Q2 2024 McDonalds Corp Earnings Call

Hello and welcome to McDonald's second quarter 2024 investor conference call. At the request of McDonald's Corporation, this conference is being recorded.

Operator: Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question and answer session for investors. At that time, investors may ask a question by pressing star 1 on their touchtone phone.

Operator: or Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question-and-answer session for investors.

Following today's presentation, there will be a question and answer session for investors.

Operator: At that time, investors only may ask a question by pressing star 1 on their touch-tone phone.

At that time, investors only may ask a question by pressing Star 1 on their touchtone phone.

Mike Cieplak: I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald's Corporation. Mr. Cieplak, you may begin. Good morning, everyone, and thank you for joining us. With me on the call today, our Chairman and Chief Executive Officer, Chris Kempczinski; Chief Financial Officer, Ian Borden; and President of McDonald's USA, Joe Arlinger.

Mike Cieplak: I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald's Corporation. Mr. Cieplak, you may begin. Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer Chris Kempczinski, Chief Financial Officer Ian Borden, and President of McDonald's USA, Joe Erlinger. As a reminder, the four forward-looking statements in our earnings release and AK filing also apply to our comments on the call today.

Speaker Change: I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald's Corporation.

Mike Cieplak: Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions.

Mike Cieplak: Mr. Cieplak, you may begin. Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer Chris Kempczinski, Chief Financial Officer Ian Borden, and President of McDonald's USA, Joe Erlinger.

Mike Cieplak: As a reminder, the four-looking statements in our earnings release in AK filing also applied to our comments on the call today. Both of those documents are available on our website as our reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please let me ask you one question and then re-enter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website.

Speaker Change: As a reminder, the forward-looking statements in our earnings release and AK filing also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures.

Speaker Change: Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. Today's conference call is being webcast and is also being recorded for replay via our website. And now, I'll turn it over to Chris.

Chris Kempczinski: Today's conference call is being webcast and is also being recorded for replay via our website. Now, I'll turn it over to Chris. Thanks, Mike, and good morning, everyone. Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households. And as this year progressed, those pressures have deepened and broadened. The QSR sector has meaningfully slowed in the majority of our markets, and industry traffic has declined in major markets like the U.S., Australia, Canada, and Germany. In several markets, we also continue to be negatively impacted by the war in the Middle East. These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments.

Chris Kempczinski: And now, I'll turn it over to Chris. Thanks, Mike, and good morning, everyone. Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households. And as this year progressed, those pressures have deepened and broadened. The QSR sector has meaningfully slowed in the majority of our markets, and industry traffic has declined in major markets like the US, Australia, Canada, and Germany. In several markets, we also continue to be negatively impacted by the war in the Middle East. These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments.

Chris Kempczinski: But there were also factors within our control that contributed to our underperformance, most notably our value execution. For 70 years, McDonald's has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions. This won't happen overnight, but it will happen.

Chris: Thanks, Mike, and good morning, everyone. Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households. And as this year progressed, those pressures have deepened and broadened.

Speaker Change: The QSR sector has meaningfully slowed in the majority of our markets, and industry traffic has declined in major markets like the U.S., Australia, Canada, and Germany.

Chris: In several markets, we also continue to be negatively impacted by the war in the Middle East.

Chris: These external pressures certainly weighed on our performance for the quarter, with declines in comparable sales globally and across each of our segments.

Chris Kempczinski: But there were also factors within our control that contributed to our underperformance, most notably our value execution. For 70 years, McDonald's has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership. The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions. This won't happen overnight, but it will happen. The unique competitive advantages of McDonald's afford us many levers to pull, and we have the financial wherewithal to sustain our investments as needed.

Chris: But there were also factors within our control that contributed to our underperformance, most notably our value execution.

Chris: For 70 years, McDonald's has defined value in our industry, and we are taking meaningful actions across the world to assert our leadership.

Chris: The hallmark of a great company is its ability to perform in good times and in bad, and we are resolved to reignite share growth in all our major markets, regardless of the prevailing market conditions.

Chris: This won't happen overnight, but it will happen.

Chris Kempczinski: The unique competitive advantages of McDonald's afford us many levers to pull, and we have the financial wherewithal to sustain our investments as needed. One area of strength is our restaurant teams, who continue to execute with excellence to serve our customers and local communities. Creating a better customer experience has delivered operational improvements, improved service times, and increased customer satisfaction across most of our major markets, and it's this relentless focus on execution that will give customers more reasons to visit our restaurants more frequently. Leveraging the power of our core menu also leads to outstanding execution in our kitchens. Our deployment of Best Burger is a great example of this.

Chris: The unique competitive advantages of McDonald's afford us many levers to pull, and we have the financial wherewithal to sustain our investments as needed.

Chris Kempczinski: One area of strength is our restaurant teams, who continue to execute with excellence to serve our customers in local communities. Creating a better customer experience has delivered operational improvements, improved service times, and increased customer satisfaction across most of our major markets. And it's this relentless focus on execution that will give customers more reasons to visit our restaurants more frequently. Meaning it to the power of our core menu also leads to outstanding execution in our kitchens. Our deployment of Best Burger is a great example of this. Now deployed in over 80% of markets, the training and focus on the basics ensures we deliver the gold standard product our customers expect, which is driving elevated tasting products.

Chris: One area of strength is our restaurant teams who continue to execute with excellence to serve our customers and local communities. Creating a better customer experience has delivered operational improvements, improved service times, and increased customer satisfaction across most of our major markets.

Chris: And it's this relentless focus on execution that will give customers more reasons to visit our restaurants more frequently.

Chris: Leading into the power of our core menu also leads to outstanding execution in our kitchens.

Chris: Our deployment of Best Burger is a great example of this.

Chris Kempczinski: Now deployed in over 80% of markets, the training and focus on the basics ensures we deliver the gold standard product our customers expect, which is driving elevated taste and quality perceptions. We remain on track to have Best Burger in nearly all markets by the end of 2026. And, as we announced late last year, we continue to innovate across our core menu to address unmet customer needs with a more satiating burger that will provide great value for money.

Chris: Now deployed in over 80% of markets, the training and focus on the basics ensures we deliver the gold standard product our customers expect, which is driving elevated taste and quality perceptions.

Chris Kempczinski: We remain on track to have Best Burger deployed in nearly all markets by the end of 2026.

Chris: We remain on track to have Best Burger deployed in nearly all markets by the end of 2026.

Chris Kempczinski: critics. And as we announced late last year, we continue to innovate across our core menu to address unmet customer needs with a more satiating burger that will provide great value for money. This new burger, which we're piloting across three international markets this year, includes two beef patties perfectly layered with melting cheese, crispy toppings, and a tangy McDonald's sauce. It's a quintessential McDonald's burger with a twist on our iconic, familiar flavor. Named the Big Arch, we plan to attest and learn through the end of the year to gather learnings before scaling more broadly internationally. We continue to have a significant opportunity for growth in chicken, a category that's twice the size of beef globally and growing at a faster rate.

Chris: And as we announced late last year, we continue to innovate across our core menu to address unmet customer needs with a more satiating burger that will provide great value for money.

Chris Kempczinski: This new burger, which we're piloting across three international markets this year, includes two beef patties perfectly layered with melting cheese, crispy toppings, and a tangy McDonald's sauce. It's a quintessential McDonald's burger with a twist on our iconic familiar flavors.

Chris: This new burger, which we're piloting across three international markets this year, includes two beef patties perfectly layered with melting cheese, crispy toppings, and a tangy McDonald's sauce.

Chris: It's a quintessential McDonald's burger with a twist on our iconic familiar flavors.

Chris Kempczinski: Named the Big Arch, we plan to test and learn through the end of the year to gather learnings before scaling more broadly internationally. We continue to have a significant opportunity for growth in chicken, a category that's twice the size of beef globally and growing at a faster rate. By featuring our beloved icons like McNuggets and McChicken while driving growth and emerging favorites like McCrispy and McSpicy, our chicken sales are now on par with beef sales. The McCrispy Chicken Sandwich is now offered in more than 55 of our markets around the globe.

Chris: Named the Big Arch, we plan to attest and learn through the end of the year to gather learnings before scaling more broadly internationally.

Chris: We continue to have a significant opportunity for growth in chicken, a category that's twice the size of beef globally and growing at a faster rate.

Chris Kempczinski: By featuring our beloved icons like McNuggets and McChicken, while driving growth in emerging favorites like McCrispy and McSpicy, our chicken sales are now on par with beef sales. The McCrispy chicken sandwich is now offered in more than 55 of our markets around the globe, and through our plans to further expand our McCrispy equity, we will continue to capture chicken market share. As we continue to build on our 17 billion dollar brands across our core menu, our digital penetration also continues to grow. Loyalty membership has now reached 166 million members, pacing ahead of expectations as we work towards our ambition of 250 million members, and identified users now represent 25% of system-wide sales.

Chris: By featuring our beloved icons like McNuggets and McChicken, while driving growth in emerging favorites like McCrispy and McSpicy, our chicken sales are now on par with beef sales.

Chris: The McCrispy Chicken Sandwich is now offered in more than 55 of our markets around the globe. And through our plans to further expand our McCrispy equity, we will continue to capture chicken market share.

Chris Kempczinski: And through our plans to further expand our McCrispy equity, we will continue to capture chicken market share. As we continue to build on our $17 billion brands across our core menu, our digital penetration also continues to grow. Loyalty membership has now reached 166 million members, pacing ahead of expectations as we work towards our ambition of 250 million members, and identified users now represent 25% of system-wide sales.

Chris: As we continue to build on our $17 billion brands across our core menu, our digital penetration also continues to grow.

Chris: Loyalty membership has now reached 166 million members, pacing ahead of expectations as we work towards our ambition of 250 million members, and identified users now represent 25% of system-wide sales.

Chris Kempczinski: We know that engaged loyalty customers spend more and visit more often, and as a result, we're driving digital market share gains and continuing to build on our understanding of customer preference, personalization, and behaviors. But, as I said in my opening, we recognize that in several large markets, including the US, we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk. We are working to fix that with pace. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40%, depending on the market.

Chris Kempczinski: We know that engaged loyalty customers spend more and visit more often. And as a result, we're driving digital market share gains and continuing to build on our understanding of customer preferences, personalization, and behaviors. But, as I said in my opening, we recognize that in several large markets, including the U.S., we have an opportunity to improve our value execution. Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk.

Chris: We know that engaged loyalty customers spend more and visit more often, and as a result, we're driving digital market share gains and continuing to build on our understanding of customer preference, personalization, and behaviors.

Chris: But as I said in my opening, we recognize that in several large markets, including the U.S., we have an opportunity to improve our value execution.

Chris: Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk.

Chris Kempczinski: We are working to fix that with PACE. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20 to 40 percent, depending on the market. As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases. These price increases disrupted long-running value programs and led consumers to reconsider their buying habits.

Chris: We are working to fix that with PACE.

Chris: Over the last several years, our system has sustained significant inflationary cost increases ranging from 20 to 40 percent depending on the market.

Chris Kempczinski: As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases. These price increases disrupted long-running value programs and led consumers to reconsider their buying habits. In some markets like Germany, Spain, and Poland, the flexibility of their value programs like McSpark has allowed them to quickly make adjustments that were embraced by consumers and drove market share gains. In other markets like the US, with their dollar one, two, three value program, a more comprehensive rethink has been required. Our US President Joe Orlander is on the call and will share more about our plans in just a minute.

Chris: As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases.

Chris: These price increases disrupted long-running value programs and led consumers to reconsider their buying habits.

Chris Kempczinski: In some markets, like Germany, Spain, and Poland, the flexibility of their value programs, like McSpart, allowed them to quickly make adjustments that were embraced by consumers and drove market share gains. In other markets, like the U.S., with their $1.123 value program, a more comprehensive rethink has been required. Our U.S. President, Joe Erlinger, is on the call and will share more about our plans in just a minute. The point is, we know how to do this.

Chris: In some markets, like Germany, Spain, and Poland, the flexibility of their value programs, like McSpart, have allowed them to quickly make adjustments that were embraced by consumers and drove market share gains.

Joseph Erlinger: In other markets like the U.S. with their $1.123 value program, a more comprehensive rethink has been required. Our U.S. President, Joe Erlinger, is on the call and will share more about our plans in just a minute.

Chris Kempczinski: The point is we know how to do this. We wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments. McDonald's competitive strengths are formidable and growing. Our brand is as strong as ever. Yet again, Cantar recognized McDonald's as the world's fifth most valuable brand and the number one most valuable non-tech brand. Update: We're executing with excellence, and our restaurant operations are an area of strength. Our digital footprint within the industry is unmatched and growing as we build one of the world's largest loyalty programs. And we're flexing our investment muscle to accelerate new restaurant openings as we also build consumer restaurant and company technology platforms that will drive cost efficiencies and accelerate innovation.

Chris Kempczinski: We wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments. McDonald's competitive strengths are formidable and growing. And our brand is as strong as ever.

Speaker Change: The point is, we know how to do this. We wrote the playbook on value, and we are working with our franchisees to make the necessary adjustments.

Speaker Change: McDonald's competitive strengths are formidable and growing. Our brand is as strong as ever. Yet again, Kantar recognized McDonald's as the world's fifth most valuable brand and the number one most valuable non-tech brand.

Chris Kempczinski: Yet again, Kantar recognized McDonald's as the world's fifth most valuable brand and the number one most valuable non-tech brand. We're executing with excellence, and our restaurant operations are an area of strength. Our digital footprint within the industry is unmatched and growing as we build one of the world's largest loyalty programs. And we're flexing our investment muscle to accelerate new restaurant openings as we also build consumer, restaurant, and company technology platforms that will drive cost efficiencies and accelerate innovation.

Speaker Change: We're executing with excellence and our restaurant operations are an area of strength.

Speaker Change: Our digital footprint within the industry is unmatched and growing as we build one of the world's largest loyalty programs.

Speaker Change: And we're flexing our investment muscle to accelerate new restaurant openings as we also build consumer, restaurant, and company technology platforms that will drive cost efficiencies and accelerate innovation.

Chris Kempczinski: We do not take these advantages for granted, however, and we are committed to delivering for our customers and shareholders every day. Where our customers tell us we have value opportunities, we will address them, listening to customers and staying agile, led to the development of our auxiliary New Yorker strategy.

Chris Kempczinski: We do not take these advantages for granted, however, and we are committed to delivering for our customers and shareholders every day. Where our customers tell us we have value opportunities, we will address them. Listening to customers and staying agile led to the development of our Auxiliary in the Arches strategy, and I'm confident that it remains the right playbook for our business. Continued focus on gold standard execution and our growth pillars are the right actions to grow market share and return to restaurant traffic growth. To share more on the U.S. segment, I'll now hand it over to Joe. Thanks, Chris, and good morning.

Speaker Change: We do not take these advantages for granted, however, and we are committed to delivering for our customers and shareholders every day.

Speaker Change: Where our customers tell us we have value opportunities, we will address them.

Speaker Change: Listing to customers and staying agile led to the development of our Accelerating the Arches strategy, and I'm confident that it remains the right playbook for our business.

Chris Kempczinski: And I'm confident that it remains the right playbook for our business. Continued focus on gold standard execution and our growth pillars are the right actions to grow market share and return to restaurant traffic growth.

Speaker Change: Continued focus on gold standard execution and our growth pillars are the right actions to grow market share and return to restaurant traffic growth.

Joe Erlinger: To share more on the US segment, I'll now hand it over to Joe. Thanks, Chris, and good morning.

Speaker Change: To share more on the U.S. segment, I'll now hand it over to Joe. Thanks, Chris, and good morning.

Joe Erlinger: It's been a few years since I've participated in a McDonald's earnings call, and I want to start by reflecting a bit about the progress McDonald's USA has achieved since that call back in 2021. Over the past three years, we've significantly moved the needle in several areas like loyalty, which has grown to over 20% of our US system wide sales and over 37 million 90 day active users. We've also improved our chicken market share with the launch of McCrispy. As I said, Ben, it was the accumulation of our decisions grounded in our values that continue to keep the McDonald's brand relevant for our customers and meaningful for our people.

