McDonald's Corporation (MCD)

Investor Day 2013

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Nov 14, 2013

Information in this presentation contains certain forward looking statements, which reflect management's expectations regarding future events and operating performance and seek only as of November 14, 2013. These forward looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in or underlying our forward looking statements is detailed in the company's filings with the SEC, such as its annual and quarterly reports. Access our SEC filings by going to www.aboutmcdonalds.com/mcd/investors. Our website also includes reconciliations of non GAAP financial measures we mentioned in our presentation, if any, to its corresponding GAAP measures. Those reconciliations may be found at www.investor.mcdonalds.com. I actually have a little stool. I didn't grow. Good morning, everyone, and welcome. I'm Kathy Martin. I'm Vice President of Investor Relations here at McDonald's and we appreciate your interest in McDonald's and the fact that you've taken the time to join us here today. For those of you who are here attending in person, hopefully, you had a chance to try some of our great breakfast products that were outside of the room. We had a terrific selection and hopefully you enjoyed it as well. I also want to welcome those who are joining us on the web cast. In your Investor Day materials, you're going to find an agenda, a preview of our lunch menu and photos and biographies of our speakers and our Q and A panelists, as well as the other officers who are attending our meeting today. And today, we're going to share our vision for enhancing shareholder value through some of the disciplined investments we have that support our long term growth opportunities and differentiate brand McDonald's. And in a few moments, I'll ask that our CEO, Don Thompson our CFO, Pete Benson and our Chief Brand Officer, Steve Easterbrook to present the morning session and discuss strategies and global priorities for the future. Now this afternoon, Tim Fenton, our Chief Operating Officer will kick off our Area of the World presentations and you'll hear from our Area of the World Presidents as well. Now following each session, we have time for Q and A, so we'll be able to take those. And at the end of the day, we also have a final Q and A panel with Don, Tim and Keith to cover any remaining questions that you might have. So as always, our folks will ask you to state your name and firm when you're asking questions and wait for the microphone so everyone can hear and this is particularly important for our webcast participants. So during our lunch break, you'll again have the chance to interact with management and try some of our great products that we have in test along with some newer products that are already in some of our international markets. And this evening, we have our cocktail reception and it will provide again ample time for a lot of interaction with our management team as well as the officers that are here today. We'd appreciate it if you wore your badge at all times. It's your access to all events. And just a couple of housekeeping things, we will issue a press release this morning summarizing the highlights from today's meeting. There are hard copies that will be available at the end of the morning session. And we will have handouts including the reconciliations at the start of Peace presentation. So we'll hand them out here in the room. And then key slides and of course the reconciliations will be available out on our website. And finally before I turn the meeting over to Don, I want to remind everyone if you could please silence your phones, we'd appreciate that. So with that, let's start the meeting and it's my pleasure to introduce McDonald's Chief Executive Officer, Don Thompson. It's okay, Kath. I'll move it up just a bit. Good morning, everyone. Good morning, Seth. Hopefully, you all are awake. Had a good breakfast already. Kathy, thanks so very much for the introduction. It is really, really great to see so many of you here today and get a chance to chat with you a little bit. I'd also like to acknowledge our Chairman of our Board of Trustees, Andy McKinnon is here with us. Andy, as always, we appreciate you. Thanks, Andy, for being here and as always for all of your support and all the support of the Board. We truly, truly appreciate that. We are looking forward to sharing a perspective today on how we're managing our business and our performance for the present, also how we're driving enduring profitable growth into the future. Now the objective of the meeting from our perspective is to demonstrate why McDonald's is a solid investment both today and also for the long term. I think you'll get a chance today to see how we continue to build on our unique business model and the key competitive advantages that we have inherent in that model. Yes, for us, this is about our scale. It's about our size. It's about our geographic diversification and how we leverage those. It's also about our sizable marketing presence, our strong cash flows and the efficiencies that we're able to capture as a result. Now together these advantages underpin understand that as our customers in the marketplace continue to evolve, so must we. And we must evolve by truly differentiating ourselves as McDonald's. We can become an even greater part of our customers' lives. So throughout the day, you'll hear about how we're adapting to keep pace with our changing markets, how we're investing to meet future demand and the work that's underway to address performance in the current environment. This morning, we're going to concentrate on our long term strategy and where we're headed. This afternoon, Chief Operating Officer, Tim Fenton and our Area of the World Presidents and the management teams will focus on performance and how we're executing our plans and our strategies around the world. Also joining us in the audience is a very talented team of global leaders from around the company. And as you spend some time with them, please take the opportunity to hear more about their tremendous knowledge of our business and their specific experiences within the functions or within some of the global markets. What you'll see today is that we have plenty of runway within our vision to be our customers' favorite place and way to eat and drink. Now the word customer is the most important part of our vision. And our system remains aligned around continuing to place them, those customers at the front and at the center of everything that we do to address our largest opportunities. It's through the use of deeper consumer insights, the framework of our plan to win and our 3 global growth priorities, which are optimizing our menu, modernizing the customer experience and broadening accessibility that we are capitalizing on our position as the biggest player in a highly fragmented market to become an even stronger force. We have an infrastructure that is built for growth and we're confident that we can be an even bigger piece of the pie. So again, throughout the day, you'll hear 3 key things. 1st, our long term opportunities are significant. We continue to invest across a diversified portfolio of markets and the food and beverage categories. Secondly, our near term opportunities revolve around optimizing current initiatives for broader reach and better execution around the world. And third, we believe we can successfully balance near term performance with long term strategic investments to drive enduring and profitable growth through an even deeper connection with our customers. So let's talk a little bit about current performance. Our commitment to keeping the customer at the forefront is the reason we're serving more than 69,000,000 customers every day, which is up from 64,000,000 customers a day the last time we were together in 2011. Our customer focus is also the reason we've delivered the following performance through September of this year. We grew system wide sales 3% in constant currencies. We've increased operating income 3% in constant currencies. We've delivered $4.16 in diluted earnings per share and our franchisee cash flows continue to lead the industry. It goes without saying that all companies today are fighting even harder for growth in this environment and we here at McDonald's are no exception. Unemployment remains at higher than desirable levels and retailers are battling for a greater portion of a smaller pie. So competition remains intense. And we are making adjustments as we strive to better understand these shifting dynamics and their impact on our business. Even though we can't control how consumers will adapt to the environment, we can stay focused on the elements within our control. Our customers still want great tasting and affordable food and beverages and convenient and contemporary restaurants and that's our job to deliver on that. The challenge is to remain consumer led while balancing our systems needs along with that. We see opportunities to more effectively balance these two objectives as we move forward and you'll hear more about that in the area of the world presentations this afternoon. So turning to strategy. We're excited about the future, because as I mentioned earlier, we are the biggest player in a highly fragmented $1,200,000,000,000 global marketplace And we are well positioned to participate in the market's long term growth. For McDonald's, the key to thriving is growing sales at existing restaurants, while simultaneously increasing our global footprint through targeted new unit growth. Our ability to appropriately balance the 2 has been critical throughout our history and it's the key to generating robust income growth into the future. So early on in the 1960s, 70s 80s, we grew units and average unit volumes, both at a healthy rate. In the 1990s, our growth was more one dimensional with a focus on getting bigger through new unit growth, new businesses and partner brands. In 2003, we deliberately shifted our focus to growing time growing same store sales by being better, not by simply being bigger. Over time, our plan to win provided a framework to optimize our growth by pursuing quantifiable customer oriented business opportunities like everyday value platforms, reimaging, beverages, ownership optimization, menu development and a more appropriate pace of new unit growth. Because there is even more potential in all of these areas, today we believe we can become even better and bigger and you'll hear more about that today. We're confident that we can appropriately balance driving comparable sales increases at our existing restaurants, while continuing to expand our global footprint with new restaurants in order to grow the real market opportunity that we have in the broader marketplace. Our operating knowledge across many diverse markets combined with world class franchisees, suppliers and agency partners, who are all supported by our seasoned teams around the world, enable us to capitalize on significant growth across both our established and also our emerging markets. We believe that we can grow share in the quick service restaurant category and in the overall informal eating out category. We also believe we can attract customers to trade into McDonald's from other categories. And we can capture additional customers who will return to the marketplace as the economies recover. Now each of these opportunities is significant. We're building on