Bloomberg Businessweek
from simple colds to life-threatening cancers. And
many of the best ones are in the more developed
eastern part of the country, often many hours away
from rural families. While there’s a top hospital for
about every 550,000 people in Beijing or Shanghai,
in the country’s western hinterland there’s just one
for every 2.5 million people, according to data compiled by brokerage CSC Financial Co.
Several technology companies are jumping in to
fill that gap. WeDoctor, backed by Tencent Holdings
Ltd., said its online platform can potentially connect more than 200 million users to doctors from
hospitals across the country. Alibaba Group Holding
Ltd.-backed Alibaba Health has signed up some
15,000 senior doctors to offer health consultation
services via the internet for users of its online retail
marketplace and its payment app Alipay.
Despite widespread interest in online medicine, investors are still waiting for results. Good
Doctor shares have declined 15% since its initial
public offering last year. Other health-tech outfits
have also had a choppy year, with Alibaba Health’s
shares sliding 8% over the past 12 months, double
the 4% drop of the Hang Seng Index.
The industry could eventually get a boost
from government policies. Beijing has taken
some steps to make it easier to get public insurance reimbursements for some online health-care
services, though local governments can decide
what will be covered. And Good Doctor has
already begun exporting its model overseas.
It’s set up joint ventures with Singapore’s Grab
Holdings Inc. and Japan’s SoftBank Group Corp.
to offer online treatment consultation services in
Southeast Asia and Japan.
Wang says Good Doctor has already hired about
100 doctors in China from well-known hospitals,
offering annual compensation that can exceed
1 million yuan as well as stock options—a decent
wage for mainland doctors. But delivering care
over the internet can take some getting used to.
“Senior doctors tend to be more prudent, and if I
can’t see or touch the patient, it’s hard for me to
definitively tell the patient’s condition, but I still
have to offer clear advice to them,” says Liu, the
neurologist. “It takes a lot of experience on the
part of the doctor.”
Still, Liu says the service has an advantage traditional hospital consultation can’t rival: Patients
can stay in touch easily with their doctors rather
than wait months for the next available appointment. “The internet,” she says, “brings patients
and doctors closer.” �Dong Lyu and Lulu Chen
● Licensed doctors and
assistant doctors per
1,000 people
◼ More than 2.75
◼ 2.5 to 2.75
◼ 2.25 to 2.5
Fewer than 2.25
Beijing
Shanghai
THE BOTTOM LINE As China experiences big increases in
diabetes, cancer, and heart disease, long waits for specialist visits
are common. Operators of doctor apps want to close the gap.
A Flyin’ Shame
To celebrate raising $460 million in new capital,
finance startup Klarna Bank AB invited 600 staffers
from its Stockholm headquarters to Berlin for a party
in September. But instead of heading to the airport
for the 90-minute hop to the German capital, the
programmers, managers, andsalespeople showed
up at Stockholm’s Central Station for a 15-hour
schlep by train and bus. The company, which
offers online payment services, bars virtually all
employee air travel within Europe and d
iscourages
longer-distance flights. “It’s our aim to become carbon neutral,” says Robert Bueninck, chief of Klarna’s
business in Germany, who frequently rides the rails
on business trips to Brussels, London, and elsewhere. “We know what’s happening to our planet.”
Like Klarna, companies across Europe are reconsidering travel policies, and individuals are asking
whether jetting off to sunny spots for h
olidays is
worth the environmental cost. The Swedes even
September 30, 2019
● Airlines are under pressure as business travelers
fret about the carbon cost of flights
have a name for it: flygskam, or flight shame, and it’s
a growing threat to airlines in Europe and beyond.
SAS AB says its traffic fell 2% in the nine months
ended July 30 from the year-earlier period, and
Sweden’s airport operator has handled 9% fewer
passengers for domestic flights this year than last.
Both say flygskam has played a role in declining
traffic. “Unchallenged, this antiflying sentiment
will grow and spread,” says Alexandre de Juniac,
head of the International Air Transport Association.
“Politicians aren’t sticking up for us.”
In France, where the #avihonte (aviation shame)
hashtag is trending, some lawmakers have proposed a ban on most internal flights. Austria’s state
railway—Europe’s leading provider of international
sleeping car service—has ordered 13 new sleeper
trains, saying the move was spurred by increased
demand for overnight travel because of environmental concerns. Germany plans to cut taxes for train
● Lufthansa’s Spohr
SPOHR: GETTY IMAGES. DATA: CHINA STATISTICAL YEARBOOK 2018
14
◼ BUSINESS
◼ BUSINESS
Bloomberg Businessweek
September 30, 2019
journeys by almost two-thirds while boosting levies
on flights and establishing a minimum level for airfares. “We’re going to increase the cost of flying and
make train tickets cheaper to reflect the cost of carbon dioxide emissions,” German Finance Minister
Olaf Scholz said in announcing the measures.
