McDonald’s is laying off company employees to free up resources for growth, experts say

McDonald’s Corporation is targeting corporate layoffs this week despite posting healthy recent profits as the fast food giant frees up resources to pursue an aggressive expansion plan.

The Chicago-based fast-food company is closing its U.S. offices this week to lay off staff remotely as part of a previously announced restructuring that will see corporate jobs reportedly numbered in the hundreds.

The cuts come as McDonald’s pushes to significantly expand its restaurant footprint in the US and Europe for the first time in years after saying many locations are operating at full capacity.

“It sounds like they want to reorganize the company into different structures to grow faster,” said BTIG LLC analyst Peter Saleh. Bloomberg when the restructuring was announced in January. “Maybe they feel they don’t have the right people.”

The job cuts at the company are part of McDonald’s CEO Chris Kempczinski’s ambitious restructuring plan, but will not affect the approximately 2 million restaurant employees in franchised locations around the world.

A McDonald’s spokesperson did not immediately respond to a question Tuesday morning about the DailyMail.com layoffs.

In a memo to staff on Monday, which quickly leaked online, the company said the layoffs are intended to make McDonald’s more efficient.

“We have a clear opportunity ahead of us to become faster and more effective in solving problems for our customers and people and to rapidly scale our successful market innovations globally,” the company said.

“During the week of April 3, we will communicate key decisions regarding roles and staffing levels across the organization to help us achieve these ambitions,” the memo added.

McDonald’s is the largest restaurant chain in the world, with more than 38,000 locations in more than 100 countries.

But for years, the number of McDonald’s locations in the US has slowly declined, from 14,157 at the end of 2012 to an estimated 13,515 restaurants in the US today.

Earlier this year, the company said many of its restaurants around the world were operating at full capacity, forcing it to review its strategy to focus more on physical expansion.

In November 2020, McDonald’s had unveiled its ‘Accelerating the Arches’ growth program, which promised a focus on modern marketing, core products and the so-called ‘three Ds’: digital ordering, delivery and drive-thru.

Version 2.0 of the program announced in January added a fourth D, restaurant development, as well as corporate restructuring plans designed to drive growth.

In December 2022, it opened a test location of its new concept drive-thru store in Fort Worth, Texas.

“To enable continued growth, the company expects to continue accelerating the pace of restaurant openings and technology innovation,” McDonald’s told shareholders in a February report, saying it expected to open 1,900 new locations worldwide by 2023.

McDonald’s also increased prices on its menu by at least 10 percent in the past year as the company’s raw material and labor costs soared.

However, the price increases did not deter customers. Restaurant traffic increased 5 percent in 2022, McDonald’s previously announced, as meals remained cheaper than many competitors, attracting low-income and price-conscious shoppers.

McDonald’s said global comparable store sales rose 10.9 percent last year, including a 5.9 percent increase in the US, an increase the company attributed to its “Accelerating the Arches” strategy.

For the full year 2022, McDonald’s reported revenue of $23.2 billion, level with the prior year, and net profit of $6.2 billion, down 18 percent as higher costs squeezed margins.

Kempczinski said in a January memo announcing the restructuring plan that there would be “difficult discussions and decisions ahead” and warned that the company had become unfocused.

“We had 70 different, different versions of what a crispy chicken sandwich would look like all over the world,” he wrote. “I don’t need 70 different permutations of a chicken sandwich.”

McDonald’s directly employs more than 150,000 people worldwide in corporate functions and in-house restaurants, about 70 percent of which are outside the US.

The layoffs do not include the more than 2 million employees in franchised McDonald’s restaurants around the world.

McDonald’s will have more employees resigned or promoted this week than laid off, a source familiar with the matter told Reuters.

The source said the company is closing its offices this week to carry out the layoffs “out of respect” and to “provide dignity, confidentiality and comfort to our colleagues.”

“In the past, people would be called into a conference room with papered windows and would have to walk back to their desk to collect their personal belongings and leave with their heads bowed,” the source said.

Shares of McDonald’s were about flat in morning trading on Tuesday, after rising just under 1 percent in the prior session.

While the U.S. job market remains strong, layoffs are on the rise, especially in white-collar workers, as companies cut overheads to prepare for a potential recession.

Recession forecasts have risen in the wake of the Federal Reserve’s aggressive increases in its benchmark interest rate over the past year, which are designed to fight inflation.

Job losses were greatest in the technology sector, where many companies over-rented during a pandemic boom, but faced headwinds in the higher-rate environment.

IBM, Microsoft, Amazon, Salesforce, Facebook parent company Meta, Twitter and DoorDash have all announced major layoffs in recent months.

However, there is still a labor shortage for front-line service jobs, such as those at McDonald’s restaurants.

Policymakers at the Federal Reserve have predicted that the unemployment rate could rise to 4.6 percent by the end of this year, from the current rate of 3.6 percent.

That would be a significant increase of the type historically associated with recessions.

McDonald’s, which regularly partners with celebrities to promote its brand, recently unveiled a deal with Cardi B and Migo’s star husband Offset. But the decision to team up with the couple, known for their profanity and sex-laden lyrics, was criticized by some franchise owners who questioned whether it could damage the family-friendly image.

The couple’s official meal consists of a cheeseburger, BBQ sauce and a large Coca-Cola for Cardi and a Quarter Pounder with Cheese and large Hi-C Orange Lavabust. The couple also share an order of large fries and a hot apple pie to finish off the meal.

According to Fortune, some franchisees have cited McDonald’s Golden Arches Code, which states, “Collaborations with celebrities and influencers who may be at risk of damaging our brand based on statements they have made or their views on certain issues are not allowed.”

“Music partnerships related to content that contains offensive language in the lyrics” are also found to be prohibited.