Joseph Erlinger: It's been a few years since I've participated in a McDonald's earnings call, and I want to start by reflecting a bit on the progress McDonald's USA has achieved since that call back in 2021. Over the past three years, we've significantly moved the needle in several areas, like loyalty, which has grown to over 20% of our U.S. system-wide sales and over 37 million 90-day active users. We've also improved our chicken market share with the launch of McCrisp. As I said then, it was the accumulation of our decisions, grounded in our values, that continued to keep the McDonald's brand relevant for our customers and meaningful for our people, providing a strong foundation for future growth.

Joe: It's been a few years since I've participated in a McDonald's earnings call, and I want to start by reflecting a bit about the progress McDonald's USA has achieved since that call back in 2021.

Joe: Over the past three years, we've significantly moved the needle in several areas, like loyalty, which has grown to over 20% of our U.S. system-wide sales and over 37 million 90-day active users.

Joe: We've also improved our chicken market share with the launch of McCrispy.

Speaker Change: As I said then, it was the accumulation of our decisions, grounded in our values, that continued to keep the McDonald's brand relevant for our customers and meaningful for our people, providing a strong foundation for future growth.

Joe Erlinger: Providing a strong foundation for future growth. That continues to be our approach as we're now focused on raising the bar on our customer experience, considering our customer's current reality. Since the very beginning, and Chris touched on this earlier, we've earned our success through excellent QSC and V quality service, cleanliness, and value. And as we've evolved our approach, time it again over the years to match the changing expectations of our customers, we continue to deliver an exceptional customer experience today. In this last quarter, McDonald's USA delivered its highest ever year-to-date customer satisfaction score. While I'll share more about the $5 meal deal in a moment, both the Bacon, Cajun, Ranch, McCrispy and Grandmoment Flurry promotions drove sales along with cultural buzz and brand relevance.

Joseph Erlinger: That continues to be our approach as we're now focused on raising the bar on our customer experience, considering our customers' current reality. Since the very beginning, and Chris touched on this earlier, we've earned our success through excellent QSC&V, quality, service, cleanliness, and value. And as we've evolved our approach time and again over the years to match the changing expectations of our customers, we continue to deliver an exceptional customer experience today. In this last quarter, McDonald's USA delivered its highest ever year-to-date customer satisfaction score.

Speaker Change: That continues to be our approach, as we're now focused on raising the bar on our customer experience, considering our customers' current reality.

Speaker Change: Since the very beginning, and Chris touched on this earlier, we've earned our success through excellent QSC&V, quality, service, cleanliness, and value.

Chris: And as we've evolved our approach time and again over the years to match the changing expectations of our customers, we continue to deliver an exceptional customer experience today.

Chris: In this last quarter, McDonald's USA delivered its highest ever year-to-date customer satisfaction score.

Joseph Erlinger: While I'll share more about the $5 meal deal in a moment, both the Bacon Cajun Ranch McCrispy and Grandma McFlurry promotions drove sales, along with Cultural Buzz and Brandrelevant. All said, our business performance reflects industry-wide challenges and the current context, one where customers are making thoughtful choices about when and where they eat.

Speaker Change: While I'll share more about the $5 meal deal in a moment, both the Bacon Cajun Ranch McCrispy and Grandma McFlurry promotions drove sales, along with cultural buzz and brand relevance.

Joe Erlinger: All said, our business performance reflects industry-wide challenges and the current context. One where customers are making thoughtful choices about when and where they eat. And while we always work hard to provide value to our customers, they're telling us that they want to see and experience even more value from McDonald's. And we're listening as we remain laser-focused on providing great value to our fans this summer and beyond. So we tapped into ideas that already exist within our system. Our restaurants in upstate New York have been running a local $5 meal deal that was highly successful, performing well with lower income customers and driving overall incremental sales.

Speaker Change: All said, our business performance reflects industry-wide challenges and the current context.

Speaker Change: One where customers are making thoughtful choices about when and where they eat.

Joseph Erlinger: And while we always work hard to provide value to our customers, they're telling us that they want to see and experience even more value from McDonald's. And we're listening as we remain laser focused on providing great value to our fans this summer and beyond. So we tapped into ideas that already exist within our system.

Speaker Change: And while we always work hard to provide value to our customers, they're telling us that they want to see and experience even more value from McDonald's.

Speaker Change: And we're listening, as we remain laser-focused on providing great value to our fans this summer and beyond.

Joseph Erlinger: Our restaurants in upstate New York have been running a local $5 meal deal that has been highly successful, performing well with lower income customers and driving overall incremental sales. By leveraging learnings from within our own system, we brought this to life for customers across the U.S. We've seen a lot of enthusiasm, and the number of $5 meal deals sold are above expectations. Trial rates of the deal are highest amongst lower-income consumers, and sentiment towards the brand around value and affordability has begun to shift positively.

Speaker Change: So we tapped into ideas that already exist within our system.

Speaker Change: Our restaurants in upstate New York have been running a local $5 meal deal that was highly successful, performing well with lower income customers and driving overall incremental sales.

Joe Erlinger: By leveraging learnings from within our own system, we brought this to life for customers across the US. We've seen a lot of enthusiasm, and the number of $5 meal deals sold are above expectations. Trial rates of a deal are highest amongst lower income consumers, and sentiment towards the brand around value and affordability has begun to shift positively. To date, 93% of our restaurants in the US have committed to extending the offer even further into the summer. And there are other ways customers can experience great value at McDonald's. We continue to provide a steady stream of offers on the mobile app, including nationwide Free-Fry Fridays, where you can get a free medium fry every Friday with any $1 purchase on the app.

Speaker Change: By leveraging learnings from within our own system, we've brought this to life for customers across the U.S.

Speaker Change: We've seen a lot of enthusiasm and the number of $5 meal deals sold are above expectations.

Speaker Change: Trial rates of the deal are highest amongst lower income consumers and sentiment towards the brand around value and affordability has begun to shift positively.

Joseph Erlinger: To date, 93% of our restaurants in the U.S. have committed to extending the offer even further into the summer. And there are other ways customers can experience great value at McDonald's. We continue to provide a steady stream of offers on the mobile app, including nationwide free Fry Fridays, where you can get a free medium fry every Friday with any $1 purchase on the app.

Speaker Change: To date, 93% of our restaurants in the U.S. have committed to extending the offer even further into the summer.

Speaker Change: And there are other ways customers can experience great value at McDonald's. We continue to provide a steady stream of offers on the mobile app, including nationwide free Fry Fridays, where you can get a free medium fry every Friday with any $1 purchase on the app.

Joe Erlinger: And as we work through the important details of a future US value platform, we will continue to make decisions grounded in insights with the customer at the center. At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape. So we believe it's critical for us to consider these factors in order to grow market share and return to sustainable guest-count-led growth for the brand. McDonald has uniquely positioned to succeed in this environment given our size, scale, and competitive advantages.

Joseph Erlinger: And as we work through the important details of a future US value platform, we will continue to make decisions grounded in insights with the customer at the center. At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape. So we believe it's critical for us to consider these factors in order to grow market share and return to sustainable guest count-driven growth for the brand. McDonald's is uniquely positioned to succeed in this environment given its size, scale, and competitive advantages. We have a fully modernized restaurant estate.

Speaker Change: And as we work through the important details of a future U.S. value platform, we will continue to make decisions grounded in insights with the customer at the center.

Speaker Change: At the end of the day, we expect customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape.

Speaker Change: So we believe it's critical for us to consider these factors in order to grow market share and return to sustainable guest count-led growth for the brand.

Speaker Change: McDonald's is uniquely positioned to succeed in this environment given our size, scale, and competitive advantages.

Joe Erlinger: We have a fully modernized restaurant estate. We have a simplified menu that focuses on our core, while never shying away from bringing back fan favorites at the right times or pursuing the right new product innovations.

Ian Frederick Borden: We have a simplified menu that focuses on our core while never shying away from bringing back fan favorites at the right times or pursuing the right new product innovation. And we have built one of the largest loyalty programs in the industry. And we're continuing to lead with a long-term mindset, making decisions that meet our customers where they are and where they need us right now, while also plotting a path for sustained, And good morning, everyone.

Speaker Change: We have a fully modernized restaurant estate. We have a simplified menu that focuses on our core, while never shying away from bringing back fan favorites at the right times, or pursuing the right new product innovations.

Joe Erlinger: We have built one of the largest loyalty programs in the industry, and we're continuing to lead with a long-term mindset, making decisions that meet our customers where they are and where they need us right now, while also plotting a path for sustained success.

Speaker Change: We have built one of the largest loyalty programs in the industry.

Speaker Change: and we're continuing to lead with a long-term mindset making decisions that meet our customers where they are and where they need us right now while also plotting a path for sustained success.

Ian Borden: And now I'll turn it over to Ian. Thanks, Joe, and good morning, everyone. As Chris mentioned on the top of the call, despite the very real near-term challenges facing the sector, we remain confident that our long-term strategy, rooted in customer insights and built on our inherent competitive advantages, is right for our business. When we combine deep insights with the power of our brand, we tap into what our customers love most about McDonald's, connecting with them on an emotional level through celebrating the rituals and memories that make our brand so special. At the heart of our brand are our local communities and the customers we serve each and every day.

Ian Frederick Borden: As Chris mentioned at the start of the call, despite the very real near-term challenges facing the sector, we remain confident that our long-term strategy, rooted in customer insights and built on our inherent competitive advantages, is right for our business. When we combine deep insights with the power of our brand, we tap into what our customers love most about McDonald's. Connecting with them on an emotional level by celebrating the rituals and memories that make our brand so special.

Speaker Change: And now I'll turn it over to Ian.

Ian: Thanks, Joe. And good morning, everyone. As Chris mentioned at the top of the call, despite the very real near-term challenges facing the sector, we remain confident that our long-term strategy, rooted in customer insights and built on our inherent competitive advantages, is right for our business.

Chris: When we combine deep insights with the power of our brand, we tap into what our customers love most about McDonald's. Connecting with them on an emotional level through celebrating the rituals and memories that make our brand so special.

Ian Frederick Borden: At the heart of our brand are our local communities and the customers we serve each and every day. Strong restaurant-level execution against our MCD growth drivers, coupled with compelling value, will be critical to giving customers more reasons to visit McDonald's more often. And as you heard from Chris and Joe, we're delivering higher customer satisfaction and improved service times across most of our major markets. Our M's, C's, and D's are deeply interconnected, and it's at the intersection of our growth drivers that we continue to deepen our relationships with customers and create a consistent and enjoyable restaurant experience while offering the delicious and affordable food they love.

Chris: At the heart of our brand are our local communities and the customers we serve each and every day.

Ian Borden: Strong restaurant level execution against our MCD growth drivers, coupled with compelling value, will be critical to giving customers more reasons to visit McDonald's more often. And as you heard from Chris and Joe, we're delivering higher customer satisfaction and improved service times across most of our major markets. Our MCDs are deeply interconnected, and it's at the intersection of our growth drivers that we continue to deepen our relationships with customers and create a consistent and enjoyable restaurant experience while offering the delicious and affordable food they love. As Chris mentioned, we still have an opportunity to strengthen our holistic value proposition across markets.

Chris: Strong restaurant-level execution against our MCD growth drivers, coupled with compelling value, will be critical to giving customers more reasons to visit McDonald's more often.

Speaker Change: And as you heard from Chris and Joe, we're delivering higher customer satisfaction and improved service times across most of our major markets.

Speaker Change: Our M's, C's, and D's are deeply interconnected, and it's at the intersection of our growth drivers that we continue to deepen our relationships with customers and create a consistent and enjoyable restaurant experience, while offering the delicious and affordable food they love.

Ian Frederick Borden: As Chris mentioned, we still have an opportunity to strengthen our holistic value proposition across markets, and we recently met with each of our largest markets. We're ensuring that we have a winning value offering was front and center in every discussion. We're taking a forensic approach to evaluating our offerings and acting with urgency and agility to implement solutions to deliver against customer expectations.

Speaker Change: As Chris mentioned, we still have an opportunity to strengthen our holistic value proposition across markets. And we recently met with each of our largest markets. We're ensuring that we have a winning value offering that's front and center in every discussion.

Ian Borden: And we recently met with each of our largest markets. We're ensuring that we have a winning value offering front and center in every discussion. We're taking a forensic approach to evaluating our offerings and acting with urgency and agility to implement solutions to deliver against customer expectations. Germany has continued their holistic approach to value with a 360 degree affordability strategy, including McSmartt at the center, and are consistently driving elevated levels of customer awareness. This is a best-in-class example of listening to the customer, designing a program that meets them where they are, and ultimately delivering incremental sales, customer satisfaction, and market share gains.

Chris: We're taking a forensic approach to evaluating our offerings and acting with urgency and agility to implement solutions to deliver against customer expectations.

Ian Frederick Borden: Germany has continued their holistic approach to value with a 360-degree affordability strategy including McSmart at the center and is consistently driving elevated levels of customer awareness. This is a best-in-class example of listening to the customer, designing a program that meets them where they are, and ultimately delivering incremental sales, customer satisfaction, and market share gains. As we scale best practices across the system, markets like France and Australia have adopted their own version of the McSmart platform, and early results have been encouraging. And in May, the UK offered smaller, more affordable bundles of their own with their three for three pound mix and match menu, which resonated with customers looking for more affordable options.

Chris: Germany has continued their holistic approach to value with a 360 degree affordability strategy including McSmart at the center and are consistently driving elevated levels of customer awareness.

Speaker Change: This is a best-in-class example of listening to the customer, designing a program that meets them where they are, and ultimately delivering incremental sales, customer satisfaction, and market share gains.

Ian Borden: As we scale best practices across the system, markets like France and Australia have adopted their own version of the McSmartt platform, and early results have been encouraging. And in May, the UK offered smaller, more affordable bundles of their own with their three-for-three-pound mix-and-match menu that resonated with customers looking for more affordable options. And to address an opportunity to offer more compelling value at breakfast, which remains the fastest growing day part in the market, the Canadian market recently launched a new price-pointed beverage value offering our customers the coffee they love every day, starting at just a dollar.

Speaker Change: As we scale best practices across the system, markets like France and Australia have adopted their own version of the McSmart platform, and early results have been encouraging.

Speaker Change: And in May, the UK offered smaller, more affordable bundles of their own, with their 3 for £3 mix-and-match menu that resonated with customers looking for more affordable options.

Ian Frederick Borden: And to address an opportunity to offer more compelling value at breakfast, which remains the fastest-growing day part in the market, the Canadian market recently launched a new price-pointed beverage value, offering customers the coffee they love every day, starting at just a dollar. McDonald's has long been an affordable destination for communities to come together and share a meal. But it's always been about more than just price. This quarter, we continue to elevate the experience, combining our delicious food with unique mobile app and in-restaurant experiences.

Speaker Change: And to address an opportunity to offer more compelling value at breakfast, which remains the fastest-growing day part in the market, the Canadian market recently launched a new price-pointed beverage value, offering our customers the coffee they love every day starting at just a dollar.

Ian Borden: McDonald's has long been an affordable destination for communities to come together and share a meal, but it's always been about more than just price. This quarter, we continue to elevate the experience, combining our delicious food with unique mobile app and in-restaurant experiences, ultimately delivering value, however and whenever customers decided to order and enjoy their McDonald's favorites. Germany leaned into the Easter holiday with a fun and interactive calendar promotion, where customers enjoyed a daily deal available exclusively in the mobile app, from discounts on our most iconic menu items like the Big Mac or Chicken McNuggets to unique meal deals. The promotion drove remarkable engagement and significant growth in loyalty sales.

Speaker Change: McDonald's has long been an affordable destination for communities to come together and share a meal. But it's always been about more than just price.

Speaker Change: This quarter, we continue to elevate the experience, combining our delicious food with unique mobile app and in-restaurant experiences, ultimately delivering value, however and whenever customers decide to order and enjoy their McDonald's favorites.

Ian Frederick Borden: Ultimately, delivering value, however, and whenever customers decided to order and enjoy their McDonald's favorite, Germany leaned into the Easter holiday with a fun and interactive calendar promotion, where customers enjoyed a daily deal available exclusively in the mobile app, from discounts on our most iconic menu items like the Big Mac or Chicken McNuggets.