Airlines this year will pump almost 1 billion tons
of carbon dioxide into the atmosphere. And the
United Nations says aviation is on track to overtake
power generation as the single biggest emitter of CO2
within three decades. Surging green parties, groups
such as Greenpeace and Extinction Rebellion, and
activists like 16-year-old Swedish environmentalist
Greta Thunberg are fueling the flight-shame movement by highlighting aviation’s role in global warming. “How dare you pretend that this can be solved
with just business as usual and some technical solutions,” Thunberg, who travels Europe by train and
took a sailboat to New York, told the UN’s Climate
Action Summit on Sept. 23. “You are failing us.”
The danger for airlines is growing as companies cut back on business travel. Finland’s Nordea
Bank Oyj aims to trim flights 7% this year and plans
internal carbon fees to meet that goal. German
broadcaster Tele 5 in June said it will no longer pay
for domestic flights for its 60 employees. Consulting
company PwC and Switzerland’s Zurich Insurance
Group AG say they want to reduce carbon emissions
per employee by a third or more from 2007 levels,
mostly by cutting back on flights. “More of our meetings are taking place in virtual space,” says Alison
Martin, Zurich’s chief executive officer for Europe,
Africa, and the Middle East. “Flying isn’t a prerequisite for getting business done.”
European carriers are at the greatest risk because
they often fly short distances, and high-speed rail is a
viable alternative. While it takes more than 19 hours
to travel the 800 miles from Chicago to New York
on Amtrak, a European can cover a similar distance
from London to Marseille in a bit more than six
hours. For airlines, the concerns couldn’t come at a
worse time: Brexit jitters are h
itting consumer confidence in Britain, the region’s biggest aviation market. And more than a half-dozen European carriers
have gone bust in the past two years as they grapple with falling fares, slowing economies, rising fuel
costs, congested airspace, and extreme weather.
To burnish its green credibility and mitigate concerns about flying shame, KLM Royal Dutch Airlines
is even discouraging travelers from boarding its
jets—at least sometimes. “Railway or other modes
of transportation can be more sustainable than
flying, especially for short distances,” the company,
which focuses on long-haul flights, said in ads this
summer. In August, Deutsche Lufthansa AG CEO
Carsten Spohr lashed out at no-frills carriers, telling Bloomberg Television that supercheap fares
stoke demand for needless travel and make the
industry an easy target for climate campaigners. “I
don’t think tickets for €4.99 serve any purpose,” he
said. Ryanair soon dispatched an email to customers in Germany, saying Spohr’s remarks highlight its
rock-bottom prices—and low emissions per passenger because of its tightly packed planes. “We’re very
happy with the c omparison,” says Kenny Jacobs,
Ryanair’s chief marketing officer.
Getting From Oslo to Copenhagen
Cost
$0
Walk-on ferry
passenger
◀ Bus
Car*
◀ Train
Travel time
0 hours
◀ Flight
Travel statistics per passenger
18 hours
$140
Carbon
emissions
0 kg/km
15
0.2 kg/km
*MIDSIZE GASOLINE-POWERED CAR WITH DRIVER ONLY
FLIGHT CARBON EMISSIONS INCLUDE RADIATIVE FORCING, A MEASURE OF THE ADDITIONAL ENVIRONMENTAL EFFECTS OF AVIATION.
DATA: U.K. GOVERNMENT, VIAMICHELIN, DFDS SEAWAYS, STATENS JARNVAGAR, FLIXBUS, GOOGLE FLIGHTS
It’s hard for airlines to push back, as there’s
little they can do to reduce their carbon footprint. While manufacturers have introduced
more efficient jets in recent years, CO2 output per
passenger mile remains at least quadruple that for
trains. And thousands of older models are in service because planes typically fly for decades before
being retired. Carbon offsets—paying someone to
plant trees or otherwise reduce or absorb CO2—
can help ease passengers’ conscience, but few people use them, and every flight still creates tons of
carbon dioxide. With breakthroughs such as electric or hybrid jets unlikely to see commercial service before the 2030s, a quick technological fix for
the CO2 problem is improbable, says Tim Clark,
CEO of Emirates. “In the next couple of decades,
we might see some short-haul aircraft” with hybrid
engines, he said at a September conference in
London. “But with long-haul, it’s much more difficult.” �William Wilkes, with Stefan Nicola
THE BOTTOM LINE Airlines have few options as even the newest
aircraft emit far more CO2 than trains, and electric or hybrid jets
won’t likely enter commercial service for almost two decades.
