Good morning, everybody. Welcome to the Arcos Dorados 2023 investor update. My name is Daniel Schleiniger. I'm the Head of Investor Relations for Arcos. Thanks everybody for being here with us here in São Paulo, and also online through the webcast platform. With us today is Woods Staton, our Executive Chairman, as well as several members of our management team. Marcelo Rabach, our CEO. Luis Raganato, our COO; Sebastián Magnasco, our Vice President of Development; Magdalena Gonzalez Victorica, our Chief Technology Officer; Santiago Blanco, our Chief Marketing Officer; Gabriel Serber, our Vice President of Social Commitment, and Sustainable Development; Rogério Barreira, the President of our Brazil division, our host today. Thank you, Rogério. For those of you that are on the webcast platform, Thank you.
For those of you that are on the webcast platform, please remember to scroll over the upper left-hand side of the screen to maximize the slides. We wouldn't want you to miss anything. The lawyers wouldn't want me to miss this part of the presentation that says that it contains forward-looking statements, and I refer you to the forward-looking statement section of the presentation and our recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we also report certain non-GAAP financial results. You can find the definitions and reconciliations of these non-GAAP results as compared to GAAP results in our past earnings releases and financial statements filed with the SEC.
For clarity, our discussion today will also exclude the results of the Venezuelan operation, both at the consolidated and SLAD division levels. Our agenda today includes a presentation by Woods and Gabriel. Woods will give us a welcome. Gabriel will get into our Recipe for the Future ESG platform. Marcelo will preview for you the numbers that we published last night in terms of the fourth quarter comparable sales, as well as some profitability numbers, which we'll get into full detail on March 15th with our next earnings call. He'll also provide you with our openings and CapEx guidance for 2023. Santiago, Male, and Luis will update you on market share trends and the 3D strategy of Digital, Delivery, and Drive-thru. After the 3Ds presentation, we'll actually have a break, so we can all stretch our legs, grab a coffee.
When we come back, Sebastián will take us through the details of how we plan to execute our growth plan, and a few, I think, interesting insights into how we do that and the opportunity that lies ahead. We'll wrap up the webcast event today with a Q&A session for those in the room and also those of us joining online. That's today's agenda. Without further ado, I'd like to invite Woods, our chairman, onto the stage. Woods.
Thank you, Dan. Good morning, everybody, and welcome. Welcome to all those who are with us on the webcast. I've never been so excited about our brand as we are today, and about our success. I've been in the system for about 30 years. I was a joint venture partner, I opened up the market of Argentina, I helped open the markets of Chile and Uruguay. When I came here with our training for our first managers, there were only five restaurants in São Paulo. Rogério was there.
Mm-hmm.
There were maybe 12 in Rio. It's been a long time because now we have over 1,000 restaurants in Brazil only. When I say that we've never been so strong, I say it because we have an unbelievably good real estate platform. We have a bunch of free standers, more than anybody else, percentage-wise and in absolute terms. Our digital platform, 3Ds, is working beautifully. The 3Ds is working beautifully because we started working on that a long time ago. We started working on digital marketing over 10 years ago, when we changed marketing vice presidents. We brought in somebody from the digital world, and digital advertising was maybe, I think, 3% of our budget. We started off with kiosks, digital kiosks 20 years ago in Argentina.
For a long time, we've been playing with these things, and we were there before everybody else. I think that that's important for our success. I can change pages here. Here we go. I think one of the things that has really gelled, made a lot of these things gel has been the pandemic. When the pandemic arrived three years ago, almost next month, you know, we were afraid of what was gonna happen. We didn't know what was gonna happen. We had these fantastic restaurants which are in freestanders, and we had this fantastic digital platform that you're gonna see now with Marcelo's presentation and everybody else's, which allowed us to take advantage of the situation. Not that one wants to take advantage of the situation, but we were able to defend ourselves.
Another thing that we did, which I think helped us a lot and is now part of the reason of where we are, is that we took a very conscious decision that we were not gonna let anybody go because of the pandemic. Later on, we got help from a lot of governments as far as subsidies, which were helpful. Before that ever happened, we had taken that position. We took the position of advising all of our customers that the safety of our employees was number 1, and the safety of our customers was like number 1.001.
That had a resonance with everybody because they said, "Well, look, this company really is interested in taking care of society, taking care of its community, taking care of its employees, and I like that." We also had courses given by HU, right from here, on how to take care of sanitization in restaurants, how to take, you know, cleanliness protocols, distance protocols. That was all given out to people who had restaurants, which were mom-and-pops or small little chains. We became a small part of a solution of what was going on. I think one of the things you're gonna see now is fantastic numbers as far as the brand is concerned, which translate into fantastic numbers of market share gains.
I'm not gonna take away the thunder from Santiago or Marcelo. With that, you know, the other thing that we have which is fantastic is that we have a meritocracy, and we operate on meritocracy. We're gonna talk a little bit about ESG and that. You have. In this room, you have three people who started their careers as crew kids, you know, 17, 16, 18 years old. Rogério, Marcelo, and Luis. They are leaders of this company. They started off as crew kids. They continued their college education with us, and then they went off and got their MBAs. They have. If I've been around 30 years, they've been around almost as long, and they're a lot younger than I am, that's great.
With that, let me pass you to Gabriel, and we'll talk later on. Thank you.
Thank you, Woods. Good morning, everybody. It's a pleasure to welcome all of you here in our beautiful HU. For us, it's very important that you are all here because we spend time with you on our calls. I've spoken to many of you, and we've done in the past several months and years, so it's fantastic to see you here live. My name is Gabriel Serber, and I head up the ESG team at Arcos Dorados. I've been leading this team of ours for the past four years, and I'm very, very excited with the outcomes and objectives and achievements that we are having. Our ESG team is based in our major markets, and it's composed with ESG professionals, either from climate change, circular economy, sustainable sourcing, and social impact.
We have a very, very strong and professional team that looks after each one of the chapters of the Recipe for the Future. As many of you know, and, you know, Woods just mentioned here, there are a lot of elements that come into our ESG platform. Here we have the six most important. I'd like to spend a few minutes highlighting the critical steps or the critical items that, you know, made us arrive where we are today, and also gonna paint the road for what's coming ahead. Starting with climate change, you are very familiar with this. Very recently, Arcos Dorados issued the first Sustainability-Linked Bond in the QSR industry globally, and it's connected directly to reduction of the greenhouse gas emissions.
We have a strong target and ambitious target to achieve, including scope one and three emissions. Very challenging, but we're committed here to do that. That also is connected to the executive compensation. All of us in this room, who are part of the Arcos Dorados team have ESG targets in our compensation programs. As you know, renewable energy is a key aspect of our Recipe for the Future. In the past years, we have tripled the amount of clean megawatts we have in our systems. Went from 4% to 12%, and I'm very happy to report that we'll be close to 30% at the end of 2022. You'll see that in the future reporting. Of course, we also increased our CDP scores, Carbon Disclosure Project, for deforestation and climate change.
Those are the things that, you know, I like to highlight in the climate change aspect. Regarding circular economy, this is a very hot topic present in Europe, and it's coming to also Latin America. We've been proactively taking measures in that aspect. In the past few years, we reduced and eliminated almost 50% of our plastic base in the stores. We have, you know, some items also to continue working on that, but we have taken a proactive step here in the elimination of single-use plastics. We then, on a single year, we collect about 90 million liters of water, either from rainfall or from air conditioning condensation, that we can then use for cleaning purposes in our stores or either flush the restrooms in some of the restaurants.
We are taking that water, and instead of using fresh water, which is scarce globally, we use water generated by our AC systems and the rain. We also collect and recycle and convert into biodiesel about 2 million liters of used cooking oil from our kitchens. It gets, you know, recycled, collected, and converted into biodiesel. Moving on to sustainable sourcing. You also know very, very well what we do here, specifically for soy certification. Palm oil certification, coffee certification. In fact, the coffee that you have in here is rainforest certified, so you know, that takes care of the origin and how the coffee is produced. Fish as well. I will put special emphasis in a few minutes in regards to our beef supply chain. In regards to families, of course, you've also seen this as well.
We've been enhancing our nutrition and nutritional aspects of our Happy Meals and menus, working on the clean label, you know, enabling kids through reading programs, through the Happy Meal, you know, premiums as well. That's also part of how we engage with community and the families. In regards to youth opportunity, you know, which mentioned, some of us in the room started as a crew and, I'm the fourth one.
Sorry.
Along with Marcelo and Luis, the same year, 1990. We'll be celebrating 33 years with the company, and I cannot find a better place to be than today here with you. We have programs that will enable and support more than 2 million young people by 2025. Finally, diversity and inclusion. I think Arcos Dorados is a diverse company by nature. We operate in 20 markets. Most of our employees are female, and there is a special committee leading by our VP of Diversity, Marlene Fernández, who develops programs and structures and tools for training of all of our employees here. I said I wanted to focus on beef because I think it's a critical topic here, and this is very unique to Arcos Dorados and to Brand McDonald's in Latin America.
