How Jim Skinner flipped McDonald's

Monday, January 08, 2007

By Janet Adamy, The Wall Street Journal

Four years ago, Jim Skinner huddled with a handful of other McDonald's Corp. executives to tackle a big
problem: The company, by most measures, was doing terribly. Mr. Skinner had just been named vice
chairman and was part of a new management team charged with helping reverse the company's sliding profit.

Three days later, the group emerged with a new strategy, named Plan to Win. Instead of continuing to build
lots of restaurants, the company would focus on improving existing locations. The goals: faster,
friendlier service; tastier food; more appealing ambience; better value; and sharper marketing.

Sticking to that strategy has helped usher in one of the most successful streaks in McDonald's 51-year
history -- and guided it through some tough times. Mr. Skinner moved up to the chief-executive spot in
2004 after CEO Jim Cantalupo died and his successor as CEO, Charlie Bell, relinquished his post to
fight what proved a losing battle against cancer. McDonald's has endured a deluge of negative
publicity thanks to movies like "Super Size Me" and books like "Fast Food Nation" that criticize the
quality of its food and blame it for the nation's obesity epidemic.

Despite that, McDonald's stock has climbed about 45 percent since Mr. Skinner took over two years
ago, and same-store sales and profit have risen steadily. Today, 50 million customers walk through
McDonald's doors each day, four million more per day than 3 1/2 years ago.

Mr. Skinner's first job at McDonald's was as a crew person at a Davenport, Iowa, location when he was 16
years old. He spent almost a decade in the U.S. Navy, then returned to McDonald's as a restaurant-manager
trainee in Illinois. He never graduated from college.

After eating a hamburger and french fries at the company's Oak Brook, Ill., headquarters recently, 62-year-old
Mr. Skinner touched on topics ranging from trans fat to spotting and grooming executive talent. Excerpts:

WSJ:Why is it so important to you to be better and not bigger?

Mr. Skinner:Because we proved that we were getting bigger but not better. And we have to be better. Your
experience today at McDonald's has to be a better experience than it was yesterday. People have limited time
today. They don't want to get up and go, "Gee, I don't know. Do I think I can go to McDonald's?"

WSJ:You've credited the Plan to Win with turning around the company. How did you come up with it?

Mr. Skinner:Basically, we sat in this room and talked about how the growth story is problematic. We had
contributed $4 billion or $5 billion to capital expenditures and building new stores over four years, and yet we
didn't have any corresponding incremental operating-income growth. So we decided to focus on our existing
restaurants.

Those of us that were hard-core restaurant people, which I was at the time, were saying, "Look, we've got to
do a better job of delivering what we called quality, service and cleanliness on a daily basis in our restaurants."
And value. Because value proposition's very important.

WSJ:You've made it a priority to put a big emphasis on health and nutrition both in the menu and in the
marketing. Is that message compatible with burgers and french fries and milkshakes?

Mr. Skinner:What I put an emphasis on is what we call balanced, active lifestyles. When you look at the kinds
of choices we've provided, we've done more work here than probably any other restaurant company in trying
to be part of the solution. We are not going to solve the world's obesity problem. But what we can do is be
productive and be part of the solution.

We are not prescribing what people should eat. I don't say to you: "Get up in the morning, and if you don't eat
apple slices, you're going to have a problem." We have to provide choices so that you say, "I can go there
because there's a choice that makes me feel good." But we have to remember who we are. We were a
hamburger company. That's the way we started.

WSJ:Why has it been so difficult for you to take the trans fats out of food when other companies have done it?

Mr. Skinner:First, you always have to remember the scale. We're big. It takes awhile to be able to implement
and execute any change at McDonald's. No. 2, we want to do it the right way.

We don't want to have a knee-jerk reaction. This is what happened in 2002. The United States division
decided they had the problem solved and made an announcement, and yet our testing from our customers
indicated the taste wasn't right. It wasn't ready. And so we couldn't execute. And I think, to our benefit, we
didn't pull the trigger on something that wasn't going to give us the best opportunity to give our customers the
best-tasting french fry as well as the benefits of a reduced-trans-fat oil.

WSJ:Is it the french fry that's the biggest problem?

Mr. Skinner:We have reduced trans fat in the other products. But to get to zero, there are all those
considerations -- what kind of oil is it, how much oil is there. Our suppliers have to be on board. If you change
one oil to get to zero trans fat and you end up with higher saturated fats, or an oil that's not compatible, and
you don't get the right-tasting french fry, then that's a problem.

WSJ:Do you anticipate you'll have a total U.S. oil changeover by the time the New York City trans-fat ban
goes into effect in July, or might you have to use a different oil in that market to comply?

Mr. Skinner:We will be using the oil in that market that we expect to use throughout the system.

WSJ:You've become more vocal against the critics that blame the company for obesity. Why have you
decided to take a sharp stance against them?

Mr. Skinner:I don't know that I've taken a sharp stance against the critics. We love the passion of people who
want us to serve food that we feel has those characteristics that everybody wants when they're eating. But
most of the time what they say is not factual relative to the quality of our food, the very high standards we
have around our food safety -- yet since we're the lead dog, we're the ones that people point to. I just don't
think it's fair.

WSJ:Do you see McDonald's ever selling organic food?

