Financing

Layoffs over Zoom? McDonald's takes a big risk with its reorganization

The burger giant is letting “hundreds” of its people go virtually, causing fear among employees and more anger among operators already frustrated by other changes.
McDonald's layoffs
McDonald's layoffs have included some experienced employees, sources say. / Photo courtesy of McDonald's.

As news broke over the weekend that McDonald’s was temporarily closing its corporate offices and preparing to inform hundreds of employees they were laid off through virtual meetings, the question remained simple: Why?

Why is the company cutting staff now, coming off such a strong string of performances? And why over video? To a company working to defend its reputation as a “people first” culture, the move gave off the appearance of anything but.

The reaction highlights the company’s biggest risk with its reorganization. Already facing angry franchisees, McDonald’s now risks damaging morale among its corporate staff by undertaking a months-long reorganization process culminating this week in a three-day-long run of layoffs being conducted through virtual meetings.

Details about who is being let go, and how many, remain uncertain. A source with knowledge of the layoffs put the number in the “hundreds.”

News of the first round of layoffs spread into the evening on Monday, with several sources saying that some of the people being let go have worked for the company for decades.

In a statement on Tuesday morning, McDonald’s said its layoff decisions were made through a “rigorous and comprehensive planning process.”

“McDonald’s committed at the start of this process to lead with our values and any suggestion to the contrary is baseless,” the company said. “McDonald’s engaged in a rigorous and comprehensive planning process for the reorganization that we are confident was conducted in a fair and non-discriminatory manner.”

The Chicago-based burger giant has argued that it needs to reorganize its corporate functions to eliminate silos, speed decision-making and improve efficiency and innovation. The company says it needs to step its foot on the gas while it is performing well.

“We’re not satisfied,” CEO Chris Kemczinski said after announcing the company’s 2022 earnings in January. “That’s the hallmark of McDonald’s.”

As for the virtual nature of the layoffs, the explanation was simple. In the past, such moves would be done with people waiting at the office so they can be called into a room where they learn of their fate. This way, the company said, is more respectful. And more people are remote, anyway.

Franchisees have been fearful that the new round of layoffs will cut back on their services from the company, which will increase their own costs, something many believe has happened over the years as the company cut back on operator support. The company would not comment on whether any layoffs affected operator support services.

McDonald’s current set of layoffs comes five years after the company cut $500 million in general and administrative spending, including major layoffs. Much like this round, executives at the time argued that the cuts were necessary to make the company more efficient. McDonald’s employs 85,000 fewer people than it did in 2017, thanks to a combination of corporate staff reductions, the sale of company stores to franchisees and, most recently, the closures of restaurants in Russia.

Its current changes, however, are coming at a blistering pace and follow what was otherwise a strong 2022 for the chain.

The company’s stock price weathered a brutal market during the year. In the U.S., same-store sales rose 5.9%, outdistancing many of its closest competitors. Worldwide, they rose 10.9%. With concerns that consumers are starting to look for deals, meanwhile, the coming months appeared set for further strength from the world’s largest restaurant chain.

By making these changes, McDonald’s is upending decades of tradition at the world’s largest restaurant chain.

McDonald’s announced its reorganization in early January, called Accelerating the Organization. It comes on top of many other changes, including changes in the executive ranks and on the board of directors.

And it follows a series of massive changes in the company’s franchise relationship, including higher standards of operations and changes in renewals of franchise agreements, along with frequent new inspections, that have angered the franchisee base. McDonald’s is also recruiting new franchisees into the system for the first time in decades, backed by a $250 million investment by the company itself.

The company’s sales performance coming out of the pandemic is indicative of the success current McDonald’s management has enjoyed. But it is now making a serious bet that it can improve even further. And it is risking morale problems throughout the system in the process.

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