Q1 2025 McDonalds Corp Earnings Call
Hello, and welcome to McDonald's first quarter 2025 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 only may ask a question pressing star one on their touch tone phone.
Speaker Change: I would now like to turn the conference over to Mr. Dexter Combole, Vice President of Investor Relations for McDonald's Corporation.
Speaker Change: Mr. Congolay, you may begin. Good morning everyone and thank you for joining us.
Speaker Change: With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski, and Chief Financial Officer, Ian Borden [inaudible]
Speaker Change: As a reminder, the forward-looking statements in our earnings release and 8K filing also apply to our comments on the call today.
Speaker Change: 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 . [inaudible]
Speaker Change: Following preparatory marks this morning, we will take your questions. Please limit yourself to 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.
And now I'll turn it over to Chris.
Thanks, Dexter, and good morning, everyone. Good morning, everyone.
Speaker Change: We entered 2025 knowing that would be a challenging time for the QSR industry due to macroeconomic uncertainty and pressure is weighing on the consumer [inaudible]
Speaker Change: During the first quarter, geopolitical tensions added to the economic uncertainty and dampened consumer sentiment more than we expected.
Speaker Change: We believe McDonald's can weather these difficult conditions better than most, as we have proven time and time again, and expect to outperform our competitors by harnessing the strength of our brand and the power of our global scale. Thank you very much.
Speaker Change: However, we're not immune to the volatility in the industry or the pressures that our consumers are facing [inaudible]
Speaker Change: Unlike a few months ago, QSR traffic from middle income consumers fell nearly as much, a clear indication that the economic pressure on traffic has broadened [inaudible]
Speaker Change: We know that leadership and value and affordability is paramount in an environment like this, and we have been expanding and refining our value proposition to meet the needs of our consumers, especially our low and middle income cohorts, as well as families internationally.
Speaker Change: Building upon the actions we began to take in 2024, we now have everyday affordable price menus or EDAP and entry-level meal bundles in each of our big five international operated markets.
Speaker Change: As we've said before, these are the building blocks of what good value means to us, pairing an EDAP menu with items priced at compelling entry-level price points with strong meal bundles.
Speaker Change: In this environment we remain focused on the factors within our control including delivering outstanding operational execution.
Speaker Change: Not just bringing them in the door, but offering them the feel good moments they've come to count on from our brand.
Speaker Change: For example, just a few weeks ago, we launched a marketing campaign in partnership with a Minecraft movie our largest global campaign yet with participation by more than 100 markets. [inaudible]
Speaker Change: As part of this campaign, we've combined exclusive digital in-app and gaming experiences with in-store collectibles for fans young and old through happy meals and the core menu inspired Minecraft Movie Meal.
Speaker Change: We're encouraged by the consumer response to the Minecraft movie campaign and by our overall performance in April , which illustrates the benefit of our value platforms working in conjunction with full margin promotions and outstanding marketing execution.
Speaker Change: We continue to expect our guest count and market share performance will improve from the first quarter low point driven by our emphasis on strong value and affordability execution that we have been addressing.
Speaker Change: The introduction of exciting new menu items, such as the nationwide launch of McCrispy Chicken Strips in the U.S. should contribute to this growth.
Speaker Change: However, we remain cautious about the overall health of the consumer.
Speaker Change: Before I hand it over to Ian to discuss segment performance, I also wanted to touch on the creation of McDonald's Global Restaurant Experience Team.
It's significant for two reasons. [inaudible]
Speaker Change: First, through the new integrated structure, we'll be able to execute faster, which means ideas can start showing up in our restaurant even sooner.
Speaker Change: We can achieve and scale cross-functional product innovations like Best Berger, Big Arch, and McCrispy faster than ever before, with menu, supply chain, operations, and speedy lab teams all in one place.
Speaker Change: It also increases our ability to develop and scale tech innovation in new ways such as ready-on-arrival, internet of things enabled restaurant equipment, and Google Cloud connectivity through the eyes of a restaurant general manager to ensure they're all working in coordination with each other.
Speaker Change: Second, the category structure with dedicated leaders for beef chicken and beverages gives us better accountability and a sharper line of sight into what it takes to win in each of these verticals. [inaudible]
Speaker Change: Increasingly, we're competing against specialists, and so we're bringing a specialist focused into McDonald's [inaudible]
Speaker Change: In beverages, for example, we've discovered some interesting learnings through our cosmic test which has better informed our understanding of consumers customization preferences and interest in new emerging beverage categories.
Speaker Change: Later this year, in partnership with our franchisees, we'll be launching a beverage test in the US in some of our existing McDonald's restaurants that will incorporate new menu items inspired by cosmetics.
Speaker Change: We'll share more details on this in the coming months as we continue to test, learn, and position ourselves for growth in this space.
Speaker Change: As Jill McDonald steps up to lead the restaurant experience team, we welcome a new stiart with his rich market perspective and lifelong understanding of customer's needs to the role of president of our international operated market segment.