Speaker Change: Germany leaned into the Easter holiday with a fun and interactive calendar promotion, where customers enjoyed a daily deal available exclusively in the mobile app.

Speaker Change: From discounts on our most iconic menu items like the Big Mac or Chicken McNuggets, to unique meal deals, the promotion drove remarkable engagement and significant growth in loyalty sales.

Ian Frederick Borden: Unique meal deals, the promotion drove remarkable engagement and significant growth in loyalty sales, and Italy drove traffic to our restaurants with Summer Days, a similar seasonal calendar campaign featuring a variety of exciting meal bundles. A local favorite, the Frequent Friar Program, returned to the Canadian market this quarter. To engage loyalty members with a new approach to gamification, the company launched a nationwide scavenger hunt for fry icons, which could then be entered on the mobile app for free loyalty points or free fries.

Ian Borden: An Italy drove traffic to our restaurants with summer days, a similar seasonal calendar campaign featuring a variety of exciting meal bundles. And a local favorite, the Frequent Friar program returned to the Canadian market this quarter. To engage loyalty members with a new approach to gamification, the market launched a nationwide scavenger hunt for fry icons, which could then be entered on the mobile app for free loyalty points or free fries. Nearly three and a half million codes were entered throughout the promotion, driving meaningful lifts to the fry category. Even with strong execution against our accelerating the arch's growth drivers, performance this quarter reflects a pressured industry landscape in the U.S.

Speaker Change: And Italy drove traffic to our restaurants with Summer Days, a similar seasonal calendar campaign featuring a variety of exciting meal bundles.

Speaker Change: and a local favorite, the Frequent Friar Program, returned to the Canadian market this quarter.

Speaker Change: To engage loyalty members with a new approach to gamification, the market launched a nationwide scavenger hunt for Fry Icons, which could then be entered on the mobile app for free loyalty points or free fries.

Ian Frederick Borden: Nearly 3.5 million codes were entered throughout the promotion, driving meaningful lifts to the Fry category. Even with strong execution against our Accelerating the Arches growth drivers, performance this quarter reflects a pressured industry landscape in the U.S. as well as across many of our largest international markets. Our international operating market comps were negative.

Speaker Change: Nearly three and a half million codes were entered throughout the promotion, driving meaningful lifts to the Frye category.

Speaker Change: Even with strong execution against our Accelerating the Arches growth drivers, performance this quarter reflects a pressured industry landscape in the U.S. as well as across many of our largest international markets.

Ian Borden: as well as across many of our largest international markets. Our international operated market comps were negative, reflective of this broad base pressure, where customers continue to be more intentional with the dollars they spend, and performance in France. An inner IDL segment, positive comp sales in Latin America and Japan were offset by the impact from the ongoing war in the Middle East and a less confident consumer in China. Despite the pressured top line growth we've discussed this morning, we drove adjusted earnings per share of $2.97 for the quarter, a decrease compared to the prior year of about 5% in constant currencies.

Ian Frederick Borden: Reflecting this broad-based pressure, where customers continue to be more intentional with the dollars they spend, and performance in France. And in our IDL segment, positive comp sales in Latin America and Japan were offset by the impact of the ongoing war in the Middle East and a less confident consumer in China. Despite the pressured top line growth we've discussed this morning, we drove adjusted earnings per share of $2.97 for the quarter, a decrease compared to the prior year of about 5% in constant currency. This was primarily due to a higher effective tax rate of nearly 21% for the quarter, elevated interest expense, as expected, and less other non-operating income due partially to lower interest income.

Speaker Change: Our international operated market comps were negative, reflective of this broad-based pressure where customers continue to be more intentional with the dollars they spend and performance in France.

Speaker Change: In our IDL segment, positive comp sales in Latin America and Japan were offset by the impact from the ongoing war in the Middle East and a less confident consumer in China.

Speaker Change: Despite the pressured top-line growth we've discussed this morning, we drove adjusted earnings per share of $2.97 for the quarter, a decrease compared to the prior year of about 5% in constant currencies.

Ian Borden: This was primarily due to a higher effective tax rate of nearly 21% for the quarter, elevated interest expense as expected, and less other non-operating income due partially to lower interest income. Top line results generally generated over $3.5 billion of restaurant margins for the quarter, and a year-to-date adjusted operating margin of over 46%, highlighting the durability of our business model. This was offset by higher GNA due to continued investments in digital and technology, as well as enterprise transformation efforts and costs associated with our biennial worldwide convention. As we've talked about before, driving long-term growth requires making the right strategic and forward-looking investments, and we are committed to continuing to invest in our platforms and growth drivers, while relentlessly prioritizing current year run-the-business spend.

Speaker Change: This was primarily due to a higher effective tax rate of nearly 21% for the quarter, elevated interest expense as expected, and less other non-operating income due partially to lower interest income.

Ian Frederick Borden: Top line results generated over $3.5 billion in restaurant margins for the quarter and a year-to-date adjusted operating margin of over 46%, highlighting the durability of our business model. This was offset by higher G&A due to continued investments in digital and technology, as well as enterprise transformation efforts and costs associated with our biennial worldwide convention. As we've talked about before, driving long-term growth requires making the right strategic and forward-looking investments. And we are committed to continuing to invest in our platforms and growth drivers while relentlessly prioritizing current-year run-the-business spend, where we expect industry challenges to persist. We believe we are well positioned with the unique size and scale that only the McDonald's system can provide.

Speaker Change: Top line results generated over $3.5 billion of restaurant margins for the quarter, and a year-to-date adjusted operating margin of over 46%, highlighting the durability of our business model.

Speaker Change: This was offset by higher G&A due to continued investments in digital and technology, as well as enterprise transformation efforts and costs associated with our biennial worldwide convention.

Speaker Change: As we've talked about before, driving long-term growth requires making the right strategic and forward-looking investments, and we are committed to continuing to invest in our platforms and growth drivers while relentlessly prioritizing current-year run-the-business spend.

Ian Borden: While we expect industry challenges to persist, we believe we are well positioned with the unique size and scale that only the McDonald System can provide. They remain significant power in focusing on what's within our control, offering our customers delicious food at unparalleled value and convenience that will drive future market share gains and guest count growth. With this as our North Star, we believe we're poised to deliver long-term growth for our system and our shareholders.

Speaker Change: While we expect industry challenges to persist, we believe we are well positioned with the unique size and scale that only the McDonald's system can provide.

Ian Frederick Borden: There remains significant power in focusing on what's within our control, offering our customers delicious food at unparalleled value and convenience that will drive future market share gains and guest count growth. With This Is Our North Star, we believe we're poised to deliver long-term growth for our system and our shareholders. Now, as most of you know, this is Mike's last earnings call with McDonald's, so before I close, I'd like to take a moment to personally thank Mike for his significant contributions to our brand.

Speaker Change: There remains significant power in focusing on what's within our control, offering our customers delicious food at unparalleled value and convenience that will drive future market share gains and guest count growth.

Speaker Change: With This Is Our North Star, we believe we're poised to deliver long-term growth for our system and our shareholders.

Ian Borden: Now, as most of you know, this is Mike's last earning call with McDonald's. So before I close, I'd like to take a moment to personally thank Mike for his significant contributions to our brand. He served as a trusted advisor to our senior leadership team by playing a key role in developing and communicating our strategy. Mike has been that McDonald's almost as long as I have, and his deep knowledge of our business and ability to foster relationships with stakeholders has been invaluable to me, especially as I've taken on the role as CFO. On behalf of everyone at McDonald's, Mike, thank you.

Ian Frederick Borden: He served as a trusted advisor to our senior leadership team by playing a key role in developing and communicating our strategy. Mike has been at McDonald's almost as long as I have, and his deep knowledge of our business and ability to foster relationships with stakeholders has been invaluable to me, especially as I've taken on the role of CFO. On behalf of everyone at McDonald's, Mike, thank you. We wish you all the best for the future. And with that, I'll turn it back over to Chris.

Speaker Change: Now, as most of you know, this is Mike's last earning call with McDonald's. So before I close, I'd like to take a moment to personally thank Mike for his significant contributions to our brand.

Speaker Change: He served as a trusted advisor to our senior leadership team by playing a key role in developing and communicating our strategy.

Speaker Change: Mike has been at McDonald's almost as long as I have, and his deep knowledge of our business and ability to foster relationships with stakeholders has been invaluable to me, especially as I've taken on the role of CFO .

Chris Kempczinski: We wish you all the best for the future, and with that, I'll turn it back over to Chris.

Speaker Change: On behalf of everyone at McDonald's, Mike, thank you.

Speaker Change: We wish you all the best for the future. And with that, I'll turn it back over to Chris. Thanks, Ian.

Chris Kempczinski: Thanks, Ian. Earlier this month, we brought leaders together to discuss our goals and objectives as we further establish McDonald's as a leading global consumer brand. As a team, we are committed to act with urgency, cementing our value leadership, growing sharing areas like chicken, and bolstering loyalty through digital customer acquisition, adoption, and retention on a global scale. And we are continuing to lean into our three pillars, MCND, as our blueprint and engine for growth while leveraging technology to transform how we operate across all platforms. Even as the world around us continues to change, we know the power of the McDonald's brand will prevail.

Chris Kempczinski: Thanks, Ian. Earlier this month, we brought leaders together to discuss our goals and objectives as we further establish McDonald's as a leading global consumer brand. As a team, we are committed to acting with urgency, cementing our value leadership, growing share in areas like chicken, and bolstering loyalty through digital customer acquisition, adoption, and retention on a global scale. And we are continuing to lean into our three pillars, M, C, and D, as our blueprint and engine for growth, while leveraging technology to transform how we operate across all platforms.

Chris: Earlier this month, we brought leaders together to discuss our goals and objectives as we further establish McDonald's as a leading global consumer brand.

Chris: As a team, we are committed to act with urgency, cementing our value leadership, growing share in areas like chicken, and bolstering loyalty through digital customer acquisition, adoption, and retention on a global scale.

Chris: And we are continuing to lean into our three pillars, M, C, and D, as our blueprint and engine for growth, while leveraging technology to transform how we operate across all platforms.

Chris Kempczinski: Even as the world around us continues to change, we know the power of the McDonald's brand will prevail. We're digital forward, values-driven, and culture-led, and we'll continue to reinvent ourselves to meet our customers and restaurant teams where they are today and where they're going tomorrow. With more than 40,000 locations across the globe, we uphold a presence that we believe few in our industry could ever hope to match. We offer the best franchising opportunity in the world, offering a familiar beacon of support for the more than 40,000 communities where we live, work, and serve. And we're just getting started.

Chris: Even as the world around us continues to change, we know the power of the McDonald's brand will prevail.

Chris Kempczinski: We're digital forward, values driven, and culture led, and we'll continue to reinvent ourselves to meet our customers and restaurant teams where they are today, and where they're going tomorrow. With more than 40,000 locations across the globe, we uphold a presence that we believe few in our industry could ever hope to match. We offer the best franchising opportunity in the world, offering a familiar beacon of support for the over 40,000 communities where we live, work, and serve.

Chris: We're digital forward, values-driven and culture-led, and we'll continue to reinvent ourselves to meet our customers and restaurant teams where they are today, and where they're going tomorrow.

Chris: With more than 40,000 locations across the globe, we uphold a presence that we believe few in our industry could ever hope to match.

Chris: We offer the best franchising opportunity in the world, offering a familiar beacon of support for the over 40,000 communities where we live, work, and serve.

Chris Kempczinski: And we're just getting started. We're making progress towards our ambition of 50,000 restaurants by the end of 2027. And when we combine our strategy with great value and high level execution, we are confident we will further our leadership position.

Chris Kempczinski: We're making progress towards our ambition of 50,000 restaurants by the end of 2027. And when we combine our strategy with great value and high-level execution, we are confident we will further our leadership position. As I close, I want to extend a sincere thank you to our franchisees, suppliers, and employees around the world for their continued resilience and unwavering commitment to serving our customers and local communities. And with that, we'll begin our Q&A. Thank you.

Chris: And we're just getting started. We're making progress towards our ambition of 50,000 restaurants by the end of 2027.

Chris: And when we combine our strategy with great value and high-level execution, we are confident we will further our leadership position.

Chris Kempczinski: As I close, I want to extend a sincere thank you to our franchisees, suppliers, and employees around the world for their continued resilience and unwavering commitment to serving our customers and local communities.

Chris: As I close, I want to extend a sincere thank you to our franchisees, suppliers, and employees around the world for their continued resilience and unwavering commitment to serving our customers and local communities.

Unknown Attendee: And with that, we'll begin Q&A. Thank you. And, as a reminder, if you are an investor and would like to ask a question, please press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and re-Q for any additional questions. Our first question is from John.

Operator: And as a reminder, if you are an investor and would like to ask a question, please press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and re-queue for any additional questions. Our first question is from John Ivankoe with J.P. Morgan. Hi, thank you very much.

Speaker Change: And with that, we'll begin Q&A.

Speaker Change: Thank you. And as a reminder, if you are an investor and would like to ask a question, please press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question and re-queue for any additional questions.

John: I have a call with JP Morgan. Hi. Thank you very much. Certainly, McDonald's has access to consumer data, consumer information that almost no corporation in the world does. And when I consider six months ago, 12 months ago, it was fairly well known. The restaurant industry would see a fairly wide pricing gap versus grocery. And many consumers would have drawn down their excess savings from COVID; you know, that we would be in an environment where value, quite frankly, would be more necessary. So, you know, I just wanted to get a sense of really what changed so significantly from the consumer's perspective relative to your expectations in the last six to twelve months.

Speaker Change: Our first question is from John Ivankoe with J.P. Morgan.

Chris Kempczinski: You know, certainly McDonald's has access, you know, to consumer data, and consumer information that almost no corporation in the world does. And, you know, when I consider, you know, six months ago, 12 months ago, it was fairly well known that the restaurant industry would see a fairly wide pricing gap versus grocery, and many consumers would have drawn down their excess savings from COVID, you know, that we would be in an environment where value, quite frankly, would be more necessary.

John William Ivankoe: Hi, thank you very much. You know, certainly McDonald's has access, you know, to consumer data, consumer information that almost no...

Chris Kempczinski: So, you know, I just wanted to get a sense of really what has changed so significantly from the consumer's perspective, relative to your expectations, in the last six to 12 months, and, if I can, you know, how McDonald's kind of pivots itself from being reactionary from a value perspective, from a consumer trend perspective, to more anticipating changing needs before they happen, as opposed to after. Thank you so much.

John William Ivankoe: Really what changed so significantly from the consumer's perspective relative to your expectations in the last 6-12 months?

John: And if I can, you know, how McDonald's kind of pivots itself from being reactionary, from a value perspective, from a consumer perspective to more anticipating changing needs before they happen as opposed to after.

Speaker Change: And if I can, you know, how McDonald's kind of pivots itself from being reactionary from a value perspective, from a consumer trend perspective, to more anticipating changing needs before they happen as opposed to after. Thank you so much.

John: Thank you so much.

Chris Kempczinski: Hi, John. Thanks for the question. You're right in that, you know, last year, you may remember we were talking about there being pressure on the consumer and particularly that low-income consumer. That was notable in a few of our major markets. And what has happened in the intervening period of time is that we've seen more markets have the same sort of slowdown. And it is certainly most pronounced with that low income consumer. But we're also seeing an impact with larger groups, particularly around families in Europe, that we're seeing this as people are just looking to economize.

Chris Kempczinski: Hi John, thanks for the question. You're right about that. Last year, you may remember, we were talking about there being pressure on the consumer and, particularly, the low income consumer. That was notable in a few of our major markets, and what has happened in the intervening period of time is that we've seen more markets have the same sort of slowdown. And it is certainly most pronounced with the low income consumer.

Speaker Change: Hi Jon, thanks for the question. You're right in that, you know, last year you may remember we were talking about there being pressure on the consumer and particularly that low-income consumer.

John William Ivankoe: That was notable in a few of our major markets, and what has happened...

