Q4 2021 Arcos Dorados Holdings Inc Earnings Call
Restated to reflect our recently announced reorganization from our from four to three operating divisions.
The information will also be available for download on our IR website later in the day.
We hope this helps you in your analysis of our cost drivers moving forward.
Our discussion today excludes the results of the Venezuelan operation both at the consolidated level as well as for the slab division for.
For your reference we included a full income statement, excluding Venezuela with today's earnings release.
So over to you.
Thank you Dan.
Everyone and thank you for joining us on today's webcast.
Since we already provided a preview of <unk>.
Fourth quarter results on our recent Investor update webcast today's presentation will follow a different format.
Mariana and I will comment on our strong consolidated results capital structure and growth plans.
We encourage you to review today's earnings release for the details of our results by Division.
After this brief overview our presentation will focus mainly on the successful Tvs strategy of digital.
Delivery and drive thru.
We will show you how far we have done.
We did it on what we are planning for the next few years.
Recent maile will walk you through our digital transformation journey.
So, let's start with our fourth quarter and full year 2021 results.
As we already reported in January sales trends remain very strong.
With additional market share gains across all divisions in the fourth quarter.
The three these established several new records.
The highest ever drive thru get volume.
The highest ever delivery order volume.
And the highest ever digital sales total for a single quarter.
These trends drove significant operating leverage leading to record EBITDA for a single quarter.
10, 5% in U S dollars versus a pre pandemic fourth quarter 2019.
Thanks to the record setting second half full year, 2021, EBITDA rebounded strongly including our highest ever full year EBITDA margin.
Over to you Mariano.
Thanks, Marcella and good morning again.
As you just heard adjusted EBITDA margin performance remained strong in the fourth quarter and set a new record for a full year in 2021.
At the restaurant level fourth quarter margin growth versus the same period in 2019.
We successfully managed our food and paper costs with gross margin improvements across the board.
Captured additional productivity to reduced payroll expenses, which also included some non recurring government support and other payroll tax credits.
And leverage fixed costs in occupancy and other operating expenses, mostly offsetting the impact of higher delivery volume on expenses.
Adjusted EBITDA margin expanded by 100 basis points versus the fourth quarter 2019, and was 160 basis points higher when we exclude nonrecurring items from both periods.
Cash flow from operations was also very strong last year.
This helped us build cash throughout the year.
Buy back some of our outstanding long term debt.
And together with the rebound in EBITDA improve our leverage ratio to a healthy one four times.
Our balance sheet is in a great position to support our future growth plans.
And I am happy to report that 2022 is off to a strong start in terms of sales profitability and the pace of openings.
Let's recap recent growth and future expansion plans.
For the full year of 2021, we delivered on guidance with 46, new restaurant openings 40 of which or freestanding locations.
We also met capital expenditure guidance with $115 million invested last year on both development and non development project.
As we said in January our goal is to capture the full profitable potential of the Mcdonald's brand in our region.
We plan to open at least 200, new restaurants in this under penetrated market from 2022 to 2024 with about 90% being freestanding units our highest ever three year total.
We are on track to meet this year's operating guidance of 55, new restaurants.
Through the first two months of the year, we have already opened 13, new restaurants, including 11 freestanding units.
Notably about 75% of the three year $650 million Capex plan will go to development projects, including openings Modernizations and maintenance.
The remaining 25% of the planned Capex would be invested in non development projects, primarily related to the digital transformation of <unk>.
As Marcel or suggested.
Please refer to today's earnings release for the details of the fourth quarter's results by Division.
With that I.
I will turn it over to Luis and Monday for a closer look at our digital transformation journey.
Okay. Thanks, Mariano good morning, everyone.
Let's start with a little history.
Our digital transformation journey truly begun in 2016 with a major analog upgrade to the company's culture.
Or as we say quarter in.
Inspired by our mission to serve quality food generating delicious and accessible moments for everyone. We began training and encouraging all employees to generate feel good moments by just being themselves.
We emphasize the importance of providing great service not just to guests, but among coworkers and team members as well.
While we were working on this cultural transformation, we opened the first experience of the future restaurant at the end of 2016 and by the end of 2021, we had 825.
Jeff locations.
These new and modern restaurant designed to help change the face of the Mcdonalds brand in Latin America and set the stage for the next steps in the journey.