Speaker Change: Eosemples, previously president of the International Developmental License Markets will now assume responsibility for McDonald's France, which is one of our largest and most important markets globally.
Speaker Change: and Dario Baroni, who previously oversaw our midsize IOM markets, we'll back fill you as our IDL president.
Speaker Change: I'm immensely proud to see these proven leaders taking on new opportunities in some of our most important roles, demonstrating the depth of talent we possess within our organization.
I'll now turn it over to Ian.
Ian Borden: Thanks, Chris, and good morning everyone. Overall, our first quarter financial results reflect the increasingly challenging industry and consumer pressures that Chris mentioned up front.
Ian Borden: Against this backdrop, combined with severe weather conditions, primarily in North America, and the impact of the leap day last year, our first quarter global comp sales declined 1% [inaudible]
Ian Borden: Global Comp Sales were essentially flat when the leap day impact is excluded. David, David, David, David, David, David,
Ian Borden: In the US, Comp Sales Decline 3.6%, largely reflecting broad-based consumer challenges, particularly amongst the lower and middle-income cohorts.
Ian Borden: However, while comparable guest counts also declined versus the prior year.
Ian Borden: We delivered a positive comp guest count gap to most Nearing competitors supported by the launch of our McValue platform.
which incorporated the $5 meal deal offering. [inaudible]
The buy one ad one for a dollar component. [inaudible]
and our in-app exclusive digital offers. [inaudible]
Ian Borden: As with our value platforms and other markets, we'll remain agile to ensure McValue continues to meet consumer needs and positions us for success in a challenging marketplace.
Ian Borden: While we may adjust our current McValue offerings over time, for the remainder of 2025 we'll continue to include everyday value meal deals starting at $5 given how the current $5 meal deal in particular has resonated with customers.
Ian Borden: In addition to delivering exciting menu innovation and world class marketing efforts, we remain committed to driving operational excellence and running great restaurants.
Ian Borden: One key measure for how we are performing is the customer's experience when visiting McDonald's.
Ian Borden: In the first quarter, we raised our customer satisfaction scores to an all-time high in the US.
Ian Borden: Now, turning to our international business, in most of our major markets, we're seeing a similar story in regards to the challenging industry environment and softening consumer sentiment. [inaudible]
Ian Borden: Inter-International Operated Market Segment, Kempzales declined 1% versus the prior year quarter.
Ian Borden: Results were mixed across the individual markets including negative comps in the UK
Ian Borden: QSR industry traffic growth was positive in only two of our big five markets. [inaudible]
Ian Borden: However, we drove a positive comp guest count gap to most nearing competitors across the majority of our largest markets
Ian Borden: demonstrating the strength of our value platforms and how they're resonating with consumers. [inaudible]
Ian Borden: In addition, as in the US, we have also raised our customer satisfaction scores to all time highs in nearly all of the international operated markets, including the Big Five. Thank you very much.
Ian Borden: In France, we continued to realize the benefits of our turnaround efforts, despite a challenging industry environment.
Ian Borden: For the first time in nearly three years, we delivered positive market share gains in the quarter, driven by the success of our value offerings including a four-year-old happy meal and a value meal partnership with League One.
Ian Borden: The end of March, we also launched a new EDAP menu featuring a variety of items with price points of under 3 euros.
Ian Borden: In Germany, QSR industry traffic continued to contract in the first quarter, but we drove a positive comp guest count gap to near-end competitors, an increased market share behind a new comprehensive value offering, Mick Smart Snacks, which is an EDAP platform.
Ian Borden: We now have all aspects of good value and affordability, effectively integrated in the market, and working in conjunction with meal bundles which will be complemented with exciting menu and marketing news through the year.
Ian Borden: In Canada, where QSR industry traffic increased in the first quarter, we delivered both positive comparable sales and guest count performance, driven in part by our $1 coffee offering and our hockey showdown limited time promotion.
Speaker Change: As a Canadian, I can tell you that Canadians are extremely enthusiastic hockey fans [inaudible]
Ian Borden: This passion was evident in the results, with Bahaki Showdown promotion being one of the top performing earned media brand affinity campaigns with over 50 million impressions and driving a lift to the overall sandwich category. [inaudible]
Ian Borden: And in the UK, we're QSR industry traffic decline versus the prior year quarter. We are actively addressing the opportunities that are within our control. [inaudible]
Ian Borden: We understand what it takes to succeed in the UK market, which continues to build upon their value and affordability foundation and we remain confident in our ability to revitalize the business by improving our execution and leveraging successful strategies from other markets. [inaudible]
Ian Borden: and lastly, to round out the big five in Australia, we are making progress despite declining QSR industry traffic.
Ian Borden: With a new managing director in place, we look forward to seeing our momentum built.
Ian Borden: Finally, in our international developmental license markets, comp sales for the quarter were up three and a half percent, largely driven by positive results in the Middle East and Japan.
Ian Borden: and in China, our performance remains stable, driven by an increase in delivery share, the success of the big bite, value meal and strong performance in chicken.