Speaker Change: in the intervening period of time is that we've seen more markets

Speaker Change: have the same sort of slowdown and it is.

Speaker Change: Certainly most pronounced with that low-income consumer, but we're also seeing...

Chris Kempczinski: But we're also seeing an impact with larger groups, particularly families in Europe, that we're seeing this as people are just looking to economize. You're also right that we're looking at a continued gap between food at home and food away from home inflation; the gap is about 3% right now or 300 basis points gap between the two. So you are seeing consumers being much more discretionary as they treat restaurants, you're seeing that the consumer is eating at home more often, and you're seeing more deal seeking from the consumer.

Speaker Change: An impact with larger groups, particularly around families in Europe , that we're seeing this.

Chris Kempczinski: You're also right that we're looking at a continued gap between food at home and food away from home inflation. The gap is about 3% right now, or 300 basis point gap between the two. So you are seeing consumers being much more discretionary as they treat restaurants. You're seeing that the consumer is eating at home or off, and you're seeing more deal-seeking from the consumer. And you're just seeing, I think, a trade down even within either units per transaction or within mix. All of those things. We're also seeing that the consumer is being very discriminating, and I would point out consumer sentiment in most of our major markets remains low.

Speaker Change: You're also right that we're looking at a continued gap between

Speaker Change: So you are seeing consumers being much more discretionary as they treat restaurants. You're seeing...

Chris Kempczinski: And you're just seeing, I think, a trade down even within either units per transaction or within mix. All of those things, for us, are indicators that the consumer across a number of these markets is being very discriminating. And I would point out that consumer sentiment in most of our major markets remains low. And so your point around how do we make sure that we're anticipating where these customers are going and what the value is required is, I think, is a fair question.

Speaker Change: Units per transaction or within mix. All of those things for us are indicators that the consumer across a number of these markets is being very discriminating and I would point out consumer sentiment in most of our major markets remains low.

Chris Kempczinski: and so your point around how do we make sure that we're anticipating where these customers are going and what the value is required. I think it's a fair question, and what we've done is, in a number of places, you've seen us and heard us talk about what we're doing with McSmart, what we're doing with McSaver, and some of the things that we've put in place in the U.S.

Speaker Change: And so your point around...

Speaker Change: How do we make sure that we're anticipating where these customers are going and what the value is required? I think it's a fair question.

Chris Kempczinski: And what we've done is, in a number of places, you've seen us and heard us talk about what we're doing with McSmart, what we're doing with McSaver, some of the things that we put in place in the U.S.

Speaker Change: What we've done is, in a number of places, you've seen us and heard us talk about what we're doing with McSmart, what we're doing with McSaver, some of the things that we've put in place in the U.S., but I think it's also clear to us that in several markets, in a number of markets,

Chris Kempczinski: But I think it's also clear to us that in several markets, in a number of markets, that you need to have a broader value platform and that trying to move the consumer with narrow offerings that are one item or a few items is just not sufficient for the context that we're in. And so what's going on in markets around the world is looking at how do we further broaden what some of the value platform offerings could be as we also perhaps look for other places that we can dial down. And that conversation, as you know, with our franchisees takes a moment; it's not something that happened immediately. But I would say that there's good recognition across our franchisee base that we need to be providing value; we need to be providing a broader level of value. And at the same time, we've got a lot of other levers, so this is not all about value that we've got levers around what we can do from a menu standpoint.

Chris Kempczinski: But I think it's also clear to us that in several markets, in a number of markets, that we need to have a broader value platform and that trying to move the consumer with narrow offerings that are one item or a few items is just not sufficient for the context that we're in. And so what's going on in markets around the world is looking at how we further broaden what some of the value platform offerings could be as we also perhaps look for other places that we can dial down. And that conversation, as you know, with our franchisees takes a moment.

Speaker Change: The Consumer with Narrow Offerings that are one item or a few items.

Speaker Change: is just not sufficient for the context that we're in and so what's going on in markets around the world is

Speaker Change: Looking at how do we further broaden...

Speaker Change: What some of the value platform offerings could be as we also perhaps look for other places that we can dial down.

Chris Kempczinski: It's not something that happens immediately, but I would say that there is good recognition across our franchisee base that we need to be providing value. We need to be providing a broader level of value. And at the same time, we've got a lot of other levers.

Speaker Change: And that conversation, as you know, with our franchisees takes a moment.

Speaker Change: It's not something that happened immediately, but I would say that...

Speaker Change: There's good recognition across our franchisee base that we need to be providing value, we need to be providing a broader level of value.

Chris Kempczinski: So this is not all about value. We've got levers around what we can do from a menu standpoint. We've got some great equity that we need to be driving there, and then there's more we need to be doing from a marketing standpoint and stepping up on marketing. So I'd say the changes that we're working on and talking about with our markets, yes, they're around value. It's making sure that as we're facing a more difficult environment than even what we anticipated last year, that we've got that value offering, but we're also using the other things that are at our disposal to get this business back to where we know it should be performing. Our next question is from David Palmer with Evercore. Thanks. Congratulations, Mike. Thank you for your help all through the years.

Speaker Change: And at the same time, we've got a lot of other levers, so this is not all about value. We've got levers.

Chris Kempczinski: We've got some great equities that we need to be driving there, and there's more we need to be doing from a marketing standpoint and stepping up on marketing. So I'd say the changes that we're working on and talking about with our markets, yes, it's around value. It's making sure that as we're facing certainly a more difficult environment than even what we anticipated last year, that we've got that value offering. But we're also using the other things that are at our disposal to get this business back to where we know it should be performing.

Speaker Change: We've got some great equities that we need to be driving there. And there's more we need to be doing from a marketing standpoint and stepping up on marketing. So I'd say, you know, we've got to be doing more of that. And I think that's the key to success.

Speaker Change: The changes that we're working on and talking about with our markets, yes, it's around value, it's making sure

Speaker Change: That is, as we're facing, certainly, a more difficult environment.

Speaker Change: That we've got that value offering, but we're also using the other things that are at our disposal to get this business back to where we know it should be performing.

David Palmer: Our next question is from David Palmer with Evercore. Thanks, congratulations Mike. Thank you for your help all through the years. As far as the question, I guess I'd like to focus on the IOM countries. Yeah, how do the challenges in your key markets differ from the US in terms of market share versus informal eating out sales trends? And in the US, it feels like McDonald's is still in a state state of searching and perhaps negotiating to find the right value message ahead of menu news that might happen later. Are you at a similar stage of searching and perhaps negotiating with franchisees about value overseas? You know, where are you in terms of how satisfied you are where you are in terms of the value message? Thanks so much.

Speaker Change: Our next question is from David Palmer with Evercore.

David Sterling Palmer: Thanks. Congratulations, Mike. Thank you for your help all through the years.

Ian Frederick Borden: As far as my question is concerned, I guess I'd like to focus on the IOM countries. How do the challenges in your key markets differ from those in the U.S. in terms of market share versus... The Informal Eating Out Sales Trends, and in the U.S., it feels like McDonald's is still in a state of searching and perhaps negotiating to find the right value message ahead of menu news that might happen later. Are you at a similar stage of searching and perhaps negotiating with franchisees about value overseas?

David Sterling Palmer: As far as the question, I guess I'd like to focus on the IOM countries. How do the challenges in your key markets differ from the U.S. in terms of market share versus

Speaker Change: The Informal Eating Out Sales Trends.

Speaker Change: In the U.S. it feels like...

Speaker Change: McDonald's is still in a state of searching and perhaps negotiating to find the right value message ahead of menu news that might happen later. Are you at a similar stage?

Speaker Change: of Searching and perhaps Negotiating with Franchisees about Value Overseas. You know, where are you in terms of how satisfied you are, where you are in terms of the value message? Thanks so much.

Ian Frederick Borden: Where are you in terms of how satisfied you are with where you are in terms of the value message? Yeah, thanks, David. I'll have Ian start, and then if there's anything I need to add, I'll do that.

Ian Borden: Yeah, thanks, David. I'll have Ian start, and then if there's anything I need to add, I'll do that. But, you know, let you start, sure. Morning David, thanks for the question. Look, I mean I'll just start I think with a bit of context, which is, as you heard Kristen's opening remarks talk about, I mean I think the pressures on the industry and consumers that we're seeing are broad based in nature and. I think if you look across our IOM markets, which you will know historically, I think we've had a have been a real strength to our system. I think that external pressure has heightened, and I think certainly gotten more significant.

Speaker Change: Thanks, David. I'll have Ian start, and then if there's anything I need to add, I'll do that. But Ian, I'll let you start.

Ian Frederick Borden: But Ian, I'll let you start. Sure. Morning, David. Thanks for the question. Look, I mean, I'll just start, I think, with a bit of context, which is, as you heard Chris in his opening remarks talk about, I think the pressures on the industry and consumers that we're seeing are broad-based in nature. And I think if you look across our IOM markets, which you will know historically, I think we've had a – have been a real strength to our system.

Ian: Morning, David. Thanks for the question. Look, I mean, I'll just start, I think, with a bit of context, which is, as you heard Chris in his opening remarks talk about, I mean, I think the

Speaker Change: The pressures on the industry and consumers that we're seeing are broad-based in nature, and

Speaker Change: I think if you look across our IOM markets, which you will know historically, I think we've had a, have been a real strength to our system. I think that external pressure has heightened and I think certainly gotten more significant

Ian Frederick Borden: I think that external pressure has heightened and, I think, certainly gotten more significant, from Corridors in the Marketplace. So I think part of it is just the evolution of what's happening with the consumer and what's happening with the industry. I think we have strong alignment and engagement with our franchisees across our international markets. I think we're working very collaboratively and constructively to get the right programs and platforms in place from a value and affordability standpoint.

Ian Borden: and in several of those markets through the second quarter. And so I think it's still what I'll call an evolving situation. You know, we've talked a lot about value and affordability over the last couple of quarters. As you know, we've kind of highlighted McSmart, which is an entry level meal, affordable meal option that we put in place from Germany at the beginning of 2023, and Germany has been consistently one of our most strongly performing markets, even in a much more difficult context. Over the last couple of quarters in the marketplace. So I think it's a part of it.

Speaker Change: in several of those markets through the second quarter. And so I think it's still what I'll call an evolving situation. You know, we've talked a lot about value and affordability over the last couple of quarters. As you know, we've kind of...

Speaker Change: Highlighted, McSmart, which is an entry-level meal, affordable meal option that we put in place in Germany.

Speaker Change: at the beginning of 2023, and Germany has been consistently one of our...

Speaker Change: Who are most strongly performing markets, even in a much more difficult context over the last couple of quarters in the marketplace. So, I think it's a part of it. It's just the evolution of what's happening with the consumer, what's happening with the industry.

Ian Borden: It's just the evolution of what's happening with the consumer, what's happening with the industry. I think we have strong alignment engagement with our franchisees across our international markets. I think we're working very collaboratively and constructively to get the right programs and platforms in place from a value and affordability standpoint. Part of it's just been the landscape and the consumers evolving, and those platforms and offers have needed to be sharpened. And I think, you know, better positions to be delivering in the current context. And so I think we're moving with speed and pace, as you've heard us talk about before.

Speaker Change: I think we have strong alignment and engagement with our franchisees across our international markets. I think we're working very collaboratively and constructively.

Speaker Change: to get the right programs and platforms in place from a value and affordability standpoint. I think part of it's just been the landscape and the consumer is evolving and those platforms and offers have needed to be sharpened and I think

Ian Frederick Borden: Part of it's just been the landscape and the consumer is evolving, and those platforms are better positioned to be delivering in the current context. And so I think we're moving with speed and pace, as you've heard us talk about before. But the environment, I think, has been.

Speaker Change: You know better positioned to be delivering in the current context And so I think we're we're moving with speed and pace as you've heard us talk about before But the environment I think is as constant has been

Ian Borden: But the environment, I think, has been changing, and context has been evolving. And I think we're just trying to get ahead of that, as we've talked about in kind of our opening remarks. What I would just add is if you look at our IOM markets, the good news is, if you think about Germany with McSmart, you've got Canada with McPix, you've got the UK with Savers Menu, Australia has McSmart and also Loose Change Menu, France has McSmart. We have the value platform established in those markets, and there's good consumer awareness of those value platforms. The work that's underway, and in alluded to this, is making sure that underneath those value platforms, we have the right items at the right price points to reflect where the markets are at today.

Chris Kempczinski: The world has been changing, and context has been evolving. And I think we're just trying to get ahead of that, as we've talked about, in kind of our opening remarks. Yeah, what I would just add is if you look at our IOM markets, the good news is if you think about Germany with McSmart, you've got Canada with McPix, you've got the UK with Savers Menu, Australia has McSmart and also Lo

Speaker Change: Changing and context has been evolving and I think we're just trying to get ahead of that as we've talked about in kind of our opening remarks.

Chris Kempczinski: We have the value platform established in those markets, and there's good consumer awareness of those value platforms. The work that's underway, and Ian alluded to this, is making sure that underneath those value platforms, we have the right items at the right price points to reflect where the market is at today. And so there are markets like the UK, for example, where they're making changes to the menu in France as well. They're adding a four-year-old Happy Meal.

Speaker Change: Yeah, what I would just add is if you look at our IOM markets, the good news is if you think about Germany with McSmart, you've got Canada with McPix, you've got the UK with Savers Menu, Australia has

Speaker Change: McSmart and also Loose Change Menu, France's McSmart. We have the value platform established in those markets and there's good consumer awareness of those value platforms.

Speaker Change: The work that's underway, and Ian alluded to this, is making sure that underneath those value platforms, that we have the right items at the right price points to reflect where the market's at today. And so, there are markets like the UK, for example,

Ian Borden: And so there are markets like the UK, for example, where they're making changes to the menu in France as well. They're adding a four year old happy meal. So there's changes that are happening underneath those value menus to make sure that we are appropriately positioned for what we see now as the market context. But the fact that we have those menu platforms established, that there's good awareness on those, I feel like that is a positive versus in the US where obviously they're starting to do a little bit more work about what the long term value platforms going to look like.

Ian: where they're making changes to the menu in France as well.

Chris Kempczinski: So there are changes that are happening underneath those value menus to make sure that we are appropriately positioned for what we see now as the market context. But the fact that we have those menu platforms established, that there's good awareness about those, I feel like that is a positive compared to the US, where obviously they're starting to do a little bit more work about what the long-term value platform's gonna look like. Our next question is from Brian Harbour with Morgan Stanley, and obviously, it's continued to grow.

Speaker Change: They're adding a four-year-old Happy Meal, so there's changes that are happening underneath those value menus.

Speaker Change: to make sure that we are appropriately positioned for what we see now as the market context.

Speaker Change: But the fact that we have those menu platforms established, that there's good awareness on those, I feel like that is a positive versus in the U.S. where obviously they're starting to do a little bit more work about what the long-term value platform is going to look like.

Brian Harbour: Our next question is from Brian Harbor with Morton Stanley. Yeah, thank you. Good morning. I had a question on digital, right, because obviously it's continued to grow; you've continued to add members. And there's actually a lot of really good value available on that platform, but it hasn't really offset some of the sales challenges that you're seeing right now. So I guess what gives you kind of the confidence that that could change, or what do you think used to be done differently there? Do you think it's kind of resonating? And is that a place to continue to drive value going forward?

Speaker Change: Our next question is from Brian Harbour with Morgan Stanley .

Brian James Harbour: Yeah, thank you. Good morning. I had a question on

Speaker Change: Digital, right? Because obviously it's continued to grow, you've continued to add members, and there's actually a lot of really good value available on that platform. But, you know, it hasn't really offset some of the sales challenges that you're seeing right now. So I guess,

Chris Kempczinski: There's actually a lot of really good value available on that. But, you know, it hasn't really offset some of the sales challenges that you're seeing right now. What gives you kind of the confidence that... Transcription by CastingWords, [inaudible] That's a great question.

Speaker Change: You know, what gives you kind of the confidence that that could change or what do you think needs to be done differently there? Do you think it's kind of resonating and is that, you know, a place to continue to drive value going forward?

