Interview: McDonald's CFO Paul Pomroy

THERE WAS A TIME when a job at McDonald’s epitomised the lowest rung on the employment ladder. The term ‘McJob’ was coined as slang for a dead-end role with very little chance of inter-company advancement. The fast-food chain had become synonymous with any low-status job.

Judging by the career of Paul Pomroy, that could not be further from the truth. Having joined McDonald’s in 1996 from accountants Smith & Williamson as a real-estate analyst within the corporate finance department, Pomroy’s progression through the company has included responsibilities as regional financial controller for London and the South East, head of business strategy and head of commercial finance.

According to Pomroy, he “wasn’t particularly looking” at the fast-food retailer when he joined McDonald’s 18 years ago. The decision, he explains, was made on the back of an advert in Financial Director’s sister title Accountancy Age. McDonald’s had just placed an advert that had the bottom of Ronald McDonald’s legs with the famous stripy socks and the headline “like all other bluechips we like our accountants to wear pinstripes’.

“It just made me laugh,” he tells Financial Director. “It got me thinking about the brand.”

The decision clearly paid off. In November 2012, he became chief financial officer for McDonald’s UK & Northern Europe and, from the beginning of 2014, assumed further responsibility for financial oversight of the newly created North West Division, consisting of Denmark, Finland, Sweden, Norway, Luxembourg, Germany, Ireland and the UK.

But the term ‘McJob’ was never meant to refer to someone who could head up McDonald’s pan-European finance function. Pomroy disagrees, and points out that the business is renowned for developing talent. Indeed, some of the top people in finance began life working in its restaurants.

“Our director of finance is an ex-restaurant person. He started in our restaurants and is now number two in finance. Our newly qualified tax manager came from restaurants on the management scheme,” Pomroy says. “The McDonald’s philosophy regarding people is about you as an individual and not what you have done previously.”

Make a move

In terms of development, McDonald’s has a policy of rotating its finance team, more so than in other functions. “An accountant won’t stay in position for more than two years. You are expected to move around,” he explains.

Newly qualified accountants are expected to have “core disciplines” and top exam marks, but what Pomroy really wants is someone who can come into the business and work across functions and “move away from the black-and-white world of core finance into the broader world of making business decisions”.

Finance is required to provide insight across all business functions and work closely with everyone from marketing to supply chain, developing new product launches and supporting its franchisees by building projection tools.

One of the company’s recent successes, Pomroy says, has been the new iced drinks range, launched in June last year. Finance drove the process from initial development and testing to the rollout itself and creating a business case for its franchisees to invest in the new equipment, which had to be imported from the US. ROI for the average store is anticipated to be 90% in the first year.

“The finance team worked on currency hedging, bulk ordering, procurement and the most cost-effective way to move the equipment around,” Pomroy explains. “We had to get building work done to fit the machines in.”

The same was true of its investment in its coffee range. “We had to do future planning on coffee as much as blended ice because we were going from one machine per store to nearly three,” he says. Finance was also involved in “more fundamental stuff” such as the sales increase that would be achieved by blended ice, the increase in cashflow for the franchisees and the cannibalisation of existing drinks.

In the business strategy department, the team receives daily analysis of the previous day’s sales with an updated projection for the current month, as well as analysis on key movements in product mix for key promotions.

Pomroy says his involvement doesn’t occur on a daily basis, although he does “get really close” to new promotions, such as the launch of the blended ice range.

“I did get close to sales projections. Myself and the supply chain VP worked closely with the supply chain team, marketing and business strategy department to really understand what volume we could do,” he says. “We did very well against initial projections so that was supply chain pressure for us, but we never got down to less than six days’ stock because of all the prior planning and working with suppliers.”

Generally, however, Pomroy says he likes to take a step back to think about the longer-term trends affecting the business.

“I ask the team to look at projections in a slightly different way. I ask them to go back and take the projection for a specific quarter. How did we do against that and what changes in assumptions are needed to really understand our performance in the previous quarter,” he explains.

Community help

Franchisees account for 69% of the company’s 1,200 UK stores, and finance spends a lot of time “working through financial challenges” with the community. “We help them with investment decisions and internal models that they can use to work out the payback,” Pomroy says.

For instance, McDonald’s is developing side-by-side drive-thrus. “That means a business case. We work through the increase in car count required for the right ROI,” he says.