our foundation with smart strategic moves that deliver on the most critical tenets of the customer experience. We're focused on menu quality and choice. We're focused on customer service. We're focused on affordability and on consumer engagement. Our 3 global growth priorities are focused on these consumer based opportunities. Let me first discuss our current menu opportunities. Today, about 75% of Global IEO sales are food and the remaining 25% are in beverages. The way in which we successfully established ourselves across meal occasions, proteins and dayparts is a competitive advantage for us. And we believe that the equity that we've built into our diverse menu offerings enable us to grow in both the food and beverage categories. Within Optimize Our Menu, we're focused on broadening appeal by introducing new menu ingredients and greater choice. Also by celebrating the quality and the provenance of our food even more loudly and by increasing our emphasis on personalization. This is especially true of our core classics in the 4 categories, where we believe growth will outpace the overall industry. Those categories, as we mentioned before, are the categories of beef, chicken, breakfast and beverages. Now globally, beef is the 2nd biggest protein for the informal eating out category, and it remains our number one selling protein. We're focused on growing top selling sandwiches like our Big Mac, Quarter Pounder with Cheese, Cheeseburgers, McDoubles and Double Cheeseburger. These timeless brands continue to resonate with customers and significantly contribute to income. But we're also building equity in strong limited time promotions that expand our reach and provide variety, some of which you'll hear about later today. Chicken is another substantial opportunity for McDonald's. Globally, it's the biggest protein in the IEO category. It's also our fastest growing protein and we continue to build even greater equity in the chicken arena. Breakfast is a category that McDonald's essentially established for the IEO industry and it's still one in which we have tremendous potential around the world. While our breakfast growth has been solid, we have significant opportunity to expand McDonald's presence during the early morning hours in numerous markets around the world. In our 4th category, beverages, we continue to build credibility, particularly through the McCafe brand. Today, you'll hear more about our plans to expand McCafe in many markets throughout the coming years. I'd like to delve just a little bit into beverages to more clearly demonstrate how we strategically approach growth in each of these 4 categories. Beverages are the largest single category in the global IEO market at nearly $300,000,000,000 today and with solid growth projected in the next 5 years. About 90% of beverages that are sold are in 1 of 4 categories: carbonated soft drinks, tea, bottled water and coffee. Of these 4, coffee and tea are the 2 fastest growing segments. We currently capture less than our fair share of the overall beverage category. That gap alone equates to more than $3,000,000,000 of sales opportunity. Strategically pairing new and existing food products with drinks that you can get only at McDonald's is another area we're exploring to further grow our share of the beverage category. As part of our 3 year planning process, markets are actively pursuing targeted opportunities using a sequence thoughtful approach aimed at growing the business in the right way for their local markets. This approach is consistent across the other 3 key menu categories of beef, chicken and breakfast. Our markets also benefit from our global menu pipeline that enables us to continue evolving, continue adapting and optimizing our menu around the world. Let's shift now over to modernizing customer experience and our increased efforts to connect brand McDonald's with our customers. Our decor is becoming increasingly more modern and we're contemporizing our service models through smarter technology and by continuously improving the way we engage with our customers. We know that we must exceed customers' expectations for fast, accurate and friendly service at each and every one of our nearly 35,000 restaurants around the world. Specifically, relative to digital, digital is playing a more prominent role in modernizing our brand. For example, we continue to increase our marketing allocation to digital media as we create more personal dialogue and conversation with consumers. We know that people visit McDonald's more often when they feel good about our brand. And for them to feel better about McDonald's, they want to know a little bit more about who we are and what we stand for. Transparency is no longer a nice to do. It's a greenspeak. We're proud of who we are and how we conduct our business around the world. And we're excited about the ways in which we're doing even more to effectively tell our story. Now later this morning, Steve Easterbrook will discuss our digital strategy and efforts that are underway to elevate our customer engagement strategies. You'll hear how we believe that the key is moving together as one brand. It's easy for markets to develop solutions that address their immediate local needs, but increased world connectivity requires a unified voice and digital is an important enabler of this effort. Our 3rd growth priority broadening accessibility is about being wherever our customers want McDonald's, whenever they want McDonald's and at the right price. We're currently focused on 3 aspects of accessibility: 1st, improving the capacity of our existing restaurants 2nd, increasing our footprint by building new restaurants in both established and emerging markets and third, by continuing to offer affordable choices at every price tier across our menu. Capacity enablers like our point of sale platform and mobile ordering are tangible consumer facing improvements that yield efficiencies in our operations and our service. And they're helping build customer loyalty by making the McDonald's experience easier to deliver for our restaurant teams and more enjoyable and engaging for our customers. We're also well positioned to capture the true market potential through diversified global new store development. This is not about going after a specific new target. Instead, it's about applying a strategic, thoughtful and disciplined approach in both our established and emerging markets as we continue to grow. You'll hear more about this today as well. There is no one size fits all solution. We have a variety of solutions in our toolkit and individual markets are leveraging that robust toolkit on what's most appropriate given their local situations. The last way in which we're broadening accessibility is through affordability, a foundational element of our brand and a key driver of the customer experience. Specifically, we continue to strengthen our value platforms in many markets as we maintain an emphasis on affordability across our menu. Finally, I want to address the notion of doing good and subsequently our focus on sustainability. At McDonald's, we know that improving brand perceptions translates stronger customer loyalty and overall financial performance. And yes, it's a proven business driver that can create efficiencies through business practices that we know will allow us to use fewer resources and improve our processes. This is also about our contributions and our impact as a global leader, locally and globally. We humbly recognize that we help move economies, both through our sourcing and by shifting the social economic fabric of communities. Our work across the broad spectrum of sustainability from health and wellness to energy efficiency to animal welfare reflects our understanding that sustainability across every level of the McDonald's system drives our growth. It also creates jobs and it fuels economies. Our business and our responsibilities to society are inextricably linked. We have to and we must do both. Together with our franchisees, McDonald's is one of the largest employers in the world. We provide opportunities whether someone's looking to start a part time job or to start a long term career. In fact, McDonald's has been recognized as a great place to work in more than 30 countries in which we do business around the world. Consumers expect us as McDonald's to be a leader, and we're proud to be stepping up our efforts to better communicate our ongoing commitment and the meaningful actions that we continue to take. Let's now turn to the financials and our system's long standing commitment to fiscal discipline and maintaining a strong financial foundation within our primarily franchised business model. Our long term average annual targets of 3% to 5% sales growth, 6% to 7% operating income growth and return on incremental invested capital in the high teens remain intact. We continue to see them as realistic and attainable for a company of our size, particularly as we invest to widen our competitive advantages and stretch our brand. And we believe they keep us focused on making the best decisions for the long term benefit of our shareholders. Now while our recent performance has not consistently met all of these targets, these are average annual targets. In just a moment, Pete will discuss why they remain appropriate for our company and what's needed for us to meet them in the future. Our business continues to generate a significant amount of cash from operations, averaging about $7,000,000,000 per year since 2011. Our priorities regarding the use of that cash have not changed. Our first priority is to reinvest in our business to drive future growth. After that, we expect to return all of our free cash flow over the long term to investors through a combination of dividends and share repurchase. Year to date October, we've returned $3,800,000,000 to shareholders through dividends and share repurchases. And we expect to finish the year between $4,500,000,000 $5,000,000,000 So looking ahead for McDonald's, we remain confident in our ability to grow our share of the $1,200,000,000,000 informal eating out marketplace. And we'll do that by building greater frequency in our existing customer base. We'll do that by attracting new customers as they return to the marketplace. We'll do that by getting customers and consumers in general to trade into us from other categories. And we'll do that by creating an even deeper connection with our customers. And while we're staying true to those actions that are foundation to our business model, this also means that we're doing things differently in some spaces, like leveraging digital and social media to advance our brand messaging, like increasing the energy and excitement with which we go to market with new product news and improving our creative executions. Today's dialogue will also demonstrate how we continue to invest to build demand and focus on customer service, which is at the core of everything that we do. McDonald's is well positioned for sustained profitable growth. That will continue to yield meaningful long term returns for all of our stakeholders as we make even greater progress toward becoming our customers' favorite place and way to eat and drink. So thanks, everyone, for being here with us today. I'd like to turn it over to Pete and then we'll open it up for Q and A afterwards. Thanks, Don. Good morning, everyone. For the next 10 minutes or so, I'd like to cover 3 main topics. 