Well, as you 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. We appreciate your interest in this meeting and in McDonald's, and for taking the time coming here if you're in person, or we do have folks listening in on the webcast. Thank you very much for that. 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 Heiser, Kim Yeaman, Mary Kate Boyce, and Debbie Schroeder, who you met earlier this morning. 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 Goare, 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. 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 first quarter. 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.
We'll have an opportunity to chat more about that today. Dave Hoffmann 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 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 McCafé, 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 webpage for those of you who are listening in. Most of our time today is going to be spent dialoguing with Doug and Dave through Q&A.
We've got this great opportunity with them. They both live overseas, by being here in the U.S., it's an opportunity to see them face-to-face and to ask questions. We'll kick off with some brief overview by each of them regarding their segments and the initiatives that they're pursuing. After their opening comments, we'll go ahead and move into Q&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. Lastly, just a couple housekeeping items. Please put your cell phones on mute or silent. We'd appreciate that. The meeting, we're expecting to conclude promptly around that noon timeframe.
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. On your way back to your homes, you'll be able to have that for use at the airport and whatnot. Enjoy lunch on us as you leave the meeting today. Finally, anyone who needs transportation, we've got transportation options on the back of the biographies. If you turn that over, you'll take a look at that and see on the back. If you need any help, any one of us are here to help you. With that, I am going to start by introducing Doug Goare.
Okay. You want me to come up here, or you want me to? We didn't rehearse this, I can come up here, then I can hold the comments. How about that? Good morning. I've met a number of you, but probably there are a few I haven't met in the room. Welcome to Hamburger University, for those that go so far as I see on the street, I see Keith, I ran into Keith in Geneva about a month ago, walking to the grocery store as he was leaving work in Geneva. We never know where we might match up. Again, thanks, Kathy, 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 million 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. Again, consumer confidence remains very low, and we don't see a real rapid recovery, 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. Stabilizing our German performance is one of our top priorities, as you've heard Pete and Don talk about in previous meetings, 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. 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.
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 nine competitors combined. Strategic opportunities exist to expand even further. 738 million 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 1,900 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.
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 Casse-croûte 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 EUR 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 four 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 McCafé brand.
In addition, we're building on the success that we saw last summer with our iced fruit smoothies and frappes in U.K. and Ireland, and 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.
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 first quarter 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. 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. With that, I'm going to turn it over to Dave to give you a few opening comments as well. Thanks.
Good evening, 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. 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 first third of the year, and I think this might give you a little bit of fodder for Q&A. Overall, I'm optimistic on how we performed year-to-date. What I can't tell you is that the external environment has gotten any better or our challenges in 2013 have gotten any better. 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 three areas. The first was our protein strategy, or our 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, breakfast daypart, continues to be a star for us, just as it's been with Doug. We just recently completed our second National Breakfast Day in March, with a lot of success there. Finally, the third thing is strengthening our brand extensions and our penetration strategy with drive-throughs, delivery, McCafé, and cold dessert kiosks. That represents 40% of our system sales in APMEA, 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. We are encouraged by some of the green shoots that we're seeing there with performance. China continues to carry the momentum that we had in Chinese New Year all the way through March and 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 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.
At this point, it's going to take time for the consumers to notice the change and give us credit for all that. 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 DL markets, and we're pivoting there to engage with our DL partners on the marketing side. Similar to Europe, reframing or resetting value continues to be the broad challenge across APMEA. That's on that piece. Just shifting to our strategic focus for the next five 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 five to 10 years by what I believe are these three mega trends.
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 trillion. 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 trillion as well. That doesn't even include Africa and the opportunities that we have there. Internally, we often talk about the growth opportunities in APMEA as that of two Chinas and building the infrastructure to seize that opportunity. That's number one. Number two, 70% of the world's population lives in the APMEA zone. It's the most diverse cultures, and it's in complex urban environments.
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, et cetera. Finally, you could sum up most of the consumers as young and digitally savvy. Most of these markets, as you know, leapfrog traditional infrastructures. Relevance is the green shoots and brand differentiation is what we aspire to and what we're investing and resourcing behind. 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. Just shifting to our Plan to Win in APMEA year-end. You could simply sum up our Plan to Win as extending the brand. Kathy said that up front, 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 a couple of weeks ago in Tianjin. 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. Finally, the third piece of that is our ring strategy, which if you remember, we've shown you videos before on transporters and split kitchens. The ring strategy is about taking a city, 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. 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. Second 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-throughs. 50% of our openings next year will be drive-throughs. Delivery is approaching a billion-dollar business in APMEA and has significant growth potential over the next five years. McCafé and dessert kiosks represent 4,500 units for us today and growing. That's the second piece. Third, 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. 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. 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 fourth item is through menu. Again, it's about core favorites and value. As I said, offering local relevance. 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. Broadly, it would be owning the flavor of spicy and how we translate that across the zone and across APMEA in a big way. Finally, the fifth element under this is, and we're very proud of it, is through our heritage. First and foremost is families as part of our DNA. We've been taking care of families since 1955. The other piece is through our Good Neighbor strategy, and through the Good Neighbor strategy is Ronald McDonald House Charities. For us, often that's inoculations, it's dental surgery. We will open our first houses in China, Korea, and Indonesia this year. Today it sits as we've got 33 RMHC houses, 15 family rooms, six Care Mobiles, and seven family retreats.