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Bloomberg Businessweek
42
I’m Lov
C E O S te v e
McDonald’s
E a ste
into
September 30, 2019
By Thomas Buckley
P h oto g r a p h s by
vin’
rbrook
the
age
Leslie Patton
E va n J e n k i n s
and
I.T.
is
le a d i n g
of
code
43
T
44
hree years ago, Steve Easterbrook ran out of
patience. Before flying home to Chicago for the
Christmas holidays, he stopped in Madrid to meet
with Spanish executives from McDonald’s. In a conference room at the company’s local office off the A6
highway, the mood soured as managers lamented heavy losses
on the e
venings when FC Barcelona and Real Madrid C.F. competed. Diners were staying home and ordering from archrival
Burger King for delivery—a service McDonald’s didn’t offer.
Conceding to Burger King in any circumstance is an indignity, but losing hundreds of thousands of customers to the
enemy’s modernized tactics during one of Spain’s most important weekly fixtures was the final straw. It represented everything that was defective at the business Easterbrook had been
running for 22 months—McDonald’s Corp. was just too analog. A week before he was named chief executive officer, the
company announced it had suffered one of its worst years in
decades as dejected U.S. customers abandoned the brand for
Chipotle burritos and Chick-fil-A sandwiches. In the U.K. hundreds of artisanal burger competitors had appeared seemingly
overnight on the food-delivery mobile app Deliveroo, which
indulged the couch potato demographic with an unprecedented ease of access that felled the appeal of McDonald’s
drive-thrus. The time had come to address a weakness that
stretched far beyond the company’s Iberian territories.
“He looked at me and said, ‘We’re not going to go through
the traditional market pilot and study delivery for six months.
We’re just going to do it,’ ” says Lucy Brady, who oversees
McDonald’s global strategy and business development teams.
He instructed her to get every country manager on a conference call on Monday morning.
Brady cautioned him that it might be difficult to reach some
managers who’d already left for the holiday; Easterbrook said
everyone could spare a half-hour. He would command each
manager to nominate their best executive to the task of building an online delivery business that would aim to be fully operational by the beginning of January—in two weeks’ time. When
Brady suggested they target delivery from 3,000 restaurants by
July 1, he told her he would be disappointed if they didn’t get to
18,000—about half of McDonald’s locations around the globe.
Management’s compensation would be tied to the speed and
breadth of the rollout, and the only limiting factor Easterbrook
would accept would be the number of couriers in cars, on
bikes, and on foot that their delivery partners could supply.
For the widest possible deployment, McDonald’s teamed
with Uber Eats. The partnership was so significant that Uber
Technologies Inc. devoted two full pages to its then-exclusive
delivery agreement with McDonald’s in a roadshow prospectus ahead of Uber’s initial public offering in May. Easterbrook
now regularly uses the service while traveling on business to
gauge its quality.
“I’m a Quarter Pounder guy,” he says with a calculated slowness not unlike Daniel Day-Lewis’s “I’m an oil man” in There
Will Be Blood. The 52-year-old British CEO has the tall, broad
frame of a rugby player, with thick waves of black hair and
September 30, 2019
piercing blue eyes. He’s described as an inscrutable blend of
mild manners and obsessive competition by members of his
fresh-faced leadership team. (Upon taking the top job in 2015,
Easterbrook fired or let go 11 of the 14 most senior executives
he inherited.) He expects the delivery business to account for
about $4 billion in sales by the end of this year.
Catching up to Burger King on delivery would be the first
item on a long list of improvements Easterbrook already had
in mind for McDonald’s. Broadly, he wants to reconfigure his
restaurants into enormous data processors, complete with
machine learning and mobile technology, essentially building the Amazon of excess sodium. Franchisees have balked
at the costs of implementing his vision, which includes drivethrus equipped with license-plate scanners (the better to recall
one’s previous purchases) and touchscreen kiosks that could
ultimately suggest menu items based on the weather.
So far, the strategy has proved compelling: Only a handful of other companies in the S&P 500, almost all of them
California technology suppliers such as semiconductor giant
Advanced Micro Devices and chipmaker Nvidia, have outperformed McDonald’s returns since 2015. The gains have generously rewarded institutional investors like BlackRock Inc. and
Vanguard Group Inc., who’ve long been among the chain’s largest backers. Easterbrook wants to reclaim the company’s image
as a beacon of innovation, a designation McDonald’s hasn’t
enjoyed since roughly the Truman administration.
I n 1940 brothers D ick and M ac M c D onald redesigned
and rebuilt their modest hot dog drive-in, in the shadows of
California’s San Bernardino mountain range, into McDonald’s
Bar-B-Q, which sold 25 items. By 1948 they dropped “Bar-B-Q”
from the name and streamlined the menu to offer only the
most profitable foods: hamburgers, cheeseburgers, potato
chips, coffee, soft drinks, and apple pie. The restaurant seated
about a dozen customers on outdoor stools and sold 15¢
hamburgers, which were bagged within 30 seconds of being
ordered thanks to the pioneering Speedee service system.