Ian Borden: Turning to the PNL, adjusted earnings per share were $2.67 for the quarter, which includes a four-cent headwind from foreign currency translation.
Ian Borden: Adjusted earnings per share increased by 1% compared to the prior year in constant currencies.
Ian Borden: Despite the challenging market conditions, top-line results generated over $3.3 billion of restaurant margins for the quarter, and adjusted operating margin was about 45.5%.
highlighting the durability of our business model. [inaudible]
Ian Borden: Results for the quarter included lower company operated margins, reflecting pressured top-line results and commodity inflation, particularly in Europe .
Ian Borden: This was partially offset by lower G&A spend, which was primarily driven by the timing of investment, and the comparison to prior year costs related to our biannual worldwide convention.
Ian Borden: We remain focused on optimizing our run-the-business spend as we continue to invest in our strategic growth priorities such as digital and technology and our transformation efforts led by our global business services organization that will drive long-term efficiency.
Ian Borden: With respect to the remainder of the year, while we remain cautious about consumer sentiment, we are reaffirming our full year 2025 financial targets that we outlined in February , which include the impact from tariffs that are currently in place.
Ian Borden: We expect foreign currency translation to be a tailwind to 2025 earnings per share of about $0.5 per share based on current exchange rates.
Ian Borden: at the significant change versus our previous estimated headwind of 20 to 30 cents per share, reflecting the recent weakening of the US dollar versus major currencies. [inaudible]
Ian Borden: As always, this is directional guidance only, as rates will likely change as the year progresses. [inaudible]
Ian Borden: Despite the ongoing industry headwinds, we know that McDonald's is well positioned to succeed. [inaudible]
Ian Borden: Due to the resiliency of our business and our overall financial strength, and we remain confident in our ability to deliver long-term profitable growth for the system and to create value for our shareholders [inaudible]
Ian Borden: And with that, let me turn it back over to Chris. Thanks Ian. A couple weeks ago, McDonald's top leaders from around the world gathered in Hyderabad, India to discuss the path forward on our strategic priorities.
Ian Borden: We're clear on the enablers of our Accelerating the Arches Gross Strategy and specifically our commitments to sustaining leadership on value and affordability, capitalizing on our new category teams to strengthen customers' taste perceptions of our food and accelerate menu innovation. Thank you.
Ian Borden: Ensuring restaurants deliver feel good experiences where customers keep coming back and employees are excited to work.
Ian Borden: and continuing to lead with our values as the foundation of how we do business.
Ian Borden: After meetings like this, I'm always impressed by the strength and resilience of McDonald's Religate's
Ian Borden: It was yet another reminder of the ways our dedicated franchisees hardworking crew and arguably the best global supply chain in the world come together to make sure the golden arches shine brightest for our customers even during challenging times
It's the defining feature of our system.
Ian Borden: Our commitment to serving local communities is not just our mission, it's the essence of our franchisee model.
Ian Borden: We're a global brand but an incredibly local business. Thousands of franchisees running our restaurants have a deep connection to the communities they serve and a keen sense of how we can bring the most positive impact and add the most value. [inaudible]
Ian Borden: In most communities, if not markets, where we operate, McDonald's and its franchisees is one of the largest employers
Ian Borden: When it comes to providing quality ingredients, we prioritize sourcing from local farmers and suppliers to serve the food our customers love most [inaudible]
and Maximize our MCD growth pillars for the long term.
Just a couple weeks ago, we marked McDonald's 70th anniversary. [inaudible]
In celebrating longevity, we're actually honoring leadership. Thank you.
Seven years of setting the standard for innovation. [inaudible]
Ian Borden: pioneering the drive-through, advancing our menu, and embracing digital transformation to build the best restaurant experience. [inaudible]
Ian Borden: Time and again, we've proven that our foundation is strong, our commitment to customers unwavering, and our ambition to lead unparalleled.
Ian Borden: This business has demonstrated an innate ability to anticipate and respond to change
Ian Borden: Our agility has always been a key strength, now more than ever, and it gives us confidence in the future, even amid macroeconomic uncertainty
Ian Borden: We'll stay true to what makes us uniquely McDonald's, great food, exceptional value, and an inclusive environment that welcomes all
Ian Borden: Thanks to the strength of our system, McDonald's is well positioned to seize the opportunity for us and keep shaping the future of our industry.
with that we'll take questions.
Ian Borden: 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.
Ian Borden: We ask that you limit yourself to one question and re-cue for any additional questions.
Our first question is from Dennis Geiger. [inaudible]
Thank you.
Thank you. Good morning, guys.
Speaker Change: I wanted to ask a bit more about the US and what sounds like an encouraging response to the Minecraft marketing campaign and into your value platforms.
Speaker Change: into the second quarter, recognizing the consumer's pressure, but also that select one cue headwind that ambabaded maybe a bit.
Speaker Change: Could you talk a little more about how you're thinking about your recent US sales trajectory underlying momentum looking ahead over the coming quarters given some of the exciting marketing and menu news and the overall execution that you touched on. Thank you.