Those are the five 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&A. With that, I'm going to turn it over to Kathy, and we can jump into this. Thank you.
Okay. We've got both Liz and Chris who will send the microphone on down. I think, Dave, 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 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. 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. There was a, I'll call it a strategic change made, but probably in retrospect, a strategic miss. Where we went off of the one EUR cheeseburger price and tried to reset a bit. With that, and without having the emotional tie, where we became very rational and transactional with the customer in Germany, that was an instant point in change about 18 months ago as that happened.
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, developed 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. As we made that change, and we saw the consumer flight, it was a combination of things because the audience and the competitive set had changed. 44,000 bakeries, growing market share significantly with great value and great convenience. All of a sudden, we gave our consumers a chance to revisit their habits. 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 re-engaging with the consumer on an emotional basis, and it does take some time. Some of the ancillary things that happened along the way, we've made numerous changes with management, and as we restructured the whole European organization the first of the year to get more resource and 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, and I can tell you they're aligned and energetic, and they're working through the process as well. The third piece is we're going through agency review right now, and so our agency's on notice. We need to bring some new creative thinking into the German marketplace. 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 and through building trust, through quality and variety and bringing back energy to core.
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.
Thanks.
The queue I have is John Ivankoe, Carl, RJ, Jeff Bernstein. Anybody else? No. I'll stay with John.
Germany, then we'll talk a little bit more broader about Europe if we may. 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. Can you just set the expectations of when, in your mind, German profit can begin to stabilize on a year-on-year basis? Then you broadly, if maybe we 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, then I'll have a follow-up on breakfast after that.
Okay. In terms of investment cycle in Germany, restaurants there have been through, the interiors are virtually re-imaged and are in good shape. We've got 800 and some odd McCafés 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 platform integration, particularly the kitchen side with 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 Mein Burger, and we allowed consumers to participate. It ran its course, but it also shows that 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. 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. There again, that's job number one 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 EAT menu, in the Einmal Eins, margins improved relative, but you don't grow margins when you're bleeding guest counts and sales.
We've got to get the guest counts back the right direction. Investment-wise, overall, I'm not concerned. The pace with which we go is up to the pace with which the operators can take it on.
Could you give us an update of how far along or how developed Made For You is across Europe and what the kind of benchmarks are that where that's system-wide or country-wide, however 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 stretched. 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 500 restaurants on Made For You across Europe. We'll have about 1,200 by year-end. Each market is going at a pace that fits them. 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. Each market is building its investment roadmap with their operators to meet those hurdles. I expect it to happen over a three to five-year period.
Every market's going to be different. We have markets like Poland, who's full steam ahead, and they'll probably be done with the entire platform integration process by the end of next year. 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 NewPOS 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. 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.
Maybe, this is I promise the last one. I don't know. I'll hand it over. I thought we were on NewPOS already globally. Can you just walk through that vernacular a little bit?
Yeah, globally we are. 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. 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 NewPOS 6 that others could not do. Austria is another one I mentioned that they're going on mobile ordering this month. They're 100% NewPOS 6.
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.
Not to beat a dead horse, 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? Also, you mentioned the German IEO market is in decline, but could you help reconcile that because some of your large competitors, 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. In fact, we'll have a new Chief Marketing Officer join us this summer. We have a new CFO. We have a new Managing Director. I don't underestimate a change in the franchise leadership group as well. We've got engaged operators committed to joining the cause to turn around the business. Part of it is creating the alignment and getting the energy amongst the team. I also mentioned that we had a long-term relationship, a very long-term relationship with our agency there, and that's up for review as well. We're going to create a little new energy there, whether they stay with us or we have a new agency later this year.
Again, I will tell you, in the last six months, just to put the agency on notice, did create a little energy in and of itself. 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 U.K. business has been running the past five to seven years. As we brought that restructure to bear, I believe that while every market runs in its autonomous way, I think the learnings from the U.K. as we share that, and we've created a better avenue to create that sharing with the U.K. people that are closer now to engaging with the German folks.
Jill having now responsibility for the Nordic markets as well as U.K. and Germany, I think will help that synergy as well.
You gave a murky outlook at the Analyst Day six months ago. As you look back on the past six months, has the German sales performance kind of been in line with expectations, a little bit below? 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?" I think it goes back to the lack of consistency in the marketing plan. From a momentum standpoint, I would say the momentum has not changed significantly. A month ago, I'd tell you I thought it was starting to change, I can't speculate forward. 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. Dave's going to get bored up here if I get all the questions.
It's just arm candy for Doug.
This is RJ Hottovy from Morningstar, I think I will take that opportunity to get in there.
Okay.
Two questions for you. One, at the November Analyst Day, you talked about a 2015 goal of having conventional franchisees represent about 20%-25% of the market in China. Just an update on that, if that's still a realistic goal. The second question 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 pretty happy with the returns? Just any update on that. The second question I had is just some of the same questions we had about Germany, but apply to Japan. 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, the stated goal, it's the only stated goal that we've had related to franchising in APMEA. Today, we sit at 71% franchised across all of APMEA. 20%-25% franchise was our stated goal by 2015, 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 on my part. As you know, it's about finding the right candidates, conventional licensees and DLs at the same time. Ahead of schedule on that. We're aggressively franchising across the zone in our wholly-owned as well. Korea, Malaysia. Taiwan a bit on hold because the assets were a bit beaten down last year, we need to improve the store makeup there. 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 exploiting the opportunities around growth in those marketplaces. 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. Right now everything's 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, we're starting to see margin pressures in that area. 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, allowing them to accelerate growth in those markets. Right now, not a concern, we stay on top of this constantly so that we can accelerate growth in these outer provinces like Hunan, Yunnan, et cetera. In terms of Japan, the thing I would say there is, like you said, it's a similar story to Germany. Sarah's been in there since Q4. Sarah Casanova is our new CEO of Japan. This isn't an overnight fix for us.