The system had begun with the brothers sketching out lifesize kitchen blueprints on a tennis court with chalk and having employees act out cooking and serving tasks. After settling
on the fastest method, they contracted kitchen equipment
companies to build machinery to support the choreography. Breakthroughs included custom-made saucing guns for
the buns and curved steel ramps on which burgers would
slide down into cashiers’ hands to pass on to diners. At the
time, only a handful of burger chains were using similarly
bespoke hardware.
No one was as passionate about McDonald’s potential for
expansion as Ray Kroc, a struggling milkshake machine salesman from Illinois who met Dick and Mac at their restaurant in
1954 on a business trip. McDonald’s had by far the most efficient kitchen he’d ever seen, and he immediately lobbied the
brothers to let him franchise the business. In 1961 he bought
out the co-founders for $2.7 million, and in 1965 he took the
company public. Today, McDonald’s is the world’s most
Bloomberg Businessweek
recognizable restaurant empire and a formidable real estate
venture—its franchising model has earned the company a fortune by acquiring and subsequently leasing the land beneath
stores to their operators.
For a half-century, McDonald’s greased its way onto every
continent except Antarctica. It stayed ahead of scores of
copycats, but the baby boomer loyalty that propped it up has
steadily waned. It’s also become something of a cultural laggard. The suitability of McDonald’s in a looming Age of Kale
was aggressively pondered in Super Size Me, the 2004 documentary film in which director Morgan Spurlock attempts to
subsist on the restaurant chain’s food for a month. He cast
the company as an abhorrent peddler of heartburn and substandard bowel movements.
New touchscreen
There’s also the inevitable
soda machines;
discomfort of being one of
cups promote the
McDonald’s app
the world’s largest purchasers
of beef and poultry. Younger
generations concerned about
the environmental cost of
industrialized meat are opting for plant-based alternatives such as Beyond Meat
and the Impossible Burger,
which is now available at
Burger King. Animal-rights
activists regularly erect giant
inflatable chickens with
bereaved expressions on the
sidewalk outside McDonald’s
new head office in downtown
Chicago.
The company boasts a
market valuation of $159 billion and an immense global
reach, feeding about 1%
of the human population
daily. But even in the fastfood realm it dominates, its
share of the U.S. market has
shrunk to 13.7% from 15.6% in
2013, according to data from
Euromonitor International, ceding ground to Pret a Manger
and Panera Bread Co. In the burger wars, it’s been besieged
by cooler competitors with cult followings, including Shake
Shack, Five Guys, and In-N-Out. Earnings began to stagnate at
McDonald’s in 2013 and crashed by almost a fifth, to $4.7 billion, the following year as diners deserted. Four months before
stepping down in March 2015, Don Thompson, Easterbrook’s
predecessor, lamented that the company had failed to evolve
“at the same rate as our customers’ eating-out expectations.”
As insurgents claimed an ever-growing share of the market
McDonald’s had created, the morale at the old headquarters in Oak Brook—a tranquil if uninspiring 1970s amalgam of
gray cubicles set in a parkland in Illinois—began to sap. The
September 30, 2019
“I t
was pretty
obvious we were
operating and
moving slower
than the
outside world ”
company’s strategic quagmire
took on a superstitious quality
when the estate itself became
a hive of bad omens, with
parts of the office complex
flooding on an annual basis.
E asterbrook bec ame
global chief brand officer in
2013. The following year, he
traveled to Cupertino, Calif.,
to sit down with Tim Cook,
Apple Inc.’s CEO, to discuss
being a launch partner for
the Apple Pay mobile payment system. The card readers McDonald’s used lacked
the necessary technology,
so Easterbrook had a digital add-on installed on every
machine at its 14,000 locations in the U.S.
Easterbrook first joined
McDonald’s in the finance
department in London in 1993, and spent the majority of his
career there. After graduating with a natural sciences degree
from Durham University, where he played competitive cricket
alongside the future England captain, he worked as an accountant for the partnership that would become PwC. He later
worked as a restaurant manager for McDonald’s before being
named to head its U.K. division, which he turned around in the
2000s after years of waning sales. In that role, he mounted a
defense against fast-food critics by debating them on live television. He revitalized the company’s image as a family-friendly
outlet by introducing organic milk, cutting the fries’ salt content, and offering free Wi-Fi. He also tried unsuccessfully to
get the Oxford English Dictionary to amend its definition
45
Bloomberg Businessweek
September 30, 2019
A shield at Chicago
headquarters
features one fry for
each continent
46
of “McJob,” a slang term used
since at least 1986 that denoted
“an unstimulating, low-paid job.”
In the fall of 2014, McDonald’s
went public with “Experience
of the Future,” an initiative
Easterbrook had been shepherding. It reimagined the store
entirely, from how orders were
placed to what services were
offered. In the upgraded restaurants, diners can use touchscreen
kiosks to customize their burgers into millions of permutations,
such as adding extra sauce and
bacon to a Big Mac. The thinking
was that giving customers more
say over their orders would result
in them paying more for tailored
items. Some franchisees have benefited so much that their restaurants’ sales are now growing at a
double-digit rate. But others have
banded together in open rebellion and forced the company to
slow the program’s full rollout two years past its original target. They object to the enormous costs of the project, which,
for owners of several locations, can run into tens of millions
of dollars, even with McDonald’s offering to subsidize 55% of
the capital for the remodels.