Nobody else does this type of activity. This is specifically to be looking after the deforestation problems globally and specifically in our region. We are in Brazil. We have the Amazon here in Brazil, and you know what's going on there. We have a unique policy about zero deforestation for our beef supply chain. We monitor our 7 million hectares of land every year, which includes 12,000 farms, and we get a monthly report of how this program is working. If we see anything suspicious, we write off, and then we, you know, stop supplying from anybody who might be suspicious of any deforestation whatsoever, because our tolerance is zero. In Brazil and Argentina, we follow very, very strict policies here for, you know, this program.
Arcos Dorados is a global leader on the accomplishment of this policy execution. You know, I spoke about youth opportunity as well, and Marcelo and my story in Barreira, et cetera, but I'd like to show you a video which highlights some of the most important things of this program.
Welcome to Arcos Dorados. Let's meet the people who deliver the delicious McDonald's experience and help build a more inclusive world. Arcos Dorados is the number one generator of first formal job opportunities in Latin America, which is why we support youth opportunity in our company and in the communities we serve. We are committed to supporting 2 million young people as they prepare for and enter the workforce by 2025. Our commitment goes beyond the opportunity.
That's why we invest in the daily training and development of our people, with both online and in-person programs through Hamburger University, our corporate university in São Paulo, one of only eight in the world. With this initiative, we extended our training and expertise to the general public. In addition, we partnered with several institutions to positively impact the lives of thousands of people. Here, we foster growth by encouraging people to be themselves. What we affectionately call culture of service. This commitment to valuing the team's diversity is part of our daily routine. In a work environment where we want everyone to feel safe and comfortable, and in the initiatives we promote in society, being respectful and welcoming of differences, because they are the ones who deliver delicious feel-good moments.
This is how we generate smiles and a unique experience, because Arcos is made up of people, all people.
Thank you. Hope you enjoyed it. There were a bunch of young kids out there. Those are the employees of Arcos Dorados, as we all are here. You know, it's the nature of how this company runs and operates. I hope you enjoyed that. Later today, Sebastián will cover the tremendous opportunities for capturing more market share through new development. I'm very happy also to report that our teams work together here, and we have developed 25 sustainable construction initiatives that go into all of our buildings, whether it's the new stores and the remodeled ones. These initiatives include, you know, energy savings and different programs as well. Sebastián will tell you a little more about that.
You know, in fact, there's the store that's right there, which we're gonna visit a little later, includes more than 23, if I'm not mistaken, of those initiatives. That's fantastic. I wanna close up by thanking you very much for your attention. Also, your questions about ESG is a topic that is up and coming, and we are a very transparent, open company. Nothing to hide here, you know, we'll always take your questions without any issues or whatsoever. You can find more information in our report, which is in the IR section of the Arcos Dorados webpage. Look up for April 2023, where we issue our new report, which will have audited content, which is also a unique feature of our Arcos Dorados report on ESG.
We are the only company in the world that has audited content on our ESG reporting. With that, I wanna thank you very much. Hope you enjoy the day, and we'll be here for your questions later. Thank you.
Great. Nice work. Thanks, Gabi. Appreciate all the insights. You guys have heard us talk a lot about Recipe for the Future and our ESG platform. I hope that gave you a little bit more insight into what the program is all about and how much it really pervades the company. Now I'd like to invite Marcelo Rabach onto the stage, our CEO, who's gonna run you through a business update, some of the numbers you saw last night, a couple of other pieces of information together with our guidance for 2023. Are you ready?
You're good.
Okay. Are you hear me?
No.
Not yet? Hello? Hello?
Now yes? Yes. Good morning, everyone, and thank you for being with here us today in Alphaville. It's great to see so many familiar faces with us here. I know that there is a lot more people connected through the webcast to this event. Thanks for your interest in Arcos Dorados. I think that in this first part of the presentation, you had the opportunity with the overview that Woods and Gabriel gave us to see who we are, what we stand for. I think that this is very important, and it was important to start our presentation with our Recipe for the Future, because the Recipe for the Future is really a key part of our long-term strategy in Arcos Dorados. We take this seriously, very seriously.
In fact, we think about this, thinking that this is the way to sustain our business. Sustainability is not only about practicing good environmental procedures, but it's about giving our company, a strong relationship with the people that work for us, with our customers, and with all our stakeholders in order to make our business sustainable for the future. Let's take a look to recent trends on how we are doing in the business. 2022 was another great year for Arcos Dorados in terms of results. I would say that we leveraged our competitive structural advantages this year. On top of that, we successfully adapted our business, the way we run the business, to the changes in the consumer trends and the consumer habits.
We were able, during the year, to support our sales growth, and our focus was about volume. Guest customer volumes grew during the year, basically thanks to our fair pricing. We were very prudent in terms of price adjustments. Our convenience, we are very convenient. Customers can interact with our brand in many, many ways, and we are increasing that omnichannel approach. Male will tell us more later about that. On top of that, we offer the most popular menu items in the QSR industry, and that's a unique asset that we have to offer to our customers. You will see that the numbers speak for themselves. We were able to sustain all the year long, very strong comparable sales growth, and those comparable sales growth translated in market share gains, big market share gains.
Even in the fourth quarter, when we faced a tough comparison with the fourth quarter 2021, which was very good quarter for us, and we faced the unusual timing for the FIFA World Cup, which this year or last year was in November and December, which was unique. Despite all those headwinds, I would say, we had a very strong fourth quarter. In fact, all three divisions show a modest sequentially increase in comparable sales at the end of the year. It's very important to mention that all three divisions carried that momentum into this 2023 year. We are very pleased with the first weeks of this year in terms of sales growth.
For the very first time in Arcos Dorados history, we were able to generate more than $1 billion in company revenues. That's a record for us. Most of that result came from our performance in comparable sales, which we always look related with inflation. All three divisions outpaced inflation with comparable sales two to more than 3x , our comparable sales were above inflation. That's very healthy in the long term for our results and the business in general. This translated in very strong results in terms of profitability. I'm pleased to report that we closed out 2022 with our highest ever fourth quarter EBITDA. This is despite some headwinds we had in the comparison with 2021.
We beat fourth quarter 2021, which included some non-recurring items that we do not have or we didn't have in 2022. On top of that, since August last year, we are paying more royalties to McDonald's. Despite that increase in the royalty that we are paying, we surpassed last year profitability. We will share a lot of details around these numbers in our next earnings call on March 15th. We closed 2022 with 66 new restaurant openings. That's 20% more than the openings we guided to at the beginning of the year. We guided for 55, we ended opening 66. Around 90% of those, more precisely 59, were freestanding units. That means that we opened more freestanding units than any other operator in the QSR industry in our region.
We continue to be committed to not only keep our advantages, but increase our gap when compared with our competitors. 40 of these restaurants were opened in Brazil, and the rest of the restaurants were evenly split between the other two divisions. On top of these investments for increasing the amount of restaurants, we modernized more than 110 restaurants to the Experience of the Future platform. In fact, it was 114 restaurants that we modernized last year. That make it to more than 1,000 EOTF restaurants operating in Arcos Dorados footprint at the end of 2022. We continue to invest in the modernization of our restaurants, offering the latest technology and the best decor packages in the world in our restaurants.
For this 2023 year, we will step it up again, and our plan is to open between 75 and 80 new restaurants. Approximately 90% of those will be, again, freestanding units. We continue to be committed to that, to that format. About 60%-65% of these openings will be located in Brazil. Most importantly, we will accelerate even more the modernization process, and we are planning to modernize at least 250 restaurants of our existing footprint to the EOTF format, which is a huge acceleration compared with the 114 we did this year, because we continue to see great results in terms of sales lift and in terms of the impact in the overall perception of the brand in each of the markets where we are executing this initiative.
On top of that, we will continue to invest heavily in developing new digital capabilities and in our technology infrastructure. That has been a huge competitive advantage as of today, and we firmly believe that this will help us to continue to run the business in a more efficient way and interacting with customers in more ways in order to be the preferred brand and the preferred experience for them going forward. Important to mention that as we did this year, we see most of these numbers as a base, and if we see additional opportunities, we will pursue them. Finally, looking or talking about the future, we thought that it was a good opportunity to bring back some data and some information we shared with you last year.
Last year, we made some calculations using different tools that the McDonald's system has in order to calculate, okay, how many restaurants, McDonald's restaurants could we open in the next 10 years in this region, in our footprint? We came up with the idea that we can open at least 1,000 new McDonald's restaurants in the next 10 years. Honestly, I think that as of today, based on the trend of the business and what we are seeing in the region, maybe this is the low estimate for the next 10 years. I think that we have adapted our business very, very well to all the changes in the customer habits and customer preferences. We see this as a base going forward, and we will pursue as many opportunities as we see.
As you may know, the QSR industry in Latin America is still under-penetrated, so there are still a lot of opportunities. You will see later with Sebastián that we have the most robust process, the most sophisticated tools to pursue this growth in order to bring additional value to Arcos Dorados shareholders. We are committed with that, and we will continue to work very hard in order to bring these investments with excellent results for our business, as it was the case in recent years. Thank you very much, and I will pass again to Dan to present our next three speakers to talk about 3Ds. Thank you.
