Earnings Call: Q2 2014

Jul 22, 2014

And welcome to McDonald's July 22, 2014 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question and answer session for investors. I would now like to turn the call over to Ms. Kathy Martin, Vice President of Investor Relations for McDonald's Corporation. Ms. Martin, you may begin. Thank you. Good morning, everyone, and thanks for joining us. With me on the call are our President and Chief Executive Officer, Don Thompson and our CFO, Pete Benson. Today's conference call is being webcast live and recorded for replay by phone, webcast and podcast. And before I turn it over to I want to remind everyone that the forward looking statements in our earnings release and 8 ks filing also apply to our comments and both documents are available at www.investor.mcdonalds.com as are reconciliations of any non GAAP financial measures mentioned on today's call with our corresponding GAAP measures. Now, I'd like to turn it over to Don. Thank you, Kathy, and good morning, everyone. Before I discuss our Q2 results, I wanted to provide a brief perspective on our performance relative to our expectations. I also want to share with you how our strategies have evolved to guide our actions going forward. As we shared with you at our Investor Meeting last November and in the last couple of quarterly calls, we entered 2014 well aware of the challenges we faced growing comparable sales and margins amid ongoing broad based challenges and cost pressures throughout our P and L. And we don't expect any material changes to this operating environment in the second half of the year. Our financial model is built on growing comparable sales, which in turn drive profitability. So when comparable sales are relatively flat as in Q2, our ability to grow income is significantly impacted. We've often said there is no one silver bullet or single solution for driving sustained growth. In fact, the key to our success over time has been that we have executed multiple initiatives simultaneously. Enduring success requires an ever stronger foundation. So we are pushing forward on multiple fronts as we focus on those areas within our control to enhance our relevance and appeal to consumers. Earlier this year, we evolved our Plan to Win framework, refocusing our planning and actions on what matters most to our customers, relevant food choices, easier engagement with our brand through digital and greater transparency into the quality of our food and what we stand for as brand. Serving good food through good people and being a good neighbor in the communities in which we operate is what McDonald's stands In April, we shared our updated global plan to win framework with more than 15,000 franchisees, suppliers and company employees at our biennial worldwide convention. Our decentralized system is now moving forward as one with more than 35,000 restaurants in 119 countries, aligned around an evolved global plan to win framework and executing in a way that takes into account local consumer needs and local business environments. As we work to regain business momentum, we're pursuing 2 parallel paths. First, we're strengthening key foundational elements of our business to deliver a better overall customer experience today. And second, we're making progress on comprehensive strategies in pursuit of the sizable growth opportunities that lie before us. These activities are interrelated and together they position us to drive profitable growth over the long term. Let me talk first about the work currently underway to fortify foundational elements of our business today. These include value first. We're evaluating the relationship between pricing and quality perceptions across our menu board and that's because value is one of our brand pillars. So we must continue to fortify our position within this key consumer attribute. 2nd, operations and service. Around the world, we are enhancing our operations and service platforms to improve the customer experience and ultimately increase visits. This includes the service reset in the United States and service and kitchen enhancements in Europe. 3rd, marketing. We're taking actions to reestablish our marketing leadership position globally. In some markets, this means adding fresh perspectives by bringing in new leadership or agency partners. In others, it means heightening our awareness of how customers use McDonald's and creating stronger messages to reinforce our place in customers' lives. And around the world, we're also strengthening our creative messages by placing greater emphasis on the quality of our food and again reestablishing the emotional connection that our customers associate with the McDonald's experience. The 4th area is simplification. We're streamlining our merchandising menu boards and product offerings. And in addition to making it easier for customers to order their favorite products, this will reduce complexity in our restaurants, which in turn should enhance accuracy and speed of service. Getting these foundational elements right is critical to maximizing the impact of the additional growth initiatives that we are actively pursuing within the strategic priorities of the Plan to Win framework. Specifically, these growth initiatives include menu customization and personalization, digital engagement and brand trust. In the area of menu customization and personalization, our initial efforts focus on delivering the best burger experience to our customers. I'll talk more later about a learning lab we recently established in the United States to help us better understand what matters most to customers in this arena today. We're also accelerating our digital efforts as we've talked about before, leveraging learning from markets like France and Australia who are now executing some elements of our e commerce digital strategies. We're also testing various additional elements of our strategy in other markets, like the U. S, Sweden and the U. K. As we refine and execute our global digital vision. And we're taking meaningful action to become an even more respected brand, including our work with the World Wildlife Fund and the Alliance For A Healthier Generation, which was founded by the American Heart Association and the Clinton Foundation. These represent just a subset of our broader sustainability efforts. We're pursuing these initiatives holistically and building on investments we've already made to deliver an unparalleled experience to our customers and consumers in general. It's these combined efforts that give me confidence in the future and our ability to drive enduring profitable growth for our system and our shareholders over the long term. Let's now turn to performance for the quarter. Global comparable sales were relatively flat for the Q2 and comparable guest counts were negative. Operating income was down 1% in constant currencies and earnings per share was $1.40 a 1% increase in constant currencies. Several markets delivered solid results. Stronger operating income performance in China, the U. K. And France was offset by weaker performance in markets including Germany, Japan, the U. S. And Australia. These four markets remain priority areas of focus for us and I'll talk more later about the actions we're taking in these markets to reignite momentum. We're moving with a sense of urgency, but recognize that it will take time to see the results of our actions. Our franchise business model is a clear advantage for us, but it also requires alignment around our plans and actions and this takes time. Once aligned, it takes time to enact changes in the restaurant and time for our customers to notice the changes we've made and reward us with more visits. Therefore, we expect continued volatility across markets for the second half of the year and expect full year 2014 global comparable sales to be relatively similar to year to date June performance, with July global comparable sales expected to be negative. Let's talk more specifically about performance and the actions we're taking by geography, starting with the U. S. In the United States, comparable sales for the quarter were down 1.5% and operating income increased 1%. While comparable sales were disappointing, the U. S. Is making progress in 3 critical areas: improving service through their operations reset, focusing on menu and strengthening our marketing position. The service reset was to place greater emphasis on the critical role of proper staffing, scheduling and positioning in our restaurants across all dayparts. Over the last 6 months, our operations support staff have been consulting with all franchise and company owned restaurants to recalibrate around service and customer experience standards. Restaurants across the U. S. Are now executing their plans and we're beginning to see a reduction in order accuracy complaints. From a menu standpoint, we're placing greater emphasis on the balance between our core classics and the number of new products that are being introduced into the marketplace. And this is to ensure that they can be delivered at the speed and convenience that customers expect from McDonald's. We're also continuing to innovate. We recently tapped a restaurant on the West