Mr. Skinner:It's possible. We look at everything. If we had the kind of demand for organic food that is
perceived to be healthier, we'll be all over it. We are customer driven. We measure everything. We test
everything. We are talking to our customers every day in those restaurants that are buying those french fries.
And measuring not only the impact of how they feel about the taste but the intent to purchase those french
fries again.

WSJ:Has Starbucks changed the restaurant environment?

Mr. Skinner:I think that they certainly have brought to people's attention the great opportunity for coffee. But if
you really look at the impact on the restaurant business, I don't know I could say they've had an impact.

WSJ:Are they a company that you watch very closely?

Mr. Skinner:We watch all companies very closely. Starbucks is a company that we're watching because we
could argue that it's a very successful company. They've done a lot of great things. But they've done a lot of
the things that we did -- took a great concept and replicated it.

WSJ:You took over the helm of a company that had lost two CEOs in succession very suddenly. What was
that like?
Mr. Skinner:It was very, very emotional for me because not only did we lose two great leaders but I lost two
great friends. It was also traumatic for the organization, so the need for stability in the organization was very
important. The board deserves credit because the road map was managed by them.

WSJ:How has the company managed to stay on track given the unexpected loss of management?

Mr. Skinner:One of my goals has been to do a better job of selecting the high-potential people who can
accelerate our momentum.

WSJ:How do you do that?

Mr. Skinner:Some of it's structural and some of it is by gut. We created a leadership institute in the last 15
months, which really houses the spirit of everything we're trying to get done around development of
our people.

We assess our talent twice a year. I ask all my senior people to do 40 hours of personal development
annually , including myself. I ask all the senior people to have two ready-now candidates to succeed
them. Every time I meet with them we talk about, what are you doing to develop them? We might even
have a debate about the two they picked.

WSJ:What's the biggest remaining challenge McDonald's faces?

Mr. Skinner:I worry about complacency. We're not satisfied. We have a lot of work to do.

WSJ:How often do you eat at McDonald's?

Mr. Skinner:Almost every day.

WSJ:I know that you like the Quarter Pounder.

Mr. Skinner:Quarter Pounder plain. No cheese, no condiments. Just the bun and the meat.

First published on January 8, 2007 at 12:00 am

SMARTMONEY MAGAZINE by Reshma Kapadia (Author Archive)

Interview With McDonald's CEO Jim Skinner

Published July 30, 2008

(Page all of 2)

IT'S NOT WHAT you'd expect. Though iconic for its burgers, McDonald's buys about as much chicken as beef these days. It
also buys 39 million pounds of apples a year — more than anyone else in the U.S. That's very different from when Chief
Executive James Skinner graduated second in his class from the company's Hamburger University 35 years ago.
But then there have been a lot of changes at McDonald's, especially since Skinner stepped in as CEO in 2004. The straight-
talking Midwesterner launched a dramatic restructuring, which included jazzing up the menu with chicken wraps and apple-
walnut salads. Even so, the world's largest fast-food chain is still vilified for its high-calorie menu and not doing more to fight
obesity. "If they weren't working so hard to market junk food to kids and to position the company as socially responsible, I'd let
them off the hook," says Marion Nestle, a professor of nutrition, food studies and public health at New York University. "If they
are serious about wanting to help, they need to offer real choices."
Skinner says that's just what McDonald's is about — choices: the option of apples instead of fries, for instance. Having worked at
McDonald's for more than half his life (his first job was in high school), Skinner, 63, bristles at some of the attacks. But even
though nutritionists aren't all that thrilled with McDonald's, investors certainly are: The stock has doubled in the four years since
Skinner took over.

The firm ditched its long-standing strategy of opening more than four new restaurants a day, which compromised service and
dinged profits. Instead, it's now focused on getting more out of each existing location by improving service, extending hours and
becoming a breakfast hub, for instance. Even as the U.S. teeters on the brink of a recession, McDonald's is churning out profits,
up 24 percent in the first quarter, as strong overseas sales offset U.S. consumers' woes. Staff writer Reshma Kapadia sat down
with Skinner in his office on McDonald's 88-acre wooded campus in Oak Brook, Ill., to talk about what investors should expect
and whether it's his responsibility to get kids to eat their vegetables.

What was at the heart of the problem before the turnaround?

McDonald's was a company that was built on the idea of getting bigger and bigger. We had four years of spending on new stores
that didn't really produce much of an increase in profits.

What do you do for an encore to keep the stock moving?

This is not about an encore. This is about keeping the momentum and continuous improvement. Our shift away from company-
owned stores and toward franchises, as well as a major licensing agreement in Latin America, creates much less volatility and
more-stable cash flow, giving us more-predictable profits. We get a steady stream of income without incurring the expenses
related to running the restaurants.

Even in difficult economic times?

Yes. It's a little misunderstood how strongly positioned we are. Every one of our markets has some form of daily affordable item
on the menu. If you look at convenience, we're not all 24/7 yet and still have a huge opportunity there. And then there is
breakfast. We own breakfast.

McDonald's is making a big push into specialty coffee. Is this a bid to woo away customers from Starbucks while it's
down?
For more SmartMoney Magazine features, turn to the August issue.
This is not a Starbucks-McDonald's story. The coffee market is enormous. We've already improved our drip coffee, and sales of
specialty coffee in restaurants are up about 35 percent. We already sell coffee elsewhere around the world, so we are not head-
to-head with those guys there.

So this isn't an effort to change the mix of your customers?

I don't think so.

How is McDonald's positioned differently from in past slowdowns?