From a business perspective, the enhancements are achieving what they set out to do—annual profits have inched higher
since Easterbrook’s appointment, and McDonald’s posted its
fastest global sales gain in seven years last quarter. Initiatives
such as all-day breakfast, which includes the staple McMuffin,
and new products like doughnut sticks are also credited with
bringing customers back even as the expanded menu hampers
the classic McDonald brothers’ efficiency.
The company has also introduced a curbside pickup system. An order placed through the McDonald’s app automatically appears on the store’s order list when the diner’s phone
is within 300 feet of the property. The food is prepared and
delivered to the curb by floor employees. The workers and
franchisees who’ve long complained about low hourly wages
and poor working conditions in campaigns such as Fight for $15
have generally taken a dim view of Easterbrook’s overhaul.
Westley Williams, a Floridian in his early 40s, says the initiatives and the chaos caused by mobile app orders, new items,
and self-order kiosks riddled him with so much anxiety that he
defected to nearby burger chain Checkers. “It’s more stressful
now,” said Williams, who added that he didn’t get a raise for
doing more work. “When we mess up a little bit because we’re
getting used to something new, we get yelled at.”
Concerns about staff welfare have become a major issue
for McDonald’s in the U.S., where the median pay for food
and beverage service workers is $10.45 an hour. Accusations
of coercion soared this year after
workers filed a total of 25 claims
and lawsuits alleging endemic sexual harassment. The complaints
have since become a national conversation and part of the political
fabric: In June a group of eight
senators led by Democrat Tammy
Duckworth of Illinois and including 2020 Democratic presidential candidates Bernie Sanders
of Vermont, Elizabeth Warren of
Massachusetts, Kamala Harris of
California, and Amy Klobuchar
of Minnesota sent a letter to
Easterbrook decrying “unsafe
and intolerable” conditions and
“unacceptable” behavior in the
chain’s restaurants.
Carlos Mateos Jr., whose family
owns 21 stores near Washington,
D.C., says Easterbrook’s modernization has succeeded in attracting
new customers to his restaurants, but revamping everything
simultaneously was a burden. About a quarter of his franchises
still need to be remodeled. “There’s training that’s involved.
We have to get the employees ready for it—mobile order and
pay and Uber Eats and kiosks. All these different things are
happening at the same time, and it really took a toll on us.”
Adding an Uber Eats counter for delivery, touchscreen
kiosks, modern furniture, and power outlets to charge mobile
phones means franchisees incur additional costs from $160,000
to $750,000 per restaurant, McDonald’s has said. Blake
Casper, a Tampa-based franchisee who operates more than
60 McDonald’s and founded the National Owners Association
last fall to resist Easterbrook’s amelioration plan, would theoretically have to fork over at least $5 million to make the CEO’s
dream a reality.
“I would like to make the kitchen as stress-free as it possibly can be,” says Eli Asfaw, who operates seven franchises in
the Denver area. For a start, scaling back rollouts mandated by
the company, such as all-day breakfast, would “make it easier
for us to keep people and make our people happy.” Asfaw also
says the remodeling plan has heaped pressure on owners, from
financial headwinds to the tight window in which the company
wants the upgrades to be completed.
The resistance from a faction of franchisees to Easterbrook’s
mandated remodels—in some cases d
rastic enough to require a
restaurant to be razed and rebuilt—reached a breaking point in
January. The National Owners Association wrote in a letter to
its 400 members then (it now counts more than 1,200) that the
changes should be halted amid concerns about eroding profits and the costs of implementing Experience of the Future.
“To put it bluntly,” the letter read, “stop everything that is not
currently in the works.”
DATA: COMPILED BY BLOOMBERG
Bloomberg Businessweek
September 30, 2019
Easterbrook concedes his rollout hasn’t been perfect. Aviv, for $300 million—the c ompany’s largest acquisition in
“We were just going so hard at it, it proved to be a bit of a hand- 20 years. The burger chain had been testing the machine
ful,” he says of introducing the features in the U.S., many of learning software on drive-thrus at four restaurants in
which had already been phased in years before in France and Florida, where screens automatically updated with different
Australia. While franchisees were right to put off remodeling items based on the time of day, restaurant traffic, weather,
to ensure they weren’t distracted from efficiently running their and trending purchases at comparable locations. That techrestaurants, the domestic business was in dire need of a signif- nology has been deployed at 8,000 McDonald’s and counticant revamp, he says. The number of customers visiting U.S. ing, with plans to be in almost all drive-thrus in the U.S. and
stores had been declining in the last half of his predecessor’s Australia by the end of the year, Easterbrook says. The deal
tenure. “It was pretty obvious we were operating and mov- signaled an ambition to align the chain with the same predicing slower than the outside world, and customers were vot- tive algorithms that power impulsive purchasing on A
mazon
ing with their feet.”