Thank you, Marcelo, for the overview. Before I pass the word on to our next colleagues, I just wanted to put my IR hat on for a second. I think that the numbers that you just saw and the numbers that you're going to see today are a little bit of where the rubber meets the road, right? I think there's a lot of. There's a speech around what we're doing that you've been hearing for a while. Today, I think what you're seeing or what you've seen over the course of the last two years in terms of results is the result of actually executing that plan that you've been hearing about.
I think that what you're gonna see today also in the presentation around the 3Ds and what Sebastián gonna show us on development is a little more detail of how that plan actually hits the road and generates real results, right? At the end of the day, I think that's the best measuring stick. What are the results of your strategy? Hopefully, you'll have that takeaway today. Without further ado, I'll invite Male, Santi, and Luis up onto the stage.
Hello? Hello?
Hi.
Hello. Okay. Thank you, Dan. Hello, everyone. It's great to be here with you this morning. My name is Santiago Blanco. I am the head of marketing for Arcos Dorados. I want to start by highlighting something that Woods and Marcelo said, 2022 was a great year for the McDonald's brand in Latin America and the Caribbean. We focused on our favorite menu items. We reinforced the image of McDonald's always delivering a compelling value proposition for families, and we introduced new functionalities in our e-commerce as part of our digital strategy. All of this on top of the most compelling network of freestanding restaurants across the region. The results were compelling as well. According to proprietary research, we saw market share gains across the region.
We gained more than 4 points of visit share during 2022. This is at the same time where our closest competitors were not able to gain any share and even go backwards a little bit. The most encouraging part of this story is the fact that market share gains came from all across our footprint, as you can see in the map behind me. When we look at brand equity, we have a similar story. According to our research, where we measure the four dimensions of the brand, of the image of the brand, which are affinity, integrity, quality, and value, we saw strong growth in almost all brand attributes. Of the 25 that we measure, we saw growth in 24 of those attributes.
Similar to what you saw in market share, that growth came from all our footprint across Latin America, from all our main markets. The brand is growing at a very strong pace in terms of brand equity across the region. Up to now in the presentation, we have shared with you that we have gained momentum in sales growth. We have gained momentum in our financials. We have gained momentum in our market share. We have gained momentum in our brand equity. These results are an output of different factors working together. One factor is having more effective marketing programs. Another factor is the way we operate our restaurants, the way we treat our customers, making sure they want to come back. Another factor is the way we build and modernize our restaurants, giving a unique experience to our customers.
There is one factor that we want to underline today, that we want to go deep into, because this one factor has become a true competitive advantage. This factor is our 3D strategy of digital, delivery, and drive-through. What we want to do now is, together with Male and Luis, take you through the 3D strategy in all detail and show you how it's coming to life every day across the region. Male?
Okay. Well, thank you, Santi. Good morning, everyone. First of all, I'd like to introduce myself. My name is Magdalena Gonzalez Victorica, but everybody calls me Male, as you can hear. I'm CTO of Arcos Dorados. As Santi was saying, we're gonna be showing you from now on the first D, digital, and we're gonna talk a little bit about what we have done in the last year. First, let's say, let's talk about our digital aspiration. Today, we are leaders in digital in Latin American QSR industry. The idea going forward is to continue working in our digital capabilities and strengthen this leadership even more.
As a reminder, this journey, as Woods was saying in his introduction, started several years ago in 2014, when Woods hired the first digital officer at a time when nobody was talking about digital in our industry. Since then, we opened our first EOTF restaurant, we launched our app, we developed and implemented our CRM platform, we introduced McDelivery. There's something in this story which is related to 2020, where Arcos decided to invest heavily in digital by opening a digital factory which we call ADvance. This really has helped us to go through the pandemic, and for sure, as Woods sometimes told us, cross the river at that moment, and now it's giving us competitive advantage to be leading this road in digital in our industry.
It has helped us accelerate digital transformation, not only internally in our processes, but also with our customers. In ADvance, we work with agile methodology in our DNA. This has been key in the last two or three years to develop all the capabilities you're gonna see today, and the solutions we are offering today in our app and in different digital initiatives. The ADvance team is made of 300 team members, and we have customer needs in the center of what we do. We are organized in around 50 squads, which are multidisciplinary teams that work with the customer needs in the center of what we do, and we seek for continuous improvement. We believe working this way has been for sure during the pandemic and will be going forward a competitive advantage to be much nearer our customers.
You will see some examples later on in the presentation.
Digital marketing starts with customer data, and customer data starts with downloads. The way we monetize those downloads is through active users. As you can see in this slide, we successfully grew both downloads and active users clearly above any competitor across the region. In fact, today, 10% of all mobile phones in Latin America have downloaded the McDonald's app. That number in Brazil is 12%, and in Argentina, 20% of all mobile phones have downloaded the McDonald's app. When I say with active users is how we monetize downloads, this is what I mean, and you can see it here in this slide. Digital contribution to sales has steadily increased over the years. By 2022, it got to 41%. Of all the sales of Arcos Dorados, 41% come from digital channels.
In 2022 alone, digital sales increased 55% versus 2021, and more than 300% versus 2019.
As you have already heard, and probably you know, today our customers have options. Having the ability to choose what they want, how they want it, where they want it, and when they want it. That is why our omni channel strategy is about providing our guests those choices. We have developed functionality in our app so that our guests can choose how to order and how to pick up their meals, personalizing the experience and effectively delivering the optionality they are seeking for.
Now, digital sales, which include the McDonald's app, self-ordering kiosks, delivery sales, including the sales we do through our 3POs, and all the e-commerce channels such as Mobile Order and Pay, set a new record by the end of Q4 of 2022. In fact, 44% of all the sales in Q4 of last year, 44% were already through digital channels. In Brazil, for example, it got to a place of 52%. The majority of the sales in Brazil now are made through digital channels. I want to point out one metric that is very important for our strategy because it contains a lot of value today and more so for the future. It is what we call identifiable sales, this 17% that you see here. 17% of the sales that we make are identifiable sales.
Now let me explain to you why this is particularly important for our strategy. First, start with our ambition. We want to grow to 40% of identifiable sales by 2025. This is taking this 17% and grow to at least 40% before the end of 2025. What is an identifiable sale? Is a sale that generates customer data and that we can use that data to contact that customer, and by doing that, create a personalized relationship, a personalized digital relationship. That's what we call hyper-personalization. The ability to create those relationships, those personalized relationships, are the ones that allows us to grow revenue by every active user. Specifically, we have been able to grow revenue per active user
From $38 in 2020 all the way to $55 by 2022. In essence, our digital strategy is about generating downloads that generate active users. We take those active users, put them in our omnichannel strategy. By doing that, we increase the revenue we obtain by active user. All of that done with customer data. There is one thing missing here which will allow us to accelerate even faster the percentage or the number of active users. There is one thing missing, which is called a loyalty program. That thing is missing until now. Male?
As Santi was saying, we will soon launch our loyalty program, which is currently in a pilot phase in the city of Ribeirão Preto here in Brazil. We will replicate the success of our CRM strategy and capacities, which we have used until now, taking the advantage of the large install base that we have in our app as we continue increasing our guest data. Loyalty members will receive rewards and personalized deals, providing convenience and value for our guests. This program is modeled after the MyMcDonald's Rewards program, which is implemented globally in more than 40 markets. This will boost the identifiable sales Santi was talking about, and it will help us build a complete view of our customers.
Now, to end our digital journey, let's take a look at a video that's gonna show you how the omnichannel strategy is seen in our stores.
The world is changing all the time, faster and faster. These transformations have an impact on our lives and behaviors. Nowadays, everything happens at a faster pace. We find ourselves in many places at the same time in different ways. These changes force us to evolve. Thanks to technology, we can be part of our customers' daily lives, so that customers enjoy their favorite McDonald's whenever they want, wherever they want, and in any way they want.
When I have some free time in between classes, I visit my grandmother and take her her favorite McDonald's meal. As I don't have much time, as soon as I leave the classroom, I order my meal on the app. I pick it up in the restaurant and go on to her house. It's super easy and fast. Order ahead on the app and pick it up in the restaurant, just as I wanted.
When me and my friends come back from the movies, we like to pull into a McDonald's parking spot. Without getting out of the car, we order and pay on the app. We can talk about the movie while they bring the order to the car. Order on the app with the curbside pickup, just as we want it.
Kids love McDonald's. We love it too, but we prefer to sit and order at the table. The first time, they kindly help us to do it. It's very easy. You place an order on the app, enter your table number, and then you just sit, and your food arrives. You can also place an order on the self-service digital kiosks. Select your meal, customize the ingredients, pay, and sit at your table to wait for your order. Table service orders, just as we want it.