1st, our financial model and targets next, our preliminary outlook for 2014 and finally, our philosophy regarding the use of free cash flow and our overall capital structure. As I discussed on an earnings call earlier this year, our business model has an infrastructure built for growth. We see significant long term opportunities and are confident that McDonald's is uniquely poised to seize them. Consequently, we continue to make investments that will strengthen the future value for our system and our shareholders. We are also keenly aware of our short term challenges and the reality that our recent growth has not been sufficient to meet our long term average annual financial targets. More recently, new store performance has been solid, but comparable sales growth has been soft. Our strategy is to achieve a more balanced approach to growth between comparable sales and new restaurants, which leads to more robust income and cash flow generation and higher returns. To frame our recent performance and provide some context for how and when we expect to get back to achieving our long term financial targets, I'd like to begin by taking a closer look at the macro environment and how that has impacted our comparable sales and ultimate performance. From there, I will drill into the key drivers of comparable sales and discuss what is needed for McDonald's to generate more substantial growth. First, the macro environment. The IEO industry in most of our major markets has been flat to declining for the past 2 years, while expense pressures have been felt throughout the P and L. As these dynamics have persisted, competition has intensified, further pressuring sales and margins. In addition, from an internal standpoint, our innovation around new products, marketing, promotion and value enhancements, while solid, has recently not generated enough comp sales lift to overcome these environmental headwinds. Due to all these factors, our operating income growth and returns have dipped below our average annual long term targets in 2012 and thus far in 2013. Our financial model is built is really driven by our ability to grow comparable sales, which is dependent upon 2 factors average check and guest counts. Average check is affected by changes in pricing and product mix. Pricing is the most accretive to our margins. And historically, we've been able to take a 2% to 3% price increase that covered most of our cost pressures. Lately, however, we have not realized enough effective price increase or flow through to offset most of the expenses across our P and L, thus pressuring margins. You'll hear more about our efforts to address product mix in the Area of the World presentations this afternoon. The second driver of comparable sales growth guest counts has been negatively impacted by the lackluster growth in the IEO industry and the heightened competition in nearly every market around the world. When we look at the market dynamics expected for 2014, we do not see significant changes versus 2013. But we realize our performance is not entirely driven by the external environment. So we remain focused on those things within our control. More so than ever, we are leveraging consumer insights in our planning process, taking an honest assessment of our execution in every market and identifying areas for improvement, while more proactively sharing best practices around the world to better leverage our size and scale advantage. Despite recent performance in the near term outlook, we continue to believe that our long term average annual constant currency targets remain achievable. There has been no structural change in either our business model or our industry that would suggest these targets are not valid over the long term. The IEO industry is projected to grow both in dollars and number of customers served over time. In addition, we believe that our innovation across menu, operations, marketing and customer engagement will ultimately drive gains in market share. These factors bode well for growing our comparable sales and in turn our operating income, cash flow and returns in the years to come. We are the industry leader and we intend to strengthen our competitive position, which is why we continue to invest to drive future growth. We have unique competitive advantages in a large highly fragmented industry and we look forward to sharing our plans with you throughout the day for how we will capitalize on these advantages. I will now turn to our performance and our preliminary outlook for 2014 across some key items. The largest driver of operating income continues to be franchise margins, which represent approximately 70% of our overall restaurant margins. The most significant driver of franchise margin growth is comparable sales performance. 4 out of every 5 restaurants globally are franchised and we enjoy consolidated franchise margins in excess of 80% due to the relatively low level of direct costs required in our model. The second driver of operating income is company operated margins, which represent the other 30% of our overall restaurant margins. For a perspective, Europe comprises 47% of our company operated margin with the U. S. And APMEA at about 25% each. Unlike franchise margins which are somewhat insulated from inflationary cost pressures, company operated margins are impacted by commodities, labor and other operating expenses. As a result, sales leverage is even more critical to increasing company operated margins. At 17.6% through September 2013, while down from prior years, our company operated margins remain at healthy levels. Looking at commodity costs for next year, our preliminary guidance is for our basket of goods to be up 1% to 2% in the U. S. And 1.5% to 2.5% in Europe. It's also worth noting that labor and occupancy costs have increased around the world and we expect this trend to continue in 2014. While we continue to make adjustments and closely manage our restaurant expenses, we expect our company operated margins to remain pressured in 2014 as this environment of muted top line growth and ongoing cost pressures persist. The 3rd component of operating income is G and A. We effectively manage this area by prudently investing for the future while seeking efficiencies where warranted. We have demonstrated responsible spending and attention to G and A as reflected by the decline as a percent of revenues over the past 5 years. Looking to 2014, we expect G and A to increase approximately $200,000,000 reflecting higher employee expenses, primarily due to the impact of below target 2013 incentive pay as well as cost to support restaurant growth, capacity enhancements and our digital initiatives and also reflecting expenses associated with our worldwide owner operator convention and sponsorship of the Winter Olympic Games in Sochi. We ultimately measure overall profitability by our combined operating margin. Year to date, we are up 10 basis points to 31.2 percent, a healthy percentage that we believe we can continue to grow over time. As you can see in the slide, an established more heavily franchised market such as the U. S. At 89% franchised can yield a combined operating margin in excess of 40%. McDonald's continues to generate a significant level of cash from operations. Through September 2013, we generated $5,200,000,000 which was up $131,000,000 over the prior year. Returns on incremental invested capital have decreased recently, primarily due to softer operating performance amid fairly consistent capital spending over the past 2 years. As of September 2013, the 1 3 year returns were 12.9% and 21% respectively. Return on invested capital increased 300 basis points in the 4 years ended December 2012 with each area of the world contributing to the increase. While results through September 2013 have come down slightly, consistent returns of 20 Return measures around the world are consistent with the consolidated trends as shown on this slide. As I mentioned earlier, our income and returns are highly correlated to our comparable sales growth. So we are focused on improving this in every area of the world. As Don reiterated, our priorities for the use of cash remain unchanged. Our first priority is to reinvest in the business to drive future growth and returns. We'll do this by investing $2,900,000,000 to $3,000,000,000 in 2014. Consistent with this year, more than half of that capital will be devoted to new restaurant openings, while the remaining portion primarily allocated to reimaging, rebuild and other sales and capacity building initiatives. We believe now is an opportune time to continue investing in new restaurants and will slightly increase our pace in 2014 as we are underpenetrated in many emerging markets and continue to have opportunity in many established markets. New restaurants continue to offer some of the highest returns of any of our investments and they typically grow over time. To take advantage of this, we plan to open between 15,016 100 new restaurants next year. The biggest increase in openings will be in APMEA where most of our emerging market opportunity resides. Our overall growth in units will be a healthy combination between established and emerging markets. But this is not about growing just for growth sake. It is about strategically pursuing targeted opportunities. Tim will discuss the tools that we are employing to identify the best locations that can offer the greatest returns over the life of a restaurant. Next year, we plan to re image about 1,000 restaurants. As we make progress in our reimaging efforts, the pace has naturally slowed, especially in markets that are largely complete. The biggest reduction in reimages will be in the U. S. Jeff will discuss the rationale behind the U. S. Decision later this afternoon, but the headline is that we along with our owner operators are prioritizing some investments in our kitchen to deliver enhanced service capabilities and menu choices to our customers. Consequently, we are moving some of our 2014 re images into future years. The last topic I'd like to cover is our philosophy regarding the use of free cash flow and our overall capital structure. We remain committed to returning all free cash flow that is cash from operations less capital expenditures to our shareholders over the long term. For the 5 years through 2012, we returned more than $27,000,000,000 to shareholders. Through October 2013, we returned 3,800,000,000 dollars comprised of $2,300,000,000 of dividends and $1,500,000,000 of shares repurchased. We continue to balance increasing dividends, which provides a steady source of income to our investors with repurchase activity, which will contribute about 1% to EPS growth this year. Lastly, I'd like to discuss our capital structure. A strong balance sheet and overall financial foundation is vital to our system as our franchisees and suppliers benefit from our industry leading A credit rating. As our business grows, so does our ability to modestly increase our debt levels. We will do so prudently keeping our credit metrics within the current ranges. We believe our capital structure is appropriate and best positions the company and the system for enduring profitable growth. We ask our franchisees and suppliers to be financially strong and disciplined and we feel it is important to lead by example. In closing, I remain confident that our fundamental business model is intact. We are the global leader in an industry that will grow in the coming years. We have clear distinct competitive