McDonald’s (MCD) 3Q16 Earnings Call Notes

posted in: Earnings Call, Notes | 0

90% of restaurants have self-order kiosks in Canada

“In Canada… We now have dual point service and self-order kiosks in almost 90% of our traditional restaurants” Steve Easterbrook – President and CEO

 

Self-service kiosks and “Experience of the Future” will be substantially integrated into US market by 2018 or 2019

“In terms of modernized restaurants, it’s just over 50% of the U.S. state is modernized; we’ve got some work to do to complete that. And then of course within that we want to layer on top of the other elements, the broader [ph] elements, consumer facing elements of Experience of the Future, integrating that into the self order kiosk, offering different ways that customers can be served, they can place their orders, they can customize their food. So, we expect to start seeing that wrapped up through 2017 and literally the minute you convert the restaurant, we see a sales lift. So, yes, it’ll be a contributor, but we’ll probably be getting that full rate through 2018 and 2019 as well, which I think is a very strong program.” Steve Easterbrook – President and CEO

 

Commodity prices are favorable, but labor costs are rising globally

“While we continue to benefit from favorable commodity costs around the world, we continue to experience rising labor costs in many of our markets.” Kevin Ozan – CFO

 

Spread between eating at home and eating out is larger than it’s been in 30 years

We are also mindful that the current 450 basis-point GAAP between the costs of eating at home versus dining out is the largest spread in more than 30 years and maybe impacting consumer behavior. We continue to track these metrics and expect our overall menu price increase at year-end to be more in line with food-away-from-home inflation. Kevin Ozan – CFO

 

Restaurant industry is experiencing a squeeze because of broader economic issues, not just drop in cost of home dining

“I think there are broader macroeconomic issues of consumer confidence and just uncertainty of wage increases, the slight squeeze on discretionary spend with gas prices aging back up and healthcare costs going back up. So, I think those are sort of things that we see affecting customers and basically the spare cash they have in their pocket” Steve Easterbrook – President and CEO.

 

Mcdonald’s position in lower-end dining offers a buffer from the drop in cost of home dining

“The gap clearly plays a role but it’s not the reason for the broader softening, it’s not the sole reason. So, I think it is an element. But when you are lower average check business like we are, I don’t think that magnifies out the same as if we were a mid scale dining or fine end dining. So, yes it’s probably in the mix but it’s certainly doesn’t explain.” Steve Easterbrook – President and CEO.

 

Stability of McDonald’s value menu differentiates it from the more variable promotional offerings of the industry

“I’d say you can see out there, there is still some promotional offerings certainly around the industry. I think all of us certainly including us would like to see kind of just a stable platform where you can — that’s why we put McPick 2 in. The idea is to have an ongoing value platform that customers can count on and not have to come up with some discounted promotion, if you will, every now and then.” Kevin Ozan – CFO

 

Terror and security concerns have slowed tourist traffic and even domestic traffic in France

“we know that GDP is down in France but the different dynamics and given some of the situation and the security, terror situations they faced there, it really is creating some very significant dynamic changes in that market. Tourism, which has always been a substantial part of this fuel of the economy in France has really softened. And you see it in the hotel bookings and you can see impacted in certainly the more tourist areas where it’s the Southern France or Paris within our business where we do have a heavy concentration of restaurants. But you’re also seeing effect of the way that consumers live their lives, French consumers. So, there is a slight reticence to go into high density tourist areas because they’re slightly concerned at environment.” Steve Easterbrook – President and CEO

 

Delivery plays a substantial role in Chinese market

“China is a challenging market… As they are seeing, just as one example, they now have a substantial part of their business is the delivery business. And not just — originally we set up and established our own McDonald’s delivery service and that proved to be very successful. We’re now integrating into third party delivery providers and that has way further accelerated our momentum in business and customer satisfaction, as more people are getting used to ordering and eating at home.” Steve Easterbrook – President and CEO