Traffic from work is getting worse. That's why before starting the car, I place an order ahead so that I don't have to wait at all. I get in the car, pull in through the drive-thru, pick up and go home. Besides, as I'm a VIP Club member, I always get amazing and exclusive deals. Order ahead drive-thru service, just as I want it.
Ordering McDonald's delivery every time we meet up to study is something that we never ever miss before an exam. We use any app, and we love it. Now we can also order directly from McDonald's own app or WhatsApp. It's easy, practical, and super quick. Delivery orders, just as we want it.
Technology has not only transformed our customers' needs, but has also made us more open and flexible. With an omnichannel strategy, we take on the challenge of guiding them at the right moment and at the right place, so that they can enjoy McDonald's whenever, wherever, and as they like it.
All right. Good morning. Good morning, everyone. I'm Luis Raganato, Chief Operating Officer for Arcos Dorados. I would like to start saying that within digital, the main driver of growth sales was McDelivery. In 2022, we were able to consolidate our position of leadership. We have that done due to special key factors. The first one is that we believed in this channel way before the pandemic. In 2018, we developed the first relationship with a 3PO or aggregator. Of course, the pandemic worked as a catalyzer of our sales and of our results, of course. What we saw is that in 2021 and 2022, those sales kept on growing, even surpassing our expectations.
That was due to the great effort, the great teamwork done between marketing, ADvance, and operations in every market all across the region. Another factor, like we have the greatest freestanding restaurant portfolio. It's very important because the operation of delivery in those type of restaurants is easier. The experience for our customers is better. We have a strong relationship today with all the 3POs, all the delivery aggregators, a very strong re-relationship in every market. As a fact, we are the fastest and most accurate. Of course, we do have opportunities, and we're working on them, but we are very enthusiastic about the evolution and what this channel still will bring to the company. Here you can see the evolution in sales, more than 3x when we compare with 2019.
The last quarter of 2022 was a record sales for the channel, for the company. Not surprisingly, we can see the increase in market share. The overall restaurant sales, I'm talking about the sector sales, flattened out during 2022. In some cases, there was a decline, okay? Our sales kept on growing, and you can see here how significantly our visit share gap increased 3.4 percentage points, and our value share gap increased 3.9 percentage points when we compare with our main competitor, 2022 versus 2021. Our strategy, our growth strategy for the next months and years to come, even though we have hit or achieved high levels of execution, is on, keep on improving our operations, investing in the technology that we need.
Strongly or strategically, strengthening the relationship with the 3POs with strong marketing and digital plans that will boost the sales that we need and expanding the own delivery capabilities. Male?
Luis was talking about being fast and accurate. We know in delivery that time and accuracy is gold. One of the challenges we had when delivery started growing and when the Mobile Order and Pay channels started to appear, was how to integrate in the best way to be fast and accurate, the physical world of the stores with the digital world of the apps and the 3POs. To better manage these environments that were keeping growing in our restaurants, we developed an in-house tool, which we call Flex Digital. This platform integrates all order and transactions with our restaurant point of sale and the digital platforms and the apps, not only our app, but also the 3POs apps.
This has helped us, for sure, improve performance, as we were just saying, time and accuracy, and talk about operational excellence in our digital channels. To better understand how this technology works and what it has brought to us, we will see a video.
We have delivered a specific marketing strategy for the delivery channel. This is important because by having a specific strategy to this channel, we can then develop programs that are built upon insights related to this particular user location. Let me give you some examples of those programs. How about giving mom a surprise family lunch during Mother's Day? We can do that through our app and working together with our 3PO partners. What about partnering with other company like Visa to give unique experiences to our customer as we both sponsor large events such as the World Cup? What about executing a region-wide, in 11 countries, online soccer tournament so that gamers, teenagers can play with another player in different countries and come up with a champion just like in the World Cup?
All of this is possible by having a specific strategy with one goal in mind, to remain top of mind every time someone wants a delivery order to their home or to their office.
Own delivery is a strategic long-term priority for us. We are developing these capabilities as you can see here in this slide. Today, we have more than 745 restaurants offering own delivery in seven of our markets. We have added ways for the guests to place their orders, not only through our app, but also developing a bot which is inside WhatsApp. We have been working to define and have the best option for logistics in each market, where we have the possibility today of using riders as 3PLs, walking crews for short distance orders, and also a rider's app for three partners to be delivering the orders for us. It resembles how 3POs coordinate delivery people. As you can see, we have developed significant competitive advantages with our digital platform among delivery service.
We will get into the third D.
Okay, thank you, Male. Yes, we're going to talk about the third D, drive-thru. It's a very relevant, a very important channel for us, and even though the on-premise channels continued to normalize during 2022, the strong in drive-thru were very strong and the sales in drive-thru were very strong and remained sticky. I would like to clarify. On-premise channels are from counter and dessert centers, and off-premise channels, drive-thru and delivery. Drive-thru for us is a structural competitive advantage. Today, we have the largest freestanding restaurant portfolio. Okay, I already said that. I'm repeating it now. we have 3x- 4x as many units as our nearest competitor. In some markets, that number is even higher.
With 50% of our stores are free standings and like Marcelo said, 90% of our openings are going to be this type of restaurant. The results on these sales reflect how efficient the channel is due to a higher average check. Here you can see evolution in sales, +52% from 2019. That year, 2019, was a great year for Arcos Dorados. This channel contributed 22%, and now in 2022, contributed between 28% and 30%, depending on the market. That has a huge impact in market share. On top of the great results that we had in 2021, we are comparing here 2022 versus 2021 versus our main competitor.
On top of those great results, you can see a significant increase in visit share gap, + 11.7 percentage points, and in value share gap, + 16.1 percentage points. Our growth strategy will be to keep on investing in operational improvements. It's key to increase customer satisfaction. Strategically investing in technology and training, implementing the strong aggressive marketing and digital plans. We're going to keep on strengthening or building on the strength and competitive advantage that we were talking about. I wanted to show you these three operational indicators. Even though we're benchmarked for the sector and the system, the McDonald's system, and that we had in 2020 great results, we were able to improve those indicators. There are two that are drivers of the customer satisfaction.
The first one is total experience time or speed. We had an improvement of 32%. Sometimes when you do something fast, you can make mistakes, okay? We were able to not only be faster, but to be more accurate. Order accuracy increased 10% last year. Those two attributes that are the most valued for our customers led us to an incredible increase of 46% in customer satisfaction. This has a direct impact to sales. Okay? How did we do that? Again, focus. Focus on the basis, on the fundamentals of the business. The first pillar is people. It's not only the effort to having the right profile, but investing in training. It's having the right and trained crew and managers in every store. It's a big challenge.
We implemented, during the pandemic, specialized teams in every department and in every store. Of course, this is a marathon, so we need to be consistent and that's. We're working on that, okay? We have dashboards. Very important tool, too. They allow us to effectively follow up the performance of every store and make a zoom on those who are underperforming. When we talk about investing in technology, it's very soft, very sophisticated software that Male was talking about, or very simple tools like tablets or QR code scanners that make the life easier for our crew, our managers, and improve the experience of our customers. We're always thinking and rethinking the design, the layout of our restaurants, our kitchens, to make our business more efficient. Sebastián is going to talk about that later on.
Hello. Hello. Hello. Yes. Yes. Hello. Can you hear me? No? Obrigado. Amigos. No? Un momento, por favor. Okay. We have made drive-thru also a priority for our marketing. The insight here is that customers crave convenience and value, and drive-thru delivers clearly on both. Remember that drive-thru and delivery bring incremental sales to the existing fixed cost structure of a restaurant. How do we grow traffic in the drive-thru channel? Well, we do it with technology. The way that works is we provide customers or we invite customers to use different functionalities in our app when they use the drive-thru channel. For example, Mobile Order and Pay.
When you go to the restaurant, you just scan your phone, you will get your order, which is already paid, and you will be on your way very, very fast. You can choose to have your order delivered to your car, so you can order on your phone, go to our parking lot, and a crew member will take your order to your car. This is not only more convenient, it gives a better experience, but it also makes the operations at the restaurant much better for our crew members. I want to wrap up this section on the three Ds with three key messages. The first one is that the three Ds are driving sales, helping us grow our business. The second one is that we are doing that through the use of customer data.
That customer data is being used with the explicit authorization and permission of every customer and following every data protection law across the countries. Finally, the third message is that we are only getting started. There is still a lot of room to grow, a lot of things to learn and keep trying over and over with a new way of working that Male explained in order to keep getting a lot more out of our digital strategy. Now, to show you how all of this comes to life and how our customers experience this in real life, I wanna share with you a quick video that will help bring it to life. After the video, we will take a break. Thank you very much.
All right. We're gonna take a 10-minute break. It's 10:35 A.M. here in São Paulo, 8:35 A.M. for those of us joining us on the East Coast of the U.S. I'm not gonna do the math on the other time zones. We have some coffee outside for those who are here, restrooms. Back in 10 minutes so that we can start again. Hopefully, you guys enjoyed the video. There was something in there for everybody.
