McDonalds at Bank of America Conference Notes

Kevin Ozan — CFO

Working to develop a national value platform

“we are focused on working with our franchisees to develop a national value platform that will help have an everyday predictable value platform going forward. Those are the key drivers of our sales that should continue to help us grow sales in the near-term.”

Breakfast was an accelerator of momentum

“All Day Breakfast certainly was a catalyst I would say and I will call it an accelerator of momentum. It’s certainly been well received by customers. It was the number one customer request that we have gotten over the last several years. So, it really was a focus on meeting customer needs. ”

Customers have higher expectations related to quality of ingredients these days

“I think it’s a longer term strategy of knowing that our core menu items are significant part of the menu, and customers have higher expectations these days related to quality and ingredients in those food items and so we are focused on that for the long-term versus just taking advantage of a short-term commodity swing”

It’s a competitive marketplace right now

“I think it’s safe to say it’s a competitive marketplace right now. The positive is that if I think back to the fourth quarter of 2015 that we grew obviously our sales. Our sales were pretty strong in the fourth quarter, but the QSR market also grew. And so that’s a positive. It isn’t like it’s a zero-sum game that people are just trading off customers, but the market is still growing.”

Trying to figure out mobile app pick up

“you have got to figure out if someone orders on their mobile app how do they pick it up, because they are not going to want to get into the same line in drive-through that everyone else is in. So, we have got to figure out from an operational standpoint how can we best deliver that order than to someone who has ordered on their mobile app.”

Food at home inflation is a limiter to pricing power

“I mentioned that we look at food away from home inflation. I should also mention the other thing we certainly keep an eye on is food-at-home inflation, because if food-at-home inflation gets to be too low or deflation, the grocery store becomes our competitor just as much as any other restaurant, if you will. So, we keep an eye on both of those as we think about and look at pricing power. We will keep an eye on both food away from home inflation and food-at-home inflation to make sure that we don’t get too much out of line with that.”

Food inflation isn’t that high

“It’s relatively benign just like all the other food. It’s relatively low, I guess, inflation and so that’s why I say there is a risk of us having the pricing power that we are hoping to have, because both food away from home inflation and food-at-home inflation isn’t very high these days.”

I think the economy is doing fairly well in general

“I think the consumers right now I think are feeling okay, obviously with gas prices down, consumers I think generally are feeling alright. Having said that, we don’t always see a direct correlation between gas prices and our business, so I know some people think that there is a big correlation as gas prices come down, the QSR industry and McDonald’s specifically will see an impact in sales. We haven’t seen a direct correlation with that other than on specific highway stores, I will say, where you see people traveling more by car. But I think in general, what we are seeing consumers are spending a little bit and feeling okay, I think right now, they are certainly a little cautious with – unemployment isn’t too bad right now. The economy I think in general is doing fairly well. People aren’t sure what to make of the political landscape and I won’t even try and enter that arena, but I think in general, consumers are feeling okay. And I think that, that’s contributing to our business certainly. The weather also being positive over the last 6 months around the country probably has helped consumer psyche and our business also.”

We are not the low cost provider in China which makes it a more difficult competitive environment

“It’s a competitive environment in China. It’s very competitive there, more so from local Chinese QSRs even than globally branded QSRs. So, it’s very competitive and we are not the lowest cost provider in China. It’s a little bit different environment than here in the U.S. We are a little bit higher priced compared to some of those Chinese QSRs. And so it’s a little bit more difficult competitively there, but we are extremely bullish on long-term growth aspects.”

It has gotten more competitive in China in the last couple of years

“Yes, it has gotten more competitive. And again, I think a lot of it is the local Chinese QSRs. You have a lot of street vendors there that are competitors. There is a lot of choices there and a lot of low cost food choices that make competition there difficult and competitive. And it has gotten more competitive over the last couple years I think is fair to say.””