You look at the proliferation of our restaurants outside the U.S. since the last big recession, in 1990 to 1991. It's an enormous
offset. Half our sales come from abroad. And we are as well positioned today as at any other time in our opportunity to serve
customers and not nick their pocketbook.

McDonald's is facing pressure from higher food costs. How do you deal with that while still offering affordable prices?
We don't pass it on. Last year in the U.S., we raised prices just 3.4 percent in spite of very heavy cost increases. We absorbed
some of those costs, and we mitigated the impact through our long-term relationships with our suppliers. We also engage in
long-term contracts to lock in prices.

It still has to affect margins, right?

It does, but it's overcome depending on what happens with the sales.

How worried are you about food safety in the wake of the beef recall? Have the problems intensified versus 20 years
ago?
Anytime you are in the beef business and you have someone that has violated consumer trust, it's a bad thing. But I'm proud of
the fact we're not involved in it and have processes that preclude that from happening. I don't think problems have intensified.
There is just more scrutiny. Everything is scrutinized today. Everyone in Oak Brook is going to know what tie I have on, what
time I left my house, where I got on Route 83...
Is that bad?
It's not unhealthy. But that level of scrutiny is precipitated by bad or illegal behavior.

What responsibility does McDonald's have to combat the obesity epidemic?

We are not going to solve society's problems. People have to do that on their own. But we have to be part of the solution.

Yet you're fighting the New York City mandate to put nutritional information on menus.
Yes, because it's onerous, ridiculous and not going to communicate to customers what they need to know.

What do you think they need to know?

They need to know what they want to know, and more important, it's on the package and on the Web site.

Some would argue that if you wanted to be part of the solution, McDonald's, as an institution that changed the way
Americans get their food, could —
We are the biggest purchaser of apples. Just think about that. We went to Apple Dippers for kids and have Fruit & Walnut
salads.

What I was going to say is that if you wanted to shift eating habits more, you probably could.
If the consumer wants it. We can sell anything we want, but people have to buy it. If you look at the quality of products and
balanced choices we have, we've done more than anybody in the industry. But if you can't get your kids to eat vegetables, why is
it my job? Having said that, if you want to choose apples or carrots with your Happy Meal, it's there, and there will be more of
that down the road. But the truth is, it's not my job to take away; it's my job to add and say, here are some choices. You have to
make the decisions.

McCEO: Jim Skinner, the man at the pinnacle of the Golden

Arches, has developed a leadership and performance recipe
that's simple and powerful--and an example for others.
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The recession has been the graveyard of many CEO reputations. So it may come as a welcome surprise that some
leaders have not only survived but boosted their company's performance the old-fashioned way--they earned it--
through sticking to steady if unglamorous organic growth. Last February, a committee of his peers met at the NYSE

and chose Jim Skinner, 64, CEO of McDonald's, to be the 2009 Chief Executive of the Year (see sidebar, p. 53) for
transforming an iconic

brand by rebuilding its purpose, strengthening its internal talent and realigning that talent with a return to the
company's fundamental principles. In doing this, Skinner and his senior team had to rethink much of what had been
proven successful since the days when founder Ray Kroc
and his ideas suffused

the organization.

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In November 2004, Skinner, who began his career with McDonald's in 1971 as a trainee in Carpentersville, IL,
became CEO at a critical time. Former CEO Jim Cantalupo had died of a heart attack earlier that year. His
successor, Charlie Bell, was diagnosed with colon cancer and stepped down shortly after due to failing health. As
he relates in the following interview with CE editor-in-chief J.P. Donlon, Skinner felt his first order of business was
to restore confidence and rethink direction. He had worked with Cantalupo and Bell to create a "Plan to Win"
strategy, which called for jettisoning noncore businesses that proved a distraction for the company and
concentrating on existing restaurants and franchisees. "We took our eyes off the fries," Skinner drolly observes.
Rather than growing as it had for 48 years by building new restaurants, the company focused on operating existing
restaurants better. In addition, the company rethought its menu offerings, introducing more fruits, vegetables and
chicken items into its traditional mix and delivering more nutrition information to help guide customers accordingly.
Stung by criticism that McDonald's and other fast-food groups contributed to growing obesity in America--the 2001
best seller Fast Food Nation and the 2004 documentary Super Size Me had tarnished die industry's image--the
company, under Skinner's direction, also promoted physical activity programs for kids and adults and sponsored
local youth sports teams.

As a result, McDonald's has been revitalized. The company was one of only two DJIA stocks that ended 2008 with
a gain. (The other was Wal-Mart.) Last year it outperformed other restaurant competitors such as Burger King
Holdings, Wendy's International and Yum Brands, which operates Pizza Hut, Taco Bell and KFC

. Since Skinner took the CEO job, McDonald's total sales have increased from $50.1 billion in 2004 to $70.1 billion
in 2008, up 41.1 percent. Net income increased by 81.3 percent, from $2.3 billion to $4.3 billion. Yet the total
number of restaurants systemwide grew by a modest 4.8 percent, from 30,496 in 2004 to about 31,967 by year-
end 2008. Average sales per restaurant jumped from $1.6 million to $2.2 million during this period, producing more
cash flow for existing franchisees and more volume for suppliers. At a time when many companies are over-
leveraged to engineer growth, the Oak Brook, IL, firm maintains a strong credit rating.

