Dive Brief:

• McDonald's terminated CEO Steve Easterbrook after he engaged in a consensual relationship with an employee, which is a violation of company policy, according to the Wall Street Journal.  The board voted on Friday to remove him from his position. He also resigned from his position on the board. Easterbrook has been CEO since 2015. 
• Chris Kempczinksi, McDonald's USA president, was named the company's CEO, effective immediately. 
• Kempczinksi, who played a part in several recent changes to the head of U.S. operations, said in an interview with the Wall Street Journal that he would maintain Easterbrook's focus on technology.

Dive Insight:

Easterbrook’s departure comes at a tenuous time for the company. It has been struggling to meet investor expectations, despite continual same-store sales growth overall, and its same-store sales growth in the U.S. struggles to gain momentum. The company is expected to lose $3.4 billion in value Monday following this sudden news, according to Business Insider. Piper Jaffray has already downgraded the company to neutral from overweight and slashed its share target from $224 to $195, according to CNBC. 

Other analysts are less pessimistic. 

“We are unsure how McDonald’s strategy might change under Mr. Kempczinski’s leadership as most initiatives are already underway,” BTIG analysts Peter Saleh and Ben Parente said in a report sent to Restaurant Dive. “We are definitely surprised by the news and view Mr. Easterbrook’s departure as a loss but also believe the company’s strategy is on very solid food and McDonald’s system is much more than just one man.”  

The QSR giant is looking to drive growth by improving the drive-thru experience with digital menu boards that use machine learning to personalize selections and better kitchen processes to decrease cook times. It has also invested in Experience of the Future remodels and delivery rollouts throughout the U.S. system.

Kempczinski will have some big shoes to fill. When Easterbrook joined McDonald’s in 2015, sames-store sales were down for six consecutive quarters and major menu innovations like Mighty Wings had failed, according to Restaurant Business. After taking the helm as CEO, Easterbrook launched All Day Breakfast and delivery and honed a broader technology strategy to improve sales, according to BTIG. 

The company still has room for improvement, as its breakfast daypart continues to struggle and could face additional pressure next year when Wendy’s adds the daypart to its menu. McDonald’s may add a chicken item to its breakfast menu next year, according to a Business Insider report, that could allow it to better compete with growing competitor Chick-fil-A and other QSR rivals as well. McDonald’s drive-thru times, despite improving 20 seconds last quarter, are still among the slowest in the country. 

The fast food chain has already been undergoing quite a few executive changes this year, and new leadership will need to try and maintain focus to make sure it can build upon past successes. Global CMO Silvia Lagnado left in July and Chief Communications Officer Robert Gibbs left in October. No successors were named for Lagnado and duties for the global CMO position were split among two existing employees. McDonald’s has also tapped Joe Erlinger to replace Kempczinski as McDonald’s USA president, according to a press release.   

Kempczinski will also need to continue to appease McDonald’s U.S. franchisees, which have been pushing back on some initiatives, including costly Experience of the Future remodels and delivery. The company has been working more closely with its operators of late, allowing them to have control over the hours and items on the all-day breakfast menu, pushing back deadlines for remodels and expanding delivery beyond its previously exclusive partnership with Uber Eats. A smooth executive transition and keeping franchise operators happy will be key to the success of the McDonald’s U.S. system going forward.