I'd say the best way on how we're approaching this is kind of a two-pronged approach as Sarah and I and the team are looking at it. First, the IEO is very transactional and very functional in nature. 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-throughs are the big three, then the pipeline that we're working on is on delivery. We've got 150 hubs today in Japan going to 250 hubs. 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. That's the big play that takes time. At the core, this is predominantly menu variety.
Japan is driven by a plethora of menu excitement and new offerings constantly in the marketplace. That's it, along with playing up our quality. We actually make food in your restaurants. We assemble food in your restaurants. We're a restaurant versus convenience stores and other operations. The second thing is restaking the claim back into the family business, we feel is going to be critically important. The other piece that we have to address is reinvesting in upgrading the restaurant portfolio in terms of reimage sites. 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 out breakfast platter.
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. Wraps in August is another big platform for us going forward, along with the seasonal offerings that we're engaged with. I would say in line with expectations to this point. Again, we're putting rungs in the ladder right now, and the rest of the year is going to continue to be challenging.
Hi there. Jeffrey Bernstein from Barclays. Just one question, I guess, for each of you. Just Doug, 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 what would you say are 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? It sounds like you said you still want to own some stores to obviously evaluate different things that are going on there. Just wondering which markets and how high potentially could it go. 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 hearing things on China, obviously, with the noise of avian flu and the supplier issue.
Yeah.
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, X that noise?
John, do you want me to go? I can go, yeah. On China, I'm not going to throw the full wet blanket on, but we are coming out of this. I looked at the two-year comps, and our two-year comps through Q1 and through April were positive, which I think is encouraging. We're driving a lot of value right now. We're not seeing impact from Yum's brand relaunch. 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. We're feeling good about coming out of Chinese New Year and
how we're performing at this point. May is encouraging as well. 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. The brand relaunch has actually performed very well in terms of brand scores and early brand scores with our consumers. We like what we're seeing out of that. That's a long-term play. It's about creating everyday moments in the lives of the Chinese customer, and it's something we haven't done for 20 years. Again, it's kind of the natural migration and moving from functional and transactional to experiential in our marketplace. Early days, I wouldn't overread 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 will call it recommitment to franchising. We are a franchise organization, so clearly that is our focus. There is a recommitment and an energy to evaluate and make sure that we are making the best franchising strategic decisions over the long term. Without putting you through numbers, that is happening in every area of the world. 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 work is taking place, but it has to happen in a strategic fashion. We actually happen to have two countries in the last two months that we have changed ownership to DL in Europe.
We do not make big announcements, but Slovenia is now a developmental licensee that was previously a country with our McOpCos, as was Belarus. There again, over the long term, that is just examples of decisions where you can find the right franchisee that can grow the business and build on what we have created. We are looking for those opportunities, but we have got to do it not through a fire sale. We have got to do it through a well-defined strategy. We have a number of markets in Central Europe that we continue to evaluate where we operate a 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. U.K. is still significantly company-owned as compared to the U.S. and other markets.
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 is in the best interest of all stakeholders. In some of our other existing markets, it is a matter of continuing to build the right mix. All of our folks across Europe have franchising and refranchising strategies developed, and it takes time to execute in some cases where we have got to make sure we get the right candidates over the long term.
Keith Siegner from UBS. Dave, you have got the benefit of having some of your markets as the most progressive, most penetrated tech and mobile-engaged consumer environments on the planet. I am just wondering if you could talk about, are you capitalizing on these? Maybe what are some best-in-class examples of tech and mobile integration? Are you sharing any of those best practices with the Western developed markets? What can we look at from your markets maybe as some of the smaller, best examples of where mobile and tech could go?
One of the best markets, I think, in our system is France. We look a lot to France for leadership in this area. The first thing was we resourced heavily in APMEA behind digital and now linking that into Atif, our new Chief Digital Officer. That's our link to the rest of the globe. He's already been out to our zone already two or three times now. 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. 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.
That platform has been probably the commercial platform for mobile ordering for the globe. That's one. The way we step back and kind of think about it, at least I do, in terms of digital, an element is going to be around the media mix from 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. Again, working with Atif and the group to make that a leverageable platform across the system is one of them.
The third area that I strongly believe in is on the commercial side. Again, France is right there in this effort with us. 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. Today, we're a two-order system, a two-pickup system, cash and credit. At some point, what we're doing with mobile testing down in Australia as our test market there is expanding those offers. I think you'll see that intersect with how we're looking at things like Real and 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.
Again, Australia is our test cell for all of that. Those are probably the big three that are going to be global best practices and linked in 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.
Next.
Hi, this is Mike Tammas from Oppenheimer. You've had some great success in the U.K., obviously, for a while now. Can you talk about what some of the things you've been doing there in terms of sustaining that momentum, bringing it back to Germany? It sounds like you're still in early innings, are there any best practices you're sharing across those geographies? Thank you.