advantages and an infrastructure built for growth. Our geographically diversified portfolio and various ownership structures allow us to optimize our investments within a market. We are patiently and deliberately making investments today to seize those long term opportunities that will make McDonald's even better and bigger in the future. And we are confident in our ability to create long term value for our customers, shareholders and the entire McDonald's system. Thanks. Now I'd like to invite Tim Fenton to come up and join Don and me for the Q and A. All right. We have I believe we have folks with paddles in the aisles and would love to entertain some questions from you guys. Please do me a favor and also mention your name as you ask your questions. Let's go to number 1 first. Chris, you got this? Okay. Hi. It's David Tarantino from Baird. Hi, David. How are you? Good. How are you? Good. My question is for Pete. I guess there's a lot of detail on the 2014 margins and you mentioned some pressure. And I just I'm wondering what it would take to hold EBIT margins flat at the corporate level in terms of comps. I know that's the biggest driver. I guess it's an unknown. So could you talk about what it would take to hold that and maybe get operating income growth more in line with your long run targets for next year? Yes, David. We don't model out the comps to necessarily drive operating margin growth. Historically, we've talked about needing a 2% to 3% comp in the U. S. And something like a 3% comp in Europe to maintain margins in what we call a more normal environment. That's where we're able to have the ability to pass on the inflationary pressures to the consumer and see that flow through and benefit that to the bottom line. And as we've seen over the last several quarters that environment is a little bit different. So obviously implying something a little bit higher than that as we look at the cost pressures. Now the commodity outlook I gave means commodity pressure should be maybe a little bit better next year. And in some of these markets while we'll still have labor increases, hopefully, they'll be a little bit less than they've been this year. So our margins will continue to be under pressure next year because of these factors probably not as much pressure as they've been under this year. Number 2. Hi, Dave Palmer, RBC. Hey, Dave. Hey, Tom. You mentioned macros seem to be stable probably similarly unspectacular in 2014 as to what they've been in 2013. You're maintaining the same sort of targets high incremental the incremental returns in the high teens that sort of thing. Pricing will be less than maybe you've done in the past, but similar to what we've seen very recently. It seems like to get to those targets, it's really the remaining factor here if all else is equal is traffic. Traffic is the part that has to get going for these existing asset dollars, which will be growing at the same rate. Is that fair that really to do this is going to just it's going to be that one line item? David, I think first of all as we talk about the targets, we talk about long term annual average annual targets. And so for us we've not changed those long term targets, because we don't think there's anything structural or foundational that's changed in the world from a business model perspective. We clearly realize that the macros themselves are still not in favor. And I think Pete went over a lot of that if he talked about margins being under pressure to David's question. So we know that the 3 critical ways that we continue to drive sales, we understand which ones are pressured. So if I was to look at let's start with price. We realize that if we still have low inflationary levels around the world then that hinders our ability to take price a bit. We'll see how inflation levels go, but with some of the forecasts you guys have seen those yourself. We realize that from a guest count perspective and driving demand, there's a lot of it's more competitive intensity today around price and you'll hear this a little bit later from some of the teams. We realize that's out there. So for us what this really boils down to is how do we become much more differentiated in experiences that we're going to offer at McDonald's. So you're going to hear today about food offerings. You're going to hear about the experience in our restaurants. And you're going to hear even more about how we try to structure a much more differentiated experience. And Steve will talk a little bit about digital engagement etcetera, etcetera. We believe that we've got to be able to appeal to consumers in a stronger fashion. 2014 is a year that will be under some challenge. Long term, we believe that the growth targets that we set are still intact. Hey, Jeff. Hey, Tom. Jeff Bernstein from Barclays. Just a 2 part question. Just first following on your comments about the franchising and you talked about I think Pete mentioned that the company operated restaurant margin is a lot more vulnerable to these pressures we're talking about where the franchise margin is so much more stable and contributes the larger percentage of your operating income. So I'm just wondering what perhaps stops you from being more aggressive? You had a chart there that showed the U. S. Sitting at 90% franchise, the rest of the world in the low 70% range. So So thinking I know you always want to have skin in the game and there's different markets that have different reasons. But what stops you from pushing those other markets to that 90% plus, especially that seems to be working well for you in the U. S. And these other markets would seem to make more of a contribution. And then just separately, there was no mention Pete of the real estate portfolio. I know you talked kind of about creating the longer term shareholder value. I just was wondering if you can give us an update since you do own such a large portfolio of real Jeff, I'll take a part of the first one. I'm going to ask Tim Fenton to talk a little bit about franchising around the world too, because one of the scenarios we show the pictures and we show the larger numbers and the rolled up numbers. Each market is a little bit different relative to some of the real estate based cost structures. So when we talk about the franchise margins, you'll see some differences in the U. S. Versus what you might see in an Australia versus what you might see in France. And so that has an impact as well when we look at the overall franchise margins. But I'd just ask you all to keep that in mind as you look at the numbers. We are continuously pushing to move forward. But maybe Tim you can give a thought about some of the other strategies we have from a franchising perspective around the world. Yes. Sure. Let me pick Asia Pacific, Middle East Africa, I guess is probably the one that had the most opportunity for us, Jeff. Right now, about 71% franchised. The biggest we don't really set up targets, but I think the biggest opportunity we have and Dave Hoffman and Kenneth's channel talk a little about China later on. I would say let's start with China. And if you recall and some of us had this discussion in the hallway, back in 2008, we had 3 franchisees in China. Today, we sit at around 170 restaurants that are franchised. Our goal is to be up to 20% to 25%. It took us a while to get a franchising model, the economic model right where we could split the pie on that. I think the folks have done a tremendous job starting 4 years ago to build the infrastructure for that and they've got a good pace. And again Kenneth will talk a little bit more about that. Some of the other markets too where they've developed the economies of scale and the economic model in Southeast Asia where you have a lot of development growth, Malaysia, Korea where they've got pretty good franchising plans in place. There is a little work that Doug and the team are maybe working in some of the restaurants in countries in Eastern Europe. And as always, there's some portfolio management, if you will, with Macopco, selling stores that we think that would be better service and run by franchisees than Macopco. We've got some of that going out there. And I guess the other big one would be Australia, where Australia, I think we're at about 77%, 78% franchise. I think we're going up to about 82%, 83%. The issue we have with a country like Australia is the geographical size of the And we do need Macopco for PeoplePump. We do need Macopco for testing new systems and we do need Macopco for profitability. So work in progress, we got more than we can do. I'm not sure that we would set a target to reflect the U. S. Of 90%. But certainly there'll be some movement on that. And Jeff, I think later you'll hear from some of the different areas of the world. But we're focused on those things Tim just mentioned. So mix in the portfolio along with the base cost of sales whether they be real estate or construction or it'd be this opportunity. Really the best way to drive margins as you all know and we say it continuously is to drive sales. So that's what we're focused on. Pete? And Jeff regarding the real estate portfolio, our business model is fundamentally built on co investing with our franchisees and being the landlord as well as the franchisor in those sites. So periodically, we'll go through exercises to see can we create greater value by monetizing our portfolio or continuing with the same business structure. And every time we kind of go through that exercise, we conclude the business model as it is today is the best opportunity to create long term value for our shareholders and our system visavisome spinning off or monetizing of the real estate. Yes. Number 3 number 2? Hi. Sara Senatore from Bernstein. Hi Sara. How are you? I'm well. Thank you. I had a question sort of a 2 part question about the idea of pricing. The first is you talked about actually seeing inflationary pressures, but not having a lot of pricing power. Just trying to reconcile those two things the ability to price with inflation and the impact on margins. And then the second question related to that some other QSRs have seen some success in more premium products and trading people up. So even if you can't take price per se, you can get a higher ticket. What I feel like I've seen recently from McDonald's Place in the U. S. Is actually maybe shifting away from that. The Angus burgers came off the menu, the chicken slacks and salad. Is there something about your customer that is maybe less trade up able, if you will? I'll touch base on the last question, then I'll have Pete touch base a little bit on pricing and inflation. So as I was mentioning to one of the earlier questions, when we look at customers and we look at overall sales and how we drive overall sales there, we're looking at demand, we're looking at PMICs and we're looking at price as well. From the perspective of PMICs, this is where we really get into what that menu selection will be for the upcoming year and that menu that is inherent within the marketing calendar. I think what you're going to hear today is from each of the areas of the world. You'll hear a little bit about some of their focal points. You'll most certainly hear from the U. S. How they're looking at this. In the U. S, I know that Jeff and the team will talk a little bit about Angus, but they'll also talk about product repositioning. So this is not about just pulling off high margin products. We'll talk about repositioning a little