Coast and created a learning lab to help us better understand what matters most to customers when it comes to delivering the absolute best burger experience. It definitely starts with great ingredients like our high quality burger, 100% beef with a pinch of salt and pepper, but it's more than that. It's about creating an engaging experience that addresses all elements of customer sensory perceptions and leverages the investments that we've already made in technology, reimaging our physical plants and digital to create a more personalized, memorable experience that our customers will feel good about. The U. S. Is also taking actions to strengthen marketing leadership. We reorganized the marketing department and are reallocating our media mix to place greater emphasis on digital channels. We're also strengthening our creative to connect more deeply with customers, placing an even greater emphasis on the quality of our great food and on the strong emotional connection the customers already have with our great brand. Let's now move to Europe, where comparable sales were down 1% for the quarter and operating income was down 4% in constant currencies. These results reflect solid performance in the U. K. And France, partially offset by weak results in Germany and a slowdown in Russia. The U. K. Track record of solid performance continues due in part to its strong customer centric planning process. While 2nd quarter comparable sales were positive, they softened compared to recent trends, partially because we're now lapping last year's successful blended ice rollout. We continue to grow market share through strong premium promotional activity, which is complemented by an ongoing focus on breakfast, extended hours and side by side drive thrus. Comparable sales continue to be positive in France and we're gaining market share despite a contracting informal eating out industry. The recent launch of a new premium chicken patty in April helped reinforce strong food quality perceptions in the marketplace. Germany remains a primary area of focus as negative sales and guest count momentum continues. The leadership team is actively working to reset the foundation, focusing its efforts on improving our food quality and value perceptions and regaining consumers' trust. This includes strengthening our marketing organization and creative and evaluating our affordability platform to ensure that we offer compelling value to customers across the entire menu. Now let's shift to Asia Pacific, Middle East and Africa, where comparable sales were up 1.1% for the quarter and operating income increased 1% in constant currencies. Strong comparable sales performance in China as well as positive performance in many other markets was somewhat offset by continued weakness in Japan. In China, comparable sales increased 8.8% for the quarter, partly reflecting the lap of last year's avian influenza. Given volatile consumer sentiment in China, we're focused on enhancing our all day value platform to drive traffic and grow market share. At the same time, we're building on our strong momentum in breakfast and through brand extensions such as delivery, dessert kiosk and mid cafe. In Australia, affordability remains key to driving traffic with consumer confidence at the lowest levels since 2,008. We're strengthening our value proposition by relaunching our loose change menu with compelling value offers and we're also making it easier for our customers to enjoy the great tasting McCafe beverages that they've grown to love. Negative momentum in Japan persisted in a highly competitive environment in a contracting and formal eating out industry. The leadership team remains focused on regaining customer relevance and loyalty by repositioning the affordability platform to resonate more strongly with customers, while working to differentiate the McDonald's experience through menu innovation and a focus on the Family and Happy Meal business. Around the world, markets continue to adjust their plans to be even more relevant to customers, but we recognize again that it will take time to reignite momentum. Overall, 2014 is a year of strengthening the foundational drivers of our business, activities that are critical in enabling and advancing our longer term strategies. Even during periods of softer performance, our business continues to generate significant levels of cash. Our first priority regarding the use of cash is to invest in our business to drive future growth and future returns. In addition, we've established an $18,000,000,000 to $20,000,000,000 cash return to shareholders target between 2014 2016. Year to date June, we've returned $2,800,000,000 towards that goal. I want to close by reemphasizing my confidence in McDonald's. We continue to move forward as one system, guided by the framework of our global plan to win and relentlessly focused on the significant opportunities that exist within our strategic global growth priorities to optimize our menu by serving our customers' favorite food and drink, to modernize the customer experience so that it's even more memorable, to broaden accessibility so that we deliver on parallel convenience and to become an even more trusted and respected brand. We're moving forward thoughtfully and with a sense of urgency. Our plans and actions build on our core strengths and I'm confident that they will ultimately result in additional visits from new and existing customers. Thanks again everyone. I'll now turn it over to Pete. Thanks Don and hello everyone. The McDonald's system and our financial model are built with the expectation of future sales growth. Yet we know from history that our top line growth over time is neither consistent nor linear. In addition, any growth is a product of the significant base off of which we operate, which includes serving approximately 70,000,000 customers every day and generating industry leading average unit volumes in virtually all of the countries in which we operate. Importantly, this large base also provides financial resiliency during periods of softer performance. Though we did not meet our growth targets through the 1st 6 months, McDonald's generated over $4,100,000,000 of operating income. Our strong financial foundation allows us to remain focused on the significant long term opportunities that we believe McDonald's is uniquely positioned to seize, which is why we continue our disciplined approach to investing in targeted growth opportunities. We know that enduring success requires an ever stronger foundation. So we are pushing forward on multiple fronts, guided by our evolved plan to win framework and the strategic growth priorities. As Don discussed, it takes time to evaluate and align with franchisees on the changes needed and then implement them in our restaurants and time for customers to notice the changes and reward us with increased visits. I am confident that we are taking the right steps to strengthen our foundation and position the company for future growth. Our charge over the next 12 to 18 months is to accelerate the changes, effectively communicate the enhancements to our customers and execute at the highest standards in our restaurants. Now turning to the results. For the 6 months ended June, system wide sales increased 3% in constant currencies, primarily due to expansion. Combined operating margin declined 60 basis points to 29.7% over that same period, reflecting the softer results. McDonald's is primarily a franchisor with over 80% of our global restaurants operated by local business men and women. As such, franchise margins drive overall profitability, comprising approximately 70% of restaurant margin dollars. In Q2, the franchise margin dollars increased 2% in constant currencies, while the margin percent declined 60 basis points to 82.2%. Expansion continued to contribute to the margin dollar growth, whereas soft comparable sales, increased rent and depreciation expense and the impact of refranchising pressured the margin percent. Global company operated margin dollars for the quarter totaled 816,000,000 dollars a 3% decline in constant currencies. The margin percent decreased 60 basis points to 17.1% as relatively flat comparable sales could not offset cost pressures throughout the P and L. Europe's margin decline, which I will discuss in a moment, accounted for the majority of the global margin decline. In the U. S, 2nd quarter company operating margins declined 40 basis points to 18.3% due to higher labor and 3% higher commodity costs. As a result of effective risk management efforts and supplier production efficiencies, we are maintaining our full year outlook for the increase in our U. S. Grocery basket of 1% to 2%. In terms of pricing, the U. S. Is running about 3% at the end of June. This is the midpoint for the full year 2014 projected food away from home inflation of 2.5% to 3.5%. Through June, food away from home inflation stands at 2.2%. So we will be disciplined with future price increases as we move through the second half of the year. In Europe, 2nd quarter company operated margins decreased 80 basis points to 18.6 percent, primarily impacted by higher commodity costs in Russia and Ukraine due to weaker currencies as