In 2017, we launched the first Mcdonald's mobile App in Latin America the Caribbean.
Developed locally by alcohol Atlas. This app was initially focused on digital offers while we build a foundation of data and know how that will help us pursue more personalized marketing initiatives in the future.
In 2018, we introduced delivery in our region.
We were the first major bears a restaurant to offer this service and rather than work exclusively with one delivery aggregators or <unk>, we chose to work with all the major <unk> in each market.
Our strategy was to establish the Max delivery brand and gain as much operate an experience as possible in order to dominate this new sales segment.
2018 also brought our first basic CRM initiatives.
Using the data we were capturing through the mobile App and other sources, we began connecting with guests via E mail and push notifications to generate higher frequency through personalization.
By 2019, with Tilda was well established with a tangible impact on the company's restaurants and offices.
To capitalize on disciplined <unk> period, and really drive the digital transformation journey, we created our digital factory, which is a multi disciplinary team we call advance.
In 2020, we began deploying the first integrated e-commerce platform to our markets in preparation for many of the new surface models, we introduced last year <unk>.
Including mobile order and pay.
Drive thru pickup curbside pickup and the early stages of own delivery.
We intend to increase our authorized us lead in the industry's digital raised by aspiring to deliver the best guest experience generating delicious moments through technology that makes people's lives easier.
Q2 is about people and after all this is a people business.
I just mentioned the advanced team led by Monday.
They have been trained and organized to apply the agile methodology, which leverages the spirit to let the Zalviso in article hotels.
Rather than a traditional structure.
Working what's made up of people from multiple areas responsibilities and geographies within the company.
This group now has more than 300 team members and includes new hires such as data scientist architects and engineers as well as <unk> technology experts, who skills are crucial to the success of this journey.
Advanced team members work collaboratively, taking calculated risks to meet their extremely ambitious moonshot objectives.
You are encouraged to identify and test innovative solutions to fail fast.
To favor progress over perfection and to always move forward for the connected goals.
For more about what the advanced team is working on as well as recent milestones are turning it over to Marty.
Thanks Luis.
Thank you for the opportunity to be here with all of you today.
I joined <unk> more than 20 years ago and have led various growth some projects within both finance and.
Over that time.
Before taking on the role of Chief Technology Officer in October .
Most waste and rone, let's head of advance.
When I became CEO the scope of advanced expanded to include three areas.
First other squats, who focus on the most difficult aspects of the journey.
<unk> experienced digital marketing and digital Chinas operations and logistics.
Second is the information technology infrastructure that will.
We'll be required to support the ambitious goals, we set for ourselves.
And that but not least is the data and analytics team that ensures we properly capture and manage data to generate insights that wind power future initiatives.
The last two years has clearly been very challenging.
But it was also a time of extreme learning and significant progress.
Although we were already on our way the pandemic catalyzed <unk> potential in niche digital China's.
Delivery, the mobile App and more recently the self order kiosks.
Last year, 36% of total system wide sales were generated across these sales segments with sustained growth over the last two years.
Our customer acquisition strategy has produced over 62 million downloads.
The mobile App also has two five times the average monthly users and an adoption rate that exceeds any other competitor by far.
New convenience solutions are gaining traction as we deliver a more personalized experience to the more than 53 million unique registered users in our CRM database driving higher lifetime value.
And we've told you the moment not studied as a digital offer tool in 2017, but it has since evolved into so much more.
In order to expand our lead in the <unk> industry digital base, we are focused on allowing guests to choose where when and how they experience Mcdonald's.
The mobile App is now our full communication tool.
With an engaging and highly rated user experience.
Today guests can place and pay for their orders before choosing whether to enjoy the Mcdonald's menu favorites.
Our dining rooms or off premise or delivery drive thru curbside pickup.
That's what we mean when they when we say we are generating delicious moment, similar technology that make people's lives easier.
These include personalizing guest experiences to create greater engagement frequency and loyalty over time.
There is still so much that we plan to do which is why we have clear objectives. When it comes to connecting with our guests in more meaningful ways.
One of our most important goal is aligned with the Mcdonald's global ambition of unlocking 40% identifiable digital sales by the end of 2025.
Identify even say means mobile app users, who make a nap initiated purchased using any functionality and who have opted into sharing their contact another personal information.
Today, he is highly personalized and efficient campaigns accounted for about 15% of total sales.