Thanks, Mike. A number of things, you also see the results in the U.K. That was a market that back in 2005, 2006, was probably on that list of severe situations, major priority, I think over the last five to seven years, we've made huge progress there. I think the key learning, this is where you look at what's transportable, is building a holistic plan that's consumer-centric. That it starts with the consumer, you respond to those wants and needs through a balanced effort. As I look at that evolution of what that means in the U.K. 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.
Above all, it was about building trust with consumers and the foundation of quality and provenance, where food comes from, how it's processed. All of those things added together was really the foundation of the resurgence of the U.K. business. I think along with that learning is you continue to build on that foundation. As they have evolved their business model and their strategies, they continue to pay tremendous attention to every growth driver. Breakfast is now nearly 15% of sales in the U.K. business in a market that's very competitive. They've been very effective in growing breakfast over the past five years. They've evolved their value proposition. 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, not wild food innovation. Very well-tested and measured in the balance of the calendar. They also have brought some new innovation that they're, again, strategic that fit the consumer context. Last summer, smoothies. Smoothies gave us a huge lift last summer in the U.K. business as we introduced smoothies. You say, "Okay, now how does that transfer to Germany?" I think it all transfers to Germany. The challenge is you're sitting in a different context today. Probably a more competitive market in Germany. The bakeries are everywhere, they're very low priced. The consumer mindset in Germany is much more value-focused than the consumer mindset in U.K. The issues aren't necessarily the same. The challenge is to extract learning from a balanced approach to the U.K., transition that in as we continue to evolve the German calendar.
I would tell you that if I look at those four pillars in U.K., Germany was running on two pillars. It was running just on low price, and it was running on promotional activity. Part of the reset in Germany is to try to bring a balance across those strategies.
Doug, following up on refranchising, you mentioned the DLs for Slovenia and Belarus. It dawned on me that there might be a significant chunk of refranchising that would be more the DL, or there would be some, at least. There 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. 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.
How are you thinking about that?
Well, there again, I call it recommit because 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. 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. I just happen to use two examples where countries that lend themselves to having one 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 in some of the marketplaces. We use conventional franchising in some of the markets.
Every 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. You can't standardize and say, well, DL is the way to go, or conventional franchising or joint ventures, but using all of those strategies to make sure that we have the opportunity to maximize revenue and balance it against risk. I think when I talk about Central Europe, there's certain markets you say, "Hey, you can make a lot of money," and then the next thing, the currency devalues, and all of a sudden, it's not particularly exciting from a margin standpoint. 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. Dave, you're using them all in China.
Yeah. As you guys know, as you've been in China, and you really get to know it's as diverse as Europe. 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. I think that's got legs in other markets where we need to go after growth in a bigger way. The DL partners and the sophistication that we've gotten in that area and their commitment to our brand has been immense. 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. We think that's a good model for us in China. Again, ownership over the next several years is going to be key to how we can exploit growth across that net.
Thanks. Keith Siegner from UBS. Doug, in the last 18 months since that EUR 1 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. 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 EUR 1 cheeseburger was an outcome rather than a strategy, okay? The root cause was really the breakdown in the franchisee relationship. 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. 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? In that process of questing and understanding the consumer mindset, that journey has taken many forms, okay? You work through a continuum. We understood from the consumer is, "Hey, you took that best value away from me.
Short of bringing it back, what else can you do? We went through a number of tests. We ended up with an initiative called One Plus One, which had a combination of EUR 1 products that formed EUR 2. 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 EUR 1 cheeseburger as a vehicle to add on to existing products. We're not getting the add-on anymore. There was a quick understanding that that was happening. In fact, we started to introduce, and we have been running over the past 6 months or so, a EUR 1 burger along with that's outside of that One Plus One.
Again, I would tell you that nothing has resonated as well as the EUR 1 cheeseburger. We're continuing to understand that. The other thing that we're continuing to evolve in that process, I say we became so dependent on promotion. As we reset the complexity that occurred in this continuous flurry of promotional activity is to try to bring more balance with the core. The franchisees committed to narrowing that value gap
With core menu, actually dropped prices on Big Mac and 6-piece nugget, so that there was more balance across the menu from the EUR 1.10, the EUR 1.20 cheeseburger, EUR 2.99 Big Mac, a EUR 6 or EUR 6.20 value meal, and tried to reset. Again, resonated with the consumer, but didn't drive traffic. 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. As we continue forward, it's trying to tweak that complexity in the new offering that we created, which did resonate because our EDAP sales are actually up, but we didn't get the add-on customer back. That's the customer that we've got to go bring that balance back into the menu, and the team's working through that right now. 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 DiFrisco, Buckingham. I've got two questions, actually. Big picture, Don talks a lot about how 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? 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 lift, clearly, from the investments. I would think that it's 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. On the growth piece, now you're talking to the guy who's heavily biased towards growth, right? This is the first decade of 2000. 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. 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 one, and we're trying to reclaim that footing. Would you prefer a different economic environment to go after this? Yes, if you don't fill that void, being number two 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.
I could go through the markets where we're not number one, and we're trying to regain that number one footing in the IEO marketplace. The second thing was around pressure points on the franchisees.
Yes.
Yeah.
For both markets, 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.
