Photographer: Luke Sharrett/Bloomberg

McDonald’s Return to Chicago Defies City’s Financial Troubles

  • World’s largest fast-food chain joins company moves to Chicago
  • Violence, pension woes no obstacle to pursuit of millennials

The number of Chicagoans murdered this year is up more than 50 percent. Pension debt tops $20 billion, and taxes are soaring. Illinois’s governor calls the city’s government corrupt and its financially teetering schools “crumbling prisons.”

Yet McDonald’s Corp. is moving its headquarters from a sprawling, leafy campus in suburban Oak Brook to a spot just a couple of miles from one of the city’s most violent neighborhoods. The world’s largest fast-food chain is joining a parade of companies creating an island of prosperity amid urban dysfunction.

Corporations including Motorola Solutions Inc., Kraft Heinz Co. and ConAgra Foods Inc. are moving their headquarters or major offices into Chicago. McDonald’s said Monday it will relocate to the former site of Oprah Winfrey’s Harpo Studios, a bid to attract and hire millennials who, nationwide, are moving into cities.

“They’re following the labor force and they don’t want to be in the cornfields, out of sight and out of mind -- they want to be where the action is,” said Donald Haider, a professor at Northwestern University’s Kellogg Graduate School of Management, describing McDonald’s return to the city it left 45 years ago.

The decision is a boost for Chicago, which could use one after a series of reversals:

  • Last year its credit rating was cut to junk status. Chicago has the lowest grade among all major U.S. cities, except for formerly bankrupt Detroit.

  • While it remains the nation’s third-largest city, with 2.7 million people, fast-growing Houston, with 2.3 million, has grown by 200,000 since 2010 and threatens its status.

  • The number of homicides is up 54 percent over last year through the end of May, with shootings up 53 percent, according to the Chicago Police Department.

  • In addition to pension debts, which prompted Mayor Rahm Emanuel to push through the city’s largest property-tax hike last October, the deficit-riddled schools face insolvency as an almost year-old state budget stalemate stalls efforts to pump more money into the system.

Two days after comparing some of the city’s schools to prisons, Republican Governor Bruce Rauner said Chicago has been “corrupt and mismanaged and financially bereft for years.”

The unprecedented gridlock didn’t deter the hamburger chain’s decision, which affects about 2,000 employees. Its relocation is the latest move by CEO Steve Easterbrook to help turn McDonald’s into a more modern company, in part by drawing from the city’s supply of young professionals.

“Moving our headquarters to Chicago is another significant step in our journey to build a better McDonald’s,” Easterbrook said. “This world-class environment will continue to drive business momentum by getting us even closer to customers, encouraging innovation and ensuring great talent is excited about where they work.”

Since taking over more than a year ago, Easterbrook has slimmed down the menu as well as the payroll, dismissing corporate employees. The company also is trying to revamp its digital operations to catch up to rivals such as Starbucks Corp. and Yum! Brands Inc.’s Taco Bell. Attracting younger workers is part of that strategy.

Census data and private studies have shown that millennials, generally defined as the 77 million people born during a 20-year period starting in the early 1980s, prefer to live in urban environments because of the proximity to restaurants, jobs, shopping and entertainment. For the first time since the 1920s, according to a 2014 report by Nielsen, growth in U.S. cities outpaced growth outside of them, and millennials drove that increase.

Since January, Kraft Heinz moved 1,500 employees downtown from suburban Northfield. Walgreens Company and AT&T Inc. have also moved into Chicago. ConAgra is moving its headquarters from Omaha, Nebraska. McDonald’s said it will be downtown by 2018.

“McDonald’s, welcome back to sweet home Chicago,” Emanuel said in a statement on Monday. “I can’t wait to break ground and cut the ribbon.”

The demographic contrast between the fast-food giant’s current and future home is stark. Oak Brook is a village of 8,100 with per capita income of $81,000 and a 3 percent poverty rate. Chicago has 2.7 million people with per capita income of $29,000. Twenty-three percent live in poverty.

The risk to companies and employees who might bear the burden of fixing the city’s finances shouldn’t be minimized, said Joshua Drucker, a professor of urban planning and public policy at the University of Illinois at Chicago. It just might not be evident right now to employees.

Many are couples or singles without children, he said. “The condition of public schools is not on their radar.”

Drucker said he is “amazed” that more people aren’t aware of the costs of restoring the financial stability of the city’s pension funds, two of which are projected to run out of cash by 2029.

“If you are a millennial, it’ll be translated to higher rent and higher property taxes,” Drucker said.

Haider, a former Chicago finance director, said the companies are betting on the city to persist through its present crisis and thrive.

“Chicago has been around for 180 years, and, after a while, people tend to tune out the political rhetoric,” he said. “The business community believes that the city will survive it.”

Before it's here, it's on the Bloomberg Terminal.