Another way, we connect and engage with our guests is by leveraging our unique partnerships and exclusive licensees.
In conjunction with Coca Cola and based on one of the world's most popular video games, we recently launched a regional economy.
Gamers are very attractive and growing demographic and more than 18000 gamers registered to participate in the tournament.
Our partnership with League of Legends, one of Latin America's most popular PC game was also designed to build engagement.
We rewarded gamers with my combo office whenever they successfully completed a combination.
<unk> ownership of the combo concept.
We also connected with guests around holidays, another special days of the year.
At the end of November we turned black Friday into Mackie Friday, We got 360 degree campaign focused on acquisition and guest engagement.
The campaign was so successful that we said daily records or download and usage levels.
In fact, we were the number one downloaded food and beverage up ahead of all the <unk> SaaS competitors uneven <unk> deals.
The technological infrastructure and e-commerce capabilities needed to generate the ultimate omnichannel convenience for our guests have been built and are being rollout to all markets.
Soon we will take a leap forward with hyper personalization.
Inspired by leading tech companies, such as Amazon and Netflix the advance team developed a recommendation engine that creates a unique app experience for each guest.
You will see in previous consumption known preferences on similar deal says we call look alikes, our App will show tailor recommendations that seat individual guest favorites.
This is a key milestone on our road to personalized feel good moment for everyone.
Net anybody segment will continue to evolve over the next several years and we are working on different ways to further enhance guest experience gained market share and increased profitability.
As an example, more than 300, Mcdonald's restaurants currently operate own delivery across Argentina, Brazil, Chile and Colombia.
But they must deliver guest experience sets the bar very high for any other logistical solutions.
And the next partners and business models must provide either the same or better guest experience than to date.
Finally, we are close to launching a new loyalty program.
Built on the learnings from our own price Route based program and then Mike Macdonald rewards program launched last year in the United States.
But we will save those details for a future call.
As you can tell we are moving fast and the most exciting part of this journey is still ahead of us.
Within that journey is the incredible growth of the delivery segment over the last few years.
Today, we are the absolute leaders in delivery in the Qs our industry with the possible exception of the Pizza segment.
Over 1700, Mcdonald's restaurants are now operating delivery in 15 of our cohort all of those markets.
After launching the segment and building the Mac deliberate brand in the early years in 2021, we began experimenting with new models, such as exclusive <unk> partnerships in Colombia, and Peru, as well as preferred partnership in Brazil.
Guests recognized our operational excellence with increasing order volume sustained sales growth and important market share gains.
Delivery generated 16% of system wide sales last year.
I'm just from just 2% in 2018.
Growth remains robust, including in Brazil, where local currency sales grew 30% in the fourth quarter versus 2020.
Three times the pace of the nearest competitor despite a higher base.
Delivery times are down by an impressive five minutes since 2019.
Order accuracy has improved significantly as well.
This is partly due to our pan regional negotiating power that helps ensure consistent execution by our delivery partners.
Better execution leads to higher customer satisfaction that in turn supports higher sales volume.
A strong marketing program built around special Bates exclusive maybe some <unk> initiatives also helped drive greater engagement and frequency among delivery guests.
Technology has also played an important role in the improved operational execution in the delivery segment.
For several quarters you have been hearing that we are investing in digital and developing new capabilities.
Some of those are customer facing like the hyper personalization I mentioned earlier.
While others are less obvious, but still have a huge impact on guest experience and operational efficiency.
For example, we have implemented advanced technology that connects the digital with the physical world.
This tool seamlessly integrates our kitchens with digital order sources, such as our E Commerce platform and <unk> partners.
Having this functionality on a single platform helps optimize the delivery times and improve order accuracy as we just described.
I am proud to say the article hotels advanced team develop this in house.
And that it is unique within the entire mcdonalds system.
One of the best indicators of success and perhaps the most encouraging aspects of the delivery segment is how sticky. It has remained even as on premise sales continue to recover.
Growth in Brazil was two five times the growth of the nearest competitor last year and total Arcandor dollars delivery sales grew about 345% in constant currency from 2019 to 2021.
The other sales segment that boosted unit level sales and the final D and our strategy is drive thru we.
At least two five times the number of freestanding units as the nearest competitor in most of our big markets BCC.