Yeah.
Here in the U.S., delivery, one of your smaller competitors, Panera, they're obviously diluting themselves for the next two years as they go into this whole massive technology investment within the store and delivery outside the store.
Right.
What are you seeing as far as incrementality? Are you seeing incrementality? We don't see it in the comp growth numbers.
On just delivery? 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 to the franchisee.
The economics, no doubt about it, are stressed today in a lot of these marketplaces. Wage inflation. My big inputs, as you know, wage inflation, food and paper, occupancy cost, and new store drag. Those are the big four. Our backdoor impact this year is forecasted at 1.5%, which translates into about a 0.5% impact on food and paper for us. You've got a lot of inputs that are putting pressure on the P&L. That is where we then went after heavily on our go-to-market strategy. 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.
For us, and I was just looking at the numbers in advance of this meeting, Our new store returns across all of our markets are, and this is the first-year return, are in the low double digits. Our three-year ROIC is in the high teens. Again, to me, that's a better barometer of how we're performing. Just like in a lot of markets, when you're 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, you just hurt yourself in terms of franchising and that effort. On delivery, we're seeing organic growth comps of double digits in delivery. We like what we're seeing out of that.
Delivery today is in the neighborhood of, just say, getting close to 5% of our sales all across APMEA, and that's without Japan and Australia being on it, We've got test cells within those markets. 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-through, that's our answer to drive-through business. 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. With our web ordering system, we're trying to leapfrog through that call center.
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, 5-10 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 second and just expand it a little bit broader than the APMEA region. When you think about it, we've talked a lot about the fact that we are targeting strategic growth. We're 1,500-1,600 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. We're at a different stage of that compared to years ago in the early 2000s. The other thing is that development is a long-term process.
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, et cetera. I think the last thing is the point to tag on to Dave's, and that is that our new store returns are good. They're healthy returns. In many cases, particularly in APMEA, they grow over time. It's a place that we feel good about investing in our business, back into our business.
I think from a European standpoint, obviously Dave is the biggest contributor from a new restaurant growth. 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. 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. There's been a shift in Europe where we've gotten through this big investment. 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 5-7 years in Europe. We still have opportunities.
As we explore this opportunity to grow, we're going through this next round, and we still have some capacity opportunities. We're blowing out some dining rooms, and we're accelerating side-by-side drive-throughs in restaurants that now have the potential to give us more capacity. We look at our overall investment in Europe. It's skewed now significantly to new restaurant growth. The returns continue to be strong. The other thing that's happened across a number of markets in Europe, competitive interest in growth has become much stronger. Even in markets that have economic stress, like a Spain, there's still competitive growth. In Russia, we're growing significantly, and yet there's significant competitive growth in Russia. 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.
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. We see the returns on new restaurants to be great. The impact is not great on the existing portfolio. I think one of the challenges, and we've been learning from Dave, but we haven't had some of the pressures, is our startup cost. We absorb them pretty quickly. 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. Obviously, you're going to have some impact. There again, we watch it closely, and I think the tools that we have today versus five, six, seven 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.
If I could add just on new store drag, we don't share these numbers with you, but this in China, what we were seeing on new store drag was the reaction on when we went to go-to-market strategy there. 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. 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." If we get to the fourth quarter and trade areas and open up, the traffic generators aren't there. We decide 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. 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. We're reacting and being smarter about how we drive this growth across APMEA.
Okay. We've got Karen, Nicole, then I think it's Sara, and Jeffrey.
Hi, Karen Holthouse from Credit Suisse. One for Dave and then one for Doug. Just to make sure I understand this, in APMEA, with the franchisee royalties, is the idea that they sometimes start lower and then step up over time?
That's correct.
Okay.
Yeah.
With some acceleration in global development, is that meaningful enough that it would have an impact on the blended royalty rate in the region?
No.
Okay.
Yeah.
I guess this is a question for Doug, or maybe both of you. Given that we've seen a much more volatile global economic environment over the last five or six years than 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 of 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've fundamentally changed that thought process. I believe that's always played into the franchising strategies around the world. I can tell you from a European standpoint, obviously, we continue to play that into the dialogue as we go through franchising and re-franchising opportunities. It is a consideration, but I think that we start with the premises, what's the potential? What's the potential of the marketplace? How to best capture that potential, then you start to get into the alternative strategies. Clearly, 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. I gave you two examples of Belarus and Slovenia wasn't an overnight decision. We've been working through that for several years.
We get the right candidate, we determine we've got the right opportunity, and you pursue those. We do pay attention, as that's 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 on 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 partner is accelerating their growth. 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. It's a standard practice often that you've got escalations built into your contract. If there's pressure points, it would maybe be not triggering the escalation in a given year and waiting till the next year. 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 lent 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? 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 Solutions happens to be a company that we've used in a number of markets around the world. They're a partner in helping us understand the business. Not all markets use RMS. I'd say what's even more important is having analytics and foundational dialogue in the marketplace and engagement with the franchisees. 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. I would tell you that, as in any business, we've got some role models out there in how that engagement process takes place. 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 absolutely dissect everything that goes on in the makeup of their product mix and their business and understand the consumer and the environment they're in. 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. There's a couple 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. Very important and certainly we encourage that strongly with the franchisees. Obviously, you know that they have the right to price the way they want. I think overall it is effective.