well as negative performance in Germany. Russia and Ukraine import approximately half of their commodities, most of which are denominated in either euros or U. S. Dollars. For a perspective, Russia and Ukraine accounted for nearly all of Europe's 2nd quarter company operated margin decline. Europe's projected full year commodity cost increase remains at 1% to 2%. Excluding currency, commodity costs were relatively flat in the first half of the year, which implies a second half increase of about 2%. Our menu price increases in Europe vary by market with the overall segment averaging about 2% year over year. Turning to Asia Pacific, Middle East and Africa. Company operating margins for the quarter decreased 60 basis points to 13.7% as positive comparable sales were more than offset by higher labor, occupancy and other costs. In addition, new restaurant openings negatively impacted the segment's margin percent, though to a lesser degree than a year ago. The decline in the margin percent was also impacted by the mix of relatively lower margin markets like China contributing a greater share of the overall margin dollars. That being said, we are encouraged by the margin percent improvements we are seeing in certain individual markets, including China in this high growth area of the world. With our current sales outlook and expected currency volatility in some of our company owned markets, we expect continued pressure on consolidated company operated margins in the second half. With more significant pressure in the U. S. Due to higher labor expenses, partly as a result of planned minimum wage increases in several states and likely less benefit from pricing. 2nd quarter G and A expenses increased 3% in constant currencies, primarily due to our One of our key competitive advantages is our One of our key competitive advantages is our size and scale and our convention is integral to maintaining alignment so that we can move together as one system. We have reduced our full year projected constant currency G and A increase from 8% to 4% to 5%, primarily due to lower incentive based compensation as a result of not expecting to meet our growth targets. Even with softer performance, the McDonald's business model continues to generate significant amounts of cash. Our first priority remains reinvesting this cash in our business to build future returns and enhance shareholder value. These investments are balanced between opening 1500 to 1600 new restaurants and reimaging over 1,000 existing locations in 2014. We remain committed to this effort and are making steady progress toward these targets. Through June, we have opened 461 new restaurants globally. And relative to reimaging, we have completed about 90 projects in the U. S, 100 in Europe and 120 in APMEA. Similar to prior years, new restaurant openings and reimaging projects tend to be more loaded in the back half of the year. Lastly, let me discuss foreign currency translation, which positively impacted 2nd quarter EPS by a penny. At current exchange rates, we expect minimal impact on 3rd quarter EPS with a full year negative impact of $0.04 to $0.05 As usual, please take this as directional guidance only because rates will change as we progress through the second half of the year. In closing, I remain confident in the choices we are making to position McDonald's for enduring profitable growth. We are patiently and deliberately making investments today to strengthen our foundation and leverage our significant competitive advantages in the 1.2 $1,000,000,000,000 global informal eating out category. Thanks. Now I'll turn it over to Kathy to begin our Q and A. Great. Thanks, Pete. I'm going to open the call for analyst investor questions. And then to give as many people as possible the chance to ask questions, if you can limit yourself to 1, again, we'll be able to get through questions everyone's questions that they have to the best of our abilities. And we'll come back to you with follow-up as time allows. So we're going to start with Brian Bittner from Oppenheimer. Thank you. Thank you very much and good morning. I guess my question here is, how much do you believe your ability to regrow same store sales for the system it's really completely under your control at this point. And what I mean by that is you look at your business and you're at peak sales per unit, really without game changing platforms in the pipe with competition that's, I mean, arguably more of a headwind than you've ever witnessed. And so I guess what I'm trying to understand from your perspective is what is there really that you can tweak at this point given all these factors that is really going to get some serious incrementality out of this asset base? You talk about better service, improved marketing, getting better at breakfast. And I just wonder if that's enough to really continue to try to get incrementality out of a $2,600,000 $2,500,000 as we defined? Hey, Brian, this is Don. Thanks for the question. Brian, I think there's 2 different things that are taking place. If I look at the longer term and you're asking kind of 2 questions, I think the short and the longer term. If I look at the longer term, Brian, I would tell you the strategic growth priorities that are set for the U. S. Business and around the world are solid, very solid. And they're really focused on and let's take the U. S. Menu customization and personalization. I mentioned starting with Burger Leadership, accelerating digital engagement, actually both the engagement and the experience. So e commerce is a part of that along with some other things that we're looking at delivering to our customer base. And then enhancing the overall brand relevance and trust, particularly around our food quality and employment opportunity images and the side of the business that people look to relative to that. So and those things are part of a much broader sustainability movement, if you would, in McDonald's that many people have seen. I feel really, really good about where those strategies are going. Those combined with some of the broader development strategies we've seen in markets like APMEA, those longer term strategies are solid. In the shorter term, what we're looking for is to fortify the base, the foundation of McDonald's today so that we're ready for those growth opportunities. So to your point, as we look at the basic marketing strengthening right now, We're making sure that the presence that we have, the awareness that we have and the share of voice that we have are solid, strong and allocated to the appropriate media. That's being fortified. But look at the operational reset in the U. S, it is focused on the peak periods and our ability to deliver at those peak periods, which has something to do clearly with the productivity in the restaurants and the staffing levels in the restaurants. And these are things that our leadership operators have discussed in United States with our U. S. Team and they're moving forward on those things. So supported by breakfast, the food quality messaging, the operations focus on the peak periods and staffing scheduling positioning and then reasserting marketing leadership, those are foundational pieces, but they have to be reestablished, Brian. Those to your point are probably more incremental. The other things that I mentioned, the longer term growth strategies are stronger relative to how we look at growth into the future. Next question is from Matt DiFrisco from Buckingham. Thank you. Wondering if you could talk a little bit or give us an update on the back of the house prep tables in the United States. And if we could expect what type of margin benefit at the store level have you seen there? Or the benefits that you can talk about that as well as any sort of new products that we could see as far as with the extended refrigeration life, what does this enable you to do maybe going down the line? Thanks, Matt. I'll talk a little bit about broader menu pipeline and then we can talk about the back of the house. Relative to the broader menu pipeline, in the U. S. Right now, they're really focused on a balance between our core products, the core classic favorites, the Big Macs, the Quarters, the Nuggets, etcetera and also the new products and new innovation. There are numerous products and ideas that are in the pipeline and in the global pipeline from around the world. Our U. S. Team is currently testing some of those and looking at some of those. They are still in the areas that we've mentioned of chicken, beef, breakfast and beverages. So if I look at the broader menu that part is intact. The relative to the kitchen and the productivity and efficiency initiatives in the kitchen. The high density kitchen was intended to give us more flexibility and allow refrigeration on the prep table, which gives us a little bit stronger capability relative to products. You will see, have seen a couple of products, but you will be seeing more products relative to that. But I want everyone to keep in mind, this is going to be a balanced approach. It is not all new products and not taking care of the core classics and favorites because we need to see baseline improvements in all the core products as