.com or streaming preferences on Netflix. In April, McDonald’s
In November, McDonald’s said it was slowing the pace of acquired a minority stake in New Zealand-based mobile app
remodels in the U.S. The conversations are often fraught. When vendor Plexure Group Ltd., which helps restaurants engage
Easterbrook invited eight franchisees to break bread with a with diners on their phone with tailored offerings and loygroup of McDonald’s executives at a steakhouse in Washington, alty programs. The effort falls into the consumer-goods indusD.C., in April, one operator accused him of saddling stores try’s wider trend toward micromarketing, which has proved
with impossible demands. For longtime managers who back effective in driving sales.
Easterbrook’s goal and enjoy the internal energy it’s created,
In early September, McDonald’s said it was buying Silicon
the prospect that his plans could fall through is unthinkable.
Valley startup Apprente Inc., a developer of voice-recognition
“When they ask a question that’s a bit of an attack, I sit technology. The idea is to help speed up lines by eventually
there and get a little pissed, because I’m ready to lean in,” says having a machine, instead of a person, on the other side of
Charlie Strong, a 66-year-old McDonald’s executive who over- the intercom to relay orders to kitchen staff. The deal for
sees more than 5,700 restaurants across the western U.S. He Apprente is McDonald’s third such investment in a technolaffixes a lapel pin of the letter “M” in the style of the golden ogy business in the past six months as the company shakes
arches logo to a navy Brooks Brothers blazer, and his right off a tamer takeover strategy that for decades had focused
pinkie is weighed down by a 14-karat y
ellow
on buying and selling restaurants from or to
gold ring inset with five diamonds, onyx, and
McDonald’s revenue
operators. McDonald’s is pursuing this new
the golden arches. The company gave it to
business model even as the latest burger
Share price
him to celebrate his 25th anniversary with
trends steal the buzz from its offerings.
$212
McDonald’s. He expects to receive another
Beyond fashionable vegan patties, a new
and daunting foe is the fried chicken sandfor his 50th in two years.
$20b
Strong says one of Easterbrook’s key qualiwich at Popeyes Louisiana Kitchen (a Miamities is that he doesn’t take any criticism of his
based chain owned by the same company
strategy personally. “He just rolls with it and
that controls Burger King), which became a
swings it back to what’s important about the
national obsession when it was introduced
10
business, what’s important about the vision,
in the U.S. in August.
and to not get bogged down with these little
McDonald’s has leased space in a discreet
things along the way.”
industrial complex more than an hour away
Easterbrook’s strategy so far has been
from headquarters, where a gray building
$24
0
about the size of an aircraft hangar, with a
vindicated by the numbers. That tailwind is
single column painted yellow and dotted
breathing new life into the business. Strong
19972019
ESTIMATED
drives 40 miles from his home in Aurora, Ill.,
with sesame-seed stencils, has become a testevery morning to be at his desk by 6 a.m., where he and a ing ground for putting Easterbrook’s thoughts into practice.
handful of other masochistic early risers blast rousing tunes by But for all the technological breakthroughs, the deals, and
Journey or Adele on a Bose sound system to get the day going. the jousting with franchisees, the company’s guiding light has
It’s a routine they began after moving into the new head office, barely changed. Inside a room beyond a corridor stamped
a $250 million building replete with sofa pods in the red and with the word “innovate” in block capital letters, the hum of
yellow McDonald’s color scheme, an amphitheater, rooftop computers and data processing towers is drowned out by a
terraces, and thousands of antique and modern Happy Meal cacophony of test-kitchen staff running trials on secret protoys locked inside cased glass like priceless museum speci- cesses that aim to shave seconds off a Big Mac’s assembly,
mens. Easterbrook opened the office in June of last year in a much like in the old days, when McDonald’s first upended
bid to attract young, tech-forward talent.
the food industry. “In old-school business logic, the big eats
In March, McDonald’s acquired artificial intelligence the small,” Easterbrook says. “In the modern day, the fast
startup Dynamic Yield, headquartered in New York and Tel eats the slow.”
47
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PHOTO ILLUSTRATION BY 731; PHOTOS: BLOOMBERG, GETTY IMAGES
◼ TECHNOLOGY
Bloomberg Businessweek
We’ll soon find out if SoftBank founder Masayoshi
Son is a tech visionary or a genius in financial engineering. He started the $100 billion Vision Fund
barely three years ago, and SoftBank is already making good money from asset management. In the fiscal year ended in March, more than half of SoftBank
Group Corp.’s operating income came from unrealized valuation gains of investments it made via the
Vision Fund, eclipsing earnings from core operations such as its domestic telecommunications.