On loyalty, the market I was referring to is Japan. We've been on that for 10 years. We've probably got a subscriber list of maybe close to 15-20 million people. Again, that has been primarily driven by couponing and coupon distribution. Now how do you translate that into real engagement? 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 favorite suggestive selling things along those lines to encourage loyalty and trade-up. 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 like I said, that's the big prize and 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. Again, the visual folks will say the prize is CRM and loyalty. Japan is our litmus test, but I think it probably has opportunities to use that base more than just as a coupon distribution base. 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. 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? How does the process go for you?
Thanks, John. I think you've kind of, in many ways, answered that question. You're looking at the right decision for the business for the long term. Okay. 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. You're going to have some transactions that dilute income. You're going to have other transactions that truly are from day one incremental. It plays into the decision-making process. Again, it's trying to make the right long-term franchising decision in terms of the context of the individual situation.
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. They all don't come together at once either. Franchising is a very complex strategy in and of itself. We do pay attention. We don't have any firm rules that would cause us not to make the right long-term decision because of a short-term consequence.
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 like that.
No, that's fine. Pete, obviously, will 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.
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.
Yeah. A little over.
years to gain traction to where you got to where the operators would say, "Hey, that's a sustainable business day part." Across Europe, we've got markets who have reintroduced breakfast. We have markets that are on that journey to build breakfast to double-digit, then we've got a couple of folks that are down there, and it's like, what is breakfast? We don't go in year one in markets where we enter the breakfast business and expect to make money. There again, you look at it as part of long-term strategy.
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, then you've got a Poland and a 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. Across Europe, I can tell you, those markets that are in it's one of our best growing day parts consistently, and it grows over time. Looking at Germany and France, for example, which is a couple of thousand stores in total. I saw breakfast in Germany 15 years ago, and I know there's been some kind of puts and takes there. Are those big markets making money in breakfast? Have you crossed the break-even point there?
In Germany, I would say we probably haven't crossed the break-even point. I don't have substance to back that up. We're growing breakfast, so it's, in general, relative to everything else, it's doing better than the other day parts, 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. 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.
Hi, thank you. Sara Senatore back here. Is this on? Yeah. I'm sorry, I missed a couple of the first minute, so I hope that I'm not being repetitive. 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. I'm trying to understand, these bakeries, how they're out-competing on value. I always think of McDonald's as scaled and with the best cost structure. I guess I'm not really sure I understand how many but still small chains or individual restaurants could have better value. 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.
Is there any sense that maybe you do go back to a dollar 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. 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. 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, there's a tremendous attention to value for the money. I'd say this bakery business, while it was basically a bread and a drink business, all of a sudden the bread has become more sophisticated. Now you've got cheese and you've got cold meat, 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. The price point that they go after is very low versus a traditional McDonald's product. We do compete price-wise, but that's where the consumer has gone. 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 EUR 1 as our anchor in the Einmal Eins menu? We've talked about that. The key is bringing new relevance and bringing it not only at the EDAP level, but across the entire menu. I think that's part of our evolving strategy.
We did bring back EUR 1 entrance into the existing One Plus One, 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. The key is to make the right decisions that engage and gets that customer back to us as well. We're working through it, but the answer that we've determined is it's not necessarily to 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. 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.
Yeah. It has. Australia's not nearly in the same position as a Germany or a Japan in that respect. 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. While we're seeing green shoots, value is clearly going to be what sustains us. As you know, in a competitive set, there's moves and countermoves. 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. I think in 2013, we got a little bit too cute with margins, and some of the wage increases there, it allowed the competition to creep in.
What we're seeing now is some traction with some of the value offerings, I'm going to run through a few of these for you, still, it's difficult for us to cut through at this point. Right now we're hitting Loose Change Menu again, that'll continue. We've got $5 and $6 lead EVM price points there. We've got some breakfast value, $1 cheeseburger, and a $1 Frozen Coke to match Hungry Jack's. We've got the value offering, again
This is going to be a big play for us as we start filling the pipeline on innovation again there in Australia. I like what I'm seeing in terms of their commitment to value, in terms of the operator alignment behind that. Again, 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, that's a bypassed event for us. 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, we feel good about that. We had it in the first quarter in 2013. Now we've moved it to Q3. We're testing and about to scale McCafé specialty coffees through drive-through. It's the first time we've ever done that. We're seeing some great results out of that. Taking the learnings of what the U.S. did in that respect from an execution standpoint. 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. We're in the process of scaling that across the five states. 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.
Australia needs to be the pipeline of innovation for us as its own. You're going to start seeing those investments pay off in 2015 in terms of filling the pipeline. We've got a number of other things around mobile ordering that we're scaling. We've got test sales around bone-in chicken delivery that we're excited about reclaiming burger leadership as well in the marketplace. We're starting to build out a family restaurant concept in Australia. We've got, sort of, in the ground right now, seven, eight. This is going to be a targeted family restaurant in certain mini markets. It's a complementary restaurant, but what we've seen and how it's performed has been significant. It's a complementary piece to our portfolio. Those are, I would say, some of the high points for Australia right now.