bit. So you'll hear a little bit more about that later. If you still have some questions just follow-up with us. But we are focused on continuing to grow in areas that give us additional margin. Beverages are a great platform. Premium beef is a great platform. Chicken is a great platform. And clearly breakfast represents the largest margins across the business and so we have a large breakfast focus. So each of those helps us to address some of the I guess some of the concerns that we see or opportunities we see in the marketplace as well as some I think of the fundamentals around part of your question, but we'll be addressing that throughout the day as well. Pete on the pricing? On the pricing, yes, Tara. We look at a couple of things when we set our price and typically you hear us talk about what's going on in food away from home inflation. And this year that's projected to be up 2% to 3% in the U. S. But if you think about general inflation, so CPI and some of the headline numbers that still remains below the Fed's 2% target rate. And actually food at home, so the grocery store inflation is running about 1% this year. So while we're seeing inflation in commodities and labor and utilities and some of the other restaurant operating expenses, the general public is seeing this inflationary environment that is lower than that and actually in food if you will at the grocery store even at a lower level. So that creates this dynamic when you couple that with an IEO market that's relatively stagnant to be very disciplined about the pricing and realize that if you go too fast and too quickly that your likely outcome is to chase away some customers. So in this environment, keeping that traffic is important to us. And the U. S. And the markets all around the world work through this balance and are continually looking at that as well as some of the factors that Don mentioned about how do you bring product mix in, how do you do something like a mighty wings or they'll talk later this afternoon in the U. S. About some premium products next year to boost check a little bit if you can't necessarily just raise prices. One of the solid things about the management team too is many of us have been through some of these cycles. So and some of you here remember 2007 through 2009, we saw some similar things at Food at Home. So we saw grocery prices at 1 year were down low. Another year they reflected the opposite way. And what we tried to do was to migrate somewhere in the midst relative to our price increases. And that has worked for us historically not just in the 7 through 9 timeframe, but also in prior timeframe. So we bring with us some education and experience about some of these economic periods as we make the decisions for the future. We are next. Good morning. Hi, it's Nicole Miller from Piper. Hi, Nicole. How are you? Great. Thanks. I thought the very early on The second part is, who's the competition then? Who are you going to take that share from? And then the final part is, how are you going to do that? Do you have to get faster? Or do you have to compete on price as well? Thank you. Okay. Nicole, we got quite a bit in there. So from a beverage perspective, we quantify our global opportunity at about $3,000,000,000 And the way we 3,000,000,000 dollars The way that we look at this opportunity is based upon what we view as a McDonald's fair share based upon our overall share within the marketplace, which basically tells you that we are less than net fair share now and feel like we have some room to go to catch up relative to our opportunities within beverages. Having said that, it's also a growing category. So as beverages continue to grow, we also want to participate in the growth. Competition, any place that you can buy a beverage. So when you stop off anyone that stops off to get a cup of coffee anywhere, that's a competitor. That's an opportunity potentially for us. Now we're not chasing every single competitor. We're looking at what the larger buckets of opportunities are. So what's coffee on the go? Where are we strongest in that coffee arena? We're pretty strong in drip coffee, but we can be stronger. There's more players entering the space, but we can be stronger in terms of our coffee execution. Having said that, we also know you can't just do coffee. So along with coffee, you have to have food. For us, that's a big strength we have and we have some real equity relative to breakfast. So for us the beverage strategy is more than just beverages, but beverages are an impulse purchase and they're habitual purchase. And so we want to make sure that we participate there. But the competitive landscape is broad and it is fast and that part will not change. How? We'll do that by looking at those categories that we talked about earlier. And those categories are coffee. Those categories are tea. Those categories are still carbonated soft drinks. It's just a matter of which ones within the carbonated soft drink. There are certain categories that still maintain some solid presence and solid growth within carbonated soft drink. And so we're focused not only with our internal teams, but also with our suppliers, the Coca Colas, Doctor. Peppers, etceteras of the world on how we address that and how we do it from a consumer perspective and we differentiate the McDonald's experience. And so all of those things will help us and you'll see activities around the world relative to how we approach beverages as we move forward into the future. We got number 2. Thanks. Will Slabaugh from Stephens. Hi Will. Hi. Pete a question for you on G and A. Can you touch on the $200,000,000 increase for next year? And maybe if you could break out to the extent possible between incentive comp increases, growing the restaurants and then digital as you mentioned? And then as a quick follow-up there, can you talk about what incentive comp did in 2013 off of 2012? I assume the decline there if you could quantify that. Yes, Will. Of the 200,000,000 a little over 60% is the comparison to below target incentive pay from around the world in 2013, the Olympics and the convention. Then we've got the remainder is the combination of the kind of normal increase as well as these focus areas around restaurant growth and digital and our capacity enhancements. But there was a I don't want to make it sound like that just is kind of happening. There's a lot of activities underneath that where we've gone in and we've reallocated G and A. We've cut some projects. We've done some things you would expect in this environment. But generally, as Don mentioned, we don't see a fundamental shift in the business model or our customer base. So we're not trying to cut our way to prosperity. So we want to continue to invest for the future growth. But around the edges, we've done some things to trim back where it makes sense to trim some of these things back. It's just the comparison against the incentive comp below target this year, which yes is down from 2012. I don't have the exact number. Maybe we can get that by the end of the day, But it is a factor. We got number 1 and then we'll go back over to number 4. Hi. David Fuchs from the Loewe Family Group. Hi, David. Hi. My question is around your franchisees and trying to get a sense for how existing franchisees are feeling and how they're doing. And as regards prospective franchisees, what's how's the value proposition looking for prospective franchisees? And how's the pipeline looking? And are you seeing any changes there positive or negative? I'm going to ask Tim to talk a little bit about what he's seeing as he's traveling around the world. I know you're going to hear more about this as well from Jeff Stratton and the team. We spend a lot of time with our franchisees. And I will tell you that what I've seen is that there is still an alignment. There's still an excitement. And when you have industry leading cash flows that does help. Nonetheless, there are certain pressures that the cash flows are under that hit our franchisees as well. So I know you'll hear about it from Stratton a little bit later on the U. S. End. You'll hear about it from Doug and Dave on the other end relative to Europe and apnea. But maybe Tim just some of your travels some of the things you've been talking with the franchisees and teams about. Sure. Thanks. I would say the travels to the U. S. To Europe to Asia Pacific, it remains I think one of our strongest assets is the alignment that we do have with our franchisees. Now we don't always agree and I think that's healthy. In any relationship you have some disagreements and you have some nudging and it keeps us honest. But when it comes to the alignment of what we have to do, and I know Jeff Stratton and his team, Jeff being new in the job in the last 14 months, I think has probably spent 85% to 90% of his time on working in alignment and understanding and listening and rallying and motivating. And when we get this alignment going, which has always been a strength for us, it's a powerful machine for us. So Europe, I think Doug and his team and the division presidents have done the same thing. And Dave Hoffman and his folks in the Middle East and specifically have majority of our licensees have done a great job on alignment, and getting things focused, on getting the plan together and moving in one direction. So I really think it is a strength for us. As far as registered applicants, we have a healthy inventory of registered applicants, particularly where most of our franchising is happening in APMEA. In the U. S, you have a good inventory of the U. S. Team. I think more of the restaurants go to existing operators or 2nd generation. Correct me if I'm wrong on that Jimmy, Jay and Jeff. But overall, don't have an issue on recruiting registered applicants or people that want to become McDonald's franchisees. We haven't advertised in many, many years to get registered applicants in training. So I think it's healthy on both sides. We can always tell when the franchisees generations be a part of McDonald's as we move forward. We're not seeing those things at all. Generations be a part of McDonald's as we move forward. We're not seeing those things at all. As a matter of fact, the next generation folks are pretty psyched. They are pretty aggressive relative to the opportunities we have. And number 4 over there? Joe Buckley, Bank of America Merrill Lynch. I got a couple of questions. Pete, tell me about the debt rating. Why is the focus on maintaining the current debt rating as opposed to maybe maintaining an investment grade debt rating? And how much incremental debt do you think you can take on to maintain the current rating? And then maybe tie in the overall comments to levels of share repurchases. I think you said share repurchases have added about 1% to EPS this year. It sounds like it may be less than that next year if you maintain the current system. And Don, you mentioned a $3,000,000,000 opportunity in beverages. Can you put that in perspective where are you now? That's a global number I'm assuming. And then maybe lastly, just confidence on what the sales trajectory is going to look like next year, because that seems to be I guess as always the key to the whole thing is and maybe we'll get into this afternoon I realize with the regions, but just the confidence on your ability to positively influence that sales trajectory. Joe, regarding the A. So this actually ties into something that Tim just mentioned around the franchisee