McDonald's Corporation (MCD)

Investor Update

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May 16, 2014

Okay. Well, as we get settled, I'm going to have a few opening remarks. First of all, good morning. We really appreciate everyone joining us for our session on Europe and Asia Pacific, Middle East and Africa, or as all of you know, we call APMEA. So we appreciate your interest in this meeting and at McDonald's and for taking the time coming here if you're in person or we do have folks listening in on the webcast. So thank you very much for that. So first, let me introduce myself. For those of you that I don't know, I'm Kathy Martin. I'm Vice President of Investor Relations here at McDonald's. And in the room with me are the Investor Relations team and maybe you guys can just give a wave. I'm sure you know many of these folks, Chris Stentz, Liz Kluge, Jennifer Heizer, Kim Yaman, Mary Kate Boyce and Debbie Schroeder, who we met earlier this morning. So today, we're pleased to have the Presidents of both Europe and APMEA with us to discuss our business in these areas of the world. First up, we have Doug Gore, who is President of McDonald's Europe. Doug is responsible for overseeing the growth and development of our business in 38 markets and over 7,600 restaurants in the region. And under Doug's leadership, the European markets have made some really great progress on the modernization efforts and reimaging efforts with 100% of the interiors completed and 85% of our exteriors completed through Q1. And they are complementing this investment that we've made through the execution of some targeted growth platforms in the areas of menu, beverages, value and breakfast and we'll have an opportunity to chat more about that today. Dave Hoffman is President of our McDonald's APMEA Group and obviously he's with us today as well. In his role, Dave is responsible for overseeing 38 markets and with more than 10,000 restaurants in the region. Under Dave's leadership, the APMEA markets are focused on capturing those sizable opportunities that exist to expand our footprint, while at the same time pursuing opportunities to enhance convenience to our customers through things like brand extensions of McCafe, desserts and delivery. You have copies of Doug and Dave's biographies at your chairs along with an overview of some key facts that will highlight Europe and APMEA's contribution to McDonald's overall. They're also available on our web page for those of you who are listening in. Now most of our time today is going to be spent dialoguing with Doug and Dave through Q and A. We've got this great opportunity with them. They both live overseas and so by being here in the States, it's an opportunity to see them face to face and to ask questions. So we'll kick off with some brief overview by each of them regarding their segments and the initiatives that they're pursuing. And then after their opening comments, we'll go ahead and move into Q and A. We'll do our standard format. We'll ask you to wait for a microphone, introduce yourself and the firm that you're with, so that the folks on the webcast can hear the question and hear you clearly and then we'll go from there. And then lastly, just a couple of housekeeping items. Please put your cell phones on mute or silent. We'd appreciate that. The meeting is we're expecting to conclude promptly around that noon timeframe. And anyone here at the meeting, we actually will be providing, I think you may have already received a gift card for lunch since we will not be serving food here. So on your way back to your homes, you'll be able to have that for use at the airport and whatnot. So enjoy lunch on us as you leave the meeting today. And finally, anyone who needs transportation, we've got transportation options on the back of the biographies. So if you turn that over, you'll take a look at that and see on the back. And if you need any help, any one of us are here to help you. So with that, I am going to start by introducing Doug Gore. Okay. You want me to come up here or you want me to we didn't rehearse this. So I can come up here and then I can hold the comments about that. So good morning. I've met a number of you, but probably there are a few I haven't met in the room. So welcome to Hamburger University. And for those that go so far as I see on the street, I see Keith and I ran into Keith in Geneva about a month ago walking to the grocery store as he was leaving work in Geneva. So we never know where we might match up. But again, thanks, Kathy. And I'd like to just make a couple opening comments about the European business and share with you a little bit about the business context. As Kathy said, we serve 38 markets, 7,600 restaurants today, about 15,000,000 customers today. As you all know, the economic situation in the eurozone continues to impact businesses and business performance across Europe. Consumers are certainly more cautious in how they spend their money due to a number of things, including public deficit concerns, rising personal and social taxes, high levels of unemployment and particularly in the area of young adults who have been impacted the most in Europe. While there are some signs of improvement, GDP forecasts are still pretty soft. They are projected to be positive overall. But again, consumer confidence remains very low. And we don't see a real rapid recovery, and I think all the economists share that point of view. However, year to date overall in our business, we've been positive in terms of sales, led by U. K. And France. However, certainly, we've got a number of challenges across the market, probably starting in Russia with the devaluation of the ruble and certainly economic uncertainty in that market. We've got continued negative momentum in Germany and stabilizing our German performance is one of our top priorities as you've heard Pete and Don talk about in previous meetings and we're working to increase our relevance with our German consumers. We've rebuilt our plans there. We've aligned franchisee leadership and made some significant management changes over the past year. So it's going to take some time as we continue to work through those issues going forward, but I'm really confident that we're on the right track right now. So despite some of the near term challenges, I have to reinforce again as I saw many of you in November, we've got great potential in McDonald's Europe to continue to grow as we execute those initiatives within our plan to win. We continue to invest in our restaurants, invest in technology and in our menu to drive the business over the near and the long term. We're a leading player in the region as you know and we enjoy a tremendous size and scale by being larger than the next 9 competitors combined. And strategic opportunities exist to expand even further. 738,000,000 inhabitants in our 7,600 restaurant territory. That's about half the number of restaurants and more than double the number of people if you compare it to our U. S. Business. Turning to our existing estate. We've made tremendous progress in reimaging as Kathy had indicated to you and we're complementing those investments right now as we go through meaningful investment in our kitchen platforms and our service platform to engage our customers and modernize their experience in our restaurants. This includes deploying Made For You, which allows us to offer more choice and variety in our menu, while managing complexity in the kitchens, also to differentiate how we serve customers. We now have over 1900 self order kiosks in our restaurants. And last year, we launched mobile and web ordering in France. And just this month, we are launching mobile ordering in Austria. And as part of the global digital vision, we are enhancing our digital capabilities to better understand our customers, which will enable us to communicate with them on a more individualized basis with local targeted offers and loyalty programs. A great example would be in our Sweden business with our coffee loyalty app. With our menu, we're balancing our strong track record of successful innovation plus our large wraps platform that has performed well with a continuing focus on our iconic core favorites to offer compelling choice to our customers. At a difficult time in the economy for many of our customers, we're also reinforcing value credentials and evolving value in a number of markets and introducing some new concepts. This past year as we introduced Katz Crude in France, which was aimed at the lunchtime market and to provide a value offering to meet the need of even the French consumer that is having that challenge with a meal for less than €5 Beverages remain a significant opportunity in Europe and our vision is to become a destination for beverages as well as a destination for food. Starting with coffee, we've grown the coffee business significantly. Just looking at U. K, France, Germany, Italy and Spain, we've grown coffee units by an average of 8% a year since 2008. Across Europe, we've gained 1% market share over the last 4 years in coffee servings, while the overall IEO has decreased, and yet we still have tremendous opportunity. We're looking to grow that even more as we focus on great tasting coffee, high quality and price that leverages the McCafe brand. In addition, we're building on the success that we saw last summer with our iced fruit smoothies and frappes in UK and Ireland. We expect to have them deployed in over 4,500 restaurants by the end of the summer. Building upon the great foundation we have in our coffee, we're placing strong emphasis on the development of breakfast to pursue the significant opportunity that exists there. Today, just over 50% of our restaurants are open for breakfast and breakfast sales represent a bit less than 5% of total sales compared to the U. S. At 25%. Drive Thru is another opportunity as it offers unmatched convenience to our customers and approximately 60% of our 300 restaurants we opened in 2013 were with drive thrus and nearly 70% of the openings in 2014 will have a drive thru. And finally, if I look across Europe and around the globe, we're certainly looking to optimize restaurant ownership structure in an effort to drive value for our shareholders and system over the long term. Pete mentioned that on the Q1 call and work streams in Europe and around the world are underway to evaluate opportunities to accelerate refranchising efforts in our markets. Pete will provide an update on that over the next couple of months. So with that as a backdrop, I offer you our efforts in Europe irrespective of what's happening with the economic situation. We believe we have great potential to continue to grow and we're moving full steam ahead. The competitive advantages that we have in our system and particularly in Europe, our ability to build on and learn from our past experiences and our desire to focus more closely on the customer gives me great confidence and gives all of us great confidence in our future in Europe. So with that, I'm going to turn it over to Dave to give you a few opening comments as well. Thanks. Good morning, everybody. Just as Doug said, we're very appreciative that you could take the time to be with us today. What I can tell you is with 100% certainty is, we've got better weather in Singapore. So I don't know at some point if you guys want to come over there, but we'd be happy to host you over there as well. I just wanted to give you a perspective on the 1st third of the year, and I think this might give you a little bit of fodder for Q and A. Overall, I'm optimistic on how we perform year to date. What I can tell you is that the external environment has gotten any better or our challenges in 2013 have gotten any better. But what I can tell you is we are in a better position today to compete and win in the marketplace than we were a year ago. Against our plan to win, demand was broadly driven by 3 areas. The first was our protein strategy or menu strategy, as you guys know it, of chicken and beef leadership. Chicken, primarily spicy chicken and under beef, core favorites such as Big Macs and limited time offers. The second area of Breakfast Day Park continues to be a star for us, just as it's been with Doug. And we just recently completed our 2nd National Breakfast Day in March with a lot of success there. And then finally, the third thing is strengthening our brand extensions and our penetration strategy with drive thrus delivery, McCafe and Cold Reserve Kia. So that represents 40 percent of our system sales in Appia, and it's a big marker and a big strategy for us. At the market level for Q1, Australia is seeing signs of green shoots, but still a very challenging environment for us, highly competitive on price pointing, specifically at the lunch daypart. But we are encouraged by some of the green shoots that we're seeing there with performance. And China continues to carry the momentum that we had in Chinese New Year all the way through March April and into May here as well, driven largely by menu variety, value. We do a great job with our dessert kiosks and some of the things we pull there and then also the recent brand launch campaign as well. Stepping back and looking at opportunities across