But now SoftBank has a problem: WeWork. The
initial public offering of its parent company, We Co.,
is being delayed, and when it does occur, the stock
market may value the company at as little as $15 billion, about one-third of the $47 billion valuation it
had when Son last put money into the company. As
the September quarter draws to a close, SoftBank
will need to decide whether to write down the value
of its 29% stake in WeWork. A representative for
SoftBank declined to comment.
Fair-value accounting rules do give venture capital firms a lot of leeway in pricing their investments. There is no true mark-to-market number for
WeWork, because its shares aren’t publicly traded.
There are no publicly listed peers SoftBank can
benchmark to, either, because Son’s unicorns are all
unique. He could use an income-based accounting
model to justify his price tag, arguing that WeWork’s
business outlook hasn’t really changed.
But that wouldn’t be prudent. WeWork and Uber
Technologies Inc. are the two highest-profile unicorns the Vision Fund has bought into, and by now,
the whole world knows Son overpaid. SoftBank’s
books look a bit like the emperor has no clothes.
People may think he has something to hide if he
doesn’t update WeWork’s valuation. “Fair value
should be affected by a failed IPO,” so Son should
be preparing for a writedown, says Allen Huang,
associate professor of accounting at the Hong Kong
University of Science and Technology.
Not to mention that consistency is important
in fair-value accounting. In the past, SoftBank has
been quick to write up its startups’ stakes—even
if the so-called fair value was based only on later
funding rounds—so it should be responsive with a
writedown, too. For example, in the June quarter,
SoftBank booked 408.5 billion yen ($3.8 billion) in
unrealized gains, partly because of its investment in
Indian hotel chain Oyo, whose valuation had doubled from $5 billion in September 2018 to $10 billion. Analysts have already raised eyebrows: The
biggest investor at Oyo’s latest funding round was
its own founder, Ritesh Agarwal, whose share purchase was financed by a group of Japanese banks
that also count the debt-laden SoftBank as one of
their biggest clients. Refusal to report the valuation
loss on WeWork would only raise more concerns
about corporate governance.
And embarrassingly, a realistic value for WeWork
right now would be even lower than the $15 billion
that’s floating around on Wall Street. That figure
is based on a successful IPO, which would generate $3 billion from share sales and be accompanied by $6 billion in loans that are contingent on
a listing. Without an IPO, will SoftBank be able to
arrange the $9 billion WeWork needs to reach its
full potential? If not, its valuation should be lower.
We’re staring into billions in losses. Since January
2017, SoftBank, directly and through its Vision Fund,
has invested into the startup at an average valuation
of $24 billion, according to estimates from Bernstein
Research analyst Chris Lane. So if, say, the fair value
of WeWork drops to $15 billion, SoftBank could face
up to $2.8 billion in writedowns, practically unwinding the unrealized valuation gain it recorded in the
quarter ended in June.
Of course, Son could choose to not write down
the value at all. But he runs a venture capital fund,
and we all understand that not every investment
needs to be successful. Fair value of such a fund goes
up and comes down. If the Vision Fund’s value only
rises or is somehow kept eerily stable, then investors may have questions about the credibility of its
accounting. �Shuli Ren, Bloomberg Opinion
THE BOTTOM LINE Wall Street’s shrinking valuation of
WeWork is forcing SoftBank to confront the fair valuation of its
investment—or face questions about corporate governance.
Recycled Plastic
You Can Use
● Procter & Gamble has found a way to clean
polypropylene so more can be recycled
In the U.S., more than 25 million tons of plastic
a year ends up in landfills. Polypropylene—the
rigid plastic favored for deodorant containers and
shampoo bottles—is one of the biggest culprits.
Just 3% of it gets recycled—compared with about
29% for polyethylene terephthalate soda bottles—
because of technical problems. Now a scientist at
Procter & Gamble Co. thinks he’s solved them.
It’s difficult and expensive to rid recycled polypropylene of the smell of the product it housed
September 30, 2019
● WeWork’s valuation
when Son made his
most recent investment
$47b
● What investors are
estimating the business
is now worth
$15b
17
◼ TECHNOLOGY
Bloomberg Businessweek
September 30, 2019
in its first life. Some scents are particularly
offensive, such as gasoline or moldy yogurt. And
the recycled material ends up black or gray, which
makes it tough to reuse in packaging, so it often
ends up hidden away from the consumer’s eye
inside park benches and auto parts. “We really
want to maximize the amount of recycled plastic
we can use, but there’s a psychology to this—we
signal to consumers safety and cleanliness with
our products, so we can’t sell stuff that is in gray
or black bottles,” says John Layman, a polymer
chemist at P&G in Cincinnati who’s been working
on boosting polypropylene recycling for a decade.