alignment. So we spend a lot of time aligning with our franchisees around what's going to drive the business going forward and how are we going to get there together. We have a history of co investing with them. And the idea that we would in essence kind of withdraw capital from the business with them through higher debt is going to cause a misalignment with the franchisee system that from a long term value to the business as we estimate it is probably more destructive than the short term value we could create through some kind of additional leverage event. And we check this periodically. We go out and look and see what is the impact of doing certain things. And then we continue to get back to the power of that alignment, The greatest creator of shareholder value at McDonald's is when the company and the franchisees are aligned and executing at driving comp sales. So that continues to be the bias at which we look at it. In terms of incremental debt, I don't think we've given a forecast per se. The last couple of years we added maybe about $1,000,000,000 each year. This year we'll probably be something a little less than that in the couple several $100,000,000 kind of range. But that's of the magnitude. And obviously, we talk about the financial model being so dependent upon driving comps as we continue to drive more comps. You get the cash flow and the whole model worked extremely well. And Jody relative to beverages and I have to make sure I state this in balance. We're a restaurant business. We serve food and we serve beverages and we do it very fast. We're accurate. We're friendly. We want to make sure that all of that stays together Joe. So we're not trying to be something we're not. Matter of fact, we're following the strategy to begin in New Zealand, Australia relative to McC Cafe. I'm going to ask Tim to talk a little bit about where Mid Cafe is positioned around the world. But we have different opportunities that make up that 3,000,000,000 dollars So in the U. S. Stratton and the team will talk about part of that with Kevin. Over in Europe, Doug is going to talk about the opportunities that are there. You'll hear a lot more about beverages from those 2. So I'll refrain from further comments on that. But later on in the day, while they're here or in any conversation, we can chat even more about beverages. But that $3,000,000,000 we think is very achievable relative to our global brand. Tim maybe just to touch on McCafe. Yes. Sure. Two quick points. Just coffee globally. Coffee globally is $65,000,000,000 globally. McCafe, we have about 4,200 McCafes globally now between Europe, Asia Pac and Latin America, averaging anywhere from 5% to 8% of sales and growing. We plan to open anywhere from 350 to 450 McCaffes this year and 350 to 400 next year. On coffee, what we've learned and Don talked about beef, chicken, beverage and breakfast. Breakfast and beverage or breakfast and coffee go hand in hand. In many of our emerging markets that have aspirations to have 25% of their sales be breakfast have learned to grow breakfast by leading with coffee. Being coffee the last leader to get them in and trade them up and we've done that successfully throughout Asia Pacific. Europe is doing a great job with the breakfast on a lower base, but growing on that. So coffee is a key. Beverage is a key for us. We served coffee since 1955. It's nothing new to us. It's the way we've expanded it and how we plan to really take more advantage of that market and that growth that's out there. Coffee and tea is downside of the biggest growth. But our Mcfe approach, our coffee approach globally ties right in with breakfast and beverage. So, I think we're out of time for this segment. But what we're going to do is we're going to be around all day. We'll have a chance to have some more dialogue and some more interactions. There's a couple of things. 1, throughout today's presentations, what I would offer to you all is it will be a little different from those who've been here before. We're going to go deep in a couple of areas of the world on some of the topics that we've discussed, ask all the questions that you have and then we will have that final Q and A section, so you can ask any broader questions that are still remaining. With that, I'd like to now turn it over to our Global Chief Brand Officer, Mr. Steve Easterbrook to talk a little bit about brand and digital and all kinds of things. Thanks very much, Tom. Good morning, everyone. And a pleasure to be here. And I know I've interacted with a number of you on previous occasions and I look forward to spending more time with you the rest of the day. And as many of you also know, I'm 6 months back into my time at McDonald's. And before that, I was here for 17 years serving in a number of different leadership roles, including CEO of McDonald's U. K. And Division President for Northern Europe and Global Chief Brand Officer for a short while and then finally President of McDonald's Europe. I left the company in 2011 to become CEO of a couple of smaller restaurant companies and returned back to McDonald's this past June as Chief Brand Officer. And in truth, I spent the last 2 years experiencing the restaurant industry on some new levels and was able to see it through a different lens and saw and learn a good deal and broadened my horizons a little. But ultimately, I found I had ketchup in my veins and I missed the adrenaline buzz that comes with this place. So now I'm thrilled to be able to return to such an iconic and global brand and a brand that all of us believes has so much more to offer. And I'll echo something that's already been said this morning, which is the notion of opportunity. The sizable opportunity at McDonald's for us to grow our business by being even more valued and loved by consumers. To be our customers' favorite place and way to eat and drink is an aspirational notion, but one that McDonald's is well positioned to achieve. Think about it. Few other brands have a presence in so many areas of their customers' lives what they eat and drink, where they come together, how they manage their work day and their weekends with their families and how they socialize and have fun. The bottom line is we touch so many lives in so many ways. And here's just a glimpse of that from Spain. A Father's Day ad that launched in Spain already captured the cultural meaning of that day particularly in Spain and went viral having shown it as well to more than 6,000,000 views. And there's an incredible runway for us to strengthen our emotional connection with our customers and ultimately drive more visits more often for our business. It's a journey and one that involves listening to our customers more intensely than ever and elevating all we do around 3 key consumer areas: the experience at our restaurants, the perception of our food and how we engage in the modern day marketplace. And right now, we're pursuing all of these things around our system, but sometimes just in pockets. Our great opportunity is leveraging our modernized restaurants, our high quality food and all the best ways we engage consumers around the world, so we can take the entire brand to a higher level in the minds of consumers everywhere and build that great loyalty and love that's going to drive more visits. On the experience front, it's about delivering a more modern and destination atmosphere by leveraging our reimaging efforts. We can develop further service enhancements and even greater means of convenience. And most importantly continuing to make our food and beverages more relevant and in step with where our customers are going. This includes a greater commitment to menu innovation from our core offerings to new products with a greater focus on freshness, customization and more unique tastes. You'll hear more about our menu focus during the Over the World presentations and how our markets around the system are bringing this to life. It also means responding more quickly to today's consumer realities and being more of an on the spot brand. This means using big data to give us more real time consumer feedback and a dialogue to give us stronger insights. It's about always knowing the landscape and delivering offerings and innovations that keep making our customers' lives just that little bit easier and that little bit better. Like the breakthrough value lunch in France that was developed through deep customer insights or how we're creating a new McDonald's experience during the evenings and overnights in APMEA and in the U. S. This is what we want to be in a bigger way moving forward, a brand with a greater sense of urgency to always meet our customers' needs where they are right now. Good quality, which really is where it all starts for us. We're a restaurant company that serves great tasting high quality food and we must keep raising customers' perceptions about the quality of the food on our menu. By heightening our overall transparency and telling our food quality and sustainability story in a more compelling, a more authentic and more impactful ways. Take a look at these 2 ads from Canada, which has been part of their ongoing food quality campaign. Nicely done, the simple truth. So to break through on food quality, we must also act more iconically, big moves that truly make a statement in the marketplace. Like our recent announcement with the Clinton Global Initiative to make salads, fruit and dairy a more prominent part of our Happy Meals and Extra Value Meals in the years ahead. Our work around quality is no doubt a long term proposition, but one to which we are truly committed. We've seen this commitment pay off in several markets around the world, where before we did anything else, we changed minds about the quality and goodness of our food and the business took off from there. And this remains one of our biggest opportunity areas for unlocking greater affinity for our brands and further growth of our business. So we'll be working even harder to deliver all this on a broader scale. Our final focus is how we engage consumers as a brand out in the marketplace. Our goal here is on continuing to make our work more relevant, more engaging and more effective. So let me touch first on our traditional mass marketing, especially television, which is still a hugely powerful medium for us. We're using a more rigorous return on marketing spend process to better understand the effectiveness of our work and where and how we can have a bigger impact. And from a creative standpoint, we're working to ensure more universal traits across all of our efforts. Such things as being based on deep consumer insights focusing on a strong clear message and telling an authentic and engaging story. And here's a new spot from the U. K. That brings those three notions to life. Now all that said, our strategic focus is moving from mass marketing to a more one to one relationship with our customers. This is the future. What consumers continue to seek is a personalized relationship with everything they engage with from music to entertainment to brands like ours. And enabling this in a massive way is digital. Digital has become an undeniable part of everyday life. Now historically, we relied on our scale and our ability speak with one voice to our 69,000,000 customers a day and it's worked really well for us. As the environment in which we operate changes, our marketing model must evolve. We're moving from mass one way push communications and we're building