the zone. As you know, Japan continues to weigh on the overall performance for us. Sarah has done some really good things around resetting the 100 yen menu, especially after the VAT that just went in there, and she's creating some excitement with some of the seasonal offerings. But at this point, it's going to take time for the consumers to notice the change and give us credit for all that. So you can expect for the remainder of the year that it will continue to be a challenge for us. Southeast Asia is showing signs of sluggishness, particularly in our deal markets, and we're pivoting there to engage with our deal partners on the marketing side. And then similar to Europe, reframing or resetting value continues to be the broad challenge across APMEA. So that's on that piece. Just shifting to our strategic focus for the next 5 to 10 years, and I know you've heard me say this before, those of you that were with me in China and Kenneth, our APMEA strategies are going to largely be framed over the next 5 to 10 years by these, what I believe are these 3 megatrends. First, we've talked about wealth creation in China. Wealth creation over the next 10 years in China based on population and GDP effect is somewhere north of $9,000,000,000,000 And China is the biggest prize on the world stage. However, it's not the only one. The combined wealth creation of India, Southeast Asia and the Middle East during that same period is equivalent to $9,000,000,000,000 as well. And that doesn't even include Africa and the opportunities that we have there. So we talked about internally, we often talk about the growth opportunities in APMEA as that of 2 Chinas and building the infrastructure to seize that opportunity. So that's number 1. Number 2, 70% of the world's population lives in the apnea zone. It's the most diverse cultures, and it's in complex urban environments. So localization and penetration are going to be key to winning, while balancing those against our McDonald's core assets, menu, supply chain, real estate, scale, etcetera. And finally, you could sum up most of the consumers as young and digitally savvy. So most of these markets, as you know, leapfrog traditional infrastructures. So relevance is the green fees and brand differentiation is what we aspire to and what we're investing and resourcing behind. So I'm convinced that we have the absolute best physical assets of any brand in APMEA and we need to invest in the best digital assets of tomorrow. Okay. Just shifting to our plan to win in APMEA near end. You could simply sum up our plan to win as extending the brand. And Kathy said that upfront, extending the brand across these five dimensions, the one we always talk about is through growth. Over half of the global new restaurant openings are going to be in APMEA. Vietnam, as you know, is our 38th market and restaurant number 10,000. China just lapped restaurant number 2,000 couple of weeks ago in Tien Tsin. And as you've heard me say before, the new innovation in this area is go to market. And we refer to our go to market strategy as our accelerant and our enabler for further growth. Cost reduction, cost avoidance is a piece of that. That's an obvious one. Franchising is another piece of that, leveraging a larger capital envelope for us and diversifying our revenue stream. And then finally, the 3rd piece of that is our ring strategy, which you can remember, we've shown you videos before on transporters and split kitchens. But the ring strategy is about taking a city of these complex urban environments and matching your portfolio to the areas you operate in. The CBD restaurants, Central Business District restaurants are going to be different than the urban ring and going to be different than the suburban ring, and they produce different returns as well. And so those three pieces are what make up our go to market strategy. We're seeing signs of new restaurant margins improving through this effort, and we continue to stay vigilant on this as well. 2nd piece, through brand extensions. Again, a bit of a broken record here as I talk about these. 40% of our openings this year are going to be drive thrus, 50% of our openings next year will be drive thrus. Delivery is approaching a $1,000,000,000 business in APMEA and has significant growth potential over the 5 years. And the cafe and dessert kiosks represent 4,500 units for us today and growing. So that's the 2nd piece. 3rd, through daypart expansion, just like Doug, the focus here is on breakfast. And it represents 13.5% of our sales today, and we knock off about 1% each year. So we add about 1% of system sales to that each year and we're racing to get to 20% of system sales for breakfast and with a major focus. And again, National Breakfast Day is an important tactic for us in there, but it's really about trial of our core menu products. And that's where we give away to our customers 1,000 Egg McMuffins per restaurant across the zone on that given day. Finally, the 4th item is through menu. Again, it's about core favorites and value, but as I said, offering local relevance. And when we refer to local relevance, there's a lot under here. There's probably a lot that you don't get exposed to around our menu and what we do out of our Hong Kong food studio. But broadly, it would be owning the flavor of spicy and how we translate that across the zone and across apnea in a big way. And then finally, the 5th element under this is and we're very proud of it is through our heritage. 1st and foremost is families, it's part of our DNA. We've been taking care of families since 1955. But the other piece is through our Good Neighbor strategy. And through the Good Neighbor strategy is Ronald McDonald House Charities. So for us, often that's inoculations, it's dental surgery. We will open our first houses in China, Korea and Indonesia this year. And today, it says we've got 33 RMHC houses, 15 family rooms, 6 caremobiles and 7 family retreats. So those are the 5 areas that make up our plan to win and how we're thinking about extending the brand across APMEA. And hopefully that gives you some fodder for Q and A. So with that, I'm going to turn it over to Kathy and we can jump into this. Thank you. Okay. So we've got both Liz and Chris who will send the microphone on down. And so I think David, I think I saw your hand first and then we'll move from there. Thanks. Question for Doug. Germany has obviously been a turnaround market in the making for a while now. I think people are just curious about what it's taking a while with that to get back on its firm footing and perhaps you can just dig into that a little bit for us? Thanks. You can imagine. I knew that question might come up. It's been an ongoing challenge for us. And I think it was a lesson for all of us in the business is when you lose that link with the consumer, it takes a while to get it back. And we became very dependent on price and promotion. And there was a I'll call it a strategic change made, but probably in retrospect, a strategic miss and where we went off of the €1 cheeseburger price and tried to reset a bit. And so with that and without having the emotional tie where we became very rational and transactional with customer in Germany, that was an instant point in change about 18 months ago as that happened. So in this whole process of resetting and regaining that emotional bond with the German consumer. We've had to make a number of changes. We went back and revisited our planning processes, develop much stronger insight into the consumer, reset our marketing messaging and that's a work in progress right now. We had to go through a reconstruction of value and we talk about refresh of value. And so as we made that change and we saw the consumer flight, it was a combination of things because the audience and the competitive side had changed. And so 44,000 bakeries, growing market share significantly with great value and great convenience. And all of a sudden, we gave our consumers a chance to revisit their habits. And so as we rebuild that value messaging, we rebuild that emotional bond. We're having to go through a number of structural changes with value, and it is a work in progress. We made significant change last summer. We're going to be tweaking that this summer and continue to evolve menu structure. The overall key there is reengaging with the consumer on an emotional basis and it does take some time. Some of the ancillary things that happen along the way, we've made numerous changes with management. And as we restructured the whole European organization the 1st of the year to get more resource in energy. In fact, as we set up the new Northwest division with some great experience in the old North division Group and with Jill and her team working with the new management team in Germany. We believe that's going to pay some benefits over time. Holger and his team in Germany with the regroup also has a new franchise leadership group. I can tell you they're aligned and energetic and they're working through the process as well. And the 3rd piece is we're going through agency review right now. And so our agency is on notice. We need to bring some new creative thinking into the German marketplace. So all of that added together, trying to bring more balance and be less dependent on price, but value is a piece of it at all levels across the menu and that emotional bond through building trust, through quality and variety and bringing back energy to core. So it is a work in progress. I think we've made a lot of change. I can't say that we're out of the woods yet, but I look at the back half of the calendar and we continue to readdress those opportunities. Thank you. Thank you. I have I'll stay with Germany and then we'll talk a little bit broader about Europe if we may. So I mean it seems like increased value, change in marketing, presumably, I don't think you mentioned it, but better operations is, by definition, it's a pretty long investment cycle that you're going to go through. So I mean, can you just kind of set the expectations of when, in your mind, German profit can begin to stabilize on a year on year basis? And then you kind of broadly, if I may, so we kind of need to talk about some other initiatives in Europe made for you, how far along we are, if that's something that does specifically help Germany, but talk about that for Europe. And then I'll have a follow-up on breakfast after that. Okay. In terms of investment cycle in Germany, restaurants there have been through, I mean, the interiors are virtually re imaged and are in good shape. We've got 800 and some odd McCaffes that represent the brand very well. In terms of that next iteration of investment, they're again very consistent with what we're looking at across Europe as that next opportunity. The kitchen, the platform integration, particularly the kitchen side was made for you, unlocks the ability and enables us to bring better variety and execution and efficiency. That's a piece of it and we'll go through that stream. The consumer facing piece on a service side is where I think we have some great potential. And as we enhance that service platform with multi point service that we bring technology to life and part of that will become that re engagement with consumers. Germany was one of the leading examples that you can engage with the consumer through technology as they introduced Mindburger and we allowed consumers to participate. It ran its course, but it also shows us consumers do want to participate if we give them relevant ways. In terms of profitability, there's no substitute for guest count and sales growth. And so when you're bleeding guest counts, the first step for us is we've got to stabilize guest counts. We stabilize guest counts, profitability will come hand in hand. So there again, that's job number 1 right now. We stabilize guest counts. We get sales going back the right direction. Obviously, as we made the change, albeit a difficult change with the pricing in the EDAP menu and the Aynmalines, margins improved relative, but you don't grow margins when you're bleeding guest counts in sales. So we've got to get the guest counts back in the right direction. Investment wise overall, there's not a I'm not concerned the pace with which we go is up to the pace with which the operators can take it off. Could you give us an update of how far along or how developed mate for You is across Europe and what the kind of benchmarks are that where that's system wide or country wide, whatever you're thinking about it? Made for You is a piece of that platform integration journey. We've got great chassis, I'll call it great chassis in Europe. I mean, we've got some great looking dining rooms. We've increased capacity in our restaurants on the customer side. Our kitchens in some cases are stressed. The pace with which we go depends on the marketplace and the capability of our franchisees to work through that. Right now, we've got just under 5 100 restaurants on Make for You across Europe. We'll have about 1200 by year end. And each market is going at a pace that fits them. So you look at the combined activities, it's not about just the kitchen alone. It's about the service enhancements that comes with service integration. And