Ian Borden: That's a great question. We feel really good about our digital business, and we're seeing strong performance on the digital business, as I alluded to in the opening. I think the challenge on digital right now is basically only 25% of our customers are on digital in terms of identified customers. And so, as you think about what you need to do to drive the overall business, we just don't have digitally yet at the size and with the penetration that's needed to move the entire business.

Chris Kempczinski: We feel really good about our digital business, and we're seeing strong performance in the digital business, as I alluded to in the opening. I think the challenge with digital right now is that basically, only about 25% of our customers are on digital in terms of identified customers. And so as you think about what you need to do to drive the overall business, we just don't have digital yet at the size and with the penetration that's needed to move the entire business.

Speaker Change: That's a great question. We feel really good about our digital business and we're seeing strong performance on the digital business, as I alluded to in the opening. I think the challenge on digital right now is basically only about 25% of our customers are on digital in terms of identified customers.

Speaker Change: And so as you think about what you need to do to drive the overall business, we just don't have digital yet at the size and with the penetration that's needed to move the entire business. And I think some of what has happened as you sort of look at things is.

Chris Kempczinski: And I think some of what has happened as you sort of look at things is we probably were a little overrotated on digital versus the broad everyday value that we're offering to all consumers, those who maybe aren't yet on our digital platform. So that's the work that's underway. I think in time, certainly, as you know, digital is going to continue to grow for us; we're going to get more and more customers on our digital platform.

Ian Borden: And I think some of what has happened as you sort of look at things is we probably were a little over-rotated on digital versus broad everyday value that we're offering available to all consumers, those who maybe aren't yet on our digital platform. So that's the work that's underway. I think in time, certainly as you know, digital is going to continue to grow for us. We're going to get more and more customers on our digital platform. And I think in a couple of years' time, particularly as you get to 250 million users, it's a different conversation about how digital can drive value.

Speaker Change: We probably were a little over rotated on digital versus broad everyday value that we're offering available to all consumers, those who maybe aren't yet on our digital platform. So that's the work that's underway. I think in time, certainly, as you know, digital is going to continue to grow for us.

Speaker Change: We're going to get more and more customers on our digital platform. And I think in a couple years time, particularly as you get to 250 million users, it's a different conversation about how digital can drive value. But today we just don't have.

Ian Borden: But today we just don't have the penetration where we needed to be to move to 75% of the business that's not on digital. And so that's the value work that we just have been talking about.

Speaker Change: The penetration where we need it to be to move the 75% of the business that's not on digital. And so that's the value work that we just have been talking about.

David Tarantino: Next question is from David Tarantino with Baird. Hi, good morning. I had a couple of questions on the US value initiatives.

Chris Kempczinski: And I think in a couple of years' time, particularly as you get to 250 million users, it's a different conversation about how digital can drive value. But today, we just don't have the penetration where we need it to be to move to 75% of the business that's not on digital. And so that's the value work that we just talked about. Our next question is from David Tarantino with Baird. Good morning.

Speaker Change: Our next question is from David Tarantino with Baird.

Joseph Erlinger: I had a couple questions on the U.S. Quality. Quality. Quality. I was hoping you could elaborate on that. The Effect.

David E. Tarantino: Hi, good morning. I have a couple of questions on the U.S. value initiatives.

David Tarantino: First, I was hoping you could elaborate on the effectiveness of the $5 meal deal that you're running and whether you're seeing the sales or traffic inflection you had anticipated from that program. And then secondly, I think Chris, you mentioned it's necessary to have more of a platform idea in all of your key markets.

Joseph Erlinger: $5 meal deal that you're running and whether you're seeing sales or not. Secondly, I think Chris and all of your key markets, and I'm just wondering, in the U.S., how those compare to a broader national value platform. Hey, David. I appreciate the questions.

David E. Tarantino: I was hoping you could elaborate on the effectiveness of the $5 meal deal that you're running and whether you're seeing the sales or traffic inflection you had anticipated from that program.

David E. Tarantino: And then secondly, you know, I think, Chris, you mentioned...

Chris: It's necessary to have more of a platform idea.

David Tarantino: And I'm just wondering in the US, how those conversations are going with franchisees and whether franchisees are supportive of a broader national value platform and when that might happen. Thanks.

Speaker Change: And all of your key markets. And I'm just wondering, you know, in the US, you know, how those conversations are going with franchisees and whether franchisees are supportive of a broader national value platform, and when that might happen. Thanks.

Joe Erlinger: Hey, thanks, David. I appreciate the questions. Relative to the $5 meal deal, it's really performed and done exactly what we wanted it to do. First, we wanted to see a change and improve brand perceptions around value and affordability, and it's done that. We wanted to make sure that it connected with the single user, especially the lower-income consumer. And we've seen that through increasing trial rates by that consumer base, the under $45,000 cohort and the $45 to $75,000 cohort saw an increasing trial and participation around the $5 meal deal throughout the life of the promotion, which was incredibly encouraging.

Joseph Erlinger: Relative to the $5 meal deal, it's really performed and done exactly what we wanted. First, we wanted to see a change and improved brand perceptions around value and affordability, and it has done that. We wanted to make sure that it connected with the single user, especially the lower income consumer. And we've seen that through increasing trial rates by that consumer base. Our two lowest income cohorts, the under $45,000 cohort and the $45,000 to $75,000 cohort, saw an increasing trial and participation around the $5 meal deal throughout the life of the promotion, which was incredibly encouraging.

Speaker Change: Thanks, David. I appreciate the questions. Relative to the $5 meal deal, it's really performed and done exactly what we wanted it to do.

Speaker Change: First we wanted to see a change and improved brand perceptions around value and affordability

Speaker Change: We wanted to make sure that it connected with the single user, especially the lower-income consumer, and we've seen that through increasing trial rates by that consumer base.

Speaker Change: Our two lowest income cohorts, the under $45,000 cohort and the $45,000 to $75,000 cohort, saw an increasing trial and participation around the $5 meal deal throughout the life of the promotion, which was incredibly encouraging.

Joe Erlinger: And then lastly, obviously, we wanted to see a shift in guest counts to drive both the short- and long-term health of the business. And ultimately, I believe in guest count let growth. And while it's begun to do that, it hasn't yet translated into sales. The average check, though, has been over $10 for the $5 meal deal, so we do feel comfortable about the add-on that's happening as part of that program.

Joseph Erlinger: And then lastly, obviously, we wanted to see a shift in guest counts to drive both the short and long term health of the business. And ultimately, I believe in guest count-driven growth. And while it's begun to do that, it hasn't yet translated into sales. The average check, though, has been over $10 for the $5 meal deal.

Speaker Change: And then lastly, obviously, we wanted to see a shift in guest counts to drive both the short and long-term health of the business.

Speaker Change: and ultimately, you know, I believe in guest count led growth.

Speaker Change: And while it's begun to do that, it hasn't yet translated into sales. The average check, though, has been over $10 for the $5 meal deal, so we do feel comfortable about the add-on that's happening as part of that program.

Joe Erlinger: Relative to the longer-term platform, obviously, this is a big investment for us in our franchisees. When you think about the dollar menu, which existed for over 10 years, and when you think about dollar menu one, two, three, it's been in place now for over six years. We just need to be very thoughtful and considered as we work through what our national everyday value and affordability platform will be. That work is happening in good partnership with our franchisees, and so we're comfortable that we'll get to the right answer. There's no question that the franchisees see the impact and the importance of a value national everyday value and affordability platform, and so we're working through that at pace with them.

Joseph Erlinger: Relative to the longer-term platform, obviously, this is a big investment for us and our franchisees. When you think about the Dollar Menu, which has existed for over 10 years, and when you think about Dollar Menu 1, 2, 3, that's been in place now for over 6 years, we just need to be very thoughtful and considerate as we work through what our national everyday value and affordability platform will be. That work is happening in good partnership with our franchisees, and so we're comfortable that we'll get to the right answer.

Speaker Change: Relative to the longer term platform, obviously this is a big investment for us and our franchisees.

Speaker Change: When you think about the Dollar Menu, which existed for over 10 years, and when you think about Dollar Menu 1, 2, 3, that's been in place now for over 6 years,

Speaker Change: We just need to be very thoughtful and considerate as we work through what our national everyday value and affordability platform will be. That work is happening in good partnership with our franchisees.

Joseph Erlinger: There's no question that the franchisees see the impact and the importance of a national everyday value and affordability platform, and so we're working through that at a pace with them. In the meantime, obviously, we're continuing to offer consumers great value with the $5 real deal in 93% of our restaurants into August, and we're working with our franchisees to extend that even longer.

Speaker Change: And so, we're comfortable that we'll get to the right answer. There's no question that the franchisees see the impact and the importance of a national, everyday value and affordability platform. And so we're working through that at pace with them.

Joe Erlinger: In the meantime, obviously, we're continuing to offer consumers great value with the $5 meal deal extending in 93% of our restaurants in August, and we're working with our franchisees to extend that even longer. We continue to offer a great value via the app, which Chris just talked about a bit, and we also continue to have a lot of local deals at what we call our business unit level. So we'll continue to squarely offer our consumers values throughout the summer and into the fall.

Speaker Change: In the meantime, obviously, we're continuing to offer consumers great value with the $5 meal deal extending in 93% of our restaurants into August , and we're working with our franchisees to extend that even longer.

Joseph Erlinger: We continue to offer great value via the app, which Chris just talked about a bit. We also continue to have a lot of local deals at what we call our business unit level, so we'll continue to offer our consumers value throughout the summer and into the fall. Our next question is from Sara Senatore with Bank of America. Okay. Thank you.

Speaker Change: We continue to offer great value via the app, which Chris just talked about a bit, and we also continue to have a lot of local deals at what we call our business unit level, so we'll continue to squarely offer our consumers value throughout the summer and into the fall.

Sara Senatore: Our next question is from Sara Senatore with Bank of America. Great, thank you. I wanted to ask about the sort of margin implications and, in particular, maybe talk about, you know, whether you'll need additional franchisee support for either US or ILM specifically. You know, we seem to be seeing actually some beef relation and some beef trimming and other cuts, which is very different from what we have been seeing. So, to the extent that you are offering more value, you'll have a permanent value platform. You know, if some of that is funded by lower input costs, that maybe there's less margin pressure, or is that something that you'll have to address with franchisee?

Speaker Change: Our next question is from Sara Senatore with Bank of America.

Ian Frederick Borden: I wanted to ask about the sort of margin implications, and in particular, maybe talk about whether you'll need additional franchisee support for either U.S. or ILM. Specifically, I know we seem to be seeing actually some deflation in, you know, in some beef trimming and other cuts, which is very different from what we have been seeing. So, to the extent that you are offering more value, you'll have a permanent value platform.

Sara Harkavy Senatore: Great, thank you. I wanted to ask about...

Sara Harkavy Senatore: The sort of margin implications, and in particular, maybe talk about, you know, whether you'll need additional franchisee support for either US or I. O. M. specifically, you know, I know we, we seem to be seeing actually some deflation and, you know, in some in some beef trimming and other cuts,

Speaker Change: which is very different from what we have been seeing. So to the extent that you are offering more value, you'll have a permanent value platform. Is some of that funded by lower input costs such that maybe there's less margin pressure? Or is that something that you'll have to address?

Ian Borden: I know in ILM markets, you had given some franchisee support. I'm not sure where that stands now, but is there any contemplation of, again, investing either behind franchisee or perhaps contributing to marketing funds, anything from McDonald's corporate to help I just listen to Borden.

Ian Frederick Borden: You know, is some of that funded by lower input costs, such that maybe there's less margin pressure, or is that something that you'll have to address with franchisees? Because I know in ILM markets, you have given some franchisee support. I'm not sure where that stands now, but is there any contemplation of, again, investing either behind the franchisee or, you know, perhaps contributing to marketing funds, anything from McDonald's corporate to help, I guess, lessen the burden? Thanks. Morning, Sara, it's Ian. I'll start, and then I think maybe Chris or Joe might jump in at the end.

Speaker Change: with franchisees. I know in IOM markets you had given some franchisee support. I'm not sure where that stands now. But is there any contemplation of

Speaker Change: Again, investing either behind franchisee or perhaps contributing to marketing funds. Anything from McDonald's corporate to help, I guess, lessen the burden. Thanks.

Ian Borden: Thanks.

Ian Borden: Good morning, Sara Zee, and I'll start, and then I think maybe Chris or Joe might jump in at the end. Look, I mean, I think as you said, from a margin pressure standpoint, I mean, obviously the top line performance has been more muted, so that obviously creates a level of pressure. But I think if you use kind of our macapco margins as a bit of a proxy, you would have seen that they held up pretty well through the quarter simply because, as you noted, we're certainly seeing much lower levels of inflation in areas like food and paper, which are down at the kind of low single digit level.

Ian Frederick Borden: Look, I mean, I think, as you said, from a margin pressure standpoint, obviously, the top line performance has been more muted. So that obviously creates a level of pressure. But I think if you use kind of our Makopko margins as a bit of a proxy, you would have seen that they've held up pretty well through the quarter simply because, as you noted, we're certainly seeing much lower levels of inflation in areas like food and paper, which are down at the kind of low single-digit level.

Ian: Morning, Sara. It's Ian. I'll start and then I think maybe Chris or Joe might jump in at the end. Look, I mean, I think as you said, from a margin pressure standpoint, I mean, obviously, the top line performance has been more muted, so that obviously creates a level of pressure. But I think if you use kind of our MCOPCO margins as a bit of a proxy,

Speaker Change: You would have seen that they've held up pretty well through the quarter simply because, as you noted, we're certainly seeing much lower levels of inflation in areas like food and paper, which are

Ian Frederick Borden: I mean, obviously, labor inflation, particularly in the U.S., is a little higher still, especially with some of the minimum wage changes in places like California. I think in terms of maybe kind of trying to answer the broader part of your question, I mean, value and affordability are kind of a fundamental part of our business model, and I think our owner-operators understand that and, obviously, understand that that's something strategically that we always need to have in place.

Ian Borden: I mean, obviously, labor inflation, particularly in the U.S. is a little higher still, especially with some of the minimum wage changes in places like California.

Speaker Change: Down at the kind of low single-digit level, I mean, obviously, labor inflation, particularly in the U.S., is a little higher still, especially with some of the minimum wage changes in places like California.

Ian Borden: I think in terms of just kind of maybe kind of trying to answer the broader part of your question, I mean, value and affordability is kind of a fundamental part of our business model, and I think our owner operators understand that, and obviously understand that that's something strategically that we always need to have in place, as you would have heard us talk previously about. I mean, we don't subsidize pricing, so we want to get to the right outcomes and do that in a way that it's going to be sustainable and profitable for both our operators and for McDonald. I think over time we know that strong affordability and value is what drives volume-lit growth, as you heard Joe touch on, and volume obviously is ultimately what drives sustainable profit and cash flow for the business and for the system.

Speaker Change: I think in terms of just kind of maybe kind of trying to answer your the broader part of your question I mean value and affordability is kind of a fundamental part of our business model And I think our owner operators understand that and obviously understand that that's something strategically that we always need to have in place

Ian Frederick Borden: Transcripts provided by Transcription Outsourcing, LLC., come to life in creative and effective ways, and we're going to put all of the resources of our system against making sure that we execute this and put ourselves in a position to win in a difficult environment, but I may just kind of let Joe or Chris weigh in. Yeah, I would just add, I mean, our franchisees in the US are in a very strong financial position.

Speaker Change: As you would have heard us talk previously about, I mean, we don't subsidize pricing, so we want to get to the right outcomes and do that on a way, in a way that it's going to be

Speaker Change: Sustainable and profitable for both our operators and for McDonald's, and I think over time.

Speaker Change: We know that strong affordability and value is what drives volume-led growth, as you heard Joe touch on, and volume, obviously, is ultimately what drives sustainable profit and cash flow for the business and for the system.

Ian Borden: I think as we get some of these ideas in place, obviously, we want to bring them to life in creative and effective ways, and we're going to put all of the resources of our system against making sure that we execute this and put ourselves in a position to win in a difficult environment. But I may just kind of let Joe or Chris weigh in through. Yeah, I would just add, I mean, our franchisees in the US aren't in a very strong financial position, and so they have the financial firepower both in terms of cash flows, as well as equity, to make investments, and they can make those investments across their P&L.

