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. Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. 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 Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. 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 Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. Scanned with CamScanner
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