Speaker Change: Hi, Dennis, it's Chris. Yeah, I think, you know, the the year is evolving as we expect it would, we knew that in Q1 it was about.
Speaker Change: Getting our McValue menu embedded, getting consumers aware of that, and then we were going to be introducing marketing news in Q2 that was kind of also soon be followed by menu news.
Speaker Change: and so Q1 was for us always going to be sort of the toughest quarter in the year and then we're expecting to see momentum build as you're progressed. Thank you very much.
Speaker Change: As we mentioned in the opening comments, we were really encouraged by our Minecraft promotion globally in the US. This was planned to be a four-week promotion and I think we ended up selling out of of
Speaker Change: The Minecraft collectibles within 10 days to 14 days, so the response exceeded certainly what we were planning for.
Speaker Change: And then we've just started doing the soft sell of our chicken strips, our McRisby chicken strips.
Speaker Change: Advertising hasn't yet turned it on that, but we're seeing in the restaurants at our selling strips.
Speaker Change: A nice take rate on that as well. So, I think how we sort of expected the year, it's evolving that way. The key for us now for the balance of the year is about execution. And...
Speaker Change: and I think we've seen plenty of evidence that when you do that there's growth out there to be had but certainly if your execution isn't sharp and a challenge environment you're not going to be able to expect growth and so that's I think where we're focused right now is about making sure we do world class execution. .
Our next question from David Palmer from Evercourt.
David Palmer: Thanks. I'm wondering if you can give us some color about some of your key IOM countries and
Speaker Change: and what ways are the consumer economic dynamics and McDonald's value perception different today and the challenges different than what we see in the U.S.?
Speaker Change: with the global consumer companies, whether it's the informal eating out market or the instant consumable guys are doing a little bit better overseas than you would have thought seems to be fairly firm in terms of consumer backdrop. Let's drop it.
Speaker Change: You know, I don't know how you feel about that for your key market, so any sort of juxtaposition to the US would be helpful. Thanks.
Speaker Change: Yeah, I think generally, David, that's a fair characterization. If I were to kind of just do a survey of the world, I think Europe ...
Speaker Change: It's really country by country, as Ian mentioned, there's only two countries that we've actually seen industry growth, but I think generally we feel good about the value programs that we have in place in all of our big five markets.
Speaker Change: But, but again, if you have the right value in marketing, you can get that. I think the issue in Europe -
Speaker Change: Maybe a little bit different than the U.S. It's just a very inflationary environment in Europe , particularly because of beef and so you've got high single digit. [inaudible]
The P&L, because of what's going on in Europe . .
Speaker Change: that compared to the U.S., where FNP inflations, low single digits, so it's a more inflationary environment in Europe , which means we just have to be really judicious about how and where we take pricing in that environment. Let's go ahead.
Speaker Change: I think as Ian mentioned in China, we've seen the business stabilize there [inaudible]
Speaker Change: We're encouraged by what we're seeing from our China business, Latin America, I think continues to perform okay and then if you go to places like Japan, the business is performing solidly there so.
Speaker Change: You know, I think relative to the US, the US and the pressure on that lower income consumers, probably the most noteworthy thing, seeing traffic declines of nearly 10% with that low income consumer, I think it's the defining feature of what we see in the US, relative to rest of the world.
Ian Borden: Hey David, it's Ian. I may just add a couple of comments to what the context that Chris has outlaid, and I'll just use our big five IOM markets as a bit of the bellwether, because obviously it's just building on what Chris laid out.
Ian Borden: despite the fact that in three of those five markets we're seeing a continuing to see a contracting industry.
Ian Borden: kind of new and exciting menu news like the big arch launch which happened in France in early April and we're seeing some [inaudible]
Ian Borden: Good early results there. You start providing those reasons for consumers to visit. So again, it's certainly not an easy landscape, but we certainly feel like the business is well positioned on the back of the work that we did through 24 and into the beginning of this quarter.
Our next questions from David Tarantino, from Barrett. [inaudible]
David Tarantino: Hi, good morning. My question's on the U.S. McValue platform.
David Tarantino: and I was hoping maybe you can elaborate on how you think the current construct of that.
David Tarantino: Value is working in the current environment and whether you think adjustments are needed and I guess the nature of my question is
David Tarantino: worked quite well and allowed for significant share gains. So I'm wondering if you need sharper entry-level price points on the value menu in today's environment. Thank you very much for your time.
David Tarantino: So the introduction of McValue, as you'll recall, was about getting...
David Tarantino: A branded platform established that we expect to sustain over time, and the point of that was to allow for flexibility, to allow for us over time to change the individual items within that, based on what we were seeing from a competitive set, based on what we were seeing in terms of...
as you think about McValue. [inaudible]
Ian Borden: We feel really good about how the $5 meal deal is performing and Ian talked about in his comments the fact that
David Tarantino: There's a Wyman in the US system that that $5 meal is going to continue. Thank you.
David Tarantino: through the balance of the year. There may be some additional meal at different price points to get offered on top of that, but at a $5 meal there's going to be that continuing for the balance of the year.