each market is building its investment roadmap with their operators to meet those hurdles. So I expect it to happen over a 3 to 5 year period. Every market is going to be different. We have we'll have some other markets that are yet to get the foundational items in place such as we've got roughly 4,500 restaurants with Newpa's 6 out of the 7,600 restaurants. Having the basic POS platform in place is a precursor to doing anything when it comes to the digital technology and bringing service and kitchen enhancements to life. But everybody's working an investment roadmap and we're going to take that to where the operators can handle it in their investment roadmap and we can handle it from an income standpoint. This is what I promised the last one. I don't know if I'll hand it over. I thought we were on new pause already globally. If there's can you just walk through that Globally we are. I mean that's a platform that was put in place a number of years ago. There was a commitment to get there. And the journey in Europe has been a bit slower. We have a number of markets that have gotten there earlier than others. So you take markets like U. K. And Germany are there. Poland is there. Russia is there. France, a little different model. They're working their way through, but they had an existing technology platform that allows us to do a lot of things without NewPaw 6 that others could not do. Austria is another one I mentioned that they're going on mobile ordering this month. They're 100% NewPaw 6. So by the end of 2014, we'll have the big majority of our restaurants ready to take on all those technology features that become consumer facing when it comes to kiosks, mobile and web ordering and having the capacity then to make the necessary changes in the kitchen. That was not to beat that horse, but more questions on Germany. Just about the new franchise leadership there, can you just talk more about the new strategy objectives or what's the new plan in place that the new leadership team is going to bring? And also you mentioned the German IEO market is in decline, but just help reconcile that because some of your large competitors such as Germany are seeing a lot of such as Burger King, excuse me, are seeing a lot of success in that market? Twofold. In terms of management changes that were made, I think it's bringing new energy in the market. And so in fact, we'll have a new Chief Marketing Officer join us this summer. We have a new CFO. We have new Managing Director. And I don't underestimate a change in the franchise leadership group as well. So we've got engaged operators committed to joining the cause to turn around the business. So part of it is creating the alignment and getting the energy amongst the team. I also mentioned that we had a long term relationship, very long term relationship with our agency there and that's up for review as well. So we're going to create a little new energy there whether they stay with us or we have a new agency later this year. But again, I will tell you in the last 6 months, just to put the agency on notice, did create a little energy in and of itself. And I think the other piece is you're always looking for ways to bring best practice from other markets and part of the restructure and the design of the restructure. Our best example in Europe today in terms of a holistic plan is the way the UK business has been running the past 5 to 7 years. And as we brought that restructure to bear, I believe that while every market runs in its autonomous way, I think the learnings from the UK as we share that and we've created a better avenue to create that sharing with the UK people that are closer now to engaging with the German folks. And Jill having now responsibility for the Nordic markets as well as UK and Germany, I think will help that synergy as well. And you gave a murky outlook at the Analyst Day 6 months ago. I mean, as you look back on the past 6 months, has the German sales performance kind of been in line with expectations, a little bit below? I mean, how would you characterize it? It's been inconsistent. I would say it's been inconsistent. There's been months where you feel like we're making progress and there's other months you say, what happened to us? And I think it goes back to the lack of consistency in the marketing plan. And so from a momentum standpoint, I would say the momentum has not changed significantly. That was a month ago, I'd tell you, I thought it was starting to change, but I can't speculate forward. But I think the plans that I see and the changes that are being made throughout the calendar year is what I have to look at as the long term reset of the communication with the consumer. Now Dave is going to get bored up here if I get all the for Doug. This is RJ Hodavy from Morningstar. And I think I will take that opportunity to take the next year. Two questions for you. 1, at the November Analyst Day, you talked about a 2015 goal of having part of that is, for the as a part of that is for the franchises that the more conventional franchisees that you've had in the market already, what kind of returns are you seeing? Are you seeing franchisees happy with the returns? Just any update on that. And then the second question I had is just some of the same questions we had about Germany, but apply to Japan. I mean, we've been hearing a lot of the same turnaround initiatives for a few years now. What gives you confidence that now you've got the right recipe to turn around the business in that market? Regarding China, so the state of gold, it's the only state of gold that we've had related to franchising in APMEA. Today, we sit at 71% franchised across all of APMEA. 20% to 25% franchise was our Citi goal by 2015, and we're ahead of schedule on that. High probability that we're going to hit that by the end of this year. There's no rush to do that in my part. Again, as you know, it's about finding the right candidates, conventional licensees and DLs at the same time. So but again, ahead of schedule on that. And we're aggressively franchising across the zone in our wholly owned as well, Korea and Malaysia. Taiwan a bit on hold, because it was beaten down. The assets were a bit beaten down last year. So we need to improve the store makeup there. However, when we look at franchising, it's not just about selling the assets, but we broadly believe that it's the accelerant we need for exploring opportunities around growth in those marketplaces. So that's the biggest thing. In terms of the health of the operators, on the conventional licensee side, they only own maybe 1.5 restaurants. So right now everything is fine. The DLs, a little bit more pressure on them. It's the same challenges that we face in terms of getting bigger and better at the same time. So we're starting to see margin pressures in that area and actively involved with looking at the appropriate royalty in the contracts and stepping up those royalties to make sure that we don't hurt them in the effort of not only buying the market, but then allowing them to accelerate growth in those markets. So right now, not a concern, but we stay on top of this constantly so that we can accelerate growth in these outer provinces like Hunan, Yunnan, etcetera. In terms of Japan and the thing I would say there is, like you said, it's a similar story to Germany. Sarah has been in there since Q4. Sarah Casanova is our new CEO of Japan. And this isn't an overnight fix for us. And I'd say the best way to on how we're approaching this is kind of a 2 pronged approach. As Sarah and I and the team are looking at it, first, the IDO is very transactional and very functional in nature. We have to take with the 50,000 plus convenience stores there, you have to neutralize accessibility there. We're going to do that through what we believe is our best assets around value, breakfast, drive thrus are the big three. And then the pipeline that we're working on is on delivery. We've got 150 hubs today in Japan going to 250 hubs. So that's the first one is just neutralizing on accessibility and what the competitive set is there. The third one is exactly what Doug says, we have to win on experiential. And that's the big play that takes time. At the core, this is predominantly menu variety. And Japan is driven by a plethora of menu excitement and new offerings that are constantly in the marketplace. So that's it along with playing up our quality. We actually make food in the restaurants. We assemble food in the restaurants. We're a restaurant versus a convenience stores and other operations. The second thing is restaking the claim back into the family business. We feel it's going to be critically important. And then the other piece that we have to address is reinvesting and upgrading the restaurant portfolio in terms of reimage sites. So we've got a big opportunity in terms of aging asset base in Japan and need to address that in a big way as well. In the near term, I would just say in terms of what's coming up on the calendar going forward, I like what we're seeing in terms of performance with recently rolled up breakfast platters. So again, just playing to what we think are the strategies. We rolled those out recently. The family relaunch just hit recently, and we're seeing good traction there. The World Cup promotion is going to land in about a month's time, which is going to be significant and then wraps in August is another big platform for us going forward along with the seasonal offerings that we're engaged with. So I would say in line with expectations to this point. But again, we're putting rungs in the ladder right now and it's going to be the rest of the year is going to continue to be challenging. Hi there. Jeff Bernstein from Barclays. Just one question, I guess, for each of you. Just Doug, from the Dave gave some color around the franchise opportunity or the refranchising opportunity without divulging too much detail, obviously, because we expect an update in the next couple of months. But who would you say to the markets that you'd say are the biggest opportunity versus the market where you say, we prefer to remain company owned and how high might you take that mix in any market? I mean, it sounds like you guys still want to own some stores to obviously evaluate different things that are going on there. So just wondering which markets and how high potentially could it go? And then for Dave, just wondering, you mentioned China. It sounds like pretty good momentum, I think you said, since the Chinese New Year. We get mixed results here and things on China, obviously, with the noise of avian flu and the supplier issue, if it was even possible to strip that out. Could you just give us a feel for the China trajectory? I mean, are you as happy now as you were a couple of years ago? Or does it seem like slowing GDP and whatnot has changed the trajectory a little bit ex that noise? I can go. On China, so I'm not going to throw the full wet blanket on, but we are coming out of this. But I looked at the 2 year comps and our 2 year comps through Q1 and through April were positive, which I think is encouraging. Driving a lot of value right now. We're not seeing impact from Yum! Brand relaunch, but we stay vigilant on following that to make sure that we understand what's going on in the consumer in the competitive set right there. But we're feeling good about coming out of Chinese New Year and how we're performing at this point. May is encouraging as well. And I was just trying to pull up the calendar here on what we've got coming up. World Cup promotion is going to be another big piece for us. We've got some excitement around some sponsorship coming up this summer as well. And the brand relaunch has actually performed very well in terms of brand scores and early brand scores with our the Chinese the Chinese customer. And it's something we haven't done for 20 years. So it's again, it's kind of the natural migration and moving from functional and transactional to experiential in our marketplace. But early days, I wouldn't over read into my comments, but happy with how we're performing at this point in China. In terms of Europe from a franchising standpoint, Jeff, Pete had given all of you an indication or I'll call it recommitment to franchising. I mean, we're a franchise organization. So clearly, that is our focus, but there is a recommitment and energy to evaluate and make sure that we're making the best franchising strategic decisions over the long term. So without putting you through numbers, that's happening in every area of the world. Obviously, in Europe and APMEA, we have a much greater percentage of company owned restaurants than what they have in the U. S. I can tell you that that work is taking place, but it has to happen in a strategic fashion. We actually happen to have 2 countries in the last 2 months that we've changed ownership to DL in Europe. So we don't make big announcements. But Slovenia is now a developmental licensee that was previously a country with all macapos as was Belarus. There again over the long term, that's just examples of decisions where you can find the right franchisee that can grow the business and build on what we've created. We're looking for those opportunities, but