This approach is equally true for the restaurant reimaging that started in 2006 – gone are the pictures of Ronald McDonald, replaced with a “wood and stone” facia. The average investment is about £300,000 per store, a “sizeable investment” for the franchisee community.

Since 2005, together with its franchisees, the business has invested more than £300m in redesigning its restaurants through the reimaging programme. However, they are aided by the McDonald’s relationship with its banking partners, says Pomroy: “We have worked hard to ensure that our lenders are able to offer finance to our franchisees. You can’t just take the corporate debt piece. It all comes back to working together.”

Finance also works closely with the supply chain. “When we are running a promotion, it’s about working with suppliers to minimise cost and disruption, partnering on the cost of innovation and working with them to understand our projections,” he says.

However, that partnership doesn’t run to financially supporting suppliers. Instead, McDonald’s develops long-term agreements. On produce, such as potatoes, tomatoes and lettuce, the business signs three-year agreements so it has an assured supply, and the suppliers have a commitment from the business.

For instance, the company’s move to freedom-food pork last year was a cost investment. But Pomroy says that it gives assured supply to its suppliers because it was cost effective: “Because of our basket of goods and the way we take a longer-term approach, we could make that affordable decision to invest in pork.”

McDonald’s has also made strides in reducing fat and salt from its ingredients, and reducing sugar through increased choice. The average Happy Meal sold in 2012 contained 32% less sugar than it did in 2000. However, Pomroy says, this shouldn’t necessarily add cost.

“We work with suppliers in a forward-looking way. They have inflation built into their price, so they know what to invest in. It goes beyond the relationship and commitment to the long term,” he says.

Meat-packing

The company’s supply chain also held up well through the horse meat scandal in which a series of food companies – including the business’ competitor Burger King – were found to be providing food that turned out to be not quite what it said on the label. That incident – or series of incidents – raised numerous questions about whether suppliers and buyers were working closely enough together to ensure that the final product was exactly what it claimed to be on the packaging.

Pomroy says he was “very confident” that McDonald’s wouldn’t be caught by any issues going on. “It wasn’t arrogance. I felt for some of the other retailers because they probably had the same confidence,” he says.

“The steps for our supply are very short. There are only three or four steps from farm to abattoir to front counter. The transparency and audit trail is incredible. If we had a problem with a batch of meat in a store, we would be able to tell you which farm it came from, and which herd, within 24 hours.”

The business also managed to duck the corporation tax debate that has damaged the reputation of some of its US-owned rivals. In 2012, McDonald’s UK paid more than £54m in corporation tax and £168m in VAT.

“We have always had strong relationship with HMRC. They are very aware of the way we plan. We pay a very fair level of tax in UK,” he says.

Variety is the spice of life

But how is Pomroy coping with his expanded role? For one, he has to understand a wide variety of markets, including the local customer, the macro-economics within the market and the micro-effects for the franchisees.

That has meant spending a few days a year in each market. “You can’t just go in and say, ‘It worked in the UK so it will work in this market’. There are many cultural differences – not just for the customer, but in the way business is done in different markets,” says Pomroy.

The key is to not try to micro-manage. “It’s not my style,” he says. “You need the right people in the right place, and the right talent development and structure. I try to ask the right questions. It’s very important as a CFO to ask good questions and not always have an assumption about what the answer should be. There are ways you can use your experience to guide you, but you can’t run the market for the markets.”

There is internal governance and control policy that assists this, he says: “You have to sign off on new openings and franchising decisions. There’s a global framework but a high level of autonomy within that framework. In some markets, the signage palate is predominantly red, whereas in the UK and EU it is green and white.”

Since 2005, which Pomroy says was a “signal year” for McDonald’s, a lot has changed. Back then, it had generated flat to negative growth for five years. But with changes to the menu, signage and restaurant design, customers have had to reappraise the business. Clearly, the strategy has worked, with the fourth quarter of 2013 marking the company’s 31st consecutive quarter of growth in the UK.

Comfortingly, though, some things will always stay the same. “You have some autonomy over what you do in terms of colour palate and signage. But the M will stay. If you want to change that, forget it,” he says. ?

IN BLACK AND WHITE
2014 – present CFO – North West Division, McDonald’s
2012 – 2014 CFO – UK and Northern Europe, McDonald’s
2008 – 2012 Vice president – finance, McDonald’s
1996 – 2008 Various finance roles, McDonald’s