Hey, Sarah, just to add to what Dave said. He mentioned this, they might have got a little cute in Australia with the value proposition, we're continually working to maintain relevance when it comes to consumer on that value proposition. I do think that if you look at Germany, profit objectives sometimes get in the road and cause us to lose relevance. I think that's the key that we're working through right now in Germany. Clearly, we've got to bring relevance back. In that process, hopefully, over the course of this year, we're going to bring that relevance back, I think simplifying some of the communication that exists with this complexity of One Plus One. When we got the operators back in, we reset some core pricing. You put that all together, that's the effort that's taking place.
It's not simply to go back to something back in time that worked, but learn from it. 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 there's a huge reset. Even looking at last month, where we had Monopoly a year ago, we moved Monopoly back into the back end of the calendar this year. You took a pretty successful tried and true driver out of the April calendar, and that was an impact to us as well. There's a rework on that calendar that's taking place.
Hey, Jeff Bernstein again. Just two questions. One from a cost standpoint, perhaps for both of you. When times get tough, we see a lot of companies cut back costs. I know Pete talked about at the corporate level that they're re-looking at the cost structure. I'm just wondering at the individual regional level, whether you think there's a meaningful opportunity on any fronts, 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. Then just, Doug, at some point, you could just mention something about Russia.
I know it got a quick mention earlier on, 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. Just kind of your big picture view on Russia recently seeing slowing trends.
For labor and food costs, I mentioned factor costs on food costs of 1.5% for us. The forecast for the year translates into about a half point on the P&L. 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, a lot to do with these emerging markets Elections and things like that. China's in the middle of a five-year government wage increase, and difficulty in terms of matching that with price increases as well. You've got that bit of that rub. That's kind of what we're seeing in APMEA right now.
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&A side, our franchising efforts will yield a reduction in G&A for us. Again, because you're ramping up and growing, it'll get masked by, say, our ratio ads on restaurant, span of control in restaurant, and the infrastructure that we put behind, whether it's field service or company-owned. You won't be able to strip that out. As I've looked at our franchising efforts, we will see a decline in G&A in our part of the world on that. The rest of the stuff is we're bullish on G&A. 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.
Yeah, 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. I know Doug would be consistent with that as well.
Yeah, I don't know if I can add much to the G&A side other than first quarter, obviously, we hosted the Olympics in Sochi, so we had a little bit of a spike if you're looking at components. Certainly, we continue to look at the structure and franchising plays into it. Priorities play into it as well. When we're looking to evolve and take on new initiatives, we're looking at where we can redeploy resources versus simply adding resources. I think that part of that G&A effort is to redeploy versus add, and then where there's opportunity to become more efficient, then 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 1%-2% food inflation, food and paper inflation, is still valid.
There, again, is probably for us, 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. 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's roughly 5% of system income. At the end of the day, you're not talking about a huge piece of the business. When you look at McOpCo margins in Europe, we've managed it very well. Understand that Russia and U.K. make up almost half of our McOpCo margins. 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, 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. That was the first time that's happened in over a year. There again, I don't think that's a structural change. I think it's a combination. Easter played funny in Russia this year. That was a piece. There is slowing GDP growth in Russia. That's a fact. That's a reality. I know the IMF now formalizes the fact that Russia is in recession. There again, they're still growing IO, 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. We'll continue to manage through that. I was there last week. It's an exciting, vibrant marketplace, and we need to continue to be part of that success model.
Great. Peter Saleh, Telsey. Just a question on refranchising. I just wanted to come back to that. In the context of all the inflationary pressures, we talked a lot about labor inflation, commodity inflation. We talked 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? You have a long list of franchisees who want to buy some of these stores. 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 have no problem lining up franchisees in our markets. 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, the easy money has already been taken out of the market, right? A business like McDonald's and the brand that it carries is a very desirable business for our partners. In China, we've got a long list of partners wanting to get into a marriage with us. We haven't seen a problem. At all. Then on the conventional licensees, most of our franchisees are under 30, 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. We have not had any issues.
Where you get pressure points would be, obviously, Japan right now is a pressure point with us. Again, we're on top of that, and we're actively involved with our franchisees there as well. Anyway, that's how I would address that.
Peter, I think it's consistent virtually everywhere. You take markets like a U.K. or Poland where we have opportunity to re-franchise. We're managing the throttle there more so than the franchisee. They're hungry to grow. We want to make sure they're operationally ready, financially ready, make sure we're making the right decisions. There's tremendous demand, and we've 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 DLs, for us in Central Eastern Europe, we have significant lists of interest. The challenge is to mine through that and make sure that we're getting the right candidates. The demand is there. The challenge for us is making sure that we're getting the right candidates for the long term. I don't worry about, right now, a shortage of candidates.
You take a market that's strained, and Dave has Japan, I have Germany. 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? We have good cash flows. They want to grow, and there are second 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. There, again, there's still not shortage of demand.
We're winding down on time. Go ahead.
We have about three more people in the queue.
Okay.
This is RJ Hottovy from Morningstar again. I 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, then potentially longer-term opportunities of a beverage-specific loyalty program, not only in Europe, but possibly Asia as well.
Thanks, RJ. Coffee is a vehicle for us in Europe to engage in breakfast. 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. 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. The vehicle that we can use is the technology. Sweden happens to have a loyalty app, and they're very advanced. It's a very advanced culture. Everybody has a smartphone, if not two. They deal in credit, they don't deal in cash. So it lends itself very well.
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. 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. Then you build that with customer relationship management and use that technology to personalize the engagement. Coffee and breakfast is going to be one of those vehicles that can use that in a number of markets.