we've got to do it not through a fire sale, we've got to do it through well defined strategies. So we have a number of markets in Central Europe that we continue to evaluate where we operate significant number of company restaurants. In our more established markets, we do have opportunity and we continue to follow a franchising plan designed to be in the best interest of the system over the long term. UK is still significantly company owned as compared to the U. S. And other markets. But there again, building it into the strategy to make sure we put the restaurants in the hands of the best franchisees over the course of time. Poland is another market where we continue to grow and grow significantly. And we have a very well defined plan to accelerate our franchise ownership there. And we believe that's in the best interest of all stakeholders. And some of our other existing markets, it's a matter of continuing to build the right mix. But all of our folks across Europe have franchising and refranchising strategies developed and it takes time to execute in some cases where we got to make sure we get the right candidates over the long term. Keith Signer from UBS. Dave, you've got the benefit of having some of your markets as the most progressive, most penetrated tech and mobile engaged consumer environments on the planet. And I just wondered if you could talk about, are you capitalizing on these? Maybe what are some best in class examples of tech and mobile integration? And then are you sharing any of those best practices with the Western developed markets? Like what can we look at from your markets maybe as some of the smaller best examples of where mobile and tech could go? In one of the best markets, I think, in our system is France. And so we look a lot to France for leadership in this area. But we have the first thing was we resourced heavily in APMEA behind digital and now linking that into Atif, our new Chief Digital Officer. So that's our link to the rest of the globe. He's already been out to our zone already 2 or 3 times now. So we're very actively engaged. I'd say the biggest thing for us that's been a best practice for the globe is the web ordering system for delivery. So there's a whole bunch of features to that, but that's got so much application for the system around mobile ordering. We knew that, that was an area that we can invest in. Delivery is unique to us in Latin America. But that platform has been probably the commercial platform for mobile ordering for the globe. That's 1. The way we step back and kind of think about, at least I do, in terms of digital, an element is going to be around the media mix around marketing and the promotional spin around apps and possibly couponing through that kind of venue. That's one aspect. Really the big prize though in there is CRM and loyalty. Japan is the leader in that area for that and we're using them as a leverage point. Japan is again another one of our global best practices. The platform we're on there though is an open architecture, so it's not a platform that we can scale across the zone. So again, working with leverage leverageable platform across the system is one of them. I'd say that the 3rd area that I strongly believe in is on the commercial side. And again, France is right there in this effort with us. But down in Australia, thinking about the consumer experience of ordering the way you want, paying the way you want and getting the food the way you want. So today we're kind of a 2 order system, sort of a 2 pickup system, cash and credit. But at some point, what we're doing with mobile testing down in Australia as our test market there is expanding those offers. And I think you'll see that intersect with how we're looking at things like Real plus Fresh customizing your burger, so that you don't just have to come into the restaurant and go to the front counter. You can go table side and we can deliver to you through iBeacon technology and things like that, multiple ways to pay. And again, Australia is our test sell for all of that. But those are the probably the big three that are going to be global best in LinkedIn with Atif. The app and media mix and stuff like that, we're doing that at a very local level. We've got some things that are pretty exciting that have had success, but nothing more than what we see out of the Nordics or any of the other markets in that area. This is Mike Taymus from Oppenheimer. You've had some great success in the UK obviously for a while now. So can you talk about what some of the things you've been doing there in terms of sustaining that momentum? And then bringing it back to Germany, it kind of sounds like you're still in early innings. So are there any best practices you're sharing across those geographies? Thank you. Thanks, Mike. A number of things and you also see the results in the UK and that was a market that back in 2,005, 2,006 was probably on that list of severe situations, major priority. And I think over the last 5 to 7 years, we've made huge progress there. And I think the key learning and this is where you look at what's transportable is building a holistic plan that's consumer centric, that it starts with the consumer and then you respond to those wants and needs through a balanced effort. And so as I look at that evolution of what that means in the UK business, it was about providing great value, surprising value, delighting customers across the entire menu. It was about bringing energy to favorites and the core. It was about having exciting promotions that taste that surprise and delight. And then above all, it was about building trust with consumers and the foundation of quality and provenance, where food comes from, how it's processed. And all of those things added together was really the foundation of the resurgence of the UK business. I think along with that, that learning issue continue to build on that foundation. And as they have evolved their business model and their strategies, they continue to pay tremendous attention to every growth driver. So breakfast is now nearly 15% of sales in the UK business in a market that's very competitive. So they've been very effective in growing breakfast over the past 5 years. They've evolved their value proposition. So as they had the need to make changes, very strategic and using RMS and the analytics requirements to make sound decisions as price changes had to be made to manage margin. Brought food innovation, but not wild food innovation, very well tested and measured in the balance of the calendar. They also have done brought some new innovation that they're again strategic that fit the consumer context. And last summer, Smoothies. Smoothies gave us a huge lift last summer in the UK business as we introduced smoothies. So you say, okay, now how does that transfer to Germany? I think it all transfers to Germany. And the challenge is, is you're sitting in a different context today, probably a more competitive market in Germany. The bakeries are everywhere and they're very low priced. The consumer mindset in Germany is much more value focused than the consumer mindset in UK. So the issues aren't necessarily the same. The challenge is to extract learning from a balanced approach to the U. K. And then transition that in as we continue to evolve the German calendar. And I would tell you that if I look at those 4 pillars in U. K, Germany was running on 2 pillars. It was running just on low price and it's running on promotional activity. And so part of the reset in Germany is to try to bring a balance across those strategies. Doug, following up on refranchising, you mentioned the deals for Slovenia and Belarus. And it just dawned on me that there might be a significant chunk of refranchising that would be more of the DL or there would be some at least that would be DL versus traditional franchising out there. Could you help us think about that? I would imagine, for instance, the U. K. Would be traditional refranchising as you've been doing already for a while, but there might be markets like Southern Europe, like Italy and Spain, I'm just throwing it out there that might be more of a DL candidate, but how are you thinking about that? Well, there again, as we I call it recommit because I mean, we're a franchise business. So all of us growing up in the business The franchising is the core of what we do. Obviously, we need company restaurants. You need them for income. You need them for training, developing people. But we have many bullets in the gun when it comes to franchising. And the key is to utilize all of those given the different business situations. So I just have to use 2 examples. We're countries that lend themselves to having 1 master franchisee that's got the capability to grow the business and grow it profitably as a business as well as bring royalties and revenue to McDonald's. In other situations, we use joint venture arrangements market has different opportunity and I know Dave could talk about China using all of those different bullets in the gun to develop the marketplace. So you can't standardize and say, well, DL is the way to go or conventional franchising or ventures, but using all of those strategies to make sure that we have the opportunity to maximize revenue and balance it against risk. And I think when I talk about Central Europe, there are certain markets you say, hey, you can make a lot of money and then next thing the currency devalues and all of a sudden it's not particularly exciting from a margin standpoint. So you go through and you look at the different vehicles that you have to build that franchising model and we'll continue to do that and we'll use them all. So Dave, you're using them all in China. Yes. And as you guys know, as you've been in China and you really get to know it, it's as diverse as Europe. And we have it's the only model in the McDonald's system where we've done the combination of DL and CL. And we love that model. And so I think that's got legs in other markets where we need to go after growth in a bigger way. But the DL partners and the sophistication that we've gotten in that area and their commitment to our brand has been immense. And that in combination with young and hungry, our conventional licensees are probably less than 30, which you've got these young hungry individuals just driving for growth. So we think that's a good model for us in China. And again, ownership over the next several years is going to be key to how we can exploit growth across that. Thanks. Keith Signer from UBS. Doug, in the last 18 months since that €1,000,000 cheeseburger was removed in Germany till now, there's obviously been a developing train of thought that's gotten you to where you are now about how we need to establish a healthier long term approach to value. But just so we can understand that train of thought a little, can you walk us through specifically from when you realized, oh, maybe we shouldn't have taken this offer, which it had more of an impact than you maybe originally thought? What have been the specific value attempts that have been introduced from 18 months until now in Germany? Just so we have some perspective of what's been done already. Thanks. I don't have the chronology in front of me, but Keith, I'll give it my best shot. The €1,000,000 cheeseburger was an outcome rather than a strategy, okay? And the root cause was really the breakdown in the franchisee relationship. And so the company and the franchisees couldn't agree to next steps in evolving that business strategy, which part of that business strategy was value. The outcome was there was a decision to change price. So I would call it an outcome. Where we've gone from there? Obviously, tremendous dialogue in bringing realignment with the franchisees and trying to reset value, okay? But in that process of questing and understanding the consumer mindset, That journey has taken many forms, okay? So you work through a continuum. We understood from the consumer is, hey, you took that best value away from me. And short of bringing it back, what else can you do? And we went through a number of tests. We ended up with an initiative called 1 plus 1, which had 1 euro combination of 1 euro products that formed 2 euro. We've been running that since last summer. We are serving the value minded customer. And I would say we are rewarding the value minded customer. The customer that we didn't get back was the customer that was using the €1 cheeseburger as a vehicle to add on to existing products. So we're not getting the add on anymore. And there was a quick understanding that that was happening. In fact, then we started to introduce and we have been running over the past 6 months or so, a 1 year old burger along with that is outside of that 1 plus 1. And again, I would tell you that nothing has resonated as well as the 1 euro cheeseburger. So we're continuing to understand that. The other thing that we're continuing to evolve in that process, I said we became so dependent on promotion. And so as we reset the complexity that occurred in this continuous flurry of promotional activity is to try to bring more balance with the core. And the franchisees committed to narrowing that value gap with core menu and actually