David Tarantino: at the end of the day value programs, the ultimate barometer for performance of a value program is its ability to drive incrementality and we're seeing incrementality for the meal deal. . . .
You know, 10, 13, 12.
David Tarantino: Certainly there's a strong cake rate but it's not driving as much incrementality and so I think this is a question for the US team with franchisees. [inaudible]
David Tarantino: is any value program requires an investment of margin dollars to get that established and
David Tarantino: is the buy one add one for a dollar, the best investment of margin dollars. I think there's probably an opportunity to look for greater incrementality, but that's going to be a conversation that happens in the US and as to any pivots, you know, that I think time will tell on that. [inaudible]
Our next collections from Brian Harbour are more distantly.
Yes, it, thank you, good morning. Thank you.
David Tarantino: Maybe just on that topic, you know, I think you're still... [inaudible]
Speaker Change: running something like mid-single digit menu pricing in the US. And obviously I know you don't control that but you know I wonder is that kind of continues to go up but then you talk you talk more about the value platform and then you maybe put more items on it. I mean.
Is that sort of...
David Tarantino: Is this the spread between the different sides of the menu become a problem? Do you think there is going to be sort of like continued negative mech shift as you talk more about value? I don't know if maybe innovation is a way to solve that because you can sort of introduce items that
David Tarantino: that are at a lower price point. I mean, maybe streps kind of fit that mold, but how do you think about that dynamic, you know, kind of over the medium to longer term? [inaudible]
Speaker Change: Sure. Well, it's certainly something that you need to be mindful of. We're always taking a look at it. I think part of what we've described here is you've got to have strong value and affordability programs, but they have to be paired with great full-margin marketing and menu innovation and that when you do the two of those in combination, you get an outcome of result that is positive for the franchisee, P&L, positive for our P&L, etc. I think what you're talking about there
Speaker Change: in terms of trade and how we think about FMP inflation. [inaudible]
Speaker Change: You have to just be very disciplined on these things and I think one of the things that we spend a lot of time with our franchisees on is looking at pass-through rates.
Speaker Change: and I think there's been a lot of good progress on that.
Speaker Change: and then, as you think about other incremental programs that you may need to do. [inaudible]
Ian Borden: Does this program work for our franchisees for the company? But Ian, I don't know if you have anything else you want to add to that. Yeah, Brian , morning, just maybe a couple things I'd add. I mean, you're right, if we use the US as the example that menu pricing obviously as you would expect has been coming down as inflation's been coming down and I think we were just under...
Ian Borden: Mid single digit, and Q1, most of that frankly was carry over from price taken in 2024. So assuming inflation keeps coming down, I would expect the contribution from price to kind of continue to...
to moderate in line with that. As Chris said, I mean, obviously with you. [inaudible] I'm sorry.
Ian Borden: and Affordability in place, if you remember the $5 meal when in place at the end of June in 2024 and so there certainly is until we kind of get more comparable, there is a bit of a mix adjustment obviously. Thank you very much.
Speaker Change: The purpose of that makes adjustment as Chris was talking to is we want to drive stronger.
Chris Kempczinski: Underlying momentum in the business, we want to drive guest-countled growth and then as you get that guest-countled growth and you start complementing that with things like Minecraft or chicken strips, you get the check growth, the profit growth, which is obviously the kind of total outcome that you're looking for. [inaudible]
Chris Kempczinski: But I think until we get to quarters three this year, you're going to continue to see a bit of that mixed play in check and margin until we get more comparable.
Our next question is from Andrew Charles from TD Calendar.
Andrew Charles: Great, thank you. Ian left quarter, you talked about moderate U.S. St. George sales embedded within your 2025 U.S. Mick Hoppe, go out, look.
Speaker Change: and I'm curious just following one Q's challenge performance and your cautious you and the consumer, but couple that with the sharp improvement in April sales, you know, if moderate U.S.
Andrew Charles: or is your embedded assumption changed? And maybe as quickly as you can also touch on your expectations for 2025, U.S. Mikapko margins that would also be helpful.
Andrew Charles: on a percentage basis versus where we were in 2024. Obviously as we've talked about a fair bit this morning, there's still a fair bit of...
Andrew Charles: Uncertainty in the external environment. And as we've talked about, we're obviously focused on what we can control. We feel really good about the lineup of activities that the US business and the US system have got.
Andrew Charles: for the rest of the year including things obviously like Minecraft and chicken strips which are coming to life over the next few days.
Andrew Charles: But the environment around us is uncertain, and as you've heard me say many times before, obviously margin growth ultimately is kind of be driven by strong top-line growth. And obviously that's what we're working hard in regards to the things that are within our control to deliver over the remainder of the year. And we're working hard to deliver over the rest of the year, and we're working hard to deliver over the rest of the year.
Speaker Change: Our next question from Sara Senatore from Bank of America.