Speaker Change: I think as we get some of these ideas in place, you know, obviously we want to bring them to life in creative and effective ways, and we're going to put all of the resources of our system

Speaker Change: Again, just making sure that we execute this and put ourselves in a position to win in a difficult environment. But I may just kind of let Joe or Chris weigh in.

Ian Frederick Borden: And so they have the financial firepower, both in terms of cash flows and equity, to make investments. And they can make those investments across their P&L. If you actually look at gross margin in the 20 years pre-COVID, we're actually at a high right now versus those 20 years. So we feel very good about the ability of our franchisees to invest, in their P&L or otherwise.

Speaker Change: Yeah, I would just add, I mean, our franchisees in the U.S. are in a very strong financial position.

Speaker Change: And so they have the financial firepower, both in terms of cash flows as well as equity, to make investments, and they can make those investments across their P&L.

Chris Kempczinski: If you actually look at growth margin in the 20 years pre-COVID, we're actually at a high right now versus those 20 years, so we feel very good about the ability of our franchisees to invest the other P&L or otherwise, and we are working through with them right now, look at the overall profitability of the $5 meal deal, but we think they've got the ability to invest, and so we're comfortable with the position in the US.

Speaker Change: If you actually look at gross margin in the 20 years pre-COVID, we're actually at a high right now versus those 20 years.

Speaker Change: So, we feel very good about the ability of our franchisees to invest via their P&L or otherwise.

Chris Kempczinski: We are working through with them right now a look at the overall profitability of the $5 meal deal, but we think they've got the ability to invest, and so we're comfortable with the position in the U.S. I just want to underline the word that Ian used, which is sustainable. We're only interested in doing things that are sustainable strategies that we can continue. And so that's going to be our guide as we think about where we need to go with these things.

Speaker Change: We are working through with them right now a look at the overall profitability of the $5 meal deal, but we think they've got the ability to invest, and so we're comfortable with the position in the U.S.

Chris Kempczinski: Yes, my only ad is I just would underline the word that Ian used, which is sustainable. We're only interested in doing things that are sustainable strategies that we can continue. And so that's going to be our guide as we think about where we need to go on these things. And there is a lot of, I think, strength within our system, financial strength within our system to implement the necessary changes, but they have to be sustainable for us.

Speaker Change: Yeah, my only add is I just would underline the word that Ian used, which is sustainable. We're only interested in doing things that are sustainable strategies that we can continue.

Speaker Change: That's going to be our guide as we think about where we need to go on these things, and there is a lot of, I think, strength within our system, financial strength within our system, to implement the necessary changes, but they have to be sustainable for us.

Chris Kempczinski: And there is a lot of, I think, strength within our system, financial strength within our system to implement the necessary changes, but they have to be sustainable for us. Our next question is from Dennis Geiger with UBS. Thank you. And thanks, Mike, for all your help. Best, best of luck.

Dennis Geiger: Our next question is from Dennis Geiger with UBS. Thank you.

Speaker Change: Our next question is from Dennis Geiger with UBS.

Joseph Erlinger: Wanted to focus again on the meal deal. Appreciate all the insights there, specifically as it relates to customer awareness in the US of the meal deal and sort of thinking about the marketing message or the marketing intensity. Is that something you could help frame for a frame up for us? Where is it right now?

Dennis Geiger: And thanks, Mike, for all your help. Best of luck. One of the focus again on the meal deal, appreciate all the insights there, specifically as it relates to customer awareness in the US of the meal deal and sort of thinking about the marketing message or the marketing intensity. Is that something you could help frame us for, frame up for us? Where it is right now? Is it something that ramps and kind of related? Just thinking about the timeline generally from a new marketing, a new value platform or a new, you know, bigger value offer to guest count contribution.

Dennis Geiger: Thank you and thanks Mike for all your help. Best of luck.

Dennis Geiger: I wanted to focus again on the meal deal. Appreciate all the insights there. Specifically as it relates to customer awareness in the U.S. of the meal deal and sort of thinking about the marketing message or the marketing intensity. Is that something you could help frame up for us?

Speaker Change: where it is right now, is it something that ramps and kind of related? Just thinking about the timeline generally from a new marketing platform, a new value platform, or a new bigger value offer.

Joseph Erlinger: Is it something that ramps up and is kind of related? Just thinking about the timeline generally from a new marketing, a new value platform? Or a new, you know, bigger value offer to guest count contribution? Is there a way historically, you know, in environments like this, to kind of think about how that timeline works? Yeah, I think what we're learning from this is the power of our national voice at McDonald's. As we exited 2023, you know, we looked at the value that we had at a local level and felt very comfortable that that value was compelling.

Dennis Geiger: Is there a way to historically, you know, an environment like this to kind of think about how that timeline looks? Thank you.

Dennis Geiger: to guest count contribution. Is there a way historically in an environment like this to kind of think about how that timeline looks? Thank you.

Joe Erlinger: Yeah, I think what we're learning from this is the power of our national voice in McDonald's. As we exited 2023, you know, we looked at the value that we had at a local level and felt very comfortable that that value was compelling.

Speaker Change: Yeah, I think what we're learning from this is the power of our national voice at McDonald's. As we exited 2023, you know, we looked at the value that we had at a local level and felt very comfortable that that value was compelling.

Joseph Erlinger: But what we lacked was obviously a strong national voice, and it took us some time to work with our franchisees to achieve that national voice. And, as we talked about, the $5 meal deal is something that already existed in upstate New York. And when you look at what happened in upstate New York, which had already had the deal, trial and participation rates actually doubled in upstate New York.

Joe Erlinger: But what we laughed was obviously a strong national voice and took us some time to work with our franchisees to achieve that national voice. And as we talked about, the five dollar meal deal is something that already existed in upstate New York. And when you look at when we applied that national voice, what happened in upstate New York, which already had the deal, trial and participation rates actually doubled in upstate New York. And so you also see then the power of the actual message, the importance of a message actually being price-pointed. As you know, we have a logo, a 5.1.1 Get One promotion that we've run in January.

Dennis Geiger: But what we lacked was obviously a strong national voice, and it took us some time to work with our franchisees to

Dennis Geiger: And as we talked about the $5 meal deal is something that already existed in an upstate New York. And when you look at when we apply that national voice, what happened in upstate New York, which had already had the deal.

Joseph Erlinger: And so you also see the power of the actual message, the importance of a message actually being price-pointed. As you know, we have a BOGO, a buy one, get one promotion that we run in January. And we saw trial and participation rates for the $5 meal deal 70% greater than that January buy one, get one window. So that is the power of national marketing, the awareness that that brings. We don't get into specific numbers around awareness, but certainly, when we launch our new national everyday value and affordability platform, building awareness of that platform will be absolutely critical.

Dennis Geiger: Trial and participation rates actually doubled in upstate New York and so

Dennis Geiger: You also see then the power of the actual message, the importance of a message actually being price-pointed.

Speaker Change: As you know, we have a BOGO, a 5-1-GET-1 promotion that we've run in January , and we saw trial and participation rates for the $5 meal deal 70% greater

Joe Erlinger: And we saw trial and participation rates for the five dollar meal deal 70% greater than that January by one get one window. So, you know, that is the power of national marketing; you know, the awareness that that brings.

Speaker Change: then that January buy one get one window.

Speaker Change: So, you know, that is the power of national marketing, you know, the awareness that that brings.

Joe Erlinger: I won't get into specific numbers around awareness, but certainly when we launch our new national everyday value and affordability platform, building awareness of that platform will be absolutely critical, just like we've done obviously in the past with Dollar Menu 1, 2, 3 and the Dollar Menu. My only add on the pace question is that ultimately is on us. There's nothing externally that drives the pace. It's all an internal thing. And so we've seen in some markets, like France, for example, where there's a strong alignment. We can move very quickly in other places. It requires more conversations because of the changes.

Speaker Change: Get into specific numbers around awareness, but certainly when we launch our our new national everyday value and affordability platform, building awareness of that platform will will be absolutely critical.

Joseph Erlinger: Just like we've done obviously in the past with Dollar Menu 1, 2, 3 and The Dollar Menu. My only add on the pace question is that, ultimately, it's on us. There's nothing externally that drives the pace.

Speaker Change: Just like we've done, obviously, in the past with Dollar Menu 1, 2, 3 and the Dollar Menu.

Chris Kempczinski: It's all an internal thing. And so we've seen in some markets, like France, for example, where there's strong alignment, we can move very quickly. In other places, it requires more conversations because of the breadth of the changes. But at the end of the day, you know, we've shown the capacity to move quickly, and my hope would be, certainly in a market like the US, I think Joe and the team are having great discussions with franchisees about the importance of getting to that value platform that we've talked about. Our next question is from Jeff Bernstein with Barclays. Great, thank you very much.

Speaker Change: My only add on the PACE question is that ultimately is on us. There's nothing...

Speaker Change: externally that drives the pace. It's all an internal thing. And so we've seen in some markets, like France, for example, where there's strong alignment, we can move very quickly. In other places, it requires

Joe Erlinger: But at the end of the day, you know, we've shown the capacity to move quickly. And my hope would be certainly that in the market like the U.S. I think Joe and the team are having great discussions with franchisees about the importance of getting to that value platform that we've talked about.

Speaker Change: More conversations because of the breadth of the changes.

Speaker Change: But at the end of the day, you know, we've shown the capacity to move.

Joe: Quickly, and my hope would be certainly that in the market like the U.S., I think Joe and the team are having great discussions with franchisees about the importance of getting to that value platform that we've talked about.

Jeffrey Bernstein: Our next question is from Jeff Bernstein with Barclays. Great. Thank you very much. Just looking outside the US, perhaps. I was hoping I'd touch on France and China.

Chris Kempczinski: Just looking outside the U.S., perhaps, I was hoping to touch on France and China. France, I'm just wondering if it's more of a McDonald's specific issue, which I think is what maybe you referred to in the past versus a macro issue, and how you view the competition there. And then in China, I know you mentioned that consumers are less confident. I'm just wondering if you're seeing anything to give you pause, and otherwise an aggressive unit growth outlook or maybe a change in strategy, whether you're seeing any U.S. brand pushback or anything along those lines would be helpful. Thank you.

Speaker Change: Great, thank you very much. Just looking outside the U.S. perhaps, I was hoping to touch on France and China. France, I'm just wondering if you think it's more of a McDonald's specific issue, which I think is what maybe you referred to in the past versus a macro issue.

Chris Kempczinski: France, I'm just wondering if you think it's more of a McDonald's specific issue, which I think is what maybe you referred to in the past, versus a macro issue, and how you view the competition there. And then in China, I know you mentioned that consumers are less confident. I'm just wondering if you're seeing anything to give you pause or otherwise aggressive unit growth outlook, or maybe a change in strategy. What are you seeing in the US brand pushback or anything along those lines would be helpful. Thank you.

Speaker Change: And how you view the competition there. And then in China, I know you mentioned that consumers are less confident. I'm just wondering if you're seeing anything to give you pause.

Speaker Change: or an otherwise aggressive unit growth outlook or maybe a change in strategy, whether you're seeing any U.S. brand pushback or anything along those lines would be helpful. Thank you.

Chris Kempczinski: Sure. Thanks for the question, Jeff. Well, starting with France, certainly what we've seen in France has been a slowdown. But I think you're also accurate in reflecting that the fact is we're losing share in France. And that second suggests to me that there is still an opportunity for us to improve our performance. A couple of things for us, one that we've talked about in the past has been it is a very competitive market right now. We're seeing a competitor there who's being aggressive on pricing. Certainly, that's one element. I've talked about some of the things we're doing to enhance our McSmart menu to make sure that we're competitive on pricing.

Chris Kempczinski: Sure, thanks for the question, Jeff. Well, starting with France, certainly, what we've seen in France has been a slowdown, but I think you're also accurate in reflecting that the fact is we're losing share in France, and that suggests to me that there is still an opportunity for us to improve our performance. A couple things for us, one that we've talked about in the past has been that it is a very competitive market right now. We're seeing a competitor there who's being aggressive on pricing. Certainly, that's one element.

Speaker Change: Thanks for the question, Jeff. Well, starting with France, certainly what we've seen in France has been a slowdown, but I think you're also accurate.

Speaker Change: in reflecting that the fact is we're losing share in France, and that suggests to me that there is still an opportunity for us to improve our performance. A couple things for us. One that we've talked about in the past has been it is a very

Speaker Change: Competitive market right now. We're seeing a competitor there who's being aggressive on pricing. Certainly that's one element. I've talked about some of the things we're doing to enhance our McSmart menu to make sure that we're competitive on pricing.

Chris Kempczinski: I've talked about some of the things we're doing to enhance our McSmart menu to make sure that we're competitive on pricing. Second, because France has such a meaningful business with families, families are a key consumer for us over there. That's where they're coming back with a four euro Happy Meal. So that's addressing the family issue. And then we are also looking at what we can be doing to make sure that we're engaging with customers around where our brand is positioned. France is one of the markets that has a higher Muslim population.

Chris Kempczinski: Second, because France has such a meaningful business with families, families are a key consumer for us over there. That's where they're coming back with the four euro Happy Meals, so that's addressing the family issue. And then we are also looking at what can we be doing to make sure that we're engaging with customers around where our brand is positioned. France is one of the markets that has a higher Muslim population. And so when you think about the Middle East, the impact that we're seeing in France has been more than maybe in other markets because of that population.

Speaker Change: Second, because France has such a meaningful business with families.

Speaker Change: Key consumer for us over there. That's where they're coming back with the four euro happy meal. So that's addressing the family issue.

Speaker Change: and then we are also looking at...

Speaker Change: What can we be doing to make sure that we're engaging with customers around where our brand is positioned? France is one of the markets that has a higher Muslim population, and so when you think about the Middle East, the impact that we're seeing in France

Chris Kempczinski: And so when you think about the Middle East, the impact that we're seeing in France has been greater than maybe in other markets because of that population. So there's a lot that the team is looking at doing on how we make sure we're telling our story from a marketing standpoint at the local level. But I think it's fair to say that we have an opportunity to get back to growth in France.

Chris Kempczinski: So there's a lot that the team is looking at doing on how do we make sure we're telling our story from a marketing standpoint at the local level.

Speaker Change: has been more than maybe in other markets because of that population. So there's a lot.

Speaker Change: that the team is looking at doing on how do we make sure we're telling our story from a marketing standpoint at the local level. But I think it's fair to say that we have an opportunity to get back to share growth in France.

Chris Kempczinski: But I think it's fair to say that we have an opportunity to get back to share growth in France. The market has slowed down, but the market is still delivering modest, very small growth. And we want to participate more in that.

Chris Kempczinski: The market has slowed down, but the market is still delivering modest, very small growth. And we want to participate more in that. In the case of China, China is a very competitive environment right now, and as you've seen from a number of other consumer companies, it is highly promotional. Consumer sentiment in China is quite weak.

Speaker Change: The market has slowed down, but the market is still delivering modest, very small growth, and we want to participate more in that.

Chris Kempczinski: In the case of China, China is a very competitive environment right now. And, as you've seen from another number of other consumer companies, it is highly promotional. Consumer sentiment in China is quite weak, and you're seeing both in our industry and across a broad range of consumer industries the consumer being very, very much deal seeking. In fact, we're seeing a lot of switching behavior in terms of just consumers; whatever is the best deal, that's where they end up going. Positively in that environment, one we're holding share. So our business in China is holding share. And the second thing that I would say is that we are still seeing good returns on our new unit opening.

Speaker Change: In the case of China...

Speaker Change: China is a very competitive environment right now, and as you've seen from a number of other consumer companies, it is highly promotional. Consumer sentiment in China is quite weak, and you're seeing

Chris Kempczinski: And you're seeing, both in our industry and across a broad range of consumer industries, the consumer being very, very deal seeking. In fact, we're seeing a lot of switching behavior in terms of just consumers. Whatever is the best deal, that's where they end up going.