Layman long focused on a sandwiching technology that’s allowed P&G to place recycled plastic between layers of virgin plastic in Tide laundry
detergent bottles since the 1970s. At best, that
technique brings the amount of recycled material in a bottle to about 25%, and it doesn’t work
if you’re trying to make a product in an injection
mold—like a toothbrush.
Around 2010, Layman turned his attention to
cleaning up the polypropylene. He says he developed a process that purifies the plastic at the
molecular level to produce clear, odorless, nontoxic pellets that can be used to make a 100%
recycled bottle. The system requires only about
From top: A worker
checks finished, clean
polypropylene resin;
the PureCycle feedstock
evaluation unit; bales
of old carpet set to be
processed
18
● U.S. plastic generated,
in tons
◼ Recycled
◼ Combusted in
energy recovery
◼ Sent to landfill
30m
20
10
0
19602015
◼ TECHNOLOGY
Bloomberg Businessweek
one-seventh of the energy used to make virgin
polypropylene.
Procter & Gamble, wanting to get the product to market quickly, licensed Layman’s technology to a startup backed by Gregory Wasson,
former chief executive officer of Walgreens Boots
Alliance Inc. The company, now called PureCycle
Technologies, deployed the process at a commercial scale for the first time in July at its $300 million plant in Hanging Rock, Ohio, where it expects
to be able to process 119 million pounds of plastic waste a year.
PureCycle has signed contracts with P&G,
Milliken, Nestlé, and L’Oreal to produce the plastic and has presold more than 20 years of output from its first plant. PureCycle says it hopes to
expand to other cities in the U.S. and Europe in
the next few years.
The company has found a way to run almost
any product made with polypropylene through the
process, so it can use materials most traditional
waste haulers won’t attempt to recycle. It’s run
broken hangers, old carpets, and even a disposable diaper through the cleaning process in trials
to test how it works with hard-to-recycle products,
and found it still produces pristine, clear plastic.
The company is focusing on recycling carpets for
now. “Part of the reason this waste hasn’t been
collected before is because there weren’t consistent acquirers of that waste stream,” says CEO Mike
Otworth. “We hope to change that—as long as it’s
got a high percentage of polypropylene, we’ll be
able to clean it up.” �Emily Chasan
THE BOTTOM LINE Consumer giants have struggled to use
ugly, smelly recycled polypropylene. Technology developed by
Procter & Gamble promises to fix the problem.
PHOTOGRAPHS BY ANDREW SPEAR FOR BLOOMBERG BUSINESSWEEK. DATA: ENVIRONMENTAL PROTECTION AGENCY
Uber Returns to
Brazil’s Favelas
On a hot afternoon in early September, fruit seller
Cosmo dos Santos Araujo sits in his usual spot in
front of the public hospital in Vila Heliópolis, the
largest of São Paulo’s favelas. He’s feeling good about
the past five months, when business was better than
ever. Sales started to rise almost immediately after
Uber in March installed a new pickup point next to
his fruit stand. “I’ve been here for five years, and
sales definitively have improved,” he says, holding
his young daughter as he reaches over to an Uber
driver to hand him a slice of watermelon.
Ewelyne Luis Santos Maciel, a cleaning woman,
is waiting for a ride home to Vila Moraes four kilometers (2.5 miles) away. Before the pickup location
was established, she says, visiting relatives in the
neighborhood was much harder.
Uber is making another attempt to set up shop
in Brazil’s poorest neighborhoods. Getting people
like Araujo and Maciel on its side is a crucial part
of the effort. In number of rides, São Paulo is Uber
Technologies Inc.’s biggest market worldwide,
according to the company. Poor neighborhoods
and suburbs, including favelas—where transportation options are limited and overcrowded and car
ownership rates are low—represent a big opportunity. “Favelas are a giant market, and in Brazil
September 30, 2019
● The company is tailoring its service for one São Paulo
neighborhood with help from local residents
alone $20 billion in revenue circles inside these
communities every year,” says Pedro Sampaio,
Uber’s social impact manager in Brazil and head
of the Heliópolis project.
But these neighborhoods also present challenges for a company that from its earliest days has
grappled with driver and passenger safety problems. Uber first entered Brazil in 2014. Two years
later, a wave of attacks against drivers resulted in
at least 16 deaths, according to Mike Isaac, author
of Super Pumped: The Battle for Uber. Uber started
blocking favelas as a pickup/dropoff option on its
app. That created the perception that it was discriminating against those living and working in the
favelas. As great as the opportunity in the favelas is, the company says it had to figure out a better way. Uber declines to comment on the figures
reported by Isaac in his book; it acknowledges that
neighborhoods with a high percentage of unfinished rides remain blocked, including most of
Brazil’s slums.
More than 10 million Brazilians live in favelas,
where gangs backed by organized crime control
large swaths of territory. Armed drug dealers thrive
on the favelas’ curved streets and in badly lighted
alleys. Most of those living in the neighborhoods
19
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