This is a structural competitive advantage for the Mcdonalds brand in Latin America, the Caribbean that will likely grow over the next three years as we open at least 180, new freestanding locations across that region.
But opening freestanding restaurants is not the only way to support rate to sales.
Operational execution is the key driver for organic sales growth and optimizing the operation has been our focus for the last two years and.
And we're very proud of the 32% reduction in service times, and 50% reduction of inaccurate orders versus 2020.
So how did we do this.
Acknowledging training and focused manner.
You mentioned the technological solutions, we developed locally for the delivery segment in.
In drive thru, we leveraged best practices and available technology in the Mcdonald's system.
We also formed dedicated drive thru teams in every restaurant crew.
Created competition to drive sales across the footprint and above all.
Focus on being the best drive thru operator in the industry.
The result was 34% higher customer satisfaction and sustained sales growth through 2021.
Just like delivery, we developed marketing campaigns are wrong drive through to generate awareness and provide guests with unique experiences.
We also built a loyal following of three 5 million dropped through guest who registered to receive special offers and other exclusive experiences focused entirely on the drive thru segment.
Drive thru contributed 35% of sales in 2020 in 2021 versus just 22% in 2019.
Sales growth was consistent in the period benefiting from both volume growth and a higher average check in fact, the number of cars per restaurant rose more than 15% between December 2019 and December 2021.
Average check growth, which was already higher than the front counter was boosted by larger order sizes and special bundles develop to meet increased demand from families and other large group orders.
While some of the volume growth came through higher frequency as a result of the pandemic as well as the loyalty program about one out of every seven drive through guests drive the segment for the first time last year.
Similar to delivery, we see this as a structural change in the industry and we are uniquely positioned to capture.
Looking ahead, we believe drive thru will represent around 30% of restaurant sales after on premise channels have returned to normal.
We'll refer to market share gains several times today, so let's take a look at the wider gaps we now have between brand Mcdonald's and the nearest competitor.
Given how much changes in channel mix have impacted average check we're more focused on visits share to analyze volume trends among brands.
Margin expansion through volume growth and operational leverage is much more challenging but also much more sustainable and using simple price increases to offset cost pressures.
This is why we're very pleased with the volume growth we capture in the restaurant industry over the last few years.
Between the first and fourth quarters of 2021, the BCE share gap between the main competitor and the Mcdonald's brand growth to more than 14 percentage points across the <unk> footprint and increase of nearly five percentage points.
According to grasp the gap in Brazil was 21 percentage points in the fourth quarter.
Up one eight percentage points compared with the first quarter.
Based on our proprietary research increases and the favorable basic share gaps last year ranged from three five to more than six percentage points in our other large markets.
We often say that we like to let our results speak for themselves.
Is a truly exciting time for us and we are confident in our strategy as we are in the opportunity that lies ahead.
Marcelo I hand, it back to you now.
Thank you Lisa Mueller for that comprehensive update of the business.
<unk> transformation journey of vertical wells.
As we said at the beginning of this presentation.
As a people business.
Our strategic decisions would not have been a successful over the last two years without the commitment of the people who make up the <unk> system in Latin America and the Caribbean.
That is why we never lost sight of our employees and guests will been over the last two years.
The multiple of the heroes program provided the safest restaurant experience in Latin America.
<unk> remains the benchmark 14 minutes on hygiene in the industry.
Employee sources of income were also protected throughout the period.
With Stewart cost and expense management.
The government support programs designed to protect jobs.
We are very proud to have been able to support our people.
Throughout this challenging period.
And incredibly grateful for all the hard work they continue to do.
In order to build an even brighter future for our company.
An even better experience for our guests.
Perhaps the best indicator that we were successful in taking care of our people is the recognition we received throughout the last several months from entities such as a great place to work.
US number one in Ecuador, among companies with more than 500 employees are number two in Brazil.
All large retailers.
We are committed to generating first formal job opportunities for young people in Latin America.
And we are proud to be recognized as a great place to work for those who are just getting started in their careers.
As well of those who rose through the ranks or joined us more recently.
Among our values is volume differences unsupported inclusion.
There is no better validation of the progress we are making on diversity and inclusion and the recognition we received from the government of Chile.
Who gave us this fishery Waller <unk> for promoting diversity gender equality and work life balance.
In Colombia, we received the specialty bodies from the United Nations for working toward gender equality in that country.