drop prices on Big Mac and 6 piece nugget, so that there was more balance across the menu from the €1.10 to €1.20 cheeseburger, €2.99 Big Mac, a €6.20 or €6.20 value mail and tried to reset. Again, resonated with the consumer, but didn't drive traffic. And so there's been some reset that has taken place, but I do think it was value to build on. It was a value proposition we had to build on. So as we continue forward, it's trying to tweak that complexity in the new offering that we created, which did resonate because our EDF sales were actually up, but we didn't get the add on customer back. And that's the customer that we've got to go bring that balance back into the menu and the team is working through that right now. So we're studying product mix religiously. We're trying to balance our spend across value, variety, favorites and trust, so that we can operate on all four cylinders versus simply focused on price. Matt, for SKU Buckingham. I've got two questions actually. Big picture, Don talks a lot about this is now an opportunity to grow a little bit faster globally than you have in years past. It seems a little interesting though that comps have been inconsistent at least or if not losing share in some markets, yet you're growing faster on a global basis than you were in years when you were doing outsized phenomenal comp growth, which seems a little bit odd that you would choose this time now to grow. I wonder is there a risk that or is there a concern that maybe it's better to halt growth a little bit, look internally and correct things? And on that, a lot of the discussion so far has been for both regions talking about the level of investment going up. I was curious if you could talk about that, how that influences the franchise margins and cash flow margins, which are so vital to that future incremental growth and that eagerness of that young new franchise developer, we're not seeing the same store sales list clearly from the investments. So I would think that is the right to conclude that these investments are also somehow weighing on the upfront margins in the near term on some of the most recent franchise relationships you have? Good question. So on the growth piece, now you're talking to the guy who's heavily biased towards growth, right? But this is the 1st decade of 2,000. As you look back on that, it was built around Jim's mantra of being better not bigger. We had great success during that, no doubt about it. However, if you don't fill the void in these markets, somebody else will. And in a number of our markets in APMEA, we're not the number one IEO player. And other people have come in and they're number 1, and we're trying to reclaim that footing. So, yes, would you prefer a different economic environment to go after this? Yes. But if you don't fill that void, you're being number 2 is not where McDonald's likes to play. You're training generations of consumers not to be brand loyal, not to grow up with McDonald's experience. So and I can go through the markets where we're not number 1 and we're trying to regain that number 1 footy in the IO marketplace. The second thing was around pressure points on the franchisees. Yes. Yes. I guess when you talked about a lot of the investment, whether it's in Europe, the Made for You or in the delivery side, you hear in the U. S. Delivery, one of your smaller competitors Panera, I mean, they're obviously diluting themselves the next 2 years as they go into this whole massive technology investment within the store and delivery outside the store. What are you seeing as far as incrementality? Are you seeing incrementality because we don't see it in the comp growth numbers that On just delivery or just in general? The basket of everything, including delivery would seem to be a large focus of that as far as what it does on overall margins for the franchisee. So the economics, no doubt about it, are stressed today in a lot of these marketplaces. Wage inflation, so my big inputs, as you know, wage inflation, food and paper, occupancy cost and new store drag. Those are the big 4. Our backdoor impact this year is forecasted at 1.5%, which translates into about a 0.5% impact on food and paper for us. So you've got a lot of inputs that are putting pressure on the P and L. That's where we then went after heavily on our go to market strategy. So again, we've taken out around $150,000 on our new store design and development costs as well as getting better returns around this ring strategy. So for us, our and I was just looking at the numbers in advance of this meeting, but our new store returns across all of our markets are and this is the 1st year return in the low double digits. Our 3 year ROIC is in the high teens. So again, to me that's a better barometer of how we're performing. But just like in a lot of markets when trying to penetrate and grow, you have to use the royalty as a lever and you have to stair step that royalty to make sure that you don't just sell restaurants. It's easy to sell restaurants. But if you don't give the operator the financial maneuvering to grow, then you just hurt yourself in terms of franchising in that effort. On delivery, we're seeing organic growth comps of double digits in delivery. So we like what we're seeing out of that. Delivery today is in the neighborhood of to say getting close to 5% of our sales all across APMEA and that's without Japan and Australia being on it, but we've got test sales within those markets. And so we like what we're seeing out of delivery. We think in a lot of these markets where we don't have density of drive thru, that's our answer to drive thru business. It's the consumer is responding to it. It's higher average checks. And we like what we're seeing out of the economics of it. What gets you in a bind with delivery is when you have to rely on call centers. So with our web ordering system, we're trying to leapfrog through that call center. And with mobile ordering across much of our markets, we're finding a better profit model in that space than what we had, I'd say, 5 to 10 years ago when we added the markets like Egypt and Turkey and things like that. Matt, I want to go back to your question on the unit growth for a a second and just expand it a little bit broader than the APME region. And so when you think about it, we've talked a lot about the fact that we are targeting strategic growth. We're 1500 to 1600 new restaurant openings planned for this year on a base of 34,000 restaurants. We've got great tools that have improved over the years where we now have much better information about how to best target those opportunities, not only in emerging markets, but in existing developed markets as well. And that is a different we're at a different stage of that compared to years ago in the early 2000s. And the other thing is that development is a long term process. And so it takes time to make sure that we've got the procedures in place and that we're not starting and stopping that development roadmap with the folks that we're working with outside of McDonald's, whether it's landlords or people selling property, etcetera. And I think the last thing is the point to tag on to date and that is that our new store returns are good. They're healthy returns in many cases, APIA, they grow over time. And so it's a place that we feel good about investing in our business, back into our business. I think from a European standpoint and obviously Dave is the biggest contributor from a new restaurant growth. And we opened a record number of stores for the last 10 years in Europe over 300 restaurants. We'll open well over 300 restaurants again this year. It's kind of a small number compared to what's happening in APMEA. But a couple of things go into it, I think, from a resource standpoint. We are spending significantly more money in new restaurant investment and we're spending less money in existing restaurant reinvestment. So there's been a shift in Europe where we've gotten through this big investment. And so when we talk about the technology investments and some kitchen investments, not on near the magnitude of what some of those major investments have been over the past 5 to 7 years in Europe. Now we still have opportunities. And so as we explore this opportunity to grow, we're going through this next round and we still have some capacity opportunities. So we're blowing out some dining rooms and we're accelerating side by side drive thrus in restaurants that now have the potential to give us more capacity. But we look at our overall investment in Europe, it's skewed now significantly to new restaurant growth. And the returns continue to be strong. And the other thing that's happened across a number of markets in Europe, competitive interest in growth has become much stronger. So even in markets that have economic stress like Spain, there's still competitive growth. In Russia, we're growing significantly and yet there's competitive growth, significant competitive growth in Russia. So I think the challenge for us is to continue to drive out costs, continue to make prudent investment and be a participant in this continuous growth. And as I compare Europe to the U. S. And my colleagues would say, well, that's not always a good comparison. There's still huge opportunity. And we see the returns on new restaurants to be great. The impact is not great on existing on the existing portfolio. And the ability and I think one of the challenges and we've been learning from Dave, but we haven't had some of the pressures is our start up cost. We absorb them pretty quickly. And I know Russia is probably one of those models that we don't dilute margins or we haven't to date significantly with new restaurants. And obviously, you're going to have some impact. But there again, we watch it closely. And I think the tools that we have today versus 5, 6, 7 years ago and having spent a couple of years in the worldwide development function, we've got much better tools. Our folks in the field are making much better decisions as we continue to make the investment. Just on if I could add just on new store drag, and we don't share these numbers with you, but this was in China was the reaction. What we were seeing on new store drag was the reaction of when we went to go to market strategy there. And I think in China, we cited it as 200 basis points in terms of drag on our margins in China. We have significantly reduced that. So it's early days. We don't target a number. We'll say, hey, we're going to open up 300 restaurants in China this year. But if we get to the Q4 and trade areas and open up the traffic generators aren't there, we decided to scrub the sites because we think they don't deliver good returns. We've been doing that in Q4 and delaying things to get better returns. So that effort, these things take time. The pipeline is so spread out so long. But we're learning as we go, but we're better this year than we were last year and we'll be better next year. And we're seeing we're reacting and being smarter about how we drive this growth across APMEA. Okay. We've got Karen, Paul, Karen Holthouse from Credit Suisse. One for Dave and then one for Doug. Just to make sure I understand this in APEI with the franchisee royalties, is the idea that they sometimes start lower and then step up over time? That's correct. Okay. And then with some acceleration in global development, should we is that meaningful enough that it would have an impact on the blended royalty rate in the region? No. Okay. And then I guess this is a question for Doug or maybe both of you. Just given that we've seen a much more volatile global economic environment over the last 5 or 6 years and a period of time before that, has it changed how McDonald's fundamentally views the risk of having capital in a lot of emerging markets and a higher level strategic decision about using developmental licensees where you might not have before? I would tell you over the course of time, I don't know that we fundamentally changed that thought process. I believe that's always played into the franchising strategies around the world. And I can tell you from a European standpoint, obviously, we continue to play that into the dialogue as we go through franchising and refranchising opportunities. It is a consideration, but I think that we start with the premise is what's the potential? What's the potential of the marketplace? How to best capture that potential? And then you start to get into the alternative strategies. And clearly, and Dave has it in his area of the world, I have it more so in Central and Eastern Europe than Western Europe is managing the risk. And I gave you two examples of Belarus and Slovenia wasn't an overnight decision. We've been working through that for several years. And we get the right candidate. We determine we've got the right opportunity and you pursue those. So we do pay attention as part of that whole strategic decision making process on franchising, and I think it continues. Just on two follow ups on your dilution. This is all a new business, not compromising our base business, but whether it's new sales or new openings, how we would structure that based on how aggressive the partners is accelerating their growth. And then