Jim Skinner is the antithesis of the imperial CEO. No Davos World Economic Forum appearances for him.
"At McDonald's, we cook burgers--not books," Skinner told an industry group. Born in Davenport, IA, he
left home to join the Navy at 16 and served as a radar operator on the carriersUSS Oriskany and USS
Midway. (He served two tours in the Gulf of Tonkin,) Both his bricklayer father and chief petty officer
Ernest L. Wagner, with whom he served on the Oriskany, were strong influences on his life. "Jim helped us
create a common understanding of what we could accomplish," says Gloria Santona, the company's
general counsel. "He's pretty much a hands-off boss who doesn't look over your shoulder," says
McDonald's CFO Pete Bensen, "but he has high expectations." Rick Floersch, who defected from Kraft five
years ago to become McDonald's chief human resources
officer, points to Skinner's advancement of leadership development programs arid his priority of "putting
people in the right place" as contributing factors to the high scores in the company's employee
commitment surveys. "Jim is extremely empowering," he adds. "You always know where you stand with
Jim, personally and professionally," adds COO Ralph Alvarez, who is widely believed to be first in line to
succeed Skinner. Others in food retailing have taken note of the McJuggernaut. "There's a lot to admire
about McDonald's," says Tom Greco, CEO of the bakery cafe chain Bruegger's Bagels. "From site
selection to operations, they are very disciplined, but not at all bureaucratic."

Skinner's Performance as CEO

Systemwide Same Store Combined Net Income Cash Provided

Sales Sales Operating Growth (a) by Operations
Growth Growth Margin (a) ($=M)

2004 11.5% 6.9% 21.3% 38.0% 3,904

2005 5.6% 3.9% 20.7 4.6 4,337
2006 7.3% 5.7% 21.9% 40.6% 4,341
2007 11.9% 6.8% 24.4% 9.9% 4,876
2008 11.2% 6.9% 27.4% 7.9% 5,917

5-Year 9.5% 6.0% 23.3% 19.2% (b) 4,675

Average

McDonald's S&P 500 Dividend Total Return to Market Cap

Stock Price Index Yield Shareholders ($=B)
Appreciation

2004 29.1% 9.0% 2.4% 31.5% 40.7

2005 5.2% 3.0% 2.2% 7.3% 42.6
2006 31.5% 13.6% 3.2% 34.7% 53.4
2007 32.9% 3.5% 3.5% 36.4% 68.6
2008 5.6% -38.5% 3.0% 8.6% 69.0

5-Year 20.2% -4.1% 2.8% 23.0% 54.9

Average

(a) All results exclude the impact of impairment charges.

(b) Growth rate is the compound annual growth rate than the 5-year
average growth rate.

Source: Company reports

Realizing that McDonald's, like any iconic brand company, is not recession proof, Skinner and his team are big
believers in the system, provided the system continues to adapt. This is why 34 percent of McDonald's restaurants
in the U.S. are now open 24 hours a day. Since 2002, it has bought more chicken than beef worldwide. As part of
a revitalization program, it's introducing a number of sleek new restaurants with wide-screen televisions and Wi-Fi
connections. Alvarez cites other experiments, such as self-service kiosks where customers can order
electronically. So far it's working. Going forward, however, Skinner and his team are very much aware that they
may need to guard against an even bigger challenge--overconfidence.

What was behind McDonald's change in its strategy when you became CEO?

In 2002 we faced a terrible year--not the worst in our history but it was not good. Our stock price in the fourth
quarter of '02 ended up at an all-time low. Our brand was being attacked on many fronts and we were doing a lot of
things to chase growth that were not specific to the core. By "core" I mean the McDonald's branded restaurant
customers. At the time, we had spent about $4.5 billion in the previous four years on new stores and we had
zero incremental

income growth. That was a formula for disaster over the long term and yet this is how our company grew for the
previous 48 years. The goal was to open new restaurants and penetrate the world. We were in 118 countries and
we were in every market where we were capable of having access to the world's wealth. The strategy to grow by
penetrating new markets or expand in the existing markets proved to yield diminishing returns. At the same time
we were pursuing growth in other noncore brands, such as Boston Market, Chipotle and Pret a Manger, a
sandwich chain in London where we had about a third ownership.
We're out of all those businesses now.

Let me put this in context: By focusing on the core, 1 percent same store sales gain worldwide meant $500 million
improvement, with $100 million going straight to the bottom line, as compared to new store openings, which
weren't coming out at the necessary rate. By the time they were accretive to the bottom line, it was clear we were
better off focusing on existing restaurants. Today, the number is $600 million top line and $145 million on the
bottom line. It was evident that we had to shift strategies to be better versus being bigger. We didn't coin that
phrase in 2003, that came later, but we knew we had to get back to the core. McDonald's business model is a
three-legged stool: franchisees, suppliers and company people. If any one leg--particularly the franchise leg--is not
successful, as [founder] Ray Kroc said from the beginning, then we're not successful.

The way 1 look at the business is that if the franchisees make money all other things will be fine. Unfortunately, at
the time our franchisees weredisgruntled. They were accepting new restaurants even though it added an
incremental $25,000 to $30,000 cash flow drain and demanded a lot more work. This made it important for us
to retrench and revisit the business model that allowed us to be successful for the first 48 years. So we created two
plans. One, to revitalize the financial side of the business we needed to cut new store growth to save capital. We
cut new store openings from over 2,000 to about 200, more or less. Then we had to reduce the cost of doing
business in the organization--the G&A. This required an attitude shift in the organization, a focus on being better at
delivering to our customers in our restaurants and focusing on our existing restaurants, as compared to building
new ones. This wasn't easy to do because you couldn't get a meeting around here without people talking about
trying to get 4 or 5 percent top line growth from new stores. Forget about whether they were accretive or not.