These are a few examples of how we have made ESG, a part or vertical hotels DNA.
That is why as we did in 2021, 10% of management's variable compensation for 2022 will be tied to ESG metrics.
To wrap up we are very pleased with our performance last year.
Say some profitability improved consistently throughout the year in U S dollars, despite challenging operating conditions.
Well as continued currency and cost pressures.
The three this strategy is driving results as reflected by growing visit share gaps against the closest competitors in most markets.
Our industry, leading digital platform will soon enter the hyper personalization face with <unk>.
Citing new functionalities under development as well.
We are in a privileged position both in terms of operating cash flow generation and balance sheet strength to.
To fund our ambitious growth and investment plan over the next three years.
Against that backdrop and in keeping with its commitment to providing shareholders with multiple sources of return our board of directors has declared a cash dividend of <unk> 15 per share to be paid this year.
The work never stops, but we are pleased with the progress we are making.
I'm very optimistic about the road ahead.
Don over to you to start the Q&A session.
Thanks, Marcello in order to get started please minimize the presentation slides. So that you can access the chat function on the left hand side of the webcast platform.
Please limit yourself to one or two questions. So that I can read understand anything baked into our speakers.
We'll now pause briefly to compile with your questions.
Okay, Great. Our first question is from Marcella Recchia from credit Suisse. She has a two part question one relates to our assets. If we can comment on the first quarter and how Brazil and.
Same store sales are trending and how does the competitive environment look.
Okay. Good morning, Marcelo and thank you for the question well as Mariano mentioned in the opening remarks that January and February sales on.
In fact profitability and consequently, industrial generation trends were very strong.
Even ahead of our expectations and that's not only for Brazil.
Our growth of the government.
We started obviously the year hearing concerns about how inflation.
In many markets.
That situation ratio consumption, but in fact, we did not see.
Is that reflective.
The results so far.
It is still early in the year.
There are clear short term disruptions in global commodity markets and other macroeconomic.
Figures, but I think that we demonstrated our ability to manage costs and expenses and that kind of scenario.
Feel very good about the way, we our position with three of these strategies continues to drive top line and market share gains.
Which is <unk>.
Continued to generate efficiencies in our P&L the competitive landscape changed.
In the first quarter of the year when book, but to 'twenty to 'twenty one.
<unk> in which we gained market share will be done as we mentioned during the call.
I think that many of our strengths are.
Really our original footprint.
Seems to be a huge.
Huge advantage because it is second to none.
Only get better because 90% of our openings continues to be freestanding units on at the same time, our balance sheet is the strongest has been in a long time, so in other words or to wrap up.
For 2022 for Brazil, and for the whole company so far sogou.
Perfect. Thanks, Mark So the second part of Marcellus question.
It relates to our asset we're seeing risks from recent rally in commodities in terms of input cost pressures and she mentioned some commodities along the lines of proteins week's paper et cetera.
So go ahead, I guess Thats for you Mike.
Perfect. Thanks, Dan and thanks Marcella for for the question.
On the cost side.
Let me tell you that we benefit from sourcing around 90% of our food and paper within Latin America, and the Caribbean, which tends to mitigate some of the logistical costs associated with the current global supply chain bottlenecks.
Our supply chain is also built on long term relationships with our local suppliers and benefits from the largest volumes.
In the industry.
Additionally, we were able to leverage the best suppliers within the global Mcdonald's system to ensure the best pricing in the industry.
Fortunately many tell you we operate in a region of the word with significant agricultural production. So it's important to keep in mind that we have a very diversified cost structure, we discussed a lot about proteins and beef in the in the last four plus years.
Any pressure that we experienced in Brazil.
If you look at our food and paper line you have seen improvements in the last two years.
Compared to 2019 and 2020, let me give you a brief example.
About a week for example.
We prices are up significantly that's true we agree with that but the price of wheat has a small impact within our bakery in phase II costs and those costs have an even smaller impact on the total food and paper costs taken together for example, we'd represents only about 1% of.
The paper cost or about <unk>, 35% of total revenue, so even though there could be an impact from the commodity side.
That impact will not be that large and let me add that.
<unk>.
I think.
We mentioned that in the past.
Food and paper.
On the gross margin is not only about managing costs is also above the top line. So it starts at the top line starts.
When we have been doing and when we mentioned in the opening remarks.
Is that we have a sophisticated revenue management.