for existing deals, we learned this from the Middle East and how we grew the brand there and why we believe we're so strong. We've got it's a standard practice often that you've got escalations built in your contract. So if there's pressure points, it would be maybe not triggering the escalation in a given year and waiting until the next year or partnering in such a way, but not going backwards, but just not letting the escalation kick in yet. Good morning. Hi, it's Nicole Miller from Piper Jaffray. Doug, you talked earlier about RMS in terms of price. I think the U. S. Business has been using them for the better part of a decade. And I'm wondering how that's lend itself to better consistency. How are you using that as a tool to make sure you take price at the right time and the right amount? And then Dave, if I may, the loyalty program that you have, can you give us a big picture idea of what that program looks like and a big picture idea of what the results look like? Thank you. Nicole, thanks. To start out with RMS, revenue management system happens to be a company that we've used in a number of markets around the world that partner in helping us understand the business. So not all markets use RMS, but I'd say what's even more important is having analytics and foundational dialogue in the marketplace and engagement with the franchisees. And I would say that happens in some markets better than others. RMS is a partner in a number of the markets, but even the markets where they're not, the importance is having analytics in place and having the right engagement. And I would tell you that as in any business, we've got some role models out there and how that engagement process takes place. And I'll use the U. K. As an example. The price strategy group in the U. K. Is a mix of operators and company folks and they dissect, they absolutely dissect everything that goes on in the makeup of their product mix in their business and understand the consumer and the environment they're in. And in conjunction with RMS who actually happens to be the one in that market that drives and develops those analytics. All of the parties together strategically stay on page. And there's a couple of markets. It's a role model and we use that as a role model. It doesn't happen the same way in every market around Europe or around the world for that matter. But very important and certainly we encourage that strongly with the franchisees, obviously, that they have the right to price the way they want. But I think overall, it is effective. And then on loyalty, the market I was referring to is Japan. So we've been on that for 10 years. We probably got a subscriber list of maybe close to 15,000,000 to 20,000,000 people. But again, that has been primarily driven by couponing and coupon distribution. And now how do you translate that into real engagement? So that's the shift that we're making and pivoting towards that kind of customer relationship. Where we're applying that broadly across the zone is in delivery again through our web ordering system and being able to target customers' buying behavior through that ordering process and being able to drop in favorites, suggestive selling, things along those lines to encourage loyalty and trade up. So that's the application that we're trying to use. Again, it's early days. The CRM piece is, I would say, largely undeveloped for APMEA and in McDonald's. But that's the like I said, that's the big prize on where we're headed. I think first, building out the infrastructure for us has been important. And then just getting the basics of the commercial side. I believe the commercial side has to be in place this order what you want, pay the way you want, get the food the way you want. That system around mobile is what we need to build out first. So again, the visual folks will say the prices, it's CRM and loyalty. Japan is our kind of our litmus test, but I think it's been poorly not poorly, it's been probably has opportunities to use that base more than just as a coupon distribution base. So that's what we're navigating now. Hi, John Ivankoe. I think people at least in today's market think about refranchising as reflexively positive. But how do you think about it internally in terms of does refranchising transaction have to be neutral or accretive to EPS, neutral or accretive to free cash flow? Do you take a more of a longer term view and accept short term dilution if that's the right decision. But so how does the process go for you? Thanks, John. I think you've kind of in many ways answered that question. I mean, it's a you're looking at the right decision for the business for the long term, okay? And each of those situations may be different, okay? Collectively, obviously, we have to pay attention to short term results and need to at least understand how that goes into the broad earnings mix. Yet at the same time, the long term objectives are to make the right decision in the best interest of all stakeholders. So you're going to have some transactions that dilute income. You're going to have other transactions that truly are from day 1 incremental. So it plays into the decision making process, but again, it's trying to make the right long term franchising decision in terms of the context of the individual situation. So again, I would tell you, we have a lot of discussion when we make some of these decisions and we don't do it in a vacuum. Dave and I and Jeff and Pete and everybody involved is understanding what's happening around the world. So as these activities and they all don't come together and want to either. I mean franchising is a very complex strategy in and of itself. So but we need to pay attention. But we don't have any firm rules that would cause us not to make the right long term decision because of the right because of a short term consequence. And John, as we share more about refranchising over the course of the next couple of months, we'll have an opportunity to answer questions like that or at least address questions. No, that's fine. And Pete, obviously, we'll go through that because that's one of the things that obviously is of interest to you. It's of interest to us too and we work through it. And that's a separate question, if I may. I think I heard you say in your prepared remarks, Doug, breakfast is in 50% of Europe and it's 5% of sales. Yes. Little out of years to gain traction to where you got to where the operators would say, hey, that's a sustainable business daypart. So across Europe, we've got markets who have reintroduced breakfast. We have markets that are on that journey to build breakfast to double digit. And then we've got a couple of folks that are down there and it's like what is breakfast? And so we don't go in year 1 in markets where we enter the breakfast business and expect to make money. But there again, you look at it as part of long term strategy. So you take markets like Italy and Spain, who are starting to look at that opportunity and identify what that real opportunity is in their market. And then you've got a Poland and Sweden and some of those other markets that are kind of emerging from that initial start that it becomes profitable and it becomes a significant piece of your business. And across Europe, I can tell you, it's those markets that are in it, it's one of our best growing dayparts consistently and it grows over time. Looking at like in Germany and France for example, which is a couple of 1,000 stores in total. I saw breakfast in Germany 15 years ago and I know there's been some kind of puts and takes there. But I mean are those big markets making money in breakfast? I mean have you crossed the breakeven point there? In Germany, I would say we probably haven't crossed the breakeven point and that's I don't have substance to back that up. We're growing breakfast. So in general relative to everything else, it does better than it's doing better than the other dayparts, but it's still not a significant piece of our business there. France, Jean Pierre and the team are exploring a bit. It's a different culture and we do have breakfast being served in parts of the Paris region and starting to explore. There again, I'd say it's exploratory. You get into some of the more, I'll call it, more mature breakfast markets and it continues to be a very profitable piece of the business markets like Russia, Poland, Czech Republic, U. K, it's a great piece of our business. Sarah? Sarah, Sannator back here. Can you is this on? Yes. Sorry, I missed a couple of the first minutes. I hope that I'm not being repetitive. But I did want to ask if we could talk about Germany one more time because I'm trying to figure out if it's a proxy or similar to maybe what we're seeing in the U. S. But I want I'm trying to understand these bakeries, how they're out competing on value? Because I always think of McDonald's as scaled and with the best cost structure. So I guess I'm not really sure I understand how kind of a bunch of how many, many but still small chains or individual restaurants could have better value. And then along those lines, in the U. S, for example, the franchisees have very good economics. I don't know what they look like in Germany. Maybe you can comment on that. But is there any sense that maybe you do go back to $1, euro or that maybe the split between the value proposition maybe does need to expand a little bit and the franchisees just have to take a little bit of a hit to drive traffic? Thanks, Sarah. So two different questions there. On the breakfast piece and the competitive set, culturally in Germany, I'll call it the breakfast piece and also the bakery set. Germans are the German consumer tends to be very frugal. And I would say they don't have the same appetite for great tasting food, I'll get in trouble saying this, that the French have, okay? Food is a staple. And so there's a tremendous attention to value for the money. And I'd say the bakery this bakery business, while it was basically a bread and a drink business, all of a sudden the bread has become more sophisticated. So now you've got cheese and you've got cold meat. And so they're starting to take that, I'll call it the sandwich business seriously. And they do that at a great price. They've already got the bread. They've already got the locations. They're serving it with cheese and maybe some cases with a protein in it. So the price point that they go after is very, very low versus a traditional McDonald's product. And we do compete price wise, but that's where the consumer has gone. And so we do compete hard. In terms of the value proposition and the evolving value proposition in Germany, sure, we've thought about could we roll back the point in time where we had €1 as our anchor in the Ein Melyns menu. We've talked about that. But the key is bringing new relevance and bringing it not only at the EDAP level, but across the entire menu. And so I think that's part of our evolving strategy. We did bring back €1 entrants into the existing 1 plus 1 and we're continuing to try to understand how we can maximize sales and profitability through catching that customer and reengaging that customer with the entry value price. But the key is to make the right decisions that engage and get that customer back to us as well. And we're working through it. We're working through it. But the answer that we've determined is it's not necessarily to go back, not necessarily go back to an old structure that ran its cycle. I think we need to refresh our energy in the value arena in Germany. Okay. And then if I may, just sort of a related question for Dave on Australia, which I think has actually seen some improvement. Can you A, tell me if that's right? And B, is that a potential role model? Because I think you maybe have seen some of the similar dynamics over time with value that kind of thing, but it's held up. It seems to have improved a little bit more. Yes. And it has. And Australia is not nearly in the same position as Germany or Japan in that respect. But just to put a perspective on April and maybe temper exuberance around that, we did have a significant bounce from the non comp Easter during that piece. So while we're seeing Green Chutes value is clearly going to be what sustains us. And as you know, in a competitive set, there's moves and counter moves. When we came out with our loose change menu in 2012, which is for all of you is similar to the dollar menu here in the U. S, dominated the marketplace. And I think in 2013, we got a little bit too cute with margins in some of the wage increases there and a lot of the competition to creep in. What we're seeing now is some traction with some of the value offerings and I'm going to run through a few of these for you. But still it's difficult for us to cut through at this point. And right now we're hitting loose change menu again and that will continue. We've got $5 $6 lead EVM price points there. We've got some breakfast value, dollars 1 Cheeseburger and $1 Frozen Coke to match Hungry Jack. So we've got the value offering. And so again, this is going to be a big play for us as we start filling the pipeline on innovation again there in Australia. So I like what I'm seeing in terms of their commitment to value, in terms of