well as a boost over the baseline based upon the new products that we implement. Our next question is from Joe Buckley, Bank of America. Thank you. Sort of a broad question. You've been talking about the global operating environment and certainly the operating environment in the U. S. Being tough for a couple of years now. And the strategies you're implementing are very execution focused and really haven't changed, but also don't seem to be gaining traction. What should we be thinking about over the next 12 to 18 months from an incremental change that can drive sales? And then secondly, does it make sense to keep opening stores at the pace, the current pace of expansion? I guess I'm asking the question globally, but especially in the U. S. Where I think you have a couple of 100 net stores targeted if I'm not mistaken? Hi, Joe. Thanks for the question. Last part first, if you look at the U. S. And you look at a couple of hundred stores, keep in mind a large portion of those are relocation based restaurants that we have. So on a percentile basis, the U. S. Is not opening a lot of stores. We are opening an opportunity and there continues to be market opportunities for McDonald's. But if there's not a lot of restaurants in the U. S, I think the number is about 120 stores net in the U. S. Business. So the broader development opportunities and growth opportunities across the Asia Pacific, Middle East, Africa region, across markets like Russia. Clearly, Pete, I and the team are looking at some of the markets like the Russia's of the world given this current economic environment and determining what we decide to do Russia, China, what that pace of growth looks like. We do that in an ongoing way. In the U. S, the focal point that we have to grow this business is as I mentioned, secure the foundational elements of the business. We've got to make sure that our restaurants both company operated and franchise are operating at the right level. So this is not about one side or the other side. This is simply about making sure that the restaurants are running well and that they're staffed effectively. Clearly, there's been some level of trepidation relative to staffing up our restaurants based upon some of the legislative impact of things that are coming down the pipe such as whether it be health care reform or the potential of minimum wage from a federal perspective, but even more broadly more state minimum wage increases. So there's a little trepidation relative to that. But as I mentioned earlier, the franchisees with our company team in the U. S. Have really had some great discussions around what they call operations reset and are focused on building the business at those peak periods. We understand how profitable that is across the dayparts, but we're also not giving up on the growth strategies. Those growth strategies around digital engagement, around what we are able to do with our ability to have a balanced menu and to afford customization for our customers that incorporated with some of the things that we're looking at and doing relative to reestablishing a higher respected brand profile for McDonald's. All of those things are going to be well intact and moving forward. So over the next 12 months to 18 months, expect to see us focus on both those parallel paths. In the near term, you're going to see more on the foundational piece through the rest of 2014. You'll see more of the other aspects at some point in 2015. Our next question is from David Tarantino from Baird. Hi, good morning. I just I wanted to piggyback on the last question and maybe ask from a big picture perspective, why do you think it's taking so long to stabilize the sales trends in places like the U. S. And Germany? And I guess part 2 of the question would be is, do you think you need to make more radical changes to the strategy than what you're talking about based on the trajectory of the recovery or maybe lack of recovery that you're seeing? Hi, David. Thanks for the question. I'll speak about this in 2 different ways. One is I'll give a little update on the priority markets and the other one is really how do we look at, I'll call it turnaround time. Taking the turnaround time piece first, We are clearly moving with a sense of urgency and anyone inside the system knows that and it's quite an aggressive sense of urgency. Towards the end of the Q1, we had priority market visits as we had talked about earlier on one of our calls. Post that time, the markets themselves with the franchisees and the company employees have been getting together to discuss the local action plans that it takes to drive the business. It just so happens in most of these markets those opportunities are around the 3 areas we've been talking about around the valueaffordability arena, around the strength and focus of our marketing and how we are marketing with a balance between core and new products and also making sure that as we look at our broader business that we are focused on bringing customers forward and they understand the transparency and food quality levels within McDonald's. So those things are things we're moving forward aggressively on and the markets are putting those plans together. In a franchised organization like ours, it does take some time. As I mentioned, the strength of our system is our franchisees. There's no doubt about it. At the same time, it takes time to get that alignment and then time to get these things in the restaurants and time for them to move forward. So we understand that. We understand the timeline. We want to do it right. I don't want to continue to have implementations that are not consumer based because then we come back 6, 12 months later and we're changing those again. So we're doing these things in the right way with the right processes, but it does take some time. The other piece relative to the priority markets, just a bit of an update. Different markets will take different times relative to their recovery pace. If you all remember back in the early 2000s, the U. K. Was a challenging market. It took us several years. And interestingly enough to focus on similar things that we're talking about now, slightly deeper hole at that time, but we've been able to come back with a very balanced approach and we've had very strong market success. Germany today is in that kind of a mode. We've got to have that kind of a recovery similar to the U. K. Japan is in a similar mode as that. I think the U. S. Is moving forward a bit at a bit more aggressive or stronger, a quicker pace if you would. However, it's still going to take time in the U. S. As we solidify these foundational elements. The Australia, Australia also I think will be at a quicker pace. We're able to still do some innovations in Australia while we fortify some of these base elements. In all of these markets, we've had some changes in our marketing functions and our marketing leadership. Some of these markets have had changes in our agencies. We've had some other leadership personnel changes in some of the markets. So we believe we are moving forward urgently and aggressively, but we're also doing it in a way that will have some long standing impact. And believe me, this is not the kind of thing that I'm comfortable about. This is not the kind of thing that I would say I sleep well at night overthinking that the pace of changes as quickly as I would like. But I know that the markets are going through this in an appropriate way and an appropriate pace and they are doing it with a sense of urgency. Next question is from David Palmer from RBC. Thank you. It does not look like McDonald's is defending traffic like it's done in similar periods of low industry growth like 2,009. You got price increases. I think you said 3%. And obviously, you're not pounding away on the dollar menu like you did back then. But I know traffic is important to you guys. So when McDonald's does improve its traffic, how do you perhaps it's a 2015 event. What do you think would be that driver? The key ingredients for that is did we lean on operations changes in digital engagement? Or perhaps could we see a return to more active food news or something else? Thanks. David, I believe you I think you just hit them. But again, I'll say that there are there's parallel paths here. We have to make sure that the foundation is strong enough to accept the digital strategies and engagement that we're going to be putting into the restaurant. The operational foundation has to be strong enough for us to be able to move forward with customization and personalization at the level that we want to at McDonald's. Back in 2000 and if you look in the 2,008, 2009 time frame, there was a this was a slightly different time frame. Several things and I'll mention a couple of them. One of them, the strength of the broader legislative impact on cash flow was not as aggressive. Having said that, what that means is that clearly as a franchisee or a franchisor, as we look at the margins, there is as I mentioned earlier, there has been some trepidation around if you step up then are you really going is this going to hurt cash flow even more. But I think that the strength of the U. S. Team with our franchisees is