Speaker Change: Both in our industry and across a broad range of consumer industries, the consumer being very, very much deal-seeking. In fact, we're seeing a lot of switching behavior in terms of just consumers, whatever's the best deal, that's where they end up going.

Chris Kempczinski: Negatively, in that environment, one, we're holding a share. So our business in China is holding a share. And the second thing that I would say is that we are still seeing good returns on our new unit openings. So there's, from our vantage point, a lot of runway for growth on new units. And we are laser focused on the returns that we get from new units. If those were to ever dip below what we would consider to be an acceptable return threshold, we would certainly relook at our opening pace in China.

Speaker Change: Positively in that environment, one, we're holding share.

Speaker Change: So our business in China is holding sheer, and the second thing that I would say is

Chris Kempczinski: So there's, from our vantage point, a lot of runway around growth on new units. And we are laser-focused on the returns that we get from new units. If those were to ever dip below what we would consider to be an acceptable return threshold, we would certainly re-look at our opening pace in China. But right now, what we're seeing is that the returns on new openings are holding up. And so, from our vantage point, the thousand restaurants per year pace that we've been on, we're still working toward that number in 2024.

Speaker Change: that we are still seeing good returns.

Speaker Change: on our new unit opening. So there's, from our vantage point, a lot of runway around growth on new units.

Speaker Change: and we are laser focused on the returns that we get from new units. If those were to ever dip...

Speaker Change: below what we would consider to be an acceptable return threshold.

Chris Kempczinski: But right now, what we're seeing is that the returns on new openings are holding up. And so from our vantage point, the 1000 restaurants per year pace that we've been on, we're still working toward that number in 2024.

Speaker Change: We would certainly re-look at our opening pace in China, but right now, what we're seeing is that the returns on new openings are holding up. And so, from our vantage point, the thousand restaurants per year pace that we've been on, we're still working toward that number in 2024.

Chris Kempczinski: Jeff, I might just hook on to Chris, because I know you were asking about France, but I think it is important just to kind of reinforce a little bit of what we touched on earlier, which is, I mean, I think the, you know, the external trends and pressures that we're seeing on the industry and from the consumer are, I think, broad-based across IOM. I think consumers are being, as you've heard us say earlier, more discerning about where, when, and what they eat. And I would say we don't expect, in America, Unknown Speaker... you know, significant changes in that environment for the next few quarters.

Ian Borden: Jeff, I might just hook on to Chris, because I just want to. I know you were asking about France, but I think it is important just to kind of reinforce a little bit of what we touched on earlier, which is, I mean, I think the, you know, the external trends and pressures that we're seeing on the industry, on the consumer, I think are broad-based across IOM. I think consumers are being, as you've heard us say earlier, more discerning about where, when, and what they eat. And I would say we don't expect, you know, significant changes in that environment for the next few quarters.

Speaker Change: Jeff, I might just hook on to Chris, because I just want to, I know you were asking about France, but I think it is important just to kind of...

Speaker Change: Reinforce a little bit of what we touched on earlier, which is, I mean, I think the external trends and pressures that we're seeing on the industry, on the consumer, I think are broad-based across IOM.

Speaker Change: Consumers are being as you've heard us say earlier more discerning about where when and what they eat and I would say we don't expect

Ian Frederick Borden: So obviously, as you've heard us talk a lot about, we're kind of laser focused on this Forensic Review of our value and affordability positioning in each of our key markets. We're going to position ourselves to win, and we're moving, I think, with a sense of urgency, but obviously at the pace to get that right. And as you've heard us talk a lot about, we've got the system strength and know-how to put us in that winning position.

Speaker Change: You know, significant changes in that environment for the next few quarters. So obviously, as you've heard us talk a lot about, we're kind of laser focused on this.

Ian Borden: So obviously, as you've heard us talk a lot about, we're kind of laser-focused on this forensic review of kind of our value and affordability positioning in each of our key markets. We're going to position ourselves to win, and we're moving, I think, with a sense of urgency, but obviously at the pace to get that right. And, as you've heard us talk a lot about, we've got the system strength and know how to put us in that winning position. I would just say, I think the third quarter has certainly started similarly to how the second quarter ended.

Speaker Change: Forensic Review of kind of our value and affordability positioning in each of our

Speaker Change: Key markets. We're going to position ourselves to win. We're moving, I think, with a sense of urgency.

Speaker Change: But obviously at the pace to get that right, and as you've heard us talk a lot about, we've got the system strength and know-how.

Ian Frederick Borden: I would just say, I think the third quarter has certainly started similarly to how the second quarter ended, and we're seeing, I think, negative comp trends across IOM and, frankly, across each of our three operating segments. Our next question is from Eric Gonzalez with KeyBank. Hey, good morning, and thanks for the question.

Speaker Change: has certainly started similarly to how the second quarter ended, and we're seeing, I think, negative comp trends across IOM and, frankly, across each of our three operating segments.

Ian Borden: And we're seeing, I think, negative cough trends across IOM and, frankly, across each of our three operating seconds. Thanks.

Eric Gonzalez: Our next question is from Eric Gonzalez with KeyBank. Hey, good morning, and thanks for the question. I'm just curious about, you know, trade down, you know, in the past, in thousands thought up as a defensive, um, you know, a defensive option because the neck and the downsides would pull share for more sense of category. So just curious why you think you might not be getting the trade down that you depended on in the past, and whether that's a function of value perception or something that could be addressed in the value construct. Thanks.

Speaker Change: Our next question is from Eric Gonzalez with KeyBank.

Chris Kempczinski: I'm just curious about trade down. In the past, McDonald's was thought of as a defensive option because, in economic downturns, it would pull share from more expensive categories. So I'm just curious why you think you might not be getting the trade down that you depended on in the past and whether that's a function of value perception or something that can be addressed in the value economy. Yeah, thanks, Eric.

Eric Andrew Gonzalez: Hey, good morning, and thanks for the question. I'm just curious about, you know, trade down, you know, in the past, McDonald's was thought of as a defensive

Eric Andrew Gonzalez: you know a defensive option because in economic downturns it would pull share from more expensive categories so I'm just curious why you think you might not be getting the trade down that you depended on in the past and whether that's a function of value perception or something that can be addressed in a new value construct. Thanks.

Chris Kempczinski: Yeah, thanks, Eric. Well, I think we are seeing trade down, but what we're seeing is that the loss of the low-income consumers greater than the trade down benefit. And so you're seeing with that low income consumer.

Chris Kempczinski: Well, I think we are seeing trade down. But what we're seeing is that the loss of the low income consumer is greater than the trade down benefit. And so you see with that low income consumer, in many cases, they're dropping out of the market, eating at home, and finding other ways to economize, such as cutting down on trips.

Eric Andrew Gonzalez: Yeah, thanks, Eric. Well, I think we are seeing trade down. But what we're seeing is that the loss of the low income consumer is greater than the trade down benefit. And so you're seeing with that low income

Chris Kempczinski: In many cases, they're dropping out of the market, eating at home and finding other ways to economize, cutting down on trips. So we are seeing the benefit of trade down, but it's just not enough to offset the pressure that we're seeing. On that low income consumer.

Eric Andrew Gonzalez: Christopher Kempczinski, Ian Borden, Christopher Kempczinski, Ian Borden, Christopher Kempczinski,

Lauren Silberman: Our next question is from Lauren Silverin with Deutsche Bank.

Chris Kempczinski: So we are seeing the benefit of trade down, but it's just not enough to offset the pressure that we're seeing on the low income consumer. Our next question is from Lauren Silverman with Deutsche Bank. Hey, thank you guys.

Eric Andrew Gonzalez: Our next question is from Lauren Silberman with Deutsche Bank.

Lauren Silberman: Hey, thank you, guys. I wanted to follow up on how you're thinking about comps in the back half of the year. So quarter to date, still running negative. Are you expecting that to continue through the third quarter? When can we start to talk about positive comps in the back half of the year? Is it fourth quarter as a base case right now? Any comment there would be helpful.

Ian Frederick Borden: I wanted to follow up on how you're thinking about comps in the back half of the year. So, quarter to date, still running negative. Are you expecting that to, I guess, continue through the third quarter? When can we start to talk about positive comps in the back half of the year? Is it the fourth quarter as a base case right now? Any commentary there would be helpful.

Lauren Danielle Silberman: Hey, thank you guys. I wanted to follow up on how you're thinking about comps in the back half of the year. So quarter to date still running negative. Are you expecting that to, I guess, continue through the third quarter? When can we start to talk about positives, comps?

Speaker Change: In the back half of the year, is it fourth quarter as a base case right now? Any commentary there would be helpful. Thank you.

Lauren Silberman: Thank you.

Ian Borden: Hi, Lauren at the end. So just maybe just to reiterate a few things. I mean, I think, as I said, you know, the pressures are broad based. We're seeing those pressures. I think on the industry and on the consumer across almost everyone of our large owned markets globally. And as I said, I don't think we certainly don't profess to have a crystal ball on how the future will look like, but we don't expect that we're going to see a change in that environment over the next few quarters. I mean, I think that's why we're laser-focused on getting value and affordability right, as you heard Chris just say.

Ian Frederick Borden: Thank you. Hi Lauren. So just maybe just to reiterate a few things. I mean, as I said, the pressures are broad-based. We're seeing those pressures, I think, on the industry and on the consumer across almost every one of our large owned markets globally. And as I said, I don't think we I certainly don't profess to have a, I think, a crystal ball on how the future will look like.

Speaker Change: Hi Lauren, it's Ian. So just maybe just to reiterate a few things. I mean, I think as I said, you know, the pressures are broad based. We're seeing those pressures, I think, on the industry and on the consumer across almost every one of our

Speaker Change: Large-owned markets globally. And as I said, I don't think we, I don't, we certainly don't profess to have a, I think a crystal ball on how the future will look like, but we don't expect that we're going to see a change in that environment over the next few quarters. I mean, I think that's why.

Ian Frederick Borden: But we don't expect that we're going to see a change in that environment over the next few quarters. I mean, I think that's why, [inaudible] It's not even so much about consumers moving from us to others, it's about consumers in that low-income category, and I think families, which are obviously two big cohorts of our consumer base across most of our markets, just eating out less frequently than they have been previously, I think we're confident that if we get our value and affordability propositions right, if we get them into that winning position in each marketplace, that will encourage consumers to come back when they can.

Speaker Change: We're laser focused on getting value and affordability right. As you heard Chris just say, I think it's...

Ian Borden: I think it's not even so much about consumers moving from us to others. It's about consumers in that low income category. And I think families, which are obviously too big cohorts of our consumer base across most of our markets, are just eating out less frequently than they have been previously. I think we're confident that if we get our value and affordability propositions right, if we get them into that winning position in each marketplace, that will encourage consumers to come back when they can. I think if you take examples of what some of our markets done, I'll use the UK as a bit of an example that ran a campaign in the end of May beginning of June: a three for three pound mix and match campaign.

Chris: and I think families, which are obviously two big cohorts of our consumer base across most of our markets, just eating out

Ian Frederick Borden: I think if you take examples of what some of our markets have done, I'll use the UK as a bit of an example that ran a campaign at the end of May and beginning of June, a three for three pound mix and match campaign. They also did a one pound, 99 pence Happy Meal offer in the app.

Speaker Change: That will encourage consumers to come back when they can. I think if you take examples of what some of our markets have done, I'll use the UK as a bit of an example that ran

Speaker Change: A campaign at the end of May, beginning of June , a 3 for 3 pound mix and match campaign. They also have done a 1 pound 99 pence Happy Meal offer in the app. When we run compelling, affordable options like that, we know we're able to draw.

Ian Borden: They also have done a one pound 99 pence Happy Meal offer in the app. When we run compelling, affordable options like that, we know we're able to draw consumers back, and we know we are best positioned to be able to do that. So that's certainly what we're focused on. As I said, certainly don't claim that we can predict. I think when the environment will turn or when the consumer will turn, I think what we're focused on is making sure that we're winning in the current context in each and every one of our markets and that we're positioned to accelerate our momentum as this challenging environment begins to turn in each and one of our markets as we look forward.

Ian Frederick Borden: When we run compelling, affordable options like that, we know we're able to draw consumers back, and we know we are the best in the current context in each and every one of our markets and that we're positioned to accelerate our momentum as this challenging environment begins to turn in each and every one of our markets as we look forward. Yeah, the only thing I'd add is that McDonald's, at its essence, this is a growth business. And so we're not accepting negative comps as just sort of the way it is because of the consumer headwinds. We absolutely are committed to getting this business back to growth.

Speaker Change: Positioned to be able to do that. So that's certainly what we're focused on. As I said,

Speaker Change: I certainly don't claim that we can predict, I think, when the environment will turn or when the consumer will turn. I think what we're focused on is making sure that we're winning.

Speaker Change: in the current context in each and every one of our markets and

Speaker Change: That we're positioned to accelerate our momentum as this challenging environment begins to turn in each and one of our markets as we look forward.

Chris Kempczinski: The only thing I'd add is McDonald's that its essence, this is a growth business and so we're not accepting negative comps as just sort of the way it is because of the consumer headwinds. We absolutely are committed to getting this business back to growth. The foundation of that is the value platforms that we've talked about, but we need to do more on menu innovation. We've got more levers that we can do on digital, and certainly getting our marketing to be more of a contributor as it was last year. I think all of those things need a working combination to get the business back to where we know it's rightful place.

Speaker Change: Yeah, the only thing I'd add is McDonald's, at its essence, this is a growth business, and so we're not accepting negative comps as just sort of the way it is because of the consumer headwinds. We absolutely are committed to getting this business back to growth.

Speaker Change: Foundation of that is the value platforms that we've talked about, but we need to do more on menu innovation. We've got more levers that we can do.

Speaker Change: on digital, and certainly getting our marketing to be more of a contributor as it was last year. I think all of those things need to work in combination to get the business back to where we know its rightful place is.

Chris Kempczinski: The foundation of that is the value platforms that we've talked about, but we need to do more on menu innovation. We've got more levers that we can do on digital, and certainly getting our marketing to be more of a contributor as it was last year. I think all of those things need to work in combination to get the business back to where we know it's rightful place. Our next question is from Brian Bittner with Oppenheimer. Thanks, Good morning.

Chris Kempczinski: Thank you, Chris.

Brian Bittner: Our next question is from Brian Bittner with Oppenheimer. Thanks, good morning.

Speaker Change: Our next question is from Brian Bittner with Oppenheimer.

Chris Kempczinski: Chris, you said in your prepared remarks that your value leadership gap versus the competition has shrunk. And I'm just curious, how are you measuring this gap? What informs you that it has shrunk?

Brian Bittner: Chris, you said in your prepared remarks that your value leadership gap first, the competition is drunk. And I'm just curious, how are you measuring this gap? What informs you that it has drunk?

Brian John Bittner: Again.

Brian John Bittner: Thanks. Good morning. Chris, you said in your prepared remarks that your value leadership gap versus the competition has shrunk, and I'm just curious, how are you measuring this gap?

Brian Bittner: And just secondly, what gives you the confidence you can reignite this gap with value at a time when everyone seems to be getting much more aggressive on value? Is it the success you're seeing with the five-dollar deal, or what else is fueling the confidence that this gap can reignite?

Brian John Bittner: What informs you that it has shrunk? And just secondly, what gives you the confidence you can reignite this gap with value?

Speaker Change: At a time when everyone seems to be getting much more aggressive on value, is it the success you're seeing with the $5 deal or what else is fueling the confidence that this gap can reignite?

Chris Kempczinski: And just secondly, what gives you the confidence you can reignite this gap with value at a time when everyone seems to be getting much more aggressive on value? Is it the success you're seeing with the $5 deal? Or what else is fueling the confidence? That this gap can be reignited?

Chris Kempczinski: Sure, thanks for the question. So there's two ways that we measure value. They're both consumer-based surveys, but one is we get to just the overall brand impression, and we survey consumers around the world for their brand impression of how McDonald's does on both value and affordability. The affordability being a more specific thing around typically price points; value being a broader metric that speaks to a number of different things. So it's all survey-based. Like I said, there's part of it which is looking at brand image. And then we also have a second survey that we do around most recent experience.

