How McDonald's recovered from its worst year

2015 was the worst year in the company's 80-year history, and it was global — Europe, Asia and the West all declined at once. Shake Shack and Five Guys were beating the golden arches on quality, and Chipotle was proving people would pay a few dollars more for something more wholesome.

McDonald's response was to try to be a different restaurant. Create Your Taste sold $12 build-your-own burgers with guacamole, mushrooms and brioche buns; the Bacon Clubhouse, Premium Crispy Chicken Clubhouse and Premium Grilled Chicken Bacon Clubhouse went on permanently; even the Dollar Menu got a premium addition. All of it flopped.

It was expensive for the wrong people. The touchscreen kiosks rolled out for Create Your Taste cost franchise operators $125,000 each to install — during the worst sales year in company history, sold to operators who already believed corporate was out of touch.

Steve Easterbrook took over in mid-2015 after 22 years at the company and did not soften the diagnosis on day one: *"The reality is our recent performance has been poor. The numbers don't lie."*

And he set the company on the path away from operating restaurants at all, targeting 90% of all stores franchised within three years — continuing the long move out of the burger business and into the real estate business.

The business has always had two customers, and 2015 was a failure with both. The end consumer buys the food; the franchise operator buys everything else — wrappers, buns, fries, napkins, the stove, the fryer, the heat lamps, the ice cream machine — exclusively from McDonald's, on land McDonald's owns.

Delivery was the biggest genuine bet and he made it years early. While Burger King, Taco Bell and Chipotle hesitated, Easterbrook treated delivery as a first-class channel — correctly, because McDonald's food had been designed for decades to be transportable, packageable, sturdy enough for a car ride, reheatable and edible lukewarm.

The early numbers justified it immediately. By 2017 McDonald's was the global leader in fast food delivery at over 20% of restaurants, and delivery customers were spending 1.5 to 2 times what they spent in store. Over 60% of McDonald's orders worldwide happen in the evening and late night.

It scaled fast from there: $3 billion and 14% of revenue by 2019 at over 50% of restaurants, then $13 billion by 2021 at over 70% of restaurants worldwide. McDonald's also helped normalize delivery for everyone else by promoting free delivery early.

All-day breakfast was overrated as a business. Launched to real consumer hype in 2015, the 2016 and 2017 figures show it did not significantly move sales. It improved the company's image and its connection with millennials — the earnings leap came later, in 2018 and 2019, from the new Dollar Menu, the McDonald's Worldwide campaign and extending delivery to DoorDash and Grubhub.

Rick & Morty Szechuan sauce in 2017 was the accident that became the strategy. The promotion was short-lived and the sauce did not stick, but the millennial demand it generated put McDonald's at the front of the internet. Rivals tried the same show and none of them came close.

The insight was to stop chasing regulars. Easterbrook accepted that habitual consumption was over — the same lesson Coke and Pepsi were learning — and lowered the standard deliberately: stop trying to convince people to eat McDonald's several times a week, and do everything to get them in the door once in a while.

So the menu was streamlined to the icons — McNuggets, Filet-O-Fish, Big Macs, McFlurries — items nobody pretends are healthy and everybody associates with McDonald's. No more salads, no more gourmet sandwiches.

Celebrity meals are almost free to run, and that is the whole point. A permanent item like the kale salad meant new suppliers, new farms, and reworked supply chain, storage and transport — with kale arriving daily and spoiling regardless of how it sold. A Travis Scott meal is existing menu items in new packaging. Asking suppliers for one limited run of a sauce, t-shirt or wrapper is cheap and easy at this scale.

The financial result is the part most people miss. The stock rose 110% across five years and net margin went from 18% to 25% — while total income declined. McDonald's is intentionally operating fewer restaurants and handing the highest-potential locations to franchisees, giving up earnings upside for a smaller but stable cash flow of royalties and rent.

And the average franchised store is genuinely selling more, not just multiplying. Total franchised sales rise partly because there are more franchised stores every year — but average annual sales per franchised restaurant have grown too, which is the number that says the food is actually moving.