addressing that and beginning to address that appropriately relative to the need for us to do that to move into these growth strategies. So that part is a little bit different. The other thing is different is that back then we made a modification to the Dollar Menu, which was merely product based. And we were able to do that with one product change or at the time we had 2 product changes over about a 5 year period. At this point, we are looking at the overall pricing structure of our menu board because we have seen a bit of a split relative to the lower end of the menu and then the higher end. All of these things the U. S. Team is looking at as we look at the price tier. So there are a couple of differences David. Nonetheless, we're not giving up on value or affordability. And I know it's one of the things being implemented in the U. S. Business. And David, as you think about pricing for the rest of this year, we've said we're up about 3% trailing 12 June. But in May, we had about 90 basis points of pricing roll off from a year ago and we only replaced that with about 30 basis points of pricing. And as we look to that broader food away from home that's projected to be up 2.5% to 3.5%. It's only up 2.2% through June. So we're keeping an eye on all those metrics too. So don't think we aren't conscious of what that consumer is feeling today and their ability to come into McDonald's more often. And you're kind of walking that delicate balance between that aspect of the business as well as some of these additional cost pressures that Don mentioned that are coming down the pike. Next question is from Jeff Bernstein from Barclays. Great. Thank you very much. Don, maybe a follow-up. You talked a lot about the franchise system how it takes a little bit of time to move that system relative to if you owned it yourself. At the same time, I think you noted earlier this year that the franchisees based on your meetings with them, your discussions and whatnot, they're still very engaged and supportive of the corporate initiative. I guess you had your convention recently, but perhaps that's driven by the fact that profitability is still close to peak levels. But what are the complaints or rumblings you're hearing if any of late? I don't know whether there's any things that management feels the need that we need to prioritize this to address whether it's the new product news, the promotional activity, pricing, remodels. I'm just kind of wondering how that sentiment how those relationships just over the past couple of years with the struggles are trending? Yes. Thanks, Jeff. Anytime there's softness in cash flow, we will have we have to have even more effective discussions, even more planning together as to how we move the business. And there will always be concerns when we see softness in cash flow. This is a for profit business. And so that's going to occur. And our franchisees have those concerns as well as we do in company operated restaurants. So just to set that stage, we will always have when there's a softness in cash flow, the conversations we're having now. And the franchisees are not they are not at all time high. They've seen high levels of cash flow. And so they want to get back to some of those levels clearly. And we want them back at those levels so that they can have personal cash flow and invest in the business, invest in the communities the way that they do. So we have engaged in clearly a lot more conversations and communications around where we need to take this business. The other thing I'll say though, there's a realization that the franchisees have. They're not seeking and searching for silver bullet either. They understand what they've executed in the past to grow the business. It has been a group of initiatives that have had tremendous impact on multiple fronts. So as we look forward into the future, the fact that we're talking about food and the food experience, the fact that we're talking about the in restaurant experience with digital engagement experiences, the fact that we're talking about how this brand is perceived by consumers in their local communities, all of those things fit very well together and I think the franchisees are excited about that. Clearly, in the current situation and environment, there are concerns that the franchisees have and that is what we're working through with them. But I will say that our leadership groups have been at the table and have been solid relative to the way that they have given input, thoughts and guidance in certain areas they'd like to see us move in. And we're moving in many of those areas. Next question is from Jeff Farmer from Wells Fargo. Thank you. Just shifting gears a little bit. As you guys think about your plan to refranchise, I think you said at least 1500 restaurants. By the end of 2016, how should we view that as a potential impact on not only that consolidated operating income margin, but also your ROIC number. And again, I just ask that in the context of I think we're all pretty familiar with the margin tailwind you saw going back to the mid to late 2000s with developmental licensing and things like that in Latin America, big margin tailwind, big ROIC tailwind. As you look at these group of 1500 restaurants, how should we think about them? Jeff, yes, good question. Thanks. First of all, When we think about it, the next 2 years 2015 2016 will probably carry the bulk of that refranchising activity in part because there are some markets that we really need to build that franchising infrastructure around to get that going in a more significant way. That being said, directionally, while we haven't quantified some of those benefits that you're calling out, directionally those are benefits that we would expect to see to the P and L. So we expect franchising does have a favorable impact to our overall combined operating margin. It does have a favorable impact to the G and A levels that we need to support the business. It does have a favorable impact to the ROIIC. So those are all directionally consistent with where we plan to go with this refranchising. Our next question is from John Glass from Morgan Stanley. Don, you say you're moving with urgency, but around that you must have a set of deadlines internally and some goals. And it seems like you've pushed this out originally. Maybe you're talking about the first half of this year being a reset and maybe some benefits to the second half. Now it seems like it's really going to be pushed off into 15%. So what are the milestones specifically that you hope to achieve this year or even next quarter toward those goals? And specifically, when are we going to see tangible benefits from both the customization and the digital strategy either this year or if it's 2015? What is the time frame for those things? Thanks, John. The last part, customization and digital strategies, we're seeing certain things in some markets already. So we've got clearly as I mentioned, there are some things that we've been doing in France. There are some things that we're already doing in Australia from a test perspective. You'll see some limited testing in the U. S. The latter part of the year. 2015 again you'll see more robustness in terms of some of the things that will come to market in 2015. That is not saying that it will be January 1. That is saying that it will be in 2015. The aspects around what we're doing on customization and personalization, clearly, there's some things that we are looking at getting going this year relative to testing. It's a big system, getting the operators engaged. And I think the U. S. System has begun to do that. So I would say that you'll see more of that in 2015. That probably is as specific as I would get on that one. I think that we also have, if I look across Europe, some very similar initiatives. Some of the markets, as I mentioned, U. K, Sweden are doing some of the testing on digital. And again, we just mentioned France where they are. Australia will be a little sooner on the digital end. However, that's 2015 as we look at that latter part of 2014 you'll see some. So that kind of gives you the digital perspective. The menu piece and reestablishing our leadership from a menu and marketing perspective, When we talk about milestones, the milestones I have for the priority markets. So in Germany, we had to reestablish our marketing function. We have to reestablish a more solid and balanced marketing plan. That is what the German team is working through now with the franchisees. In Australia, they're having some similar conversations and working through that aspect of it and the balance between affordability core and the innovative nature of some of the new products. Clearly in the U. S, we've talked quite a bit about that. There is a sense of urgency. Yes, there are milestones relative to certain things. We'll have I have thoughts about everything from when certain changes occur. Are in the midst of the planning process now. And so we're looking at the plans for 2015 as we move forward. However, we have not given up on 2014. We have a lot of activities now to shore up the bases I've talked about and mentioned. So from a milestone perspective, believe me, they are there. They