Chris Kempczinski: Sure, thanks for the question. So there's two ways that we measure value. They're both, they're both consumer surveys. But one is we get to just the overall brand impression. And we survey consumers around the world for their brand impression of how McDonald's does on both value and affordability, affordability being a more specific thing around typically price points, and value being a broader metric that speaks to a number of different things.

Speaker Change: Sure, thanks for the question. So, there's two ways that we measure...

Speaker Change: They're both consumer-based surveys, but one is we get to just the overall brand impression and we survey consumers around the world for their brand impression of how McDonald's does on both value and affordability.

Speaker Change: Affordability being a more specific thing around typically price points, value being a broader metric that speaks to a number of different things.

Chris Kempczinski: So it's all very survey based. Like I said, there's part of it which is looking at brand image. And then we also have a second survey that we do around the most recent experience, and that gives us a little bit more of a current snapshot of where we are seeing the consumer. And it's been particularly on the most recent visit that we're seeing our leadership gap shrinking our brand image scores around value and affordability. We still are very strong there. And we're seeing those gaps hold up.

Speaker Change: So it's all very survey-based. Like I said, there's part of it which is looking at brand image, and then we also have a second survey that we do around most recent experience.

Chris Kempczinski: And that gives us a little bit more of a current snapshot of where we are seeing the consumer. And it's been particularly on the most recent visit that we're seeing our leadership gap is shrinking. Our brand image scores around value and affordability. We still are very strong there, and we're seeing those gaps hold up, but on a more recent visit, we are seeing some of the pressure or some of the decrease still leading, but that margin may be shrinking in a couple of points in a market, for example.

Speaker Change: And that gives us a little bit more of a current snapshot of where we are seeing the consumer.

Speaker Change: and it's been, particularly on the most recent visit.

Speaker Change: Scores around value and affordability. We still are very strong there and we're seeing those.

Chris Kempczinski: But on the more recent visit, we are seeing some of the pressure, some of the decrease still leading, but that margin may be shrinking, you know, a couple points in a market, for example, terms of what gives us confidence about our ability to continue to lead on value, which starts with the fact that for 70 years, we've led on value. And for 70 years, we've led on value because that's what the brand stands for. And frankly, we can buy food and paper at a better price than anybody else.

Speaker Change: That we are seeing some of the pressure, some of the decrease still leading, but that margin may be shrinking, you know, a couple of points in a market, for example.

Chris Kempczinski: In terms of what gives us confidence about our ability to continue to lead on value, it starts with the fact that for 70 years we've led on value. And for 70 years we've led on value because it's what the brand stands for, and frankly we can buy food and paper at a better price than anybody else. So we have an underlying competitive advantage that we can buy at a lower price than anybody else in our industry. The other thing is the way that the consumer defines value. Yes, there's a price point component to it, but the other thing that we see in all of our value work is that there are intangibles that consumers think about around how they define good value or not.

Speaker Change: In terms of what gives us confidence about our ability to continue to lead on value, it starts with the fact that for 70 years we've led on value.

Speaker Change: And for 70 years we've let on value because it's what the brand stands for and frankly we can buy food and paper at a better price than anybody else. So we have an underlying competitive advantage that we can buy at a lower price than anybody else in our industry. The other thing is...

Chris Kempczinski: So we have an underlying competitive advantage that we can buy at a lower price than anybody else in our industry. The other thing is the way that the consumer defines value. Yes, there's a price point component to it. But the other thing that we see in all of our value work is that there are intangibles that consumers think about around how they define good value or not. Things like, for example, how convenient the restaurant is, things like, for example, how clean the restaurant is, things like, how tasty the food is, those typically represent maybe 25 to 30% of a consumer's value perception.

Speaker Change: The way that the consumer defines value...

Speaker Change: Yes, there's a price point component to it, but the other thing that we see in all of our value work

Speaker Change: is that there are intangibles that consumers think about around how they define good value or not.

Chris Kempczinski: Things like, for example, how convenient is the restaurant? Things like, for example, how clean the restaurant is. Things like how tasty is the food. Those typically are representing maybe 25 to 30% of consumers' value perception. So it's not just about hitting low price points. It's also the overall experience you can deliver. And, as you've heard us talk about in the past, our restaurant estate is in great shape. Our restaurants are running strong execution. Service times are improving around the world. Seasets scores are high. So I think we've got a lot of things from the intangibles that are working in our favor.

Speaker Change: Things like, for example, how convenient is the restaurant?

Speaker Change: Things like, for example, how clean the restaurant is, things like how tasty is the food.

Ian Frederick Borden: So it's not just about hitting low price points. It's also the overall experience you can deliver. And as you've heard us talk about in the past, our restaurant estate is in great shape, our restaurants are running strong execution, service times are improving around the world, and CSAT scores are high. So I think we've got a lot of things from the intangibles that are working in our favor. And as you've heard us talk about on this call, there are other things that we're doing to make sure from a value standpoint, and particularly around value platforms and products and price points, that we're where the consumer expects us. Brian, I might just do two little hooks on Chris's just on that second bit about why we can win.

Speaker Change: Those typically are representing maybe 25 to 30% of consumers' value perception, so it's not just about hitting low price points, it's also the overall experience you can deliver, and as you've heard us talk about in the past,

Speaker Change: Our restaurant estate is in great shape, our restaurants are running strong execution, service times are improving around the world, CSAT scores are high, so I think we've got a lot of things from the intangibles

Chris Kempczinski: And as you've heard us talk about on this call, there's other things that we're doing to make sure from a value standpoint. And particularly around value platforms and products and price points that where the consumer expects us. to be.

Speaker Change: that are working in our favor. And as you've heard us talk about on this call, there's other things that we're doing to make sure from a value standpoint, and particularly around value platforms and products and price points, that we're where the consumer expects us to be.

Ian Frederick Borden: I mean, I would not underestimate the power of the equity we have in some of our menu items when we get those items priced at the right price point in the current context for consumers. I think that's unique. To us, the scale and level of marketing dollars we have available is a system that we can direct, And we certainly are adamant and relentless that we're going to get that right in each and every market to be in a winning position. Our next question is from Jake Bartlett with Truist. Great, thanks for taking the time to answer the question. Um, you know, mine was just really a clarification on your, your commentary about recent trends. And that's what the US is like.

Ian Borden: Brian, I might just do two little hooks on Chris's, just on that second bit about why we can win. I mean, I just, I wouldn't underestimate the power of the equity we have in some of our menu items that, when we get those items priced at the right price point in the current context for consumers. I think that's unique to us. The scale and level of marketing dollars we have available as a system that we can direct to support these platforms that we get the, as we get them in place, is unmatched. And then I'll just double-click on one.

Speaker Change: Brian , I might just do two little hooks on Chris's, just on that second bit about why we can win. I mean, I just, I wouldn't underestimate the power of the equity we have in some of our menu items that when we get those items priced

Brian: The scale and level of marketing dollars we have available as a system that we can direct to support these platforms as we get them in place is unmatched.

Ian Borden: Chris touched on the experience. I mean, we've talked the last couple of quarters. I think Joe would talk to the fact that our customer satisfaction scores in the US are at kind of an all-time high for this point in the year. We're seeing that pretty consistently around the world. We're getting faster. We're delivering a better experience. And when you put all that together, that's what kind of defines value for the consumer. And we certainly are adamant and relentless that we're going to get that right in each and every market to be in a winning position.

Brian: Chris touched on the experience. I mean, we've talked the last couple of quarters. I think Joe would...

Joe: Talked to the fact that our customer satisfaction scores in the U.S. are at kind of an all-time high for this point in the year. We're seeing that pretty consistently around the world. We're getting faster. We're delivering a better experience. And when you put all that together, that's what kind of divines.

Speaker Change: Thank you very much.

Jake Barlow: Our next question is from Jake Barlow and Trueist. Great. Thanks for taking the question.

Joseph Erlinger: And I think overall, you said that, you know, the third quarter starting as the second quarter ended, I just want to make sure that that's true for the US. And I guess if that's true, and it would, I think, implied below what was reported for the second quarter, you know, in the commentary that the $5 meal is doing what you hoped it would do, you know, how does that match? It seems like, you know, the $5 meal you're happy with, but it doesn't seem to have really driven an improvement. Just want to make sure you understand the commentary there on recent trends and what's driving them. That's right, Jake. We obviously exited the second quarter as we lapped the Grimace Birthday meal and shake with negative comments.

Speaker Change: Our next question is from Jake Bartlett with Truist.

Jake Barlow: You know, mine was just a really a clarification on your commentary about recent friends. And that's the US. And I think overall you said that the third quarter is starting as the second quarter ended. I just want to make sure that that's true for the US. And I guess if that's true and it would, I think implies below what was reported for the second quarter. You know, if that's true in the commentary that the $5 meal is doing what you hoped, you know, how does that match? It seems like, you know, the $5 meal you're happy with, but it doesn't seem to have really driven an improvement.

Jake Rowland Bartlett: Great. Thanks for taking the question. Mine was just really a clarification on your commentary about recent trends, and that's the U.S. I think overall you said that the third quarter is starting as the second quarter ended. I just want to make sure that that's true for the U.S. I guess if that's true, and I think it implies below what was reported for the second quarter,

Jake Rowland Bartlett: If that's true in the commentary that the $5 meal is doing what you hoped, how does that match? It seems like the $5 meal you're happy with, but it doesn't seem to have really driven an improvement. I just want to make sure I understand the commentary there on recent trends and what's driving it.

Jake Barlow: Just want to make sure you want to understand the commentary there on recent friends and what's driving it.

Joe Erlinger: That's that's right, Jake. So we obviously exited the second quarter as we laughed the grimace birthday meal and shake. With negative comps. And then we have experienced negative comps here in July. The success obviously we've seen is the shift in traffic that we're experiencing. And in my, you know, 22 years of experience in McDonald's, traffic and guest counts usually comes before sales. And so we've got some exciting promotions upcoming here in the second half of the year. And we think that if we get the traffic moving, we'll see customers obviously willing to spend more time.

Jake Rowland Bartlett: That's right, Jake. So.

Speaker Change: We obviously exited the second quarter as we lapped the grimace birthday meal and shake with negative comps.

Speaker Change: And then we have experienced negative pumps here in July . The success, obviously, we've seen is the shift in traffic that we're experiencing. And in my 22 years of experience at McDonald's, traffic and guest counts usually comes before sales.

Speaker Change: We've got some exciting promotions upcoming here in the second half of the year, and we think that if we can get the traffic moving, we'll see customers obviously willing to spend more.

Joe Erlinger: Or remember that the customer that's coming in for the $5 meal deal that are buying more than just the $5 meal deal because we see that average check up around, you know, a little over $10. So that's why we feel strongly about how the $5 meal deals connect in the marketplace and specifically with that Bowen consumer, which has been our opportunity.

Speaker Change: Remember that the customer that's coming in for the $5 meal deal, they aren't buying more than just the $5 meal deal because we see that average check.

Speaker Change: Up around a little over $10. So that's why we feel strongly about how the $5 meal deal is connecting in the marketplace and specifically with that low income consumer, which has been our opportunity.

John Tower: We have time for one more question with John Tower at City. Right. Thanks for taking a question. Maybe just similar line of thinking in terms of, you know, your expectations for store margins for the balance of the year. Obviously, you've got some good guys with respect to inflation coming off. But I think pricing is also rolling off a little bit. And now it seems like, you know, promotional activities going to be ramping.

Joseph Erlinger: And then we experienced negative pumps here in July. The success, obviously, we've seen is the shift in traffic that we're experiencing. And in my 22 years of experience at McDonald's, traffic and guest counts usually come before sales. And so we've got some exciting promotions coming up here in the second half of the year. [inaudible] We have time for one more question with Jon Tower at Citi. Great, thanks for taking the question.

Speaker Change: We have time for one more question with Jon Tower at Citi.

Joseph Erlinger: Maybe a similar line of thinking in terms of, you know, your expectations for store margins for the balance of the year. Obviously, you've got some good guys with respect to inflation coming off, but I think pricing is also rolling off a little bit. And now it seems, You know, promotional activities are going to be ramping up. So how should we anticipate, you know, the impact on store margins, both in the US business and The IOM segment for the balance of 24, perhaps in the early, Hi, John, it's Ian. Let me try and get that one.

Speaker Change: Great, thanks for taking the question. Maybe just a similar line of thinking in terms of your expectations for store margins for the balance of the year. Obviously, you've got some good guys with respect to inflation coming off, but I think pricing is also rolling off a little bit.

Speaker Change: and now it seems like promotional activity is going to be ramping, so how should we anticipate the impact on store margins both in the U.S. business and the IOM segment for the balance of 24 and perhaps in the early 25?

Ian Borden: So how should we anticipate, you know, the impact on store margins, both in the US business and the IOM segment for the balance of 24 perhaps in the early. 25.

Ian Borden: Hi, John; it's Ian. Let me try and get that one. Well, look, I think as you would have seen through the first half, even with more muted top-line growth, you know, restaurant margins have held up pretty well. Obviously, as you noted, we will take, or certainly expect to take, less pricing through the year. Just obviously managing through the current context we're in, we still got a fair bit of care over pricing from 2023, so that certainly helps a little bit. And as I talked about earlier, certainly inflation on food and paper and other cost items outside of wages has come down substantially from where it's been over the last couple of years, so that's helpful.

Ian Frederick Borden: Well, look, I think as you would have seen through the first half, even with more muted top line growth, restaurant margins have held up pretty well. Obviously, as you noted, we will take, or certainly expect to take, less pricing through the year. Just obviously, managing through the current context we're in, we still have a fair bit of carryover pricing from 2023. So that certainly helps a little bit. And, as I talked about earlier, it has come down substantially from where it has been over the last couple years. So that's helpful. The US, obviously, as I talked about, we've got wage pressures, particularly from California.

Ian Frederick Borden: Hi, John , it's Ian. Let me try and get that one. Well, look, I think as you would have seen through the first half, even with

Ian Frederick Borden: More muted top line growth, you know, restaurant margins have held up pretty well. Obviously, as you noted, we will take or certainly expect to take less pricing through the year, just obviously managing through the current context we're in. We still got a fair bit of.

Ian Frederick Borden: Carryover pricing from 2023, so that certainly helps a little bit. And as I talked about earlier, certainly inflation on food and paper and other cost items outside of wages.

Ian Frederick Borden: So that's certainly a headwind that we're working through. But I think overall, if you think about the year, I think we certainly expect, if I use company operating margins as a proxy, for those to be down a little bit from where we ended in 2023. But I think you're pretty good in terms of where you are when you consider the overall context of what we're working through this year. Okay, that concludes our call. Thank you, Chris. Thank you, Ian. Thank you, Joe. Thanks, everyone, for joining us. Have a great day. This concludes McDonald's Corporation's Investor Call. You may now disconnect and have a great day.

Ian Frederick Borden: has come down substantially from where it's been over the last couple of years, so that's helpful. The U.S., obviously, as I talked about, we've got the wage pressures, particularly from California, so that's certainly a headwind that we're working through.

Ian Borden: The U.S., obviously, as I talked about, we've got the wage pressures, particularly from California, so that's certainly a headwind that we're working through. And I think overall, if you think about the year, I think we certainly expect, if I use company-operated margins as a proxy, for those to be down a little bit from where we ended in 2023. But I think pretty good in terms of where you consider the overall context of what we're working through this year.

Ian Frederick Borden: And I think overall, if you think about the year, I think we certainly expect, if I use company-operated margins as a proxy,

Ian Frederick Borden: For those to be down a little bit from where we ended in 2023, but I think pretty good in terms of where you when you consider the overall context of what we're working through this year.

Operator: Okay, that concludes our call. Thank you, Chris. Thank you, Ian. Thank you, Joe. Thanks everyone for joining. Have a great day.

Speaker Change: Okay, that concludes our call. Thank you, Chris. Thank you, Ian. Thank you, Joe. Thanks, everyone, for joining. Have a great day.

Operator: This concludes McDonald's Corporation investor call. You may now disconnect and have a great day.

Speaker Change: This concludes McDonald's Corporation Investor Call. You may now disconnect and have a great day.