McDonald's Performance Indicators

5 Year % 10 Year %

Total Annual Average Return to Shareholders 23.0% 6.7%

Net Income Compound Annual Growth Rate (a) 19.2% 9.3%
Total Diluted EPS CAGR (a) 21.9% 11.6%

(a) All results exclude the impact of impairment charges.

Source: Company reports

Note: This table made from bargraph.

Second, we developed an operating plan to deliver a better experience for our customers, This was our "Plan to
Win," which was in itself not profound, but the alignment of the plan with our internal communication system was
critical. We had to become our customers' favorite place to eat and drink. To do this we developed the tenets--the
five P's [principles]--that animate our people. These relate to how to behave and what we have to do to deliver at
the front counter and drive-through to improve the customer experience. Later, when we created the "I'm loving it"
campaign, we used it to build a framework to take the idea worldwide.

And how has the strategy performed around the world?

The beauty of it is that it is scalable wherever we place our bets. We'll be some-where around 2 percent growth
overall--at one time we enjoyed 10 percent growth in emerging markets. Some countries are having tough
economic times just like die U.S. but our business model continues to allow us to operate from a position of
strength. We're in these markets for the long haul. In China, for example, we'll be opening 175 new restaurants and
about 1,100 to 1,200 around the world. This will probably net 700 or so new locations after you factor for closings
and relocations. So we should be close to 32,000 in total, systemwide.

You took over after one CEO died and another was dying. With the company experiencing problems, people in the
company must have been a bitdisoriented.

Yes. I was asked to take over in November [2004] when people were wondering, "What happens now?"
Remember, I was involved in developing the ["Plan to Win"] strategy in the first place. Keep in mind, anybody who
knows McDonald's and understands the system knows it's not complicated- We're in the restaurant business. You
need to hire great people, train them, engage them and give them the freedom and tools to be able to deliver for
the customers. With 32,000 locations around the world, you need to have a good team aligned with a solid plan,
with very simple expectations about what needs to get done.

My first goal was to set long-term growth. If you can't do this, you won't be around very long to have other
objectives. I have a passion for talent management and leadership development to support sustainable growth. It's
my job to have the right people in the right place. At the time, we had good people, but we didn't have the right
operating people in the right places. The daily detailed diligence around running a great restaurant is hard to do.
You come in the morning, you've got to clean the floors, get stocked up and have people ready to go. And you've
got to do it every day. It's not complicated. It's not rocket science. But you need people who can embrace it. One of
the elements that I brought to this is to institutionalize the alignment of talent, to get leaders to develop future
leaders to take their job--people who can do it better than they could. Ralph [Alvarez, COO] and I review the top
150 people and see who's being developed and what their individual development plans are. We have the
Leadership Institute, which we've put some money behind in terms of taking our high potentials and further
developing them so that they're able to deliver on McDonald's strategies--not to be just generalists. It's not about
just having smart people, because we have a lot of those around. Leaders need to be able to execute their
strategies.

McDonald's FAST FACTS

Annual Revenue (2008) $70.7 billion

Restaurants worldwide 32,000
Net new locations Worldwide (2009) 700
Countries in which company operates 118
Employees worldwide 1.6 million
of which are employed by the company 400,000
Independent franchisees 5,500
Percent of franchises owned by minorities and women 42
Typical individual restaurant annual revenue $2.5 to $3 million
Typical no. of restaurant employees 50 to 75
Customers served daily 56 million
Country with best per store performance France

What do you look for?

I look for people who have experience and the capability to subordinate themselves to the McDonald's system. It's
about rolling up your sleeves and being committed. You can be extremely bright, have gone to Harvard or Chicago
Business School, but when it gets right down to it, you have to be committed to the restaurant business. A lot of
people are going to take shots at you. "Oh, you work at McDonald's," they will say. Believe me, I have dealt with it
my entire career. There is a little stigma there, because when most people think of McDonald's they think of
individual stores, not the system behind it. So I look for people who are charged up about the business, not just
charged up about the idea and seek a big title, because that comes later.

Your direct reports say you are a plainspoken, execution-focused guy.

It's true, I am focused on execution. I'm a goal setter, always was, personally and professionally. I'm 64
and I still have my own set of personal goals, and update them on a regular basis. For example, I'm
not obsessed about it but I have physical workout goals, and when I don't record in my diary what my
workout was, when I miss a day, I feel that I'm off track. I feel the same about my professional goals for the
organization, for myself as CEO and the goals for the board. It's about continuous improvement and I
expect the same from all the key players at McDonald's.

What continuous improvement goals do you set for yourself?

Other than my golf game and my physical, I expect to be a better CEO than I was the previous year. I'm a
learning kind of person, and we are a learning company. If you make a point to learn and question, you'll
be a better CEO even if the results are not the same or better. There are things one can't control. I'm
absolutely confident in our business model and our processes and protocols around our planning,
innovation and menu management. However, I don't know what's going to happen in, say, currencies,
commodities or other things we can't control.

Do you dismiss the idea that McDonald's recent good fortune is a result of people trading down in a recession?