are aggressive. We talk about them routinely and we see them as we visit the marketplaces. What we're mindful of John is the fact that we want to make sure that this is done again, so it has sustaining and staying power, which means in our system this has to be a collaborative approach between ourselves and our franchisees. That's when things stay and last within the in the McDonald's system. So I feel that it's moving in an appropriate direction. I am impatient as well. Believe me, our senior team is, our operators are, but we have to do this and do it in the right way so that we have long term enduring profitable growth and not just a flash in the pan. But these are holistic solutions that will come together and I'm confident they'll drive the business over the long term. Next question is from Jason West from Deutsche Bank. Yes, thanks. I guess just following up on a lot of the other lines of questioning here. Just you guys have obviously not been sitting on your hands the last couple of years, but and you've seen some progress in certain markets, but overall some of these trends just seem to be getting worse. So I just wondered if you feel like you've identified why the traffic numbers are declining and you have a much better sense of that now than maybe you did a year ago. And just the learning lab that you mentioned on the West Coast to help understand what customers want, Kind of talk about how that's going to help you understand where the traffic is going and how to get people back in the stores? Thanks for the question, Jason. When we talk about a learning lab, so we have a learning lab in the U. S. Relative to that. We have a digital function over in Europe and France. We had the architecture, the core studio also over in France. So we have looked at we have a lot of data on consumers and what consumers are looking for from a trend perspective. When you look when we look at our base trend lines and why they move, where they move, why they've erode in these priority markets, we do today have a much better understanding of exactly why. We've had a bit of an understanding in the past. However, our actions have not coincided with the actual, I would say, the data themselves, when we put actions in place. And we've heard some of the actions. What we're doing now is looking at what those consumer expectations are and putting together plans that are directly linked and related to those consumer expectations. That is what we're attempting to do. So this is not chasing short term sales or short term guest counts. We are looking to continue to have a sustainability to grow guest counts, sales and profitability. So there are clearly there are things that we're looking at as we move forward and those are some of the initiatives as I've mentioned as we said on the call. Great. Next question is from Sara Senatore from Sanford Bernstein. Hi. Thank you very much. I want to jump over maybe to another part of the world just ask about China, because I know you've called it out as a point of strength. It looked like maybe June slowed in China maybe pretty meaningfully. I wanted to ask about that trend. I assume it's unrelated to some of the negative press we've seen. But if you could just comment on both of those dynamics as well as I think Pete mentioned maybe some still there's still a drag on margins from that kind of the lower margin and the mix there. Is that in any way a function I think if you haven't gone after more of a value message? Or is it just the sort of continued need to kind of scale up to see the margins have kind of more system wide averages? Sarah, it's Pete. I'll start on the margin end of that and Don will talk more broadly about trends in China. Our AMPIA margins over the next couple of quarters are going to be a little bit misleading because the while we're seeing growth in individual countries, so the quarter year to date, we've seen growth in the margin in Australia, in China, in Hong Kong, our 3 largest Macapco markets in APMEA. The fact that we've refranchised in Australia, which is our highest Macapco margin percentage is changing the mix to a lower margin percentage in total. And the fact that the Australian dollar is weaker when you translate that into U. S. Dollars that's giving even less weighting to Australia's high margins overall. So the segment virtually all of the segment decline was as a result of these weighting and refranchising combinations. China itself grew margins in the quarter year to date and the drag from the new stores was down significantly from a year ago. Now positive comps are clearly a driver of that. But the team you may have heard Dave Hoffman and the team over there talk about the go to market strategy, which is a very concentrated effort not only in China, but in some of our other emerging markets to really look at the cost of opening the new restaurants and challenging the level of investment that we need today? Or can we build the restaurant with a little less cost today, but build it in such a way that we can expand it easily in the future when sales volumes dictate versus building the restaurant today for a sales volume that we might not achieve until 5 years from now. So a much smarter approach I would say to the development and we're starting to see some of those benefits already in our margins in China. And John can talk a little bit more broadly about the market. Thanks, Sarah and thanks, Pete. Actually in China, Sarah, our market the market is performing solidly, quite solidly. And I'll give you a little bit of a background a little backdrop on China relative to the economy and then our performance, which actually if you look at our performance excluding the benefit of avian influenza for the Q2, it still would have been positive. So and over a 2 year perspective, we are growing our business in China. We're growing market share in China, top 10 markets. We're outpacing the competition in terms of growing market share. So we're growing solidly in China. The macro environment is still challenged. There's fluctuating consumer sentiment and that's expected to carry over into quarter 3. IEO visits are starting to recover a bit, but it's a little bit lower than it was a year ago. I would tell you that despite that some of the things we've talked about in some of the other markets actually bode true for China and we made those adjustments. So all day value we went from just a lunch time value to an all day value platform that continues to perform well. Again, relative to avian influenza, we're comping on top of what the impact of that was. Brand extensions are helping us to move forward. We focused on breakfast in China for the last several years. That's continuing to be a positive contributor. And some of these things are even in the face of other initiatives that we've implemented, some of the things we focused on with the Knight business last year. So China is actually moving in a positive direction and we feel China is actually moving in a positive direction and we feel solid about the performance in China. It is still a challenging economy, however, and everyone should realize that GDP is below 8% and we know what that means. There's still some acceleration in some of the operating related costs relative to labor as they look to normalize if you would to redistribute some of the wealth across China, so everyone grows a bit. But they're still growing automobiles. We're still growing drive thrus. Our sites are to Pete's point are solid in terms of the new sites that we're opening. We called some of the sites last year because we thought they may have been too early. I think Kenneth and the team have done a great job with that. So relative to China, we're feeling again that the performance in China is tough. Great. So we have 6 folks still in the queue. I know we're just about out of time, but we are going to take those 6. So for those of you who can stay over for a few minutes, we'll carry on. So next question is from Brian Elliott from Raymond James. Good afternoon. Thanks. Just as you look at the news this week out of China, are we at a tipping point? Are you considering potentially backwardly integrating to protect your brand? And what really are the solutions to the situation there from a supplier standpoint? Hi, Brian. We have some very solid suppliers across the McDonald's system and they as we are committed to the highest standards of food safety for our customers and that's always the number one priority. As we look at some of the alleged issues that are taking place now, if those things clearly are confirmed at a level that we would think it is a higher level decision that has caused us to have a breach relative to consumer trust, we will deal with that effectively, swiftly and appropriately. We are no longer serving a product from the primary facility there that has the challenges and the issues. I know that there's a couple other facilities that they had that have been cleared now by the Chinese government. The matter is being thoroughly investigated. We're cooperating fully with the authorities. As you know, we do have audits of our suppliers. In this case, we do feel that we were a bit deceived relative to one