Q2 2020 Mcdonald's Corp Earnings Call

It gets around the world, including the U.S. are having with with our franchisees right now one of the things that we need to make sure is that.

Coming out of Q2, and I think maybe some of the just the shock that sort of went through the system as the pandemic spread we ended up as I talked about in terms of our reduction of marketing support we went into more of a defensive posture now as we kind of go into a more normal or what were kind of.

During new normal next normal whatever the the phrase you want to use operating environment to time for us to get back on the front foot. That's why we have the marketing were chest, but it also means that we are going to need to be thinking about how affordability and value can play for all the reasons you were mentioning in your question.

Our next question is from John Ivan Co with JP Morgan.

Thank you very much of the two part question. If I may 1st obviously, there have been a lot of consumer behavior changes because of Kobe. Then I was curious as what behaviors that you think will come back to normal to 2019 for example, and you if any of that is you basically leading you to reconsider the way that.

Some of your dining rooms are going to be used in other words separating the temporary changed from consumer behavior using dining rooms in sitting next to each other what have you to more permanent ones in the second part of the question is from an organizational perspective, Chris. Some of you. Obviously you got that had seat at mcdonalds that your various auspicious time with such a major.

Disruptive event coming shortly after you took the job where you in terms of you're thinking about you are the right organizational structure from an efficiency and effectiveness point of view of the overall Mcdonald's organization as we look forward. Thanks.

Yeah. Thanks, John.

On the dine in I'm very happy that and I mentioned this I think on our last earnings call that we are almost completely through Oreo T.F. remodel program I think that has positioned us very well for the future certainly one of the questions that I get a from franchisees as pay you know we spent.

On the dining rooms, as we went into the pandemic.

We still feel good about that and my answer is absolutely a in fact.

If you look at some of the markets like Australia. For example that have remained open that have had dining rooms opened one of the interesting things is we're seeing kiosk usage.

In Australia is up by a meaningful amount and so I think some of the things that we did with experience of the future and the order modifications were the new order channels like kiosk are playing right to this now certainly what we're seeing overall and Kevin mentioned this is a that dine in.

As a percent of our business is a smaller amount today because of the growth of drive through I think our view is as you look out over a longer period of time.

We do believe that dining is still going to be an important part of the mix, we're not going to be able to get to growing traffic without getting our died ends opened so I think your we're still going to see dine ins as being an.

An important part of the business, but in terms of enduring behavior I think whether it's the use of kiosk the use of mobile use of delivery. The use of drive through certainly one of the things is that customers are looking for more of a contact list type of experience, they're looking for more of a digit.

Little type of experience one that they can navigate on their own.

I do think that that behavior is going to be an enduring change, which is why I mentioned that.

Threed ease for us delivery drive thru and digital are going to be important strategic priorities for us.

For the foreseeable future and we'll have more to share about the terms of work.

Changes I I must admit I've not heard my coming in as as being described as auspicious, but I will take us fishes. So thank you for that.

But you know for US there's there have been certainly a lot of twist and turn in.

In the Covance Road.

We are looking at.

What does all of this mean for the longer term, but I don't anticipate that there is going to be any.

Major changes that we that we would do as a result.

As all of you know we went through a pretty significant gionee rationalization over the last several years not just in the U. us, but globally and I think that that.

Put us in a very good position for where we're at now and when I look at spans and layers and all the typical things that you did look at from a gene a perspective I think we're in pretty good shape, there, but there are going to be areas that we're going to need to think about and I'll just highlight one as we move to more.

Virtual learning.

How do we think about training and development and what does that organization need to look like what's going to be the balance of in person training that we do versus training that made might be done virtually so there will be some things that we need to think about organizationally, but I would say that those are on the margins I don't anticipate.

Anything substantive for the broader group.

Our next question is from Chris Carroll with RBC.

Thanks, and good morning.

A recent discussions with franchisees where has been the greatest focus in terms of the opportunities for continued improvement moving forward. So are these conversations mainly focused on continued operational improvements and efficiencies or is the focus beginning to turn to other demand deriving opportunities from here like menu innovation or loyalty. Thanks.

Sure. It's definitely on the latter I think we have done a great job and credit to franchisees across the globe around.

Grabbing that the opportunity to improve our restaurants are running.

We were mentioning earlier, we see customer satisfaction scores in I think eight about out of our top 11 markets are up and up.

