McDonald’s selling businesses
CHICAGO (AP) – McDonald’s Corp. is getting out of the pizza business but keeping burritos, meatloaf and chicken pot pies on its plate in the U.S. market as it slims down its involvement in partner brands. The restaurant giant on Monday announced the sale of Donatos Pizzeria back to the chain’s founder and said it is retaining its Chipotle Mexican Grill and Boston Market businesses in the United States while discontinuing development of all non-McDonald’s brands abroad.
The moves will cost McDonald’s in the short term, resulting in a fourth-quarter charge of 23 cents to 28 cents a share, or roughly $300 million to $360 million.
But over the long haul, chairman and chief executive Jim Cantalupo said they will help the company further tighten its focus in an attempt to boost sales and profit growth, in part by “eliminating distracting and unprofitable operations.”
McDonald’s has been deliberating for months on what to do with its partner brands amid speculation it might spin them off into a separate company.
But it reportedly could not turn up a buyer for all the outside brands, which collectively lost $23.4 million in the first nine months of 2003 while McDonald’s was posting overall operating income of $2.5 billion.
The company is divesting only Donatos and its 182 U.S. restaurants for now, selling the 40-year-old business back to founder Jim Grote for an undisclosed sum. The deal comes just 41/2 years after McDonald’s bought the Columbus, Ohio-based chain from Grote in the hope it would achieve better success with established pizzerias than with its own failed pizza offerings years earlier.
Cantalupo said that besides minimizing distractions, the moves would reallocate resources to McDonald’s restaurants and provide a more focused growth platform for Chipotle and Boston Market.
“We will concentrate our efforts primarily on Chipotle and Boston Market in the United States, concepts that have potential for long-term growth and benefit to McDonald’s,” he said.
“These two brands are sizable companies that can operate autonomously.”
Mats Lederhausen will lead those efforts as managing director of McDonald’s Ventures.
The decision to discontinue its international non-hamburger food ventures means closing three Donatos in Germany plus seven Boston Market restaurants in Australia and two in Canada. The company said the closures reflect management’s desire to remain sharply focused on revitalizing sales and service at the 17,000 McDonald’s restaurants outside the United States.
In related moves involving two smaller partner brands, McDonald’s said it will retain its minority investment in Pret A Manger but McDonald’s Japan will close its Pret units there as previously announced. Also, the company has entered into a letter of intent to exit its domestic joint venture with Fazoli’s.
Fast-food industry analyst Douglas Christopher of Crowell, Weedon and Co. said both Boston Market and Chipotle have strong potential. He said focusing on partner brands only in the United States is consistent with McDonald’s turnaround, which has seen U.S. sales surge this year thanks largely to a revamped menu.
Morningstar analyst Carl Sibilski said he wouldn’t be surprised if the company divested either brand in the future.
“It looks as if they don’t have the ability to sell all their partner brands right now so they’re going to sit on some of them until they get a good offer or until such time as the McDonald’s brand is firing on all cylinders and they can focus more time on the other brands,” he said.
Asked about the possibility of future sales, spokeswoman Anna Rozenich said the Oak Brook, Ill.-based company does not comment on speculation.
McDonald’s shares fell 36 cents to close at $25.42 in trading on the New York Stock Exchange.
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On the Net:
www.mcdonalds.com
www.boston-market.com
www.chipotle.com
www.donatos.com
AP-ES-12-15-03 1618EST