of these plants. So we're clearly looking at that. What does it mean from a broader perspective relative to integration of the supply chain? We enjoy and have benefited from what we call the 3 legged stool, which is the supply chain is a separate entity just as our franchisees are a separate entity other than McDonald's Corporation. They bring us great innovations. They've grown with us in multiple countries around the world. They understand our expectations. They understand the way we value consumer safety and our standards. And they understand the fact that they will be under scrutiny if there is ever a challenge relative to our consumers. And so we continue to make those points and we continue to drive forward to make sure that we protect our customers and protect the broader brand interest as we move forward issues like this one. Next question is from John Ivankoe from JPMorgan. Hi, great. Thank you. Just some related U. S. Topics if I may. I remember back in 2002, again, I think it was actually using some franchise consultants. You really drove some QSC and V into franchisees and either showed them a path to measurable improvement at the store level or showed them a path to exiting the system. So I mean at what point are you kind of like in another phase in terms of kind of getting a 20 year commitment out of franchisees and making sure that you have the right people on board with you? And the second kind of I think related topic is around the effectiveness and the efficiency of your advertising and product development does seem to be lagging your peers even a fraction of the size. So I was wondering if there was a structural opportunity to change the effectiveness and the speed to market of that advertising and product development in the U. S? Or whether it's just I think as I've heard that it's just about improving execution or tactics? Thanks. Hi, John. Thanks for the question. Relative to the franchisees and John, we have a lot of collaboration and committees that are shared between the franchisees and the company and our suppliers. So as we engage and address the business as we move forward, we have a lot of communication with each other. One of those points of communications clearly every year is around operating standards of McDonald's and what we call growth criteria and also the restaurant operations improvement process, which is really focused on quality food quality service and cleanliness in the restaurants. And we have had a clearly a lot of conversations about how and when and where and what the processes are for abiding by that. We still have those processes in place. Those processes started back to your point in the 2000 and one-two time frame. They are in place everything from a process for improvement for those restaurants that are not performing at the appropriate levels, to how we look at franchisee engagement, to how we look at our own company operated restaurant performance. So we don't need to have a separate initiative. And I think as you talk about it, it was almost I got a sense of an upper out kind of a conversation. We have ongoing conversations with each other relative to the performance of our restaurants. And clearly, are we having those now? Yes, we are. We have them all the time. But what's important is that we focus on the standards and adherence to the standards, not some kind of a process to move franchisees out of the business. We have a process. And frankly based on our improvement processes, we tend to be able to improve the business in a different way. We are no more or less aggressive than we were in 2,002 at this point in time. It is very similar. Relative to marketing, there is a focus on marketing effectiveness. You're absolutely right as we look at share of voice, as we look at the impact that our creative has, as we look at the reach that that creative has and we look at the distribution outlets and our media allocation. Having said that, there is also a focus on how our marketing messages are conveying the emotional ocean, if you would, of the brand. And that means that there has to be changes. So when I mentioned leadership changes in marketing or agency changes, those are not incremental effectiveness changes, John. Those are changes based upon the fact that we may not be getting the content or the reach or the awareness that we desire and demand as a McDonald's brand. And when we make those changes, we don't do it lightly. Those are the kind of changes that we need to drive the business and those changes are occurring in several of our critical markets around the world. Next question is from RJ Hadavi from Morningstar. Thanks for taking the question. I wanted to dive down into Europe a little bit more. It looks like the June results, the negative 3.4% comp, a little bit softer than what we've seen. Europe had recently been a point of relative outperformance. Just wanted to make sure there wasn't anything more than just the things you mentioned in Germany the marketing changes there as well as the Russia situation going on, whether or not you're seeing competition intensify or seeing less impact from reimaging or some of the menu innovations there? Just kind of wanted to get a better sense of your perspective on Europe. Thanks, RJ. I think you hit it pretty well. Germany still remains weak and showed further deceleration in the Q2. As I mentioned, our teams and the franchisees and the changes that we've made in terms of leadership and process, those things are moving forward. It's going to take a while in Germany. We have lost share in that market. If I look in France and the U. K, those markets are gaining share and our performance has been solid. And we had similar conversations about France several years ago, could we make the turn? And some of the things that we put in place in France cost Croupp, Fatimpleziere, on the affordability and we've had a great balance across the menu in terms of the core products. We've had new innovations. We've had the digital strategies that have been implemented. So those things are even in a very, very tough environment, our business in France is still thriving. And so I think it goes to show the things that we're talking about are not just things that we dream up, but they are the things that we have implemented in markets around the world. So France is still performing. The U. K. Is performing. As we mentioned, they just lapsed or lapsed on top of the blended ice rollout. But we still have solid performance there, a very balanced approach to the business and we're still moving forward and growing. There has been one thing we've seen a little bit of decline in retail footfall traffic. But aside from that, R. J, nothing that I would say was much broader than that point. Russia, a slowdown in comp sales there. I think the economy has recently entered a recession. It's taking a hit based upon the geopolitical issues that are apparent there. There's lower consumer confidence. We have seen some new competitors enter the market. But as you know, that is a market that we have been in and a market that we're growing in and growing more drive thrus in. And we feel very good about our position in there and the opportunities in front of us in Russia. But at this point, there is we are seeing some softness in Russia, I think largely due to some of the geopolitical concerns and consumer confidence. Next question is from Howard Kenny from Hedgeye. Hi. Thank you very much. John, the last time McDonald's sort of went through an extended period of declining same store sales, it took a much bigger event and a major sort of restructuring to get to realign the organization. I know you put forth a plan the plans to improve sales and you believe I honestly believe you think you believe you've got the right plan. But the fact of the matter is you might not have the right plan and there could be some give and takes and it might not work as you've laid it out. Do you have a contingency plan? Or is there a backup plan to what might not work or what you put forth today? And what are the chances do you think that an extended period of sales will lead to a bigger sort of effort to improve your top line sales? Thanks very much. Thanks for the question Howard. I know you and I talked recently when we were together at least at the Investor Meeting last year some of those basic fundamental things that we talked about and the things that we're focused on now to shore up to business clearly. Relative to contingencies, it is the great thing about the McDonald's system is we are in 119 countries. We're a very diverse portfolio of businesses. So we have the opportunity to test multiple things and parts of initiatives in different areas of the world. So when I talk about the digital strategy, part of the test of what's taking place in France, what we're implementing as a result of those learnings in Australia, what subsets of that are being tested in the Swaddens and the U. S. And the U. K. Of the world. Really as we formulate these strategies, we are constantly, I guess you'd say, iterating around the improvements in the data that we've seen in several markets. So relative to contingencies, I guess I would say it's almost a