Thank you, Dan, and good morning to everyone. Before the break, you heard about our 3D strategy and our omnichannel approach, how that is driving guest engagement and transactions growth. I'm here to talk about the 4D development, and my biggest challenge today is to keep up with the time because I'm so passionate about what I do or what we do, that I could be speaking about development for the whole day, and nobody likes that, right? Okay, my presentation, it's split in three different blocks. First, I will cover the basic of the development process. I will speak a little bit about the market potential and how we benefit from a post-pandemic world in term of profitability and therefore potential.
I will share with you how we are planning to capture, or I should say, how we are actually capturing and will capture that potential. Opening a new freestanding restaurant, it's a process that takes about two years from start to the end. It's an ongoing five stages process that you can quickly see here, where we start investigating the market, all Arcos Dorados territories. Leveraging on more than 50 years of Arcos development team working at each territory and more than 30 years of professional experience mapping out the market and finding potential gaps for new openings. The second stage is when we investigate the site. There, the key factor is to find the exact location and establish the right accurate sales estimations that will allow us to open a profitable restaurant.
For us, this is very important because more than often, we are the first to arrive to a market, so we really rely on this. We have been doing this for the last 15 years, what we are doing different now is that we are applying, and we'll show you a little bit of this later, big data tools that allows us to determine the exact locations that will optimize sales capture. Of course, we have to acquire the site. Something really important here is that we took advantage of the slowdown in expansion, of course, during 2020, we just opened nine stores.
We put the whole team to speed up this process, and we've been able to build up a quality real estate pipeline while the rest of the industry, not only quick service restaurant, but retail industry, was closing places. We have to develop the site, and there we have local teams, and we use the latest, and I will speak later about this, in terms of modular building design, new construction materials. We have to support the site. After the store open, we continue looking at the site and deciding on future reinvestments. Now let's go a little bit further into details. As I said before, everything starts when we investigate the market. Here, you can see the maps.
Basically, what we have to do here is to find gaps, places with people with disposable income, but with not McDonald's presence yet. We do this leveraging on more than 50 years of knowledge that McDonald's has developed. One of the beauties that now we're using big data tools. This give us an extreme precision on where is the right place to open each of those stores. Of course, we take into account traffic, customer behavior, population demographic, future development, to find out those potential gaps in the market. We have to find the right site. This probably is the most difficult or the key part of this process. I don't know if you're able to see the maps on the left bottom side. Those are actual maps of stores in Argentina.
You see like a spider web, one with green lines and the other one with red lines. Those are stores, actual stores. Each line represents customers visiting us. We know from where the customers came to our store, when they did it, how they did it, if they arrive in bus, in a cab, driving by their own car or just walking, how often they visit us, how much do they spend. By knowing that, what we know is what we call the trade area, which is a continuous geographic area where 75% of the visits come from, and you can see that on the right side. By knowing that, we can precisely and accurately estimate the sales projection for new stores. Again, we have been doing this in an analogic way for the last 15 years.
Now, with the Male team at ADvance, we are applying artificial intelligence, mainly machine learning tools that we can leverage on more than 2,000 stores that are selling every day and have the most accurate sales estimation. We can take data-driven, fact-based decisions in order to minimize the risk of failing on an opening. Of course, once we decide to go after a store, we have to acquire the site, and this mean getting feasibility plan for local government approvals and permits. This is something also very important. I mean, it's, the world is full of retailers that buy a piece of land, and they stay like that forever because they cannot build it. We have to engage with the landlord or the seller, negotiating the terms for either a lease or the purchase.
We do budget estimates and project schedules in order to meet those deadlines. Again, we have been doing this for many years. One of the things that we are doing now different is that we decentralize much more this process to local management level. By doing this, we are able to speed up the process and to take decisions closer to the customer. In fact, we did last year, a full year postgraduate program for managing directors right here at this University, and that is helping us a lot to increase sales of first year opening for stores, and you will see much of this later. We have to develop the site.
Here, we use modular design. We have teams, local teams in place in each market and in each region to speed up the process and to reduce lead times and to build faster. We also have a centralized procurement for certain materials where we can leverage on scale and also have visibility on the needs by ourselves and by our suppliers. This has been key in order to speed up or ramp up our openings guidelines that we exceed during the last year, as you may know. We've been able to do that during the worst crisis in term of logistics. We've been able to do that because we have decentralized supplier system, and we have visibility on all our needs or future openings. Our work doesn't stop when the restaurant open.
In fact, it continues. I said before, it's an ongoing process. We keep track and monitoring the investment results every week after the opening. We also keep track of the change in customer behaviors and customers' needs, so we could reinvest, increasing capacity like we've been doing to increase the 3D capacity. You will see more of this later when we visit the store close to here that we just remodeled, increasing capacity, and also investing to modernize and convert the stores to Experience of the Future. For us, this is a great process. It's a proven process. McDonald's uses it worldwide, and it gives results. This is a big competitive advantage that we have. Well, that's related to the first block that I mentioned about the development process. Now we're gonna talk a little bit about market potential.
To make it very quick, if we compare our region, Latin America, with any developed country like U.S. in term of penetration or population related to number of stores, the number says that we can build the portfolio 10x the current size. Of course, that's not the way to do it, even if we correct with socioeconomic factors such as disposable income or socioeconomic levels, we still have room to grow our current restaurant portfolio 2.6x our current portfolio. We have a very under-penetrated region in term of quick service restaurant and as well in term of McDonald's penetration. At the beginning, I say that I would also talk about how the post-pandemic world affect the potential. The good news is that it increase the potential. Why is that?
As you've seen before, we've been able to capitalize on customer behaviors and preference changes. As Male show us, people are willing to order in different ways, to use the drive-thru, to use the delivery, and those changes are driving our sales up. It's not just a shift from older channels to new channels. There is an increase on the level of sales. We are building free standings, and free standings provide the full experience. They are prepared for maximizing drive-thru capacity, they are prepared for maximizing delivery capacity, and they also have all the digital elements, such as digital kiosk, digital menu board, service to the table, that not only are increasing sales, but are also improving the brand perception and aspirational status of our brand.
To put it clear in numbers, here is a comparison for our portfolio, free standing units before and after the pandemic. You can see this number is in U.S. dollars. If you put it in cost and currency, it would be even higher. Looking at dollars, free standings are selling 16% more than they used to sell before. This is because, as you can see on the green bar, the increase in off-premise channels. This, in term of development, this is a beauty because it open a lot of space for growth. Let's look at the numbers. Here we are comparing pre-pandemic and post-pandemic, not the portfolio at openings. You can see there is an increase on the investment level, and this is due to the disruption in supply chain, the high inflation.
Most of suppliers, especially construction commodities, have risen a lot. We've been able to control them. They are well below inflation. On the other hand, we've been able to increase sales level for the first year of new openings by almost 21%. The portfolio increased 16%, as you may remember. New openings increased even more, 21%. This has a leverage effect that translates into 6.4 percentage points of increased profitability or return on investment, which is the measure that we use to analyze the performance of our investment. For us, it's easier and more profitable to build new stores, and that just comparing free standings against free standings. Now we are building much more free standings, as you heard before.
In fact, what is happening is that a new store is bringing much more than an average new store was bringing before the pandemic because of the shift in the channel mix. Before the pandemic, every new store was selling below the average of the company. Now the stores, a new store is selling above the average of the company. Every new unit that we open, we're increasing the average sales level of the company. One of the reasons for this is that the off-premise channels gets very quickly to the store. The share of mature sales that a new store has is higher than it used to be before. It's also great testament of the quality of the new openings and the real estate pipeline that we have. We are also investing heavily in modernizing the restaurant store base.
So far, we have more than 1,000 stores converted to EOTF. Our plan, as you saw when Marcelo share the CapEx expectation for this year, we are accelerating, and we plan to be above 90% by the end of 2027. This means stores more aspirationals, more digital kiosk, more drive-through capacity, more delivery, and an increased distance between McDonald's brand and any other competitor. Let's talk a little bit about our strategy for growth. Basically, we are going after two spaces. The first space, it's very easy. It's just to open in areas or gap areas where there's no McDonald's yet. That's easy to understand. We are gonna do that with traditional freestanding formats.
We have a second strategy that goes together, which we call to fill white spaces, where, and I will explain this a little bit better later, but between existing stores, there's always some small gaps that we couldn't cover with the traditional restaurant building before. Taking it into account, the greater contribution from off-premise channel, especially delivery, and the technology that we developed in term of food transporter. We're gonna see the food transporter after lunch at the store that allow us to split the kitchen and reduce the footprint almost 3x . We're able to enter those markets and have also a filling strategy in places with a lot of density and, of course, a lot of sales. Let me explain this a little bit and how we relate the opportunities with the buildings.
On your left side, you can see a map that's in Brazil. You can see each of the yellow points represent an existing McDonald's store. You can see a purple area. Those are what I said before at the beginning, the trade areas. Those are the customers that we are already serving. By removing those from the map, what we get are the green areas. There are some empty spaces. Sometimes it's because there are nobody living there, like a park or a mountain. We identified, using big data, all the clusters that could fit in terms of sales a new McDonald's building. Those are the number one strategy to go and get those markets. That's what we get here in the middle.