deeper one to one relationships that go beyond our restaurants. And these relationships are about personalized fun social engagement that's interactive pulls the customer in and works their way, evolving to 69,000,000 customers each interacting with McDonald's in their own unique way. And we've made some progress. New engagement experiences inside our restaurants such as augmented reality by TrackMyMacas in Australia, which highlights our food quality by giving customers a digital tour of how our food is sourced right on their smartphone. There's new engagement experiences outside of our restaurants such as delivery in ATMIA, beverage and dessert kiosks in Latin America. We're offering new ways to order such as self order kiosks in France and a number of mobile ordering and payment tests are underway and different ways to pay such as the near field communication payment in Japan. The ArchCard in the U. S. And PayPal in France are further examples. Now it's all terrific stuff. And what we plan to do now is to move from market answers to more system solutions. Now that does not mean that all markets will function exactly the same way. What we intend to do is leverage our size and scale with some outside partners across our system to offer customers the digital experience that only McDonald's could deliver. It has been my theme of sorts today, executing against our brand building areas on a bigger and broader scale to offer more meaningful benefits for our customers. Even just scratching the surface, we see the incredible potential with digital for building our business. Whether it's on the home screen of their smartphone when they wake up in the morning or the windshield of their car as they drive home from work in the evening, we want to be wherever our customers may be and have whatever it is they're looking for. Imagine a customer walks into their local McDonald's and receives a message on their smartphone that welcomes them back to the restaurant by name and a message that offers them the ability to place their favorite order perhaps a Big Pack Extra Value Meal from their phone maybe then supported with a personalized offer for being a loyal customer or perhaps it's a customer relationship management program that gives loyal customers access to fun and exciting rewards that only McDonald's can deliver. Digital presents the ability to greatly modernize and personalize our connection with each and every one of our customers and the millions more who are aware of our brand. So that's what we're focused on doing. And we recently took a significant step in that direction. Last month, we announced a new senior level position, which was Chief Digital Officer and brought on board Atif Rafik to fill the role. And Atif is here with us today. You'll have a chance to meet him. Artif is a leading figure in the digital industry and he comes to us from Amazon dotcom after having also spent time with Yahoo and AOL. And Adib will lead a newly created digital team at McDonald's whose charge will be to deliver a more cohesive approach to both our digital strategy and our execution across the system. We're extremely excited to have Atik with us and leading this effort. And he brings a level of expertise and cutting edge thinking that will help McDonald's make that crucial leap into being a more modern digital brand. So with that, I'll close out. I want to reiterate how excited I am to be leading our overall brand efforts I'm working with our system partners to drive the tremendous opportunities we still have to strengthen brand McDonald's across so many fronts. What it will take and what we'll be focused on more than ever is truly hearing our customers and delivering what they need more quickly, more easily and in a bigger way that lifts our entire brand. So thank you and I'll be grateful to take questions for the Number 3. I guess, yes, that's me. Keith Signer from UBS. Hi, Keith. We just spent a long time talking about other ways to engage the customer broadening and deepening that brand relationship. There have been some interesting press releases over the last couple of weeks that I'm surprised haven't come up at all tonight or today. But I was wondering if you could talk about these coffee announcements taking that Mid Cafe brand here in the U. S. And maybe extending your reach outside of the retail store? Any color you could add around that would be very interesting. Thank you. Well, as I said, I know the I'd also refer that to the U. S. Team. They'll be happy to take that question later. But in terms of brand extensions and getting the brand out and getting more familiar and getting people's what we do know so here's where I would start and I'll leave the rest of the U. S. Team. The longer a customer engages with a brand, the deeper the affinity grows. So that is really the basis upon what they've made their plans. But I think they can talk some detail to it and Okay? One quick follow-up. Sure. In terms of that, let's say, a loyalty program and that type of engagement, at least in the Northeast now, we have this value club membership that you can sign up for and you get emails specifically targeted to you with your information. Is that just a local market test right now? Or is this something that's going on more broadly? No. We have initiatives going on all around the world I can assure you. And I think what we want to do is capture some of the energy and some of the best practices that are taking place in the market and working out which of those are scalable and most beneficial both for business but also for the brands. So I would start from a more of a customer relationship management perspective on it rather than just a loyalty because loyalty it can just become if you're not careful what you fancy went of discounting your product. What I would like to do is to use our size and scale. McDonald's I always think of has an amazing convening power that where we want to go out and reach for partners who can provide ways of adding value for our customer other than having to do it through a reduced price. That is what I think customers are looking for from us. So we've got some wonderful assets at our disposal whether it's in the Olympics whether it's World Cup football whether it's relationships with picture houses like DreamWorks. There are ways music streaming partners who are very interested in their business. But There's a lot of interest now that we've kind of announced ourselves in this space of ways that we can add value to reward our customers other than necessarily just being a price gain. Number 4. Okay. Hi, Dave Palmer, RBC. Hi, Steve. With regard to advertising returns, a lot of the large companies that we see have talked about having those returns on investment diminish over the years, but it's still the best thing they got. In other words, they haven't found the big answer in digital yet to replace something else. It strikes me that McDonald's would be well positioned to find that replacement, maybe not immediately, but eventually if you test this out. Do you imagine that X percent of dollars that you and your franchisees sign up for every year, some of those dollars perhaps being reallocated. Is that the way that this could work out in the future? Reallocated across different media. Well, and even more specifically to some of the mobile platforms and I mean there's a lot of things you can do in terms of engagements, even if it's the coupon and stuff like that effectively is marketing. Frankly, a lot of the CPG companies are doing more promotions in the supermarkets to replace that TV stuff. Yourself could do more of that. Yes, it could be deals, it could have a much higher return than something else you could that's simply not going to be reaching the millennials is my point. Sure. Because another couple of points I think in there. So yes, RONs in itself is a measure. It's not the measure. It has helped us in the markets that have really employed it effectively over a sustaining period of time. It helps us manage where we spend, where we put our weight, dayparts, which times of day do we support certain promotions, how long do we run certain promotions whether it's limited time offer or core favorites and brand ads. So it really helps us manage around the margins. But it kind of it's working those margins which makes it more effective. So ROMs is great. We'll look at Share of Voice but then that's predominantly TV. So you're right digital is redefining some of the measures and tools that help us be effective, but we'll be involved in that. With regards to the investment and the infrastructure, the one point I would like to emphasize is why it gives me a really high level of confidence that we're going to do this and do this well is that we have invested with our franchisees significant but appropriate amounts of money over the last number of years in coming onto a common new POS system. So it's not just point of sale for customer. It interacts with our kitchens but also into our back office system. And that's the platform that we need to be able to unleash sort of the power of digital for us. So we have more than way over 20,000 of our restaurants already on that. It's still running out quickly. Other investments that again we have kind of shared with our franchisees. We rolled out free Wi Fi. So 2 thirds of our systems offering free Wi Fi which then gives you a lot more capability in the restaurant to bring the digital experience to life for the customer and add value. So we've invested shoulder to shoulder with the franchisees. We'll continue to do so. If we come up with some good ideas, I can tell you they're with us. The pull from the markets for this is enormous. They're just looking for some directions and leadership in the sense of which obviously we're going to step up and do. Thanks for the question. Number 3. Hi, Steve. It's John Glass. This is digital. You're sat next to our team. I know I already met him. Thank you. Okay. Maybe we can just pass the mic to him. But the question is when will consumers start to see this in a more concrete way? Specifically, when can I pay at McDonald's using my phone? When will you send me a coupon via my phone or other device? And does it have to be all at once globally? But will you launch this in the U. S. For example? Or will this come out in other places of the world? They'd have to all look the same I guess globally. Well, first of all, you can do all those things, but you may have to get on a few airplanes to do it. That's the problem. So what we want to do is be able to roll those out and get scale to it because the consumer demand is there. I mean one of the benefits we have in McDonald's is we've got way over 100 different markets. So we can actually roll out tests and try different things in different markets. Could that be the U. S? Absolutely. U. S. Is a big market. Maybe they can offer up some regions. We can test it in a region. There will be different solutions that are being driven out there in the world. But we're kind of geographically neutral on this. What we want is those leading sort of the early adopter markets. Some where the consumer is so digitally savvy. So if we take Scandinavia for example where the level of digital usage just in everyday life is so significant, that's a great testing bet for us because we can work out how well we connect. Other markets are less so. And therefore, there's not such a rush to it. But no, when will you start to see stuff? You