Including intelligent pricing Chamonix menu simplification, we do all of that to support our most profitable sales mix.
You need to understand that the freestanding.
What we are doing by opening more freestanding units.
That allows us to use our omnichannel platforms doing off premise sales delivery and drive thru, which have much higher.
Average prices and where we can also improve margins by enhancing.
And hunting those those lines, so as a whole I think commodity prices and cost pressures are there, but we have been able in the last two years, where we had already cost pressures to manage the gross margin line in a very efficient way and we are planning to do so in the future.
Great. Thanks, Marty on the next question comes from Bob Ford of Bank of America.
Hey, congratulations on the quarter and thanks for taking the question.
Can you talk a little bit about technology in our restaurants, and how that's impacting your crude costs and any implications for retrofits or new store configurations.
Start with yourself, yes. Thank you.
Morning, Mike will cover you Nicole yes.
Yes.
Since the introduction of the first Youll view of risk and at the end of 2016.
We made.
A big push in order to bring more and more technology to our restaurants. There are some parts which are more reasonable.
For example, this self ordering kiosks.
Allows us to increase capacity for automotive braking and brings.
As we mentioned at the time, we do this decision.
Move some of the people, we do not need them from Gander, because part of it.
The clients are going directly to self ordering kiosks. So the people, we do not need to take.
The orders of the <unk>, we decided to move them through the area, where we've moved the self ordering kiosks.
That's the way we train our customers in order to.
Deals in to play with the third floating deals.
As a result of the airport, we saw that more and more people adopt.
The central and give us the preferred way to may.
<unk> made their orders.
Inside the restaurants, which is a huge advantage for us just to give you. An example in 2019, 30% of the orders.
Year over year for restaurants were made of the self ordering kiosks less than 30%.
And in 'twenty at the end of 'twenty into 'twenty one.
We saw that more than 50% of the orders are made through its own floating deals.
<unk> a huge advantage.
All of those made of itself or the new deals are typically 15% to 20% higher in terms of average check when compared to the orders made a bid from Gunther, but that's not the only investment we made in terms of technology for example, and we invested a lot.
Continue to do that with technology to reduce capacity in other business segments. For example, the drive through where.
We doubled the points of order pay team.
<unk> tablets.
<unk>.
Group person uses in the line too big to us at this time.
<unk> been <unk> to receive payments in the line on double the point at the cashier window, where we received payments due so those signs of MBS investments.
Impacted positively.
We increased capacity on <unk>.
References in this case and that help us to leverage not only the labor cost line, but on top of that.
Other cost lines so.
I would say that the improvement in labor costs are more related with the improvement in sales.
Done with cutting people from the floor. We are repositioning them. We continue to see improvements in terms of customer satisfaction rates, which is very important in a very competitive.
Landscape as we faced in some markets.
If you let me add Marcelo.
We're going to keep investing in this technology and <unk> not only in our new stores, but in the 400, new Modernizations that we're going to have in the next three years.
Great Great. Thank you guys.
The next question comes from Roberto Browne, Morgan Stanley , who says hi, everyone and thanks for the call.
He asked if we can comment on where counter traffic stands versus fourth quarter of 2019 levels consolidated and by region and if we expect to recover to 2019 levels or should we see some cannibalization from other channels and there was a second part about margin improvements in 2022 hours. So we see more margin for those 22, so maybe the.
First part on traffic trends and then tumor cell okay. Good morning, Jordan. Thanks for it with you.
I would say that the performance on premise in general.
Is it still below pre pandemic levels.
That applies not only to from Gunther.
To be certain centers too.
The big gap.
Between the situation today, when you compare that with <unk>.
On the mid levels varies by market.
Varies a lot by store formats. So for example in terms of markets, we have markets like Colombia, Mexico, where we are pretty close to pre pandemic levels in terms of drawing on the other hand markets like Brazil. For example, where we have a huge amount of restaurants and shopping malls we are below.
2019 figures, but improving sequentially quarter after quarter.
Freestanding units are much closer to be around the mid levels, even in the from Gander.
What we see is that.
The off premise channels have received.
During this recovery of the on premise sales, we see that we are able to keep or even grow.
Off premise sales.
John and his contribution.
We expect us us the rest of the Mcdonald's system is expecting to continue their recovery. During this year, maybe going something around 90% to 95% of the pre pandemic levels of the front counter or on premise in general.