living contingency as to the way that we implement major initiatives. So the digital being 1, customization and personalization efforts being another. Even on those, it may be based upon a different product complement. So in the U. S, it's going to be about burger leadership. Many markets across Europe, it will be about that initially. There are other areas where it will be the chicken platforms and portfolios. So we are learning as we go outside of focusing. We the things that we're focused on how we know we have to get much better at. And they're also areas that we believe great opportunity for us. So the whole notion of the respected brand and our sustainability based efforts and how those things play out, not only have we done some of those historically, but most people don't know about them. And we have to even get that even more accelerated. So we know that that's something our customers want and it bodes well relative to our business plan. What we're doing around customization in food, it goes right at what consumers are asking us for across demographic tiers. And so we know they're the right things to do. I will tell you, Howard, the broader question that is out there now and the broader question that we're answering in the local markets is around what we do to shore up the foundation now even in these environments, even in these economies, even with the other cash flow impact points that may be out there, how we ensure that together we move to shore up the base. So we're ready for the incremental customers that will come and we build back up our peak periods. And so that kind of is the foundation of it. We have to your point, it's almost an evolving contingency plan. And believe me, there are several other areas that we are looking at outside of the ones I mentioned. But those are the ones that we know will be a solid part of our future growth strategy. Next question is from Keith Signer from UBS. Thank you very much. I'd like to circle back to a question on the consumer insights from earlier and maybe just ask it a different way, especially given how much attention this got at the November Analyst Day last year. Forgetting the plan for a second, just looking at that data that you're collecting, which I understand is pretty robust, The customers who aren't coming as much or maybe aren't coming these days, why are they saying that's the case? I mean, what are they highlighting? And kind of how is evolved as the year progresses? Is this is it a lack of compelling new news? Is helpfulness or quality in general coming up more often? Is it the Engage it? What are the folks not coming actually saying in the data? Thanks. Right, Keith, that's a big question for a global brand. I would tell you that if you look in the U. S, there are several things we've seen in the U. S. You all know that the QSR industry as a whole is soft in the U. S. There are a lot of things that are out there in the U. S. Right now ranging from as I mentioned, some of the legislative matters that are on the Board relative to impact of health care next year, potential minimum wage changes, what happens relative to the immigration reform costs, particularly around E Verify. There are challenges and changes relative to legislation in terms of whether or not there'll be re ups on some of the tax credits, tax benefits. So there's a lot of things that for a franchisee they're looking at relative to cash flow. That is one of the things that then flows through relative to execution in the restaurants. When we first began the operations reset, we were hearing from customers that the restaurants were getting too complicated. It was a little confusing on the menu boards. We needed to get some level of simplification. I will say at the same time, we're saying and customers are saying we want a little more customization and personalization, but we want some different taste, we want some different condiments. The U. S. Is moving forward with that with the high density kitchen and prep for that. We're also hearing that there are some consumer confidence related concerns around discretionary spending. In the U. S, we see a bifurcation based upon what's taking place in markets that are greater than $75,000 from an overall income perspective and those that are less than say $45,000 These are 2 different worlds today. Those markets at the higher end, discretionary spending is still flowing fairly well. Markets at the lower end, it's a little bit tighter. The geographic positioning of McDonald's around the U. S. Is broad. And so we're in both of those markets and pretty good distribution. That's a little different than some of our competitors said. So clearly the economy is a bit of a concern and we're hopeful that the economy will continue to improve or and that improvement will be across all segments. But we also have to make sure that we're thriving in this environment. So having the right affordability messaging, which may be slightly different in some of these markets than it is in others. All right. Our last question is from Paul Webster from Stifel. Great. Thanks. Very similar question to Keith about the U. S. Business. Maybe talk a little bit about more if you could about the weakness perhaps in the overall U. S. QSR category? And specifically, do you sense any incremental competitive challenges coming from the convenience store business, which I mentioned before on the low end perhaps and perhaps quite casual on the high end. And I know this year's emphasis is on the increasing frequency of the base business and perhaps base consumer. But once that's stabilized perhaps talk a little bit about the more intermediate term opportunity of product line extensions to maybe forward or maybe regain some share from these lower end and higher end categories? Yes, Paul. I would tell you that several years ago, we began to have conversations just around broader market segments and sets and what we were seeing. I would tell you any place a person can stop we view as a competitor, whether it's a petrol station or it's a convenience store or it's a grocery store or ready to eat foods take home foods. We view the whole set as a competitor. As we look at our business, when you've got that many places that you can view as a competitor, what you have to focus on is what you're good at and what you know you can excel at and differentiate. We know that the speed of service at McDonald's, the accuracy of the service, the food quality even in our segment, which is the quick service restaurant segment are critically important. The transparency of our food and the fact that we know that we have very high quality food at McDonald's is one of the messages that I think we have to get out even stronger. And it's one of the things that the overall quick service restaurant industry struggled with for years years years. And so we believe that some of the things that we've talked about from menu personalization, customization, the high density kitchens, highlighting some of the condiments on the prep table, those things also help us. But it also has to be thread throughout our marketing and our awareness campaigns. Those are the things that we're focused on and make sure that those things take place. As you look at food away from home, right now we know that the food away from home industry is one that is still increasing, albeit above a 2 percentile rate. Interestingly enough food at home is 2.4% increase. So they're all in the ballpark of normalized, I guess I'd call it normal inflation at this point in time. If one of those shoots up or down, we have to take note of it relative to what that means to our affordability platforms. If the economy gets better or worse, we have to take note of that relative to what impact it may have on our breakfast business and travel fast. So there's a lot of things we look at. I couldn't give you Paul super specifics on any one item, but there's a lot of things we have to look at as we manage the business particularly in the U. S. And go forward. Okay. Thanks. And we're going to go right into Don's closing comments. Thank you all very much. We wanted to take a little extra time because we know that you have questions, interest relative to the McDonald's business. I want to thank all of you for joining us this morning. We remain committed as you can tell to the plan to win and our strategic growth priorities as we work to strengthen the key foundational elements of our business. And I've mentioned how critical those are. We know that we can drive our business through the growth initiatives that will enhance our customer relevance and appeal. We're seeing that in some of the markets around the world. Those initiatives and implementations will be broader as we move forward. Our defensible competitive advantages, our resilient business model, the communications and alignment that we strive for and have with our owner operators, our supplies and company teams, those things give me confidence that as we execute our plans to drive profitable growth for our system, we will be successful and our shareholders will reap the benefits of that over the long term. So thanks again for joining us this morning. Have a great day everyone.