By pretty significant amounts I think all of that is credit to the operational modifications that we've made but as as we've now I think gotten those embedded there is an opportunity for us.

To get aggressive in going after share and that.

Marketing war chest that I talked about earlier, but thats getting on the front food and foot on things like affordability and so that conversation does vary market by market, depending on what's going on but I think the mentality for US now is.

That we have gotten a business to a good position I think regardless of whether we enter a recession don't enter a recession.

Whether we have a resurgence we don't have a resurgence of the virus all of those things are going to vary by country, our mindset needs to be now pivoted strongly toward going after share because I think thats the opportunity that we have.

Our next question is from Matt Difrisco with Guggenheim.

Thank you all my questions on delivery and I just wanted to know about how.

How thats progressed and as the mobility and then the U.S. has improved and people are known to the drive through more and getting out and about if you've seen delivery actually either come down as a percent of sales or absolute dollars.

And then I just wanted a clarification I think you said before that 70% of the business was dynamic in the international market or is that 70% purchases in store, so not necessarily sitting down and dining book revenue going as well from an in store purchase.

Now, let's get Kevin on the action here, Kevin Yes, so on the delivery.

I'd say across the board really in.

Basically every one of our markets certainly, adding every one of our significant markets. We are seeing dealt with delivery as a percent of sales go up.

I mentioned in my remarks.

Australia.

Specifically growing to about almost 10% of sales and we've got several markets on the international side at that 10 or above even the U.S. isn't that 10% a sales, but it has grown significantly during the pandemic. So.

And that's even with drive through growing significantly et cetera, So we're not seeing.

Either drive-thru take away from delivery or delivery take away from drive through both our growing significantly and again, that's that's a pretty consistent theme around the world I'd say.

Again overall delivery as a percent of failed to us is a little lower certainly than.

Most of our international markets, but growth across the board.

The second question was 70% Oh, yeah, the 70% of of restaurants, the 70% that I mentioned of our international markets.

Is it in restaurant ordering meaning that they were going in the restaurant. Some of those were eating in some of those were taking away, but they were actually ordering at the front counter at the kiosk in the restaurant versus going through the drive through so it wasn't all dine in it was just kind of in restaurant ordering.

Which again could mean front counter or could mean kiosk.

Take one last question from Peter's delay with BTG.

Great. Thanks. Thanks for taking my question can you guys talk a little bit about the federal.

Assistance, that's been being paid out its you guys think there's any benefit that you are seeing that you can see in your numbers from the weekly unemployment benefits. The fed has been given out that's set to expire soon.

Just lastly, if theres any.

Any comments you guys can make on the financing environment for franchisees both in the U.S. and globally. Their access to capital has has that been curtailed at all or any sort of impact given the virus concerns.

Thanks, Peter I'll take the first part and then Kevin can can close out with the second but.

As you think about the government programs, they've certainly been helpful. When the first checks got caught on the $600 in the U.S. I mean, I think the impact of that was pretty apparent very quickly now to some degree. It is built into kind of the trends that we're seeing but.

The prospect of it rolling off I think.

Our expectation would be for the same reason that it was stimulative when it first was put in that the there would be some.

Negative implication if that were to roll off.

Now whether it rolling off of.

When from 600 to $200 I don't know if were that good to parse.

The details to that degree, but there certainly was a benefit not just in the U.S., but we've seen it in a number of other markets around the world that the government fiscal policy has.

Had a positive benefit on on comp and then Kevin I'll talk asset to you for the yes on financing for our franchisees in general our franchisees are still able to get financing pretty much around the world as they need it they have access to capital.

Certainly and one of the positives we've seen in the U.S., even that's why we're actually continuing to do those the OTI up projects and that the franchisees wanting to invest in the businesses they've got cash flow there. They have access to capital and are willing to invest so we haven't seen any drying up of financing pretty.

Much around the world I'd say that but I'd also say, we do have some international markets, where again they were closed for potentially a couple of months, even at a time and some individual franchisees would have taken on.

Some heavy debt over the last several years between neo TF projects potentially purchasing a restaurants et cetera. So there are individual organizations that I'd say are a little stretched but but it isn't a lack of access to capital. It's really just a kind of working through their their ratios.

Okay. Thank you, Chris and Kevin Thanks, everyone for joining that will conclude our call have a good day.

This does conclude Mcdonalds Corporation Investor Conference call you may now disconnect.