Absolutely. We'd be doing even better today if the economy were in better shape, because of our deep penetration
and the fact that we access 95 percent of the purchasing power of the world. Some say our dollar menu is a big
reason people are coining to our restaurants, but that may account for 13 or 14 percent at most. This overlooks
how we've changed the menu. For example, when some pointed to McDonald's as contributing to the social
problem of obesity, we totally redid our menu offerings, adding more fruit, vegetables, chicken and other items that
have very low fat. Where else can you get a premium salad, which would cost eight bucks somewhere else, and
 have a coffee or drink for as little as five bucks?

Are you encouraged or discouraged by the stimulus plan? Is it going to have much effect on your business?

I am encouraged by the stimulus plan to the extent that at least something is being done.

The best way to stimulate the economy and create positive change is to create incentives for small business
through tax breaks. The idea of raising taxes on the highest paid people in the country to offset the deficit makes
no sense to me, as these are the people that create a lot of jobs. I am happy to pay my fair share ...

Won't Obama's tax hike on individuals earning more than $250,000 hit your franchisees hardest?

It's hard to say. Franchisees also face other issues, such as minimum wage levels, high taxes in various states and
the way states go about administering regulations. We also worry about government policies that affect the dollar
or commodities prices that could impact the buying power of our supply chain.

What other concerns do you have?

I am very disappointed in the lack of leadership and accountability in various institutions, both in America and in the
world, today.

Political institutions?

Political and business institutions equally. I suppose I am just as disappointed as everybody else and because of
that, I think the solutions themselves are not going to be simple, because it took a while for us to create these toxic
assets that are burdening our financial system.

What if Obama gave you a free hand to solve the problem? What would you do?

I think I'd have everyone come to McDonald's, order a $5 salad and a drink and think it over. Keep it simple. This is
what happened: Everyone got way too creative in thinking of ways to make money. Compare that to what we do.
We're transparent and straightforward in terms of shareholder returns. We're not greedy or aggressive in taking
care of our constituents, including ourselves.

As you close in on your fifth anniversary as CEO, what can we expect to see five years from today?

I don't know, but I do know whatever new development emerges, it will get picked up in our consumer
insights, it will get picked up in our processes, it will be something that we will develop because we
are paying attention to our customers in our restaurants and we will know how to adapt it. For example,
when 1 began as CEO, I think we were selling about S2 billion worth of chicken in the U.S. and today it's
almost $6 billion. That decision to move away from deli and put our bets on other things that make a
difference demonstrates that our leadership strategies and our planning yield significant results. It's not
just coming up with the idea--I get letters every day with new ideas--like a sanitary hand wash. It's the
scalable ideas that we can execute that make the difference.

So wherever we are in five years, we'll be better than we arc today. We will be more relevant to our
customers because we understand that with the blogosphere it's a 24/7 consumer environment. My Space
has more hits on a daily basis than the entire population. People can tune you in and they can tune you
out, and you've got to be able to adjust accordingly. We'll have better leaders and better restaurants.

Monday, 2 Feb 2009

CNBC TRANSCRIPT: CNBC'S JIM CRAMER INTERVIEWS JIM SKINNER, MCDONALD'S
CEO, ON "MAD MONEY W/JIM CRAMER" TODAY
Posted By:Karen Reynolds
Topics:Mad Money

WHEN: Today, Monday, January 26th at 6:30PM ET

WHERE: CNBC's "Mad Money w/Jim Cramer"

Following is the unofficial transcript of a CNBC interview with Jim Skinner, McDonald's CEO, today on
"Mad Money w/Jim Cramer."

All references must be sourced to CNBC's "Mad Money w/Jim Cramer."

---------------------------------------------------------------

JIM CRAMER: MR. SKINNER WELCOME BACK TO MAD MONEY.

JIM SKINNER: THANK YOU JIM. THANKS FOR HAVING ME.

CRAMER: I'M JUST THRILLED TO HAVE YOU ON. EVERY OTHER COMPANY I FOLLOW PARTICULARLY
THE COMPANIES OF THE DOW JONES INDUSTRIAL AVERAGE - BUT ALMOST ALL OF MY BIG
INTERNATIONAL COMPANIES - HAVE FAILED TO LIVE UP TO EXPECTATIONS. WHAT ARE A COUPLE
OF THE KEY REASONS WHY YOU CONTINUE TO DELIVER AND WHY YOUR STOCK HAS BEEN THE
BEST PERFORMER ON THE DOW?

SKINNER: WELL, JIM, IT'S ABOUT THE FUNDAMENTALS. THE LAST TIME WE TALKED, IT'S REALLY
ABOUT THE SYSTEM'S STRENGTH. GREAT FRANCHISEES, DEDICATED SUPPLIERS, COMPANY
PEOPLE -- ALL FOCUSED ON OUR PLAN TO WIN, WHICH IS OUR OPERATING EXCELLENCE
PLAN AND FOR THE CUSTOMERS. OVER THE LAST FEW YEARS, WE'VE ADDED MORE CHOICE AND
VARIETY THAN EVER. OUTSTANDING VALUE FOR QUALITY FOOD AT EVERY LEVEL ON THE
MENU. CONVENIENCE WITH EXTENDED HOURS, DRIVE-THROUGHS. CLOSE-BY LOCATIONS.
HOME DELIVERY. BETTER SERVICE. REMODELED AND REDESIGNED RESTAURANTS.