Speaker Change: that might be affecting you. And then the question is on the US, like, [inaudible]
Speaker Change: You have a sense whether those declines in the QSR traffic maybe are coming because people are shifting into other segments I ask because I think there's a view that may be the gap between you know QSR value and other segments, other fast casual or full service. [inaudible] I'm sorry, I'm sorry, I'm sorry
Speaker Change: as Narrow, so I didn't know if that was just maybe an intra industry share shift. Thanks.
Speaker Change: Hi, Sara. At the UK, the UK is not yet gaining share, so there's still work for us to do in the UK. I'd say the share losses are to the people that we should be beating. So I don't think that new competitors. [inaudible]
Speaker Change: are the issue that we need to focus on in the UK. It's about our execution and just doing a better job in not market. So that's the UK. Is it related to the US?
Speaker Change: The relative size of the QSR industry versus fast-casual, for example, or casual dine.
Up.
Speaker Change: The math just doesn't work. I mean, the gains that you might see with a couple of the players and casual dine are more relative to the size of the QSR industry. So I don't think it's really accurate to say that this is just a shift amongst the different components. It's just a shift amongst the different components.
I think we are seeing that people are just…
Speaker Change: being more judicious about cutting back on visits and so what you're seeing is you're seeing a decline in frequency where perhaps morning, which is usually I think a bell weather day part occasion. Morning now is a place that you're seeing people are choosing either to skip breakfast or they're choosing to eat at home for breakfast and I think that's. [inaudible]
Speaker Change: Moore to explain what's going on in the U.S. versus any kind of segment shift. [inaudible]
Speaker Change: Hey, Serency, and maybe just a couple of points of texture to build on what Chris mentioned. I think in the UK, as he said, I mean, I think we clearly believe we've got opportunities that are within our control from an execution standpoint, we've got work to do there. I would just point a little bit to...
to France, I think UK is a much...
Speaker Change: Translate, you know, the appropriate learnings and get our UK business back to where we expected to be on.
Speaker Change: You know, when we get value and affordability right, like the $5 meal, as we've talked about before, we know that is bringing consumers back in.
Our next question is from Jon Tower of City. [inaudible]
John Tower: Great. Good morning. Thanks for taking the question. You know, you'd mentioned Chris earlier, you know, expanding a beverage test. And I was curious if you could dig into that opportunity a little bit more perhaps. Thank you very much.
John Tower: You know, what you're expecting from this over time, are there investments you're anticipating the franchisees will need to make on an equipment side?
Sure.
John Tower: Well, I think as we look at the opportunity from a macro perspective, there's a lot of growth that we see in beverages and the profitability of beverages is very attractive. So when you think about the profit pool growth in the industry, we expect beverages is going to be a place.
where there's significant growth in the profit pool. [inaudible]
John Tower: and we're frankly, we think there's more that we can be doing to capture our fair share of that.
John Tower: We capture on coffee, for example, we're probably roughly around 10% of the coffee share. We think we can be doing better than that, and then there's growth in other places.
John Tower: where you're seeing energy and some other areas that are also strong growth, where we don't participate at all. And so, you know, when we think about that, we think there's a lot that we can do. Part of what we've tried to be thinking through is how do we get after that opportunity and part of the...
John Tower: Impetus for us to go to Cosmix was a belief that if we try to do it within an existing restaurant that the complexity may be too great and would impact speed of service and some other things.
John Tower: And so the thought was, do we need to maybe look at quarantining the complexity in a stand alone concept like we did with Cosmix?
Give me a blank slate and I'm going to...
John Tower: 80% of it is recipeed and then there's some customization that goes on the end.
John Tower: So the complexity or the risk of complexity as we've discovered with Cosmix isn't as great as what we thought it would be . . .
John Tower: I think the other thing that we've learned on Cosmix is...
John Tower: Food is still going to always be an important part of whatever our beverage offering is because that's consumer's expectation for the McDonald's bread.
John Tower: And so all of that is informed now. Let's take that into a McDonald's restaurant and see what an expanded lineup of beverages could look like and let's understand.
You know, what that means in terms of...
John Tower: Driving your mental traffic, but also food attachment that goes with that. So,
John Tower: as to the ultimate investment that's going to be required. I don't think we know because we don't know the answer yet, but we're going to continue to test and learn. We're going to continue to test and learn.
John Tower: What I do know is that we're committed to going after beverages. It's part of why we set up beverages as one of our key three category structures just because of the opportunity that we see there.
Next question from John Ivankoe from JP Morden.
Anthony Lee
Speaker Change: Our commitment and the focus is we need to make sure that relative to the trading area that we're competing in that we're offering strong value and that's what shows up on both the menu board and that also shows up with the promotions and digital offers that we're running so you know I think about it less is around having
Speaker Change: So there's not a lot of pressure on that, and I think our franchisees also recognize how important it is for us to stay disciplined on this. And we look at pass-through rates as I described earlier to make sure that we understand the consumer's willingness to accept any pricing. Thank you.
Speaker Change: So that would be my comment on that as to the...
Speaker Change: You know, how the markets change, certainly there's been a ton of growth in that space and...