I would tell you that potential in the experience of the consumer and using digital technologies to engage as well as affect the experience, we haven't even scratched the surface yet, but we're close. As we get the foundation right in more markets, and we're on that mission right now, and France, and following behind that, Austria, we've got a couple market examples that are starting to show us that potential.
I would answer it the same way. We're giddy about digital as an enabler. For us, McCafé, unlike U.S., is a brand and a place within our restaurant. 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 five or six specialty coffees and get one free, the punch cards. Actually, very effective. How can you add some modern technology to that? On mobile efforts, and we think that's going to be significant. 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's a whole bunch of opportunities.
APMEA is the place for beverage innovation and creation. What we're doing around specialty coffees, around frappes 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 as sort of a poor man's dessert, has performed very well. Soy milk platform is starting to take off in China. Bubble teas. We think all of that, coupled with digital as an enabler, we think that's a big space for us to play in. It's just a matter of which of these are under the McCafé umbrella and which of these are under the front counter drive-through umbrella for us.
We have two people left in the queue that we're going to be able to take. I'd ask if you can just limit it to one question. That would be great. Thank you.
Hi, it's Diane Gingrich Berg, CLSA. I wanted to know if you could talk specifically about your processes in terms of consumer engagement. We've talked a little bit about the technology and platforms, as I'm sitting here, I'm thinking to myself, it's not just about the EUR 1 cheeseburger. It's really about how the consumer defines value, then kind of operating consistently against whatever consumer messaging you have across a store base as large as you have. I've seen some really interesting things that you've done, like in Australia, where you have Track My Macca's 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, then how do you manage it when you have, whatever, 34,000 restaurants or whatever, against that kind of just blocking and tackling it consumer by consumer? 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.
Yeah. 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. Our centralized consumer and business insight teams actually perform that. We source that out to agencies to work with. That's kind of a base platform. On value, we've got a policy where every two to three years, we update our price sensitivity studies, that's another piece along with our, we're constantly, through CREST or FastTrack, tracking our brand scores on value for money and things like that. The data is there as part of our planning process, what we call phase zero to phase one and phase two.
The early stage is all about understanding where the consumer is at, understanding what the business issues are in the marketplace, market questioning with your, whether it's your staff or your owner-operators. All of that is part of that phase zero leading up to where you start really getting into strategy around your three-year plan. It's a robust process. Hopefully, that answers your question a bit on that for APMEA. That's how we run it across APMEA the investments we make in that area. Track My Macca's came out of really a need for our brand scores in terms of our image as a Good Neighbor in the community 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 a 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. We think Track My Macca's is, again, a nice best practice for the system in terms of creating a fun way to engage on where your products are sourced. Our Food. Your Questions. is about real conviction on your brand. Doug answer that, and then I can come back to digital then.
Diane, I think 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. Some markets were more effective in the whole process of consumer engagement, understanding, and doing the research. In the last 12 months, we've significantly increased that, not only in Germany, but in all of our markets, we've done reassessment to make sure that we 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. 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.
In Germany, I would tell you that historically we were probably light on research. 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. Dave talks about Track My Macca's or provide that engagement with the consumer to understand what we stand for. That was one of the big breaks in Germany, and we saw a little bit of it in general monitor information. When we really went 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.
I would tell you, around the world, and particularly I know in Europe, our research and our engagement from a consumer standpoint has 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. It's two things. Digital in Europe is about making it more convenient and more fun and easier for the consumer. I believe that the global platforms that are developing right now are 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.
I would tell you 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-thru. 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 trials going on just to see what even delivery might mean. Make it easy for the customer.
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.
Dave, if you have maybe just a point or two, and then we did promise we'd have that one last question that we would-
We can get into this on the side. It's our ability, how nimble we are right now. 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 and Europe, and the U.S. reports into Atif. In the past, we've kept those sort of independent and decentralized. 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. If you've got the infrastructure in place, NewPOS, dual point and things like that'll give you a leverage to scale.
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 POS 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. Rachael 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 first-year returns were double digit and three-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 foot that with the fact that the per store profits and returns within each of the regions appears to be declining on an aggregate basis?
How do you handicap or think about the probability that two or three years from now we'll look back and say, "Oh my goodness, maybe that growth strategy wasn't the right one, and we should be going back to better, not bigger"? Thank you.
If you look at, like you said, if you look at our history in the 1990s, we grew, and we drove AUVs down, while we grew units and we planted units. However, those units that we planted in the 1990s and through that decade, beared a lot of fruit for us when we stopped growing in the 2000s. Okay? I think instantly when you look at it, you say, "Oh, growth, we didn't know how to manage it." I don't think we didn't know how to manage it. This is what Kathy's point around the tools, the sophistication, the processes, et cetera. I'm of the school of thought that if you treat your brand like an annuity, you're destined for decline. You have to be growing and taking advantage of the opportunities in these markets.
We've gotten smarter in terms of the quality of sites we're opening up. There's a tremendous amount of pressure on the margins, again, as we've talked about already, it's a top-line game. Sales cure a lot. Driving demand is what we're focused on to cure some of this. It's been tough the last couple of years as we've opened up more restaurants. I'm convinced the opportunity's 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. I think APMEA needs to be the portfolio for growth, but I don't think one size fits all across all the markets. You heard Doug say he's 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.
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. Thanks a lot. Safe travels.