LEADERSHIP MARKETING DRIVEN BY THE STRENGTH AND STAYING POWER OF I'M LOVIN' IT. AND
REALLY MAINTAINING VALUE. AND WE HAVE EXPERIENCED SUPPLIERS LONG-TERM
RELATIONSHIPS, DEEP WORLD WIDE RESOURCES, AND THE NUMBER OF THINGS THAT YOU
MENTIONED AT BEGINNING OF YOUR SHOW. WE AREIN THIS FOR THE LONG HAUL. WE'RE
EXPERIENCED. WE'VE BEEN IN BUSINESS OVER 54 YEARS. WE'RE IN OVER 100 COUNTRIES
AROUND THE WORLD AND WE'RE THE BUSINESS FOR THE LONG TERM. FOCUSING ON OUR
CUSTOMERS.

CRAMER: JIM, ONE THING THAT YOU DID LEAVE OUT THAT I LIKE FROM THE POINT OF VIEW OF
"MAD MONEY," IS THE $15 TO $17 BILLION THAT YOU'RE TALKING ABOUT RETURNING TO
SHAREHOLDERS IN THAT BOUNTIFUL DIVIDEND. DO WE HAVE MORE GOOD THINGS IF WE ARE
SHAREHOLDERS COMING FROM McDONALD'S?

SKINER: ABSOLUTELY. AS I SAID THIS MORNING, JIM, WE'RE RIGHT ON PACE TO LIVE UP TO OUR
EXPECTATION OF THE $15 TO $17 BILLION BY THE END OF 2009. IN NOVEMBER WE HAVE AN
ANALYST MEETING, WE'LL PROBABLY DESCRIBE THEN WHAT OUR NEXT TARGET WOULD BE
RELATIVE TO RETURN TO SHAREHOLDERS. AND OF COURSE WE INCREASE THE DIVIDEND A YEAR
AGO. AND WE CONTINUE TO HAVE THE RESOURCES TO BE ABLE TO PAY THAT DIVIDEND AS WELL
AS BUILD OUR BUSINESS.

CRAMER: EXCELLENCE. A BOUNTIFUL DIVIDEND. ONE OF THE THINGS THAT THE ANALYSTS SEEM
TO CONTINUALLY BE CONFUSED ON THAT I KNOW YOU SET THEM STRAIGHT, IT'S NOT JUST THE
VALUE MEAL THAT'S DOING WELL. YOUR FOOD IS COMPETITIVE WITH AT-HOME DINING, WHICH IS
A COURSE WHAT PEOPLE ARE DOING ALL OVER THE WORLD. TALK ABOUT THE PRICE OF A MEAL,
NOT JUST THE VALUE MEAL, BUT THE PRICE OF A MEAL VERSUS WHAT YOU CAN DO WHEN YOU'RE
MAKING IT AT HOME.

SINNER: WELL, JIM, WE DO STAY CLOSE TO A FOOT FROM HOME AS MEASUREMENT REKATIVE TO
HOW WE SHOULD BE PRICING. WE MENTIONED THIS MORNING THAT WE MAY NOT BE TAKING THE
KIND OF PRICE INCREASE WE HAVE OVER THE LAST COUPLE OF YEARS BECAUSE OF THE COST OF
COMMODITIES COMING DOWN SOME. BUT THE FACT IS WHEN YOU LOOK AT OUR VALUE ACROSS
THE MENU AND NOT JUST THE DOLLAR MENU, THE DOLLAR MENU OF COURSE HAS REMAINED THE
SAME IN TERMS OF PERCENTAGE OF SALES FOR THE SIX YEARS SINCE ITS INCEPTION ABOUT
13%, THE REST IS CORE. SO WHERE ELSE CAN YOU GO AND GET A PREMIUM CHICKEN SALAD AND
OUR PREMIUM COFFEE FOR $5? SIDE SALAD, APPLE DIPPERS, FRUIT AND YOGURT PARFAIT ALL
AROUND THE $1 MENU. SO WE HAVE VALUE ACROSS THE MENU AND OUR SUPPLY CHAIN, THE
MITIGATION OF THE COMMODITY COSTS AND THE GROWTH IN THE COMMODITY COSTS AND THE
FRANCHISEES DELIVERING GREAT EXPERIENCE AT OUR RESTAURANTS AND VALUE THAT WE'RE
GOING TO STAY WITH, OUR CONSUMERS ARE PINCHED TODAY. ALL AROUND THE WORLD WHEN
YOU SEE WHAT'S GOING ON. AND THAT'S OUR GOAL.

CRAMER: NOW SOME PLACES, PEOPLE ARE STARTING TO NOT DO AS WELL BUT DOESN'T SEEM TO
BE THE CASE FOR YOU. I DEAL WITH A LOT OF COMPANIES SAYING THAT RUSSIA HAS TURNED
SOFT. YOU TALKED POSITIVELY ABOUT RUSSIA IN YOUR CONFERENCE CALL.

SKINNER: RUSSIA CONTINUED TO HAVE DOUBLE-DIGIT SALES INCREASES IN THE FOURTH

QUARTER. YES, THEY HAD TO HAVE SOME ISSUES RELATIVE TO INFLATION ON THE FOOD COSTS
AND GOODS AND SERVICE SERVICES BUT THE FACT IS WE'RE OVERCOMING THAT WITH OUR
SALES AND WE CONTINUE DO WELL THERE.