Speaker Change: And then we've also set up that when you have the strips in, strips is going to allow for us to reintroduce snack wraps which is going to be coming later in the year as well. So I think for us it's just the market continues to show.
Speaker Change: The consumer is interested in this product. We want to make sure that we're meeting our customers needs on that. And I think what we've got with both strips and then later with snap wraps is going to be a great addition of the menu. Thank you.
Our next questions from Lauren Silberman from Deutsche Bank. [inaudible]
Lauren Silberman: Thank you very much. I wanted to unpack U.S. constant bit more. Can you talk about what you're seeing across the low, middle and high income consumer? I know you mentioned industry traffic, but trying to get a better sense of what's going on with market share across cohorts. Are you seeing any increase in value mix as a result of McValue? And then any color on what you're seeing across regions and data arts would be helpful. Thank you. Thank you very much.
Ian Borden: Hey, morning, Lauren. It's Ian. Well, look, I think I'll kind of just reiterate what we've talked about a fair bit. I mean, I think...
Speaker Change: You know, there's pressure on both low and middle income consumers in the US. I think as you heard Chris say, low income consumer was down close to double digit middle income consumer in the quarter. From an industry perspective was down close to that but high income consumer is still spending pretty consistently and pretty robustly. And as you've heard us talk about before I mean we over index. Next.
Speaker Change: to a lower extent, but also over index to middle income consumers. And so obviously as those consumers are softer, that's already going to put pressure.
Speaker Change: Come in to play is really important so that we're winning and I think I would just emphasize that in Q1 if you look at our comp guest count gap. .
Speaker Change: versus the majority of our nearing competitors. That was positive through Q1. So, that obviously tells us that we're winning on a traffic on a comparable traffic basis versus the broader industry. So, again,
Speaker Change: You know, against all those consumer groups as we work through the rest of the year.
Our next question is from Greg Frankfurt from Guggenheim.
Hey, thanks for the question.
Greg Frankfurt: My question is maybe if for this value launch, my understanding was a lot of the value that the customers using was going through the mobile app and that part of the value launch was maybe to diversify that message a little bit. I'm curious how that's evolved since the value launch and if the mix of value that's going through the mobile platform is where you want it to be below any thoughts on that. I'm not sure if that's going to be the end of the video.
David Tarantino, David Tarantino, David Tarantino,
Greg Frankfurt: Yeah, it's tough to generalize on that because there's there's a [inaudible]
Chris Kempczinski: It just doesn't work because you're not reaching the majority of your consumers. And so for that reason, having a broad platform like we have McValue that's available to everybody.
Chris Kempczinski: I think it's an important, it's an imperative that you have that which is why we've spent the time and energy getting that launched.
Chris Kempczinski: Properly. The digital offers are going to continue. They've probably come down a tick on that. It's tough to know how much of that was related to...
Chris Kempczinski: You know, pulling back on digital offers versus just having a stronger McValue proposition out there that maybe is now driving someone to choose McValue as opposed to the digital offer so I don't think there's anything. And I think, uh,
Thank you for watching. Bye.
Chris Kempczinski: specific that you should infer from any mixed change that we're doing there's there's not a purposeful pullback and digital offers to do more on on McValue but I think you're certainly seeing the consumer change as our offers change.
Our next call from Danilo Gargiulo, from Bernstein. [inaudible]
David Tarantino, David Tarantino, David Tarantino,
Great. Thank you.
There are some rising concerns on international boycotts. [inaudible]
Chris Kempczinski: Generally speaking, at US Brand. So I'm wondering if you've seen any signs of weakness attributed to that? [inaudible]
Chris Kempczinski: and how you're expecting that to be evolving. And to the extent that you did, which markets are you seeing under most pressure and what proactive measures are you contemplating to a continue to protect the brand that you have so far? Thank you.
Chris Kempczinski: Sure, well, we've actually spent some time researching this and we've done three different surveys, global surveys and all of our top markets to just assess.
The Consumer's Perspective, [inaudible]
The good news from our perspective is [inaudible]
Chris Kempczinski: There's been no change in how the consumer globally feels about the McDonald's brand, so we're not seeing
Ian Borden: Any American sentiment, have any impact on our business? What we have seen in our survey work is that there has been an increase in people in various markets saying that they are not going to be, or they're going to be cutting back their purchase of American brands. This is the end.
Speaker Change: and we've seen it uptick in any American sentiment, call it eight to ten points increase in any American sentiment.
Speaker Change: Most pronounced in Northern Europe and Canada, not a big deal in Latin America, not a big change, or nothing that we're seeing in Asia. But again, the key point here is, while there has been, I think an uptick.
Speaker Change: in general, anti-American sentiment that had no impact on our business and consumer sentiment toward the McDonald's brands remain strong.
Speaker Change: and maybe just the piece I'd add on the end in ILO is just, I mean, I think one of the strengths is you know of our business model is that the vast majority of our restaurants.
Speaker Change: Our business and our brand has been able to adapt appropriately to that kind of cultures and communities that we do business in, and I think certainly most of our vast majority of consumers understand and appreciate that [inaudible]
Our next question is from Eric Gonzalez from K-Bank. Thank you.