Once we overlap the existing plus the new one, you will see that there are some spaces, they are in blue, I'm not sure if you're able to see. They are smaller gaps. That's what we call fill-in spaces. I don't know how many of you have been able to visit last year the Ibirapuera store. It's a store here in Brazil. If you have the chance, I would recommend you to visit it because it's a full freestanding with drive-through developed in a 800 meters plot, 800 sq meter plot. That's one of the beauty of the new design that we have that allow to penetrate those kind of areas. Here you see that there are still a lot of spaces to fill in. Now that I explained the strategy, I would like to present how we are capturing that.
Here I would like to unveil what we call the Restaurant 2.0, which is as you can read there, a flexible and versatile catalog of restaurants, I would rather say platform, for all Arcos Dorados. This is a concept that we, I wouldn't say steal, we copy from other industry. It's not a new concept. It's a proven concept in the industry, but it's something that we adapted to the quick service redevelopment industry, which is to have a common platform. We just took an example from Volkswagen. They have this is a platform, but you can see many different cars like the Jetta, Bora, well, it has different names in every country, even Audi, but 70% of their cars are built from a single platform.
This is really very efficient in term of developing, in term of cost, and in term of speed of process. We did exactly the same with the Restaurant 2.0 building, which is a standardized production platform designed to increase or maximize sales capacity in our three main channels from a production standpoint, which are on-premise, the lobby, drive-through, and delivery. It's also flexible. With the same back of the house, which is the yellow part, we can change the number of seats and increase the area on each of the side. We can grow on the front, we can grow on the side, and we can even grow in the back if we need extra space. Well, I won't go through all of these details. I would just tell you two things. This is something that we took.
I mean, it was a long-awaited project. We didn't have the time to do it. During the pandemic, we have the whole team, development team, dedicated to redeveloping this type of building. Now we have a common platform that is designed to maximize sales capacity for the new channels, we reduce investment levels by far. One of the beauty of this is that since we have a common platform, it allow us to leverage on economy of scale. We can negotiate much better prices. This was key during the pandemic and the major disruption in the supply chain channel. Because of this, we've been able to buy in advance hundreds of equipment before even knowing where they were going, because we knew that with the same platform, we can produce buildings for any of Arcos Dorados country.
This was one of the greatest development that we did during the pandemic. As Gabriel mentioned before, it has 25 sustainability initiatives already included. The Recipe for the Future ESG platform, it's embedded in everything we do. This allows, as we continue opening new stores or modernizing, to increasingly grow the sustainable portfolio that customers favors in term of brand and sustainable experience or brands that favors ESG responsibility initiatives. Let's look at the video that can explain a little bit more about the Restaurant 2.0. This is not just a desktop project that I'm sharing with you. This is a reality. In fact, last year, we did open 25 stores under this platform. Here you can see a picture of all of them, all free standings in iconic locations.
If you look closely, you may even see solar roof panel in some of the buildings. Finally, in summary, as takeaways, the quick service restaurant industry is still much under penetrated in Latin America, the McDonald's brand is uniquely positioned to better capture all that unattended potential. We have structural competitive advantage in terms of our restaurant portfolio and also in our ability to further increase the number of free-standing restaurants. I truly believe that we have the best development team in the industry, that levers with the access to sophisticated tools around the globe through McDonald's give us a unique competitive advantage. We are all obsessed in going after the big opportunity that lies ahead of us. Thank you very much for your time today.
Thank you, Sebastián. I know there was some information in there that a lot of you have been asking me for a while, so hopefully that helped you understand a little bit better how things are moving with returns on investment, with levels of investment to open restaurants. You can see that there's a lot of work that's been done to improve the performance of the new restaurants and the existing restaurants, even during the pandemic. Now we have time to take some questions. That's the end of our presentation. I'd like to invite Woods and the rest of the team up here to the front. What we're gonna ask for those that have on the webcast, you can now minimize the presentation on your screens, and you can submit questions via the chat function.
We'll try to get a couple of questions from those guys. For those of you in the room, please raise your hand. We had a couple of people with microphones. They'll bring them over to you. Please don't forget to identify yourselves and with what fund or bank you're working. Also try to keep it to one or two questions. I already see a lot of hands up in the air, and we wanna try to get to as many people as we possibly can.
Dan, can I go ahead and start?
Here we go.
Dan, could I go ahead and start?
Sure. Tell us who you are.
Bob Ford, Bank of America. Thank you very much for the presentation. Just a quick couple questions. You know, can you discuss the improvement in CSS scores that you're getting from your EOTF re-images, as well as the lift in same store sales that you're seeing and the average cost per unit and the return that you expect? Then with respect to the new openings which fill in those white spaces, how should we think about any cannibalization of the existing units? You know, how are those new store maturation periods and returns evolving?
I think you take the first part and Serber takes the second part.
Yeah. Can you hear me or? Okay. Hello, Bob, and thanks for being here and for the question. In every single market where we introduced the EOTF format, we saw an immediate impact in sales. At the same time, we saw that impact continue along the time, and that's because the environment we are offering to the customer is much better. All the digital tools we included in the restaurants after the modernization allowed us to make all the work that Male, Santiago, and Luis explained about getting data from the customers and using that to get more and more revenues from each of those customers. Always this industry needed to make a modernization or a remodel after X years. Typically in the industry, seven, 10 years should be a good timeframe to make a remodel.
What we saw in the past is that maybe that remodel stopped the decline in sales of a building, and it get back to the previous level. In the case of EOTF, what we saw is that we had a sales lift, which is the beauty of this new format. That again, in our case, that was a fact in every single market that we introduced the EOTF format, and that's why we continue to accelerate the modernization of the existing restaurant base. For example, next year, we are planning to do at least 250 restaurants. All those elements and all this new look and feel of the restaurants impacted positively the customer satisfaction surveys in the market.
At the same time, it gives a halo to the brand in the market, the more modern and more aspirational brand. The positive impact, it's not only at the specific restaurant where we make the investment, but for the brand as a whole. I think that I covered that. I don't know.
Yeah, I can take the, can you hear me?
Yes.
I will take the impact question, which is a big thing in McDonald's, impact in general, especially in markets where there are many franchisees, because any franchisees is afraid that any opening may impact their store. Let me start by saying that usually people think that we are in a kind of sum zero game. For instance, I use the example of gas stations. The number of liters or gallons that you sell is related to the number of cars, not to the number of gas stations. If you open a second gas stations, you are splitting the same pie in more places, so you will have an immediate impact. In our case, the share of the stomach that we currently have is so small that it's far from being a sum zero game.
That's the first thing I always mention to understand. The other thing, if you remind when I show you the lines that we know from where each country, each customer is attending the restaurants, we also, when we do that kind of surveys, one of the key question is how often do they came to the store? What you will see, and it is very intuitive, but until you have the data, it's difficult to get it, that if you live at one block from the store, you may visit the store three to four times a week. If you live far from the store, your frequency really slow downs. Usually when we have overlapping of gap areas, if it is on the surroundings, there's no impact.
The other thing that is happening after the pandemic is that trade areas are shrinking because people are looking for hyper convenience. If you are ordering delivery, you're ordering from store that is really close to your house. Otherwise, it gets out of the wall because the integrators, they choose from where to attend, and if it has more delivery time, they prefer to other choices, so you get out of there. Also, the increase in traffic in, at city levels are reducing the size of the trade area. That's freeing up spaces for more openings. In fact, we are not seeing any impact.
On the opposite, there are some countries, for instance, U.K., since current store footprint cannot keep up with the delivery orders, they are open kitchens just to catch up or to give a kind of boost to those sales that they are missing. In term of impact, it has never been a concern for us in Latin America, given the under-penetrated the market it is, but it's less of a concern as of today.
Thank you.
My pleasure.
Next question?
Okay. It's me then. Can you hear me?
Mm-hmm.
Hello?
We have Felipe Cassimiro from Bradesco .
Hello. No, thank you very much. Felipe Cassimiro from Bradesco BBI. Thank you very much for hosting the event. I guess my first question is on the remarks from Marcelo in the beginning about the short-term momentum in 2023. I guess it's gonna be a very challenging year in terms of comps. It's much more normalized in terms of food inflation. What are your expectations for system-wide sales in 2023? That is my first one. Maybe I do all of them and then?
How about you do two?
Okay. Okay. Two. Maybe the most interesting one is about the rewards program. I guess today you have a large active base of 13 million active users, right? In the presentation. You're just launching now the rewards program. What were the main hurdles to launch the program so far? Going forward, what can we expect in terms of maybe ticket size increase and, yeah, in terms of the size of the program? That's it. Thank you.
Thank you, Felipe, for the question and for being here. We were talking about the tough comparison with previous quarter, previous year, for the last year and a half, maybe. Fortunately, we were surprised in the way we were able to beat our expectations in terms of comparable sales. As I mentioned before, when we looked at the fourth quarter of last year and we take into account that we would have the FIFA World Cup during that period of time, we were a little bit worried and we put in place all the initiatives that our 3D strategy allowed us to put in place in order to compensate or to mitigate part of the traffic that we already knew that we will not or would have at the restaurants on the on-premise side of the business.
