Holdings and then use it as an investment vehicle.
He soon set his eyes on Cracker Barrel, launching a proxy there in 2011. Investors turned Biglari back, opting to go with the chain’s newly minted CEO, Sandra Cochran, and the changes she put in place, rather than hand the company over to Biglari. It would work out for everybody—the company’s performance improved and the investor made hundreds of millions of dollars.
That would not keep him from launching not one, not two, not three but four more proxy fights in the nine years since, each of which performed worse than the one before it. That included one this year, when Biglari tried for a single board seat, and not for himself. The man who thought Maxim Magazine was a good investment centered his campaign on Cracker Barrel’s failed investment in Punch Bowl Social.
Investors, uh, didn’t want anyone associated with Biglari on the board. Raymond Barbrick got just 2% of the non-Biglari votes cast, making the activist zero for five in Cracker Barrel proxy votes.
Hazem Ouf’s bill payments
CraftWorks Holdings, the parent company of Logan’s Roadhouse and Old Chicago, filed for Chapter 11 in early March. Soon thereafter, it fired CEO Hazem Ouf.
Such moves are usually done with relative quiet and without any explanation. In this case, however, the reason was simple: Ouf paid a bill.
Specifically, Ouf paid $7 million in sales taxes to various states where the company’s restaurants were located, without informing the court of such action.
CraftWorks would ultimately be sold in a credit bid to SPB Hospitality, an affiliate of Fortress Investment Group. Jim Mazany would take over as CEO.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.