In the second half of this year, but again at the same time.
A huge contribution from the off premise channels when compared to.
<unk>.
Great. Thank you.
The second part of our vessels question, let's say that for we got a question from what you sort of offer that has a similar concept so I'll come back to that one.
Mariano.
Let's.
Move to Joachim <unk> from 14 late excuse me from Doe.
Congrats on the results and you ask how to on premise sales compared with pre pandemic levels Mariano.
Mark I will just talk about that.
And he asks what we've learned in terms of restaurant design and Capex optimization, and if we would consider transforming some of our non freestanding units into dark kitchens.
Okay. Thanks.
Good morning, Yeah, we took a lot of learnings about these these new situation.
Order to make a more flexible design for our new restaurants. For example, we are dedicating specific space in the restaurants to operate in a bigger way the delivery segment and so the delivery guys should not compete in terms of space with the customer.
Yes.
Our.
Putting the orders in the front counter and at the same time, we are improving the way we operate the drive thru typically.
Second lien two big orders or at the same time.
Third window in order to have two points to deliver the orders. So we took some learnings.
It is not only us.
The Mcdonalds system.
He is doing that than we are.
Always in constant communication with our colleagues from Mcdonald's and begin advantage of all the research and development, we are doing in order to improve.
Our restaurant layouts.
On the second part I do not see any situation where we.
We need to transform our restaurants.
It's really from a restaurant in store or whatever other formats.
Gross or dark kitchen.
We see a lot of potential to grow the business with the way we are operating in the restaurants right now.
The trend of results demonstrates that we are in the right path.
Great. Thank you so let's move on now to the releases are worker from JP Morgan.
Everyone and congrats on the results a couple of questions from his side.
One is how much more growth because the current digital platform support with today's capabilities and what kind of investments.
Specific areas. They can expect or you can expect to see in terms of digital capabilities and are there any regions that are lagging behind today.
I guess Molly you want to get started.
Thanks, Elisa is a nice to meet you.
I mentioned earlier, 76% of the sales that are today coming from digital sources in 2021. This means delivering several a kiosk and digital marketing.
If we compare with 2019, we have significant improvement.
Digital sales were representing 19% of total sales and we expect this to continue how did we do this expanding capabilities that provide guests better experience for example.
I know that <unk> serviced try to pickup curbside pickup.
So early stages of own delivery.
We have increased segmentation to improving revenue management with more targeted offers and promotions.
We have investment invested in CRM, which enabled us to deploy personalized actions with high engagement and position them. For example, special communications with customers like birthday of our supply chain and as Matt said, Marcello mentioned and the experience of the future restaurants.
<unk> from self order kiosk that are capturing more than 50% of on premise orders vessels, 30% pre pandemic levels and this allow us to have a higher average check in January .
So these are the things that we are doing and of course, we talked about hyper personalization.
On the call as well and it's something we are investing heavily going forward.
Great. Thanks, and the second part of releases question relates to margins and sort of the outlook.
For margins for 'twenty, two given cost pressures, we've touched on corporate cost pressures, but maybe a broader margin outlook. This was.
<unk> from Morgan Stanley Second question, it's also coming from leases and just to be fair job of Workovers, you're from Goldman Sachs. Also asked about kind of an outlook around margins. So I guess I'll turn it over to you.
Great. Thanks, Dan.
Thank you all for that.
Question.
First of all that we don't deem.
Guidance on margin, but I can.
Talk a bit about when we have been doing and what we.
And how that relates to the current year and in the future.
Spoke already about.
Gross margin.
And all the things that we are doing in order to offset.
Commodity pressures and cost pressures.
We spoke already about.
Revenue management about.
What we are doing in digital in order to.
Enhance our product mix.
<unk> increase our average check through.
The Omnichannel platform that article spurred others have and currently.
Developing developing.
To have.
Or to increase the numerous sales and to increase drive for sales to be.
Whether with the recovery of the front counter so we already spoke about gross margin but of course this is not the only.
Cost line that we that we have most important one but not the only one.
I think that everything starts with sales so as long as we continue increasing sales.
We will be able to leverage all the fixed costs.
Which are now structurally higher view.
To the to the growth.
In the off premise.
Segments actually what we're doing is as long as sales will continue to grow we are expecting to two.
To have.