We've been working in all the different venues of having additional sales in our restaurants. Most of the things you saw today are not in place in the whole company. In many cases, we are working in the rollout of these things. I mentioned minutes ago the EOTF format. Each restaurant we transform in Experience of the Future give us a sales lift, and that helps us in terms of the comparable sales for that city and for the market. I'm very confident in terms of having the ability with the tools we have, with the processes we are running, having the ability to continue to grow sales above inflation, which is strategic for us. Our ability to grow sales faster than the market in general than our competitors.
We know that we will face maybe some economic slowdown in some markets, I think that we are in a good place to deal with that and to continue delivering strong results in terms of sales. I think your mic isn't working.
Yes. Well, thank you for the question around loyalty. As you heard, we are at this moment with a pilot in a city here in Brazil. We are learning. You also heard that we take care of our customers pretty much, so we are making sure that whatever is being done there, we are learning from that pilot and also from the rest of the world's pilots or the project worldwide. When we talk about benefits of loyalty, the first thing is, we believe this is the best moment to do it because of the install base we have. As you said, we have a large amount of users in our app, and the main benefits of loyalty basically is frequency and also average check, and also having a different connection with the customer.
We already have that customer in the app, so now we need to identify those ones that have that data, make sure that they come more often. Apart from that, for sure, when the customers start seeing the benefits, it's gonna help us increase that database, and that's what Santi was explaining. We have today a 17% of identifiable sales. For sure, one of the benefits is that it's gonna help us get to the 40%. You also saw in the presentation the benefits of having that data. We have big expectations on this program. We have a lot of experience around the world to learn from, and also from our teams using the CRM strategy that we have used until now and have helped us have that big install base that we have today.
Hi. Good morning. Thank you for having me and everyone here today. It's Rodrigo Almeida from Santander here. I still wanna remain on the loyalty program topic. Like you mentioned, you have the Mobile app, which has a big customer base already. I want to understand on that, how you connect. You kind of have a loyalty program kind of for the drive-through, I understand, and how you connect that with the current loyalty program that you're launching. I think that's the first point on the loyalty. The second point is, have you seen any sort of limitations? I understand you're running a pilot, but maybe regarding launching the loyalty with your own stores versus the franchise stores. Do you see any.
Are you facing any sort of difficulties there in terms of taxes, in terms of dealing with the franchisees on that front and especially when you're talking about discounts and things like this? That's the second point. The third point is, when you talk about the 40%.
Against tribal sales. How much of that is dependent on the loyalty program? I think that's, it's still, it's one topic, but I wanted to touch on these different points on that.
I'm gonna try to remember the three of them, but I'll start with the first one. Regarding the Club VIP, drive-thru program we have today, I believe we learned a lot with that, and it was certain, like, a loyalty program, but not very, it was a learning process for us. Here in Brazil, where we have, the pilot, the idea is that we evolve the actual program to the rewards program, which is gonna be a program thinking of the customer in general, not only for the drive-thru. We're gonna be evolving that to the rewards program in general.
Let me jump in with the second part of the question.
Okay.
Which was the learnings, particularly about franchisees, for example. That's key for us. That's part of the learnings, we are collecting now because maybe Brazil has one of the more complex tax regimens in the region. There are some things that has to be adjusted in terms of, okay, when some taxes are paid, when the customer gain the points, when they use the points, how you compensate between different organizations, our CoCo restaurants, franchisee restaurants. That's precisely part of the understanding that we are getting and the learnings we are getting in order to first have all the answers needed and after that, begin the rollout in Brazil. I think that if we are successful rolling out this program in Brazil in coming months, it will be much easier to make it happen in the other markets.
The third question.
The third part was about the 40%.
Yeah. I would say that we will get to that 40%. We increase the database that we have on the app. It's not just loyalty. For sure, loyalty is important, but we have other channels like Mobile Order and Pay on delivery, which also are increasing sales to get to that 40%. I would say it's more related to increase our database and our users in our app and connect from there to more customers to get to that 40%, where loyalty is one of the initiatives, but not the only one.
We have a couple of questions here in the front of the room, and I also wanna remind those of you who are connected via the webcast that you can submit questions via the chat function. If everybody online is shy, let's keep it going in the room.
Can you hear me?
Yeah.
Joaquin Ley from Itaú. Thank you for the presentation. Two questions here. The first one is, you know, 2023 seems will be, a year with a more benign cost environment, right? Stronger FX in some of your key markets. How should we think about pricing and promotion and revenue management for this year and the potential trade-off between increasing volumes and gross margin? Okay, that's the first one.
Thank you, Joaquin. We will continue to be very prudent in terms of pricing. We still see opportunities in terms of recovering guest traffic in the on-premise channels. We, we have been doing this for the last couple of years. We saw some of our competitors being a little bit more aggressive in terms of pricing. I think that we found a sweet spot in which we were able to increase sales well above inflation, well above our competitors, at pretty decent margins. In terms of gross margin, for example, we guided that in 2022, we expected a gross margin pretty similar to 2021, despite all the pressures in costs.
At the same time, with those increases in sales, we are leveraging all the other, or many other P&L lines and even G&A. That's the beauty of the kind of results we are delivering. We will try to keep that going on. In terms of FX, okay, we take the market consensus in terms of our projections for the year. There's a lot of volatility, particularly in this market and in other markets. I think that maybe the scenario is not that tough this year like it was maybe in previous years in terms of FX. Remember that we do not have that much exposure to FX in terms of food and paper costs. It's pretty low. We have a rolling hedge policy in place, we are good in that part.
The big exposure we have is in the translation of the local results to U.S. dollars. We report in U.S. dollars, and that's the point where typically we saw the main impact when the FX goes down or the local currencies go down compared with the U.S. dollar.
If I can just add to that, Joaquin. I think you're right. We're looking at probably a little more benign economic and input costs environment. On the other hand, you know that in terms of the overall margin picture for the company, this year we do have a margin headwind during the first half of the year related to the increase in the royalty. Also, as the on-premise business continues to recover, it's a little more, bit more labor-intensive, right? There are a couple of things in there that help to offset some of the tailwinds that we definitely see. I think that the main tailwind is, you know, the brand positioning, what Marcelo said, remaining affordable. You know, Sebastián talked about how available we are to the customer.
That convenience, right, that availability, the omnichannel approach, all the different ways you can enjoy McDonald's, you know, that's what's leading to the sales numbers, the market share numbers, the return numbers that we just presented.
Good. Thank you. The second one, I mean, it's not related to business, actually related to the stock. You know, you have all-time high sales. You have all-time high margins. I mean, the stock's done very well over the past 12 months, and yet you remain one of the cheapest restaurant stocks globally, right? You know, I have the opinion there are some factors explaining that, maybe a New York listing being one of them. Would you consider ever a full Brazilian listing?
No. Yeah, look, the first part of the question is I think the ZIP code is not a good one, Latin America, because of what Marcelo was saying about the volatility of the currencies and, you know, the political things that not everybody understands. We talked earlier. If you talk to most people, they say, "Well, Mexico is sort of a complication with AMLO," but I think you and I both agree, it's a good country, and we're doing extremely well in Mexico. There's a disconnect between what is happening on the ground and what people think. I think that has a big impact. We can't frankly list in, we have a two-tiered. Can you hear me?
Yeah.
We have a two-tiered, share listing, right? A's and B's, and that's not allowed here in Brazil. You could trade outside Novo Mercado.
We could.
Yeah.
We could trade outside Novo Mercado, but as Woods was saying, that we don't believe that that's the issue. Ultimately, the stock price is. What's driving the stock price today is multiple, and that's something that's out of our control, right?
Yeah. Okay.
Thank you. Good morning, everyone. Thanks for having us here. I'll continue with Woods. Thank you very much for being here, Woods.
Could you just let us know that you're Thiago from Goldman Sachs?
I'm Thiago from Goldman. Sorry, guys. Woods, how has the relationship with McDonald's Corporation evolved with time? Obviously with the extent that you could comment directionally, where are you seeing the discussions around the MFA renewal eventually evolving? Would love to hear any thoughts on this. Maybe the second question, I don't know if to Marcelo, just to elaborate a little bit more on the budget. Obviously there are more openings and more refurbishments, but there is a step-up material increase in your CapEx, right? Just like to hear if there is anything beyond store openings indeed in this number, and what is the structural level that you see CapEx evolving in the medium term for Arcos. Thank you very much, guys.
Well, the relationship with McDonald's Corporation, the owner of the brand, is one where they expect, and they want for the franchisee, the developmental franchisee in our case, to take care of the brand and to make a lot of sales. If you look at the brand metrics, the brand is being really well taken care of. It's probably one of the highest in the world as far as operational efficiency and friendship. You know, I mean friendliness. The Cultura de Servicio . The CSS scores are very high. Our operational metrics that you saw, Luis showed you, are how they've increased so much. That's off a very high level, okay? We're a very good operator. We take good care of the brand.