the operator alignment behind that. But again, I wouldn't say that Green Shoots is about as good as I can give you today. On the back half of the year, if I was to gauge what I'm excited about, again, you've heard me say World Cup promotion, but a lot of the markets out there, World Cup, we think has significant potential for us. The Olympics in APMEA is very minimal. So that's a bypassed event for us. So the World Cup is what all the markets have been targeting. We've got monopoly in the back half of the year. It's the second time that we've done it in 11 years. So we feel good about that. We had it in the Q1 in 2013. Now we've moved it to Q3. We're testing and about the scale McCafe specialty coffees through drive through. It's the first time we've ever done that. And we're seeing some great results out of that, taking the learnings of what the U. S. Did not respect from an execution standpoint. But these coffee drive through only Shacks are popping up. And we're not going to let these competitors come into our space without challenging them. So we're in the process of scaling that across the 5 states. And then, again, as I said, just strengthening our leadership position on value in the marketplace is really going to be the story this year as well. Longer term, we've made culinary investments in terms of talent in Australia. And again, Australia needs to be the pipeline of innovation for us as a zone. So you're going to start seeing that those investments pay off in 2015 in terms of filling the pipeline. And then we've got a number of other things around mobile ordering that we're scaling. We've got test cells around bone and chicken delivery that we're excited about reclaiming Burger Leadership as well in the marketplace. And we've got we're starting to build out a family restaurant concept in Australia. We've got sort of in the ground right now 7 to 8. This is going to be a targeted family restaurant in certain many markets. So it's not it's a complementary restaurant, but what we've seen and how it's performed has been significant. But again, it's a complementary piece to our Sarah. Just to add to what Dave said, he mentioned this, they might have got a little cute in Australia with the value proposition and we're continually working to maintain relevance when it comes to consumer on that value proposition. And I do think that if you look at Germany, profit objectives sometimes get in the road and cause us to lose relevance. And so I think that's the key that we're working through right now in Germany. And clearly, we've got to bring relevance back. And in that process over the hopefully over the course of this year, we're going to bring that relevance back. And I think simplifying some of the communication that exists with this complexity of 1 plus 1 when we got the operators back in. We reset some core pricing. So you put that all together and that's the effort that's taking place. So it's not simply to go back to something that back in time that worked, but learn from it. And clearly, that's part of the strategic discussions that take place. I think the other thing is managing the marketing calendar throughout and that was something that got a bit out of hand in Germany. And so there's a huge reset. And even as looking at last month, where we had Monopoly a year ago, we moved Monopoly back into the back end of the calendar this year. So you took a pretty successful tried and true driver out of the April calendar was that was an impact to us as well. So there's a rework on that calendar that's taking place. Hey, Jeff Bernstein again. Just two questions. 1 from a cost standpoint perhaps for both of you. When times get tough, we see a lot of companies cut back costs. And I know Pete talked about at the corporate level that they're relooking at the cost structure. I'm just wondering at the individual regional level, whether you think there's a meaningful opportunity on any front whether at the store level or more regional from a cost management perspective. We're also seeing in the U. S. Just tremendous talk about commodity and labor cost inflation recently. I'm just wondering whether directionally those are reasonable for both of your markets or whether you're seeing something different? And then Doug, it's something you could mention something about Russia. I know that's a quick mention earlier on, but just wondering whether it seems like in recent months it's kind of fallen off from the stronghold position. I'm wondering whether you view that as a sales issue. I know there's also some cost deflation going on or whether it's FX driven. So just kind of your big picture view on Russia recently seeing slowing trends. For labor and food costs, I mentioned backdoor costs on food costs of 1.5% for us is the forecast for the year, translates into about 0.5 point on the P and L. And one of the unsung heroes that never gets a lot of play in front of you guys is our supply chain. But what we do behind supply chain efficiencies, and there's a whole story behind that to mitigate some of that is the biggest thing. The labor piece, we're seeing broadly wage inflation across the markets, lot to do with these emerging markets, elections and things like that. So China is in the middle of a 5 year government wage increase and difficulty in terms of matching that with price increases as well. So you've got that little bit of that rub. So that's kind of what we're seeing in APMEA right now. But again, the things like I mentioned, the go to market and different things, the efficiencies that we're trying to drive is critical to that. On the G and A side, our franchising efforts will yield a reduction in G and A for us. But again, because you're ramping up and growing, it will get masked by, say, our ratio adds on restaurant, span of control on restaurant and the infrastructure that we put behind, whether it's field service or company owned. So you won't be able to strip that out. But as I've looked at our franchise and efforts, we will see a decline in G and A in our part of the world on that. The rest of the stuff is we're bullish on G and A. I mean, this is something from Pete and it's just the right thing to do for the business. No sense going through all the tactics on that, but yes, we're scrubbing everything, turning over everything to make sure that we don't hinder the business and do the wrong things long term, but that we're smart about the environment that we operate in. So and I know Doug would be consistent with that as well. Yes. I don't know if I can add much to the G and A side other than Q1, obviously, we hosted the Olympics in Sochi. So we had a little bit of a spike if you look at components. But certainly, we continue to look at structure and franchising plays into it. Our priorities play into it as well. So when we're looking to evolve and take on new initiatives, we're looking at where we can redeploy resources versus simply adding resources. So I think that part of that G and A effort is to redeploy versus add and then where there's opportunity to become more efficient, we're certainly looking for them. From a cost standpoint, I don't think there's any new news from what we've reported in the past. I think that that 1% to 2% food inflation, food and paper inflation is still valid. And there again, it's probably for us, it's been we've been in a pretty good position throughout the year so far and we don't see anything that's going to change that from a macro Europe standpoint. Now from a Russia standpoint, obviously, because we do import significant amounts of product into Russia and the devaluation of the ruble is having some impact. There again, understand that Russia is what roughly 5% of system income. So it's at the end of the day you're not talking about a big a huge piece of the business. But when you look at Macapko margins in Europe, we've managed it very well. But understand that Russia and U. K. Are almost half of our makeup almost half of our Macavco margins. So there is some impact and there will continue to be impact with the cost of goods, particularly given the devaluation of the ruble. We try to mitigate that. Obviously, our supply chain is, I think, as good as there is in the world in managing through those situations, but that's a reality. I think the other piece in the Russia business, we there's been some volatility, probably no more volatility in our business than what there is in the region itself. We did go slightly negative in April. So that was the first time that's happened in over a year. And there again, I don't think that's a structural change. I think it's a combination. Easter played funny in Russia this year. So that was a piece. But there is slowing GDP growth in Russia. That's a fact and that's a reality. And I know the IMF now formalizes the fact that Russia is in recession. But there again, they're still growing IEO and there's opportunity for us to continue to take advantage in the marketplace. There are challenges for our consumers because their ruble doesn't go as far as prices go up. So we'll continue to manage through that. But it's still I was there last week. It's an exciting vibrant marketplace. And we need to continue to be part of that success model. Peter Saleh, Telsey. Just a question on refranchising. I just want to come back to that. In the context of all the inflationary pressures, we talked a lot about labor inflation, commodity inflation, talking about value messaging, a lot more competition that you're seeing across the markets. In terms of that context, when you think about refranchising, are franchisees really lining up in a lot of these markets? I mean, you have a long list of franchisees who want to buy some of these stores. And on the flip side, are there markets where franchisees are coming to you and saying, there's too many pressures here, we want to sell back some of our restaurants? For me, we're we have no problem lining up franchisees in our markets. And in some of these emerging markets, I was saying to somebody before the meeting started, I don't know the right way to frame this, but the easy money has already been taken out of the market, right? So a business like McDonald's and the brand that it carries is a very desirable business for our wanting to get into a marriage with us. So we haven't had a problem at all. And then on the conventional licensees, we're recruiting most of our franchisees 30. So we're recruiting young talent that we can grow with for years. That kind of a model is what we're taking to Korea, into Malaysia and different places like that. So we have not had any issues where you get pressure points would be obviously Japan right now is a pressure point with us. And again, we're on top of that and we're actively involved with our franchisees there as well. So anyway, that's how I would address that. Peter, I think it's consistent virtually everywhere. Our operator you take markets like a U. K. Or Poland where we have opportunity to refranchise, We're managing the throttle there more so than the franchisee. I mean, they're hungry to grow. We want to make sure they're operationally ready, financially ready, make sure we're making the right decisions. So there's tremendous demand and we just got to make sure we're making good decisions to help them settle into a bigger business over the long term. In terms of deals, for us in Central and Eastern Europe, we have significant lists of interest. The challenge is to mine through that and make sure that we're getting the right demand is there. The challenge for us is making sure that we're getting the right candidates for the long term. So I don't worry about right now a shortage of candidates. And you take a market that's strained and Dave has Japan, I have Germany, and I probably didn't answer the question earlier. Our German operators are profitable. They're not as profitable as they were a couple of years ago, but it's still a nice model, okay? And we have good cash flows. And they want to grow and they're 2nd generation there that want to grow. Obviously, the key priority for them right now is stabilize the business and make sure that we get it set up to grow in the future. But there again, there's still no shortage of demand. So we're winding down on time. I wanted to tie together this is RJ Hodavy from Morningstar again. Wanted to tie together some earlier questions about breakfast in Europe with the loyalty program. Doug, I thought your comments about the introduction of a coffee specific loyalty program in Sweden were interesting given that both beverage and breakfast are such a large part of the global growth aspirations of the company. Just wanted to get a sense as to the framework and the structure of the program and then potentially longer term opportunities of a beverage specific loyalty program, not only in Europe, but possibly Asia as well? Thanks, Marjorie. Coffee is a vehicle for us in Europe to engage in breakfast. And so you take some of the markets and Sweden is a great example or Denmark another example. Some of those markets that have had, I'd say, historically low energy at breakfast, there's still a tremendous potential in the coffee business that gives us that avenue. And one of the keys that a number of