Fixed costs diluted.
And in <unk>.
With higher sales. We are also working or we have been working on the G&A structure reorganized.
Our DNA our structure to focus on areas that provide greatest returns moving forward.
Including.
Digital and all the expansion teams to be able to deliver on our Capex plan for the next few years on top of that we haven't been seeing improvements in payroll line, which are associated to this increase in sales and.
The other channels in off premise channels that we are seeing with all of that what we are seeing is that for the next years. The company will continue to work on improving all the cost structure to leverage on the growth of sales and on the Omnichannel platforms.
And Thats, what we are doing and we expect to see those results of course.
Reflected in our our income statement.
Great. Thanks, Bob. The next question is from drove our graduate from Bradesco.
How far have the personalization how far are we along the personalization of hyper personalization journey in terms of margin opportunity and what should we expect for the next few years.
Yeah. Thanks, Joe.
Nice to meet you as well.
I think we are making big progress in the personalization area, we talked about in the call.
Starting with the hyper hyper personalization.
Initiatives, which basically will enable us to create a unique personalised up for each of our guests using artificial intelligence with momentum engines.
This recommend on engines are one of the biggest drivers for digital engagement and some of the top digital brands, we engage with everyday bid around one for example, Netflix Amazon or Google.
If youll see public data you can find that 35% of purchases on Amazon come from these type of product recommendations and Netflix claims that 75% of its newest content come from their recommendation engines as well. So this this tool developed internally analyzes each.
Previous consumption declare preferences.
Other local like fuel cells to display tailor recommendations that fit each guest with a highest probability we are very confident that our higher personalization initiative.
Not only strengthen our relationship with our guests so suggestions, but also will deliver a one moment.
It will keep getting our users coming back and back again, increasing our retention and lifetime value.
Great. Thanks Margaret.
The next question is from my peers are largely from Black Creek investment management.
It's about the informal market and if it's coming back.
And when things normalize how do we expect the uniform market share to also sort of.
Compare versus pre COVID-19 levels, okay. Thank you.
You must be a fluke with young.
Yes, the important <unk> market is coming back.
Huge Keith.
In 2020, I would say in 2021 we are seeing some more additional active.
Activity stemming from informal players.
But still far from the <unk>, we saw anatomy and that's why.
As we mentioned in the opening remarks, we gain share.
Big time, and I would say that the kyocera industry gained share in general.
We particularly outpaced our peers within the <unk> industry. So I expect that during 2022 that the recovery from the Formula It's Victor.
Continue.
Sure.
Previously of unlimited varies a lot market for market for example in markets like Mexico, Peru, the informal sector.
Huge.
Market share, but after these two years.
The participation of market share is much lower.
I think that we are in a privileged position to deal with these new market conditions.
We will continue to invest in every single part of the business marketing activities improve.
Improvements in operations and <unk> del efforts, we are making in order to keep or even increase our.
High market share participation.
Okay, we'll squeeze one more in here from some job already gone of emerging variant. He says Hello, and what's the way to think about the change in unit economics or same store sales on average as a result of the increased delivery sales.
And assuming that we keep them at around 15%.
I think as everyone. Thanks, Danielle for the question.
In fact, that's that's what we're doing when we announced our hour.
Pension plan focusing on freestanding units, where we can have delivery saves enhanced in that format.
Yes.
Deliveries highly accretive for our business, especially now that we are recovering the front counter so what we are seeing is that we can recover.
Counter hopefully at some point, we would be higher than.
In 2019.
Levels and on top of that we are increasing sales and we are maintaining safe that.
We achieved during the pandemic on drive thru and on delivery.
No.
Both segments are highly accretive to the business and we'll be improving the that's the expectation.
<unk> that they will be improving the economic.
Equation for.
For the restaurants.
Yes, if you let me add Mariano we have very strategic negotiation with different <unk> in most of the cases, they operate across the region and we have a competitive advantage in this.
Is due to the scale and our brand parental ratio.
And I would like to remark that we have been investing in segmentation and personalized offers this latest not only be more asset sensitive in terms of product offering marketing margin improvement and in delivery.
Great.
Well. Thanks, everyone. We've reached the end of the Q&A session. Thanks for joining us and for taking the time.
And the interest in Argos look forward to speaking again with you again on our May 2022 earnings webcast and until then stay safe and have a great day.
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