Eric Gonzalez: Thanks. You know, it's clear that McDonald's is at its best when it offers, you know, compelling value to drawing gas and it has something differentiated or credible for the customer to trade into. We saw this prior to the public health incident with the collector's cops in the chicken big Mac. Thanks.
Eric Gonzalez: Is it fair to say it's the first quarter locked to the second half of that equation? And as we move into the second quarter, you know, you had a winner with the Minecraft meal, but that sort of boost isn't something that's going to last more than a few weeks.
Eric Gonzalez: So I'm just wondering if you have enough in the marketing and innovation pipeline on the premium side that's going to drive a more sustainable list in sales?
Eric Gonzalez: Well, I think as I touched on, we're excited about in the U.S. and in our other markets, the balance of your plans that we have and it's...
Eric Gonzalez: It's not just relying on one thing, I think as we look at our marketing plans [inaudible]
you get strong menu news. [inaudible]
Paired with strong marketing. [inaudible]
Speaker Change: Beyond just the benefit that you get in the window, you start to see improvement in baseline and so that would be our expectation as we continue to have more menu innovation as we continue to have strong marketing programs. It has a positive impact on baseline, which is sort of the gift that keeps on giving. Thank you very much.
Speaker Change: Eric, maybe just a build. I mean, I think you touched on it, but as you remember, we had really strong momentum in our US business pretty kind of the food safety incident. Obviously, that was a disruption.
Speaker Change: As we said in our last call, you know, expected in Q1 this year that the impacts of the food safety incidents would be fully behind us they are we've fully recovered but you know if you just think of the sequence of activities that we've had in the US business obviously
Speaker Change: The disruption of the food safety incident, full focus on an effort on recovery, then we've-
Speaker Change: Spent Q1 really getting the McValue brand equity and platform embedded and emphasize so we really haven't until Minecraft in April had a big kind of consumer resonating. [inaudible]
Menu, or Marketing, Focused Activity, and I think...
Speaker Change: Value and Affordability, and then you build on that with each of these activities. And as we talked about earlier, we certainly feel really confident about the line of activities that our US business has, starting with Minecraft and over the remaining course of the year.
Next question from Jeffrey Bernstein from Barclays. [inaudible]
Jeffrey Bernstein: Great. Thank you very much. Actually, perfect follow-up to my question. I feel like you do have a lot of new news coming. Again, you mentioned Minecraft in April . Crispy Chicken in May. Snackwrap to follow. I know in the past there was maybe some caution on too much new news at McDonald's in terms of the impact on speed of service and operations at the restaurant level. So I was wondering how you feel. Thank you very much. Thank you very much.
Jeffrey Bernstein: Teams are able to handle that when obviously speed is so important. [inaudible]
Jeffrey Bernstein: and I kind of ties into, I think you mentioned that you're competing so much more against specialists now, which I assume are peers focused on, you know, one specific line of product. I was wondering how you're new.
Jeffrey Bernstein: Team can be more effective in better competing against some of those players. And the early learnings you have or expectations you have in terms of being able to better compete against those single line competitors. Thank you.
Thank you very much.
Ian Borden: Yeah, sure. I'll address the specialist question and I'll let Ian pick up the first part of your question. But
Ian Borden: Abroad Menu, and it's a menu that can attract the whole family because there's something for everybody on our menu.
Ian Borden: that have that degree of focus who are waking up every single day, looking at our performance across the globe, and making sure that we absolutely are winning in chicken, that we're winning in beverages, that we're winning in B for continue to win in B. And I think part of what we wanted to do with that as well is...
Ian Borden: Supply Chain and Sourcing. So what's the type of product that we're sourcing? It goes to the equipment that we're using. It goes to the processes that we're doing in the restaurant. It goes to certainly the menu offering and the menu innovation that goes along with that and then how we activate that with consumers. [inaudible]
Speaker Change: Good morning, Jeffrey. Maybe just let me touch on the other part of your question. And I think the US is the perfect example to kind of lean into what you've been asking. But if you think of what our US business did. David, David.
Speaker Change: It was obviously through the learnings we had in COVID and just the need during that period to get much clearer and simpler in the menu and the US has done I think a phenomenal job as a system on getting really focused on a strong core menu and then building on that core menu over the last. [inaudible]
Speaker Change: Several years, so they greatly reduced the complexity from an execution. I think the evidence of that is as we talked about, we hit an all-time high from a customer satisfaction.
Speaker Change: The needs from consumers that when we do things like menu architecture research we can really see what are the opportunity areas in chicken and how do we address those behind the equity that we're putting in place and continue to build on that so we feel really good about [inaudible]
Speaker Change: where we are the capacity we have to kind of add the items that are in our plan and not have that have an impact on execution which as you know is always critically important. [inaudible]
Speaker Change: Thanks everyone for joining the call today. If you have any follow-up questions or like a call, please contact us when we get set something up. Again, have a good day. Thank you.