CRAMER: AND GERMANY, IT SOUNDS LIKE YOU'RE STARTING TO MOVE INTO MORE LOCATIONS. I
HAD THOUGHT YOU WERE SATURATED IN GERMANY BUT THERE'S A LOT OF PUBLIC PLACES THAT
YOU'RE STARTING TO CITE McDONALD'S.

SKINNER: WE STILL HAVE OPPORTUNITY IN GERMANY, WE STILL HAVE OPPORTUNITY IN EVERY

COUNTRY IN THE WORLD REALLY WHERE WE ARE TARGETING OUR GROWTH AND WE'RE LOOKING
AT DIFFERENT VENUES THERE IN GERMANY. WE TALKED A LOT ABOUT THE VALUE ON THE MENU IN
GERMANY TODAY. AND STRATEGICALLY WE'RE GOING TO GET AFTER THAT IN A BIGGER WAY IN
2009 AS WELL.

CRAMER: TALK TO ME ABOUT COFFEE. WHY IS COFFEE SUCH A BIG DEAL FOR McDONALD'S?
YOU'VE ALWAYS HAD GREAT COFFEE.

WHAT'S CHANGED?

SKINNER: WELL, WE CHANGED THE FORMULA IN 2006. AS YOU KNOW IN THE DRIP COFFEE, WE'VE
HAD GREAT SUCCESS WITH THAT. YOU LOOK AT THE INDUSTRY AND THE BEVERAGE BUSINESS IS
$60 BILLION. $35 BILLION OF THAT COMES FROM THE QUICK SERVICE SEGMENT. $16 BILLION
COMES FROM THE CASUAL EATING OUT PIECE OF THE BUSINESS. AND $9 BILLION COMES FROM
CONVENIENCE. WE SHOULD BE A PLAYER IN THAT. WE HAVE CONVENIENCE FOR OUR CONSUMERS
AND WE WANT TO BE ABLE TO PROVIDE THEM WITH THE BEST OFFERINGS AROUND BEVERAGES
AS WELL AND WE'RE MAKING GREAT PROGRESS. AS YOU KNOW WE'RE IN ABOUT HALF OF THE
RESTAURANTS HERE IN THE UNITED STATES NOW ON THOSE SPECIALTY COFFEES. WE'LL BE
THERE BY MIDYEAR THIS YEAR AND WOULD BE EXPECTING TO ADVERTISE THEN. AND FROM THAT
POINT, WE'RE GOING TO THEN GET INTO THE FRAPPES, SMOOTHIES AND BOTTLED BEVERAGES.

CRAMER: NOW JIM, I KNOW THAT YOU GUYS ARE ALWAYS, ALWAYS VERY COMPETITIVE AND
YOU'RE VERY AWARE OF WHERE YOUR STORES ARE. STARBUCKS HAS HAD AN AMAZING
DOWNTURN SINCE YOU MOVED INTO COFFEE. DO YOU THINK THAT THERE IS ANYTHING THAT'S
RELATIONAL BETWEEN THE TWO?

SKINNER: I DON'T THINK SO. I THINK STARBUCKS HAS TO RESPOND TO THEIR OWN BUSINESS
MODEL AND THE WAY THEY'VE PERFORMED OVER THE LAST NUMBER OF YEARS. THEY MAYBE
OUTGREW THEMSELVES A LITTLE BIT IN TERMS OF UNITS. AND -- OKAY. BUT RELATIVE TO THE
OVERALL COFFEE PLAY, IT'S A BIG PIECE OF BUSINESS. I WOULDN'T NECESSARILY SAY THAT
McDONALD'S WAS RESPONSIBLE FOR THE DOWNTURN OF STARBUCKS SPECIFICLY.

CRAMER: OK JIM, ONE LAST QUESTION, IT SEEMS TO ME THAT YOU WERE VERY CONSERVATIVE IN
THE POSSIBILITY OF COMMODITY COSTS COMING DOWN IN YOUR CONFERENCE CALL. GIVEN THE
FACT THAT WE HAVE SEEN WORLD WIDE COMMODITY DECLINES, DID YOU LEAVE ROOM, YOU
THINK, FOR MAYBE YOUR BUDGET MAY BE A LITTLE BIT, LET'S SAY, OVER -- UNDERPROMISING
VERSUS WHAT YOU COULD DELIVER?

SKINNER: WELL, WE'RE A CONSERVATIVE COMPANY, JIM, AS YOU WELL KNOW. WE LIKE TO
UNDERPROMISE AND OVERDELIVER AND THE FACT IS WE SAID THAT WE MIGHT BE AT THE LOW
END OF THE RANGE REGARDING THE COMMODITY CLASS IN '09 BECAUSE WE HAVEN'T SEEN IT
PASS THROUGH OUR SYSTEM YET. WHEN IT DOES WE'LL HAVE A BETTER INDICATION OF THAT
AND THE PRESSURE WILL BE MORE ON THE FIRST HALF THAN THE SECOND HALF AND SO WE'LL
SEE WHAT HAPPENS.

CRAMER: ALL RIGHT, JIM SKINNER THE CEO AT McDONALD'S. THANK YOU VERY MUCH FOR
COMING ON AND CONGRATULATIONS FOR AN UNBELIEVABLY GOOD QUARTER. THANK YOU

SKINNER: THANK YOU JIM.