I would say to you that the relationship with McDonald's is at one of its best points ever today. As far as the future, you know, if you're the franchisor, you wanna keep a good franchisee, and we'd like to stay with a great company. Yeah. That's as far as I can take it. Yeah.
Okay. In terms of CapEx, yes, we are signaling that in 2023. In 2023, to achieve all the investments that we preserve plan is around $350 million compared with $220 million or more or less in 2022. The biggest increase is in modernizations, EOTF modernizations, that jump from $110 million, $114 million to at least $250 million. Remember that typically we invest something between $400,000-$500,000 per modernization, so you can make the math there. The additional openings, going from 66- 75, 80 is another source of increase. We continue to invest heavily as we mentioned, as we saw, all we saw in the 3Ds part of the presentation, in the digital capabilities and in the technology infrastructure.
I would say that those are the main explanations. Going forward, there's a lot of opportunities still in place. Something that maybe it's important to mention is that we are planning to fund all this aggressive CapEx plan with cash available at the end of this year and/or cash generated from operations during the year. We will not need any additional money coming from anywhere, but the cash in banks we already have or the cash generated by our operations. The momentum of the business is allowing us to accelerate, and the potential is still huge. That's the combinations of those factor will explain the CapEx going forward.
Julia?
Yeah. Julia Rizzo. Oh, sorry. Julia Rizzo, Morgan Stanley. I have a question that will be more your vision or big trends in term of menu. I think one of the questions that on the ESG perspective and other investors is on the concern about the menu and it's healthy trends around the world. I would love to hear your thoughts and if it have any initiatives, more in the short term within the menu for the company.
Yeah. I mean, I'll answer with what McDonald's has answered for many decades is that we serve very good food, we serve what the public wants. We evolve the menu. The menu, if you look at what we've done with additives, with color and artificial coloring, et cetera. Thank you. The content of sugar, it's all come down. You know, the thing about food is that you have the carriers of flavor are the fat in the food and/or sugar. If you take those away, you don't have any flavor. It's sort of a, there's a problem there. We've done very well with, for instance, the launch of chicken. Chicken is a more, you know, quote unquote, "healthy," healthy food.
We're doing very well, brilliantly, and we're very happy with that. We're always looking at doing things with new products and with animal welfare, those kinds of things.
What kind of the chicken trends? Where do you see the chicken trend helping.
Well-
Chicken as a platform in general, chicken as a protein in general is growing. In fact, McDonald's as a whole sells more chicken than beef in the world. In many countries we operate, it's the same. Not in Brazil, not in Argentina, but in other markets. What we saw in recent years is chicken gaining share. After we launched the McCrispy platform in most of our markets, that represented a boost. When Santiago presented the brand attributes, we measure, McDonald's measure around the world, one of those attributes is about chicken, quality of chicken. That's one of the three top most improved attributes we are measuring. We are receiving good feedback coming from the customers, not only in terms of the brand attribute about chicken, but chicken sales, who are gaining share in our basket of sales.
I think that we will continue to develop chicken, coffee. Those are platforms where we see huge opportunities to establish ourselves as the leaders in the market for chicken sandwiches. We already are the leaders. The company that sells more chicken sandwiches in the region is McDonald's, and we want to reinforce that position going forward.
If you let me add?
Yep.
I don't know if the mic.
Yes.
We have a strategic team, menu team for Latin America, and every market has one too. We have communications with McDonald's Corporation to understand exactly what is the vision, what is the new trends. We're working with them as a team, and we have a strategic plan for that. All right?
Yes.
Hello. Amigos. It's conmigo, what? No, just to complement the question on menu. Yes, we're looking at trends, and we are doing all this work on chicken and coffee and other categories, but we are also supporting our core products because those are the ones we know customers love. Every time we support them with different programs, we get a very good return. We want to convey the quality of those products, and we want to make sure customers remember why they are so special. At the end of the day, they represent the vast majority of our sales and our profit.
I think we might have time for one more question.
Thanks. My question was, I think on one of the first slides, there was some mention to franchisee support there that you guys didn't elaborate at all on. Wanted to get your thoughts on how those effective royalty payments should look like into the next two years. Is that franchisee support kind of related to the higher store opening pace versus that initial guidance that we got two years ago? How should we think about this going forward? Thank you.
Yeah. No, I think the franchisee support comment was probably not related to royalties or anything like that. It probably had more to do with how we support them in the ongoing business. As far as the royalty itself, we have a growth support agreement, growth support incentive agreement with McDonald's that touches 2023 and 2024. Based on the thresholds that we have to achieve and the growth support that would be received as a result of achieving those thresholds, we expect the effective royalty rate to remain around 6%. You know, as the sales grow, the weight, if you will, of the growth support kinda comes down a little bit, so you could see something slightly above the 6%. You know, it's probably a good problem to have.
I think, Antonio, we'll squeeze you in.
Perfect. Thanks. Antonio Hernández from Barclays. One question. I know that the trend is going towards less contact and from your side, and also going here in São Paulo to different restaurants where actually you cannot order from the counter, but only the kiosk, right? In the end, Latin America, of course, is also like a people culture, right? How far away are you going to go towards that trend? Like, is there a limit and maybe up to XYZ point where maybe we won't see any employee? For example, we are just going to see like the order there and just pick it up. What's the limit there and? That's it. Thanks.
Very good question. Thank you, Antonio. If you go to any of our restaurants here in São Paulo or across the region, you will see that you are not seeing less people in the lobby area and in the service area than the ones you saw in the past, before EOTF. In fact, some of the people that we used to have at the cashiers, and having less traffic to the cashiers and more traffic to the kiosk, we put those people at the lobby area, helping the customers to interact with the kiosk, helping the customer with bringing the food to the table. The personal relationship and this culture of service, Cultura Servicio, that, as a company, we've been working on since 2016, will continue to be a priority for us.
We are still perceived in Latin America for many customers as an aspirational brand, as an aspirational experience, and a huge part of the experience is influenced by the people that is running the business. That's why we put that much attention in terms of recruiting the right profiles. In terms of training, we invest millions of dollars a year in order to train our people and to understand which is the best way to deal with this phygital world, where the physical part and the digital part interact. We are a brand that, I think, going forward, will always have some phygital things, because I do not foresee a significant and material part of our sales going with no interaction with our people.
Even that people that it is going through the drive-through, with Mobile Order and Pay, at the end, in the last window, they pick up a bag of food from a person, a people smiling with the Cultura de Servicio that we wanna offer to the customer. Unfortunately, in Latin America, we are aspirational as a brand for kids to work for. We can attract really the best talents and make those talents grow within the company, and maybe in the future. We are probably attracting today the CEO of this company in 30 years. That's still happening. We are working towards that.
I would say that we are using the digital experience to connect, to make that connection closer, you know.
Use the microphone.
We think it otherwise.
Use the microphone.
Yeah, I think it doesn't work.
Can I just add something? I think the danger that you have with this phygital thing is with delivery, 'cause that's a person who doesn't work for you, right? That's a third party, and that you have no control over that relationship. Maybe at some point we'll have to train them as far as, you know. 'Cause people don't come to McDonald's only for the food. They come here for the experience and for the whole McDonald's experience. Yeah.
All right. Let's see if my microphone's working. Yeah.
Yeah.
All right. That's the end of the Q&A session. Thank you all very much. Thank you for your questions. Before we wrap up today, I know Woods has a couple of final comments that he'd like to share with us.
Can you hear me? Yeah. I'll be very quick because I'm between you and a delicious lunch. No, we're very proud, as you can see, of our company and of what we've accomplished. The numbers are there to show what we've accomplished from a point of view of efficiencies, from a point of view of customer satisfaction, brand strength, et cetera, sales. We are a culture of meritocracy. It's not just the merit of the people, it's also the merit of data. As you saw, we're totally data-driven. We look at numbers all the time, and decisions are taken in that aspect. It's, you know, it's 20 different countries and territories, so it gets complicated. We have a stronger brand than ever. The 3Ds, you saw the numbers.
They went from 19%- 41% of digital sales from 2019 to 2020. That's extraordinary. That really is something I think has surprised us all. I'll remind you all that 2019 was a record year for us in all those aspects. We have, as was said, we have huge market potential. You saw 2.6 was a purchasing parity adjusted sales, or yeah, sales. We have 2.6x the ability to grow. Obviously, this market of ours depends on all the vagaries of politics and currencies, et cetera. We've done well so far, and we will continue to well. Every year we do better. That's what's great.
You know, I just wanna, I just wanna thank, for my part, Marcel and the team for the great job you guys are doing and how we've gotten to where we are today. To continue the operational focus. I think one of the differences that we have with other people in QSR is that we are very operationally focused. We look at it from the restaurant, from that customer up, as opposed from the finances and that down. Thank you for being here with us. Really big pleasure, and hope to see you now at the lunch then. Wonderful. Thank you.