the markets are working through is how to engage the consumer in that breakfast daypart or in that specific visit because breakfast or coffee is so habitual. And the vehicle that we can use is the technology. And Sweden happens to have a loyalty app and they're very advanced. It's a very advanced culture. I mean everybody has a smartphone if not 2. And they deal in credit. They don't deal in cash. And so it lends itself very well. But I would say across Europe, we look at this whole digital revolution as being a key opportunity for us to capitalize on and bring the benefits to the consumer. And so the e commerce side, and we're already seeing it in France. While we're early in the journey, we take stress out of the visit and whether it's a breakfast visit or whether it's a dinner visit or whether it's a visit in between. And then you build that with customer relationship management and use that technology to personalize the engagement. And coffee and breakfast is going to be one of those vehicles that can use that in a number of markets. But I would tell you that potential in the experience of the consumer and using digital technologies to engage as well as affect in that engagement, as affect the experiences is just we haven't even scratched the surface yet, but we're close. I mean, and as we get the foundation right in more markets and we're on that mission right now And France and following behind that Austria is we've got a couple of market examples that are starting to show us that potential. Yes. And I would answer it the same way. We're giddy about digital as an enabler. And for us, McCafe, unlike U. S, is a brand and a place, a place within our restaurant. And so we feel like that's an untapped revenue stream for us. We've never rarely gone above the line in terms of advertising and you get all the benefits of leveraging the fixed cost of the restaurant. Today, our loyalty program is a very rudimentary buy 5 or 6 specialty coffees and get 1 free, the punch cards, actually very effective. Now how can you add some modern technology to that through our mobile efforts and we think that's going to be significant. And then just on beverages for a second, we were talking earlier about smoothies. On that end of the spectrum, smoothies would be aspirational for us. But before you get there, there's a whole bunch of opportunities. APMEA is the place for beverage innovation and creation. And so what we're doing around specialty coffees around frat base like matcha frappes, mango frappes, Himalayan frappes, things like that. Frozen Coke products has been a tremendous GP boost for us and we're expanding that. Asian teas, as you can imagine, ice cream floats, that's sort of a poor man's dessert that has performed very well. Soy milk platform is things that we think that's a big space for us to play in. It's just a matter of what are which of these are under the cafe umbrella and which of these are under the front counter drive through umbrella for us. Okay. So we have 2 people left in the queue that we're going to be able to take. So I'd ask if you can just limit it to one question, that would be great. Thank you. Hi. It's Diane Geisberg, CLSA. And I wanted to know if you could talk specifically about your processes in terms of consumer engagement. And we've talked a little bit about the technology and platforms. But as I'm sitting here, I'm thinking to myself, it's not just about like the €1,000,000 cheeseburger. It's really about how the consumer defines value and then kind of operating consistently against whatever consumer messaging you have across the store base as large as you have. And I've seen some really interesting things that you've done like in Australia where you have TrackMyBigMac or whatever that seem to be very successful with consumers. Can you talk a little bit about how do you reach down to the consumer level to understand what it is that they want on a local basis? And then how do you manage it when you have whatever 34,000 restaurants or whatever, against that kind of like just blocking and tackling it consumer by consumer? And then just in terms of the digital strategy, with all of the different platforms that you have, when do you think you'll be at a place where you'll have some commonality across geographies, so that you can take best practices, whatever you learn in Japan, you can apply that to other locations? Thank you. Yes. I'll just say on the consumer side, we actually invest heavily in landscape studies across the zone. We refresh them on a constant basis. So our centralized consumer and business insight teams actually perform that and we source that out to agencies to work with. So that's kind of a base platform. On value, we've got a policy where every 2 to 3 years, we update our price sensitivity studies. And that's another piece along with our we're constantly through crest or fast track tracking our brand scores on value for money and things like that. So the data is there as part of our planning process, what we call Phase 0 to Phase 1 and Phase 2. The early stage is all about understanding where the business issues are in the marketplace, market questing with your whether it's your staff or your owner operators. All of that is part of that Phase 0 leading up to where you start really getting into strategy around your 3 year plan. So it's a robust process. Hopefully, that answers your question a bit on that for APMEA. So that's how we run it across APMEA and the investments we make in that area. TrackMyMac has came out of really a need for our brand scores in terms of our image as a good neighbor in the community and some of the things around food image and sustainability and trust in the brand and things like that. Working with the agency, we put that together. It's been great tool in terms of communication on sourcing and where things come from. The our food your questions, which was out of Canada is in my estimation real conviction. And that's what we rolled out in Australia. That's where we're seeing the bigger lift on our brand scores is from our food, your questions. We're about to scale that into China and other markets. So we think TrackMyMac is again a nice best practice for the system in terms of creating a fun way to engage on where your products are sourced. But absolutely, your question is about real conviction on your brand. So I'll let Doug answer that and then I can come back to Viteshul. Yes. Okay. Diane, I think one of the probably one of the key focuses in the last several years for us and it's been magnified in Germany, I think is a great example, is the need to really understand the consumer. And some markets were more effective in the whole process of consumer engagement, understanding and doing the research. In the last 12 months, understand how the brand is viewed and using macro tools as well as actual dynamic brand audits to understand the consumer in a much deeper way. And that work is continuing. The outcome of that is to use that research and dissect the information that we receive to bring those analytics to life and affecting the right strategies and building the right initiatives in the marketplace. So in Germany, I would tell you that historically, we were probably light on research and in the effort to understand what was happening better. One of the outcomes when we embarked on that last year was to realize that the consumer was no longer trusting us. And so Dave talks about track my macros or provide that engagement with the consumer to understand what we stand for. That was one of the big books in Germany. And we saw a little bit of it in general monitor information, but we really went into deep into the consumer. We were focused so much on price because we thought they were focused only on price that we stopped talking about quality. We stopped talking about other things that were important to them in the way we messaged and marketed. So I would tell you around the world and particularly I know in Europe, our research and our engagement from a consumer standpoint is elevated significantly in the last year and is continuing to be a key focus. In terms of digital, I'll throw it back to Dave quickly. But it's let me add 2 things. Digital in Europe is about making it more convenient and more fun and easier for the consumer. And I believe that the global platforms that are developing right now is going to give us a tremendous vehicle with the flexibility to make our experience less stressful, easier, more fun and allow the customer to engage with us in a way that he or she has not been able to engage with us in the past. And I would tell you that, that past experience, one customer at a time, wait your turn and we'll get to you, all of a sudden becomes just this open forum. However you want to engage with us, come as you are. You can do it mobile. You can do it web. You can do it on a kiosk. You can go through the drive through, you can pick it up. And ultimately, we may get to, we don't have the density that Dave has, but delivery could be in that equation somewhere down the road. Not a priority in Europe today. We don't have the density, but we've got a couple of trials going on just to see what even delivery might mean, but make it easy for the customer. And I think that this whole focus on the digital space, we'll build the platforms, we'll share best practice and we already see it in France right now. We're engaged with the consumer in a new way. So Dave, if you have maybe just a point or 2 and then we did promise we'd have that one last question that we would And we can get into this on the side. It's our ability how nimble we are right now. And I would say with Atif coming on as our Chief Digital Officer, we've done some things that we haven't done as a corporation in the past where the digital organization now in APMEA in Europe and U. S. Reports into ATIF. So we've in the past, we've kept those sort of independent and decentralized. So I think that kind of alignment is going to allow us to scale quicker. The infrastructure, we've been laying cable a lot for the last 3 years. So if you've got the infrastructure in place, New Paws, Dual Point and things like that, that will give you a leverage to scale. And across APMEA, we're looking by 2016 to really take advantage of scaling a lot of these things around mobile in the commercial side, e commerce side across APMEA, just because we've got the benefit of having some of the new car systems, some of the Wi Fi enabled systems in place, some of the back office packages to accommodate all of that. Hope that helps. Okay. Rachel Rothman from Susquehanna. I was wondering if you could just go back a little bit, you touched on this earlier, I think the genesis of the plan to win maybe I guess now 11 or 12 years ago was essentially just declining per store profits and declining incremental returns. Within that context, can you foot for us, I know you guys said that your 1st year returns were double digit and 3 year returns in the high teens. And obviously, you guys have a breakdown of your growth markets versus we only get to see the aggregate. But how do we book that with the fact that the per store profits and returns within each of the regions appears to be declining on an aggregate basis? And then how do you handicap or think about the probability that 2 or 3 years from now, we'll look back and say, oh my goodness, maybe that growth strategy wasn't the right one we should be going back to better, not bigger? Thank you. If you look at like I said, if you look at our history in the '90s, we grew and we drove AUVs down while we grew units and we planted units. However, those units that we planted in 1990s and through that decade bared a lot of fruit for us when we stopped growing in the 2000s, okay? So you could I think instantly when you look at it, you say, oh, growth, we didn't know how to manage it. And I don't think we didn't know how to manage it. And this is what Kathy's point around the tools, the sophistication, the processes, etcetera. I'm on the school of thought that if you treat your brand like a annuity, you're destined for decline. And so you have to be growing and taking advantage of the opportunities in these markets. So we've gotten smarter in terms of how we the quality of sites we're opening up. Yes, there's a tremendous amount of pressure on the margins. But again, as we've talked about already, it's a top line game. Sales cure a lot. And driving demand is what we're focused on to cure some of this. So it's been tough the last couple of years as we've opened up more restaurants, but I'm convinced the opportunity is there. And if you don't fill it, then you're going to marginalize your brand, you're going to marginalize the scale that you have. And I think APMEA needs to be the portfolio for growth, but I don't think one size fits all across all the markets. So you heard Doug say, you're going to open up 300 units. That's what we do in China alone. I think that's the right way to balance your portfolio when you think globally in the market. Okay. So that's going to bring the meeting to a close. First, we thank all of you for joining us. Thank you very much to Doug and Dave for being with us here today. And thanks a lot. Safe travels.