will start to see some impact on our digital ideas by as early as next by 2014. In the United States, you'll be able to use phones for these purposes. That wasn't what I said. But thank you for following up. Thank you. Oh, sorry. Where are we? Number 2. Hi. It's Sarah Senatore from Bernstein again. And you actually touched on what I was going to ask, which is to the extent that I think you have tested this kind of stuff, I think maybe also in Asia, I feel like there's more digital couponing that kind of thing at least. Can you talk a little bit about what you have seen with respect to frequency and the thing that we're all trying to measure which is comp? And then also you mentioned this as well. Are there limitations? Are some markets more savvy? And is that because of just the market overall? Is it the nature of your customer who might be younger in some places than others? So just trying to get a sense of what the impact could be best case and then what are the limitations across different markets? Thank you. Thank you. Thanks for the question. To cut to the chase and the honesty of the answer is we haven't put a number on this ourselves. We haven't set ourselves a target. What we do know is if we can make the customer experience smooth in the restaurant, we can make it more fun and make their lives a little easier, they reward us. And we see that in some of the programs we actually run-in existing markets, which pretty advanced in this. Part of the reason why I mean very pertinent to your question for certain markets of way further ahead not McDonald's markets just certain markets generally That's why it's not necessarily a race to be 1st. And that's not something we try to do. What we're trying to do is be best at it and then to roll out these platforms and just have a full end to end customer experience. And there are certain businesses out there who do fairly good jobs at certain elements of digital interaction, but not necessarily the whole piece. And that's what our aspirations are. But we know that we will attract more customers, so we'll get the penetration piece by being more convenient, more fun, more engaging and the frequency piece. Because if we make those lives easier, that's what I don't know what they're looking for and they'll come back on the waters for that. Is that time? Okay. Right. My time is up. I'm getting hauled off. So let me invite Kathy back up to then just run through some logistics for us across lunch. Thank you. The information in this presentation contains certain forward looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of November 14, 2013. These forward looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in or underlying our forward looking statements is detailed in the company's filings with the SEC, such as its annual and quarterly reports. Access our SEC filings by going to www dotaboutmcdonalds.com/mcd/investors. Our website also includes reconciliations of non GAAP financial measures we mentioned in our presentation, if any, to its corresponding GAAP measures. Those reconciliations may be found at www.investor.mcdonalds.com. All right. Welcome back, everyone, and welcome back to our webcast audience. Hopefully, everyone had a wonderful lunch. I know there were some great things there today. So we're going to kick off with our Chief Operating Officer. So I am very pleased to introduce Tim Fenton. Well, good afternoon and welcome back. I love that commercial because it's a great representation of what I've been doing the last 21 years. I have worse McDonald's my way around the world. Also, I hope everybody enjoyed lunch and tasting some of our latest products around the world. And I know many of you are asking why did Fenton choose to present after everybody ate the big lunch. I didn't. It's called the short straw. Here I am. Anyway, I'll try to keep it engaging and I know our international friends hopefully we won't do that to jet lag get into them. So we're into the second half of our day. We have a lot of great material to share. We have the area of the worlds that are ready to showcase some of the terrific things that are happening in their markets. And we have built in plenty of time. I know we're kind of short on the last time, but we've built in plenty of time for Q and A. So let's get started on some of the remarks on the global business and what we see. By way of a little background, I have been the Chief Operating Officer role now for about 18 months. This is my 40th year with McDonald's. Actually tomorrow, November 15 will be my 40th anniversary with McDonald's from November 15, 1973. Okay, thank you. And I know many of you that know me over the years you're seeing that jet lag that international years are like dog years, right? I know I can I feel it? But I did start in restaurants and worked across all many areas of the business in many markets from Europe to Asia to the Middle East and of course back to the U. S. I am excited to bring my global experience to help strengthen our brand around the world. I want to spend some time going to a little deeper on what you heard this morning, a little deeper about the growth opportunities that we see ahead for McDonald's. And I think 1st and foremost, it starts with improving our focus and execution on running better restaurants and delivering the best food and beverage offerings that we can. At the same time, expanding our connection with consumers by extending our assets from McCafe to drive thrus, broadening our digital engagement and increasing our pace of new restaurant development. It's being even better and bigger, which is our opportunity and it's our challenge. What it takes is greater innovation, more modern tools and processes, stronger market analytics, quicker sharing and quicker scaling, and ultimately bigger and bolder thinking. All of this is what we focused on to build our future and you'll see it come to life with the presentations that follow me. So I'll quickly comment on the macro level and the big opportunities before us and how we're seizing them, starting with optimizing the menu. The menu will always be a key component of our growth as above everything else, we are a restaurant company first. As we mentioned this morning, our menu growth will primarily come from 4 categories: beef, chicken, breakfast and beverage. Each one of these product categories represents a $2,000,000,000 plus opportunity over the next 3 years. We'll seize on this growth by 1st, continuing to put our core menu front and center products like Big Mac, our world famous French fries, hamburger, cheeseburger, chicken McNuggets are a key part of our menu that continue to account for more than 25% of our total sales and are one of the largest drivers of profitability. So our marketing plans fully engage these brands. At the same time, we're stepping up innovation around the core and finding ways to energize and modernize these brands for our customers. You'll see us doing more of this with our Chicken McNuggets sharing boxes in various markets, our new Quarter Pounder toppers that we introduced this summer in the U. S. And our Shake Shake Fries across Asia. I hope you had a chance to try this new twist, if you will, on our iconic French Fries at lunch. We have an incredible equity in these $1,000,000,000 core brands. And by modernizing and stretching them, we can do more to excite our local our loyal customers and attract new customers. Jeff Stratton and the U. S. Team will discuss their approach later this afternoon on this subject. And in the same vein, we'll continue to make our entire menu more modern and dynamic from premium to value offerings. We're leveraging greater consumer insights to incorporate more freshness, customization, portability and compelling new news that our customers tell us that they want. In addition, we plan to continue making greater inroads into still untapped dayparts including breakfast in many places outside the U. S. For a perspective, breakfast represents about a quarter of our total sales in the U. S. Compared to about 12% in APMEA and just 5% in Europe. Across apnea this past March, 30 countries recently participated in a National Breakfast Day promotion. 5,000 restaurants gave away over 5,000,000 of our great tasting and nutritious Egg McMuffins in a single day. We significantly increased the awareness and the trial for our products and helped drive sustaining growth at breakfast. In the end, we leveraged our size and our alignment to deliver the kind of engagement experience that only McDonald's can do. And why is this important? The toughest part to grow breakfast is to get to 10%. Once you get to 10%, after 10%, it's a little bit easier and we know we've done this around the world. And we know that in many of the markets in Asia where they did this, breakfast is one of the largest dayparts. And they don't want to wait 40 years to get to the breakfast percentage that the U. S. Has. So they've come up with some exciting engaging and disruptive concepts. And I believe Hoffman will talk a little bit about it later as they go to breakfast National Breakfast Day 2.0. We're also focusing on dinner, snacking and late night occasions. This summer in the U. S, for example, they introduced McDonald's after midnight menu, which combines the most popular selection of breakfast with our regular menu items. And finally on menu, we see much more runway still ahead with beverages. You've heard this several times today, from blended ice to coffees to potential new platforms such as teas. Our blended ice line alone is on pace to deliver $1,000,000,000 in sales this year in the U. S, which represents just a fraction of the opportunity that we feel is out there. And outside the U. S, sales this year is expected to grow to $400,000,000 with further growth ahead as additional markets around the world prepare to launch this platform. Doug Gore will provide more details around Europe's plans for leveraging Glendid Ice in 2014 beyond later on. We're also planning more expansion of McCafe in Asia and in Europe as well as in the U. S. We also have a potential for McCafe branded kiosks and even a packaged presence in grocery stores. We have built a strong global brand in McCafe and we know we can leverage it in bigger ways to take even larger share in the growing coffee market. Now shifting to modernizing the customer experience. This is about ensuring we keep pace with our customers in the ways they interact with our brand. 1st and foremost is having contemporary restaurants, which is foundational to our future growth. It enhances our ability to broaden our product offerings and our convenience amenities in order to deliver a better overall dining experience. We've been progressing well on this journey and today McDonald's reimage look is reflected in more than 60% of our interiors and 50% of our exteriors globally. Europe is the leader in having the most restaurants reflect our contemporary look. This is one of the reasons the premium food events continue to be a significant contributor to overall sales in markets like France and the U. K. As more markets become substantially modernized, our pace of reimaging will naturally slow down. That's why it's important to note that modernization goes beyond reimaging to include the many other ways that customers interact with our brand. Our expansion of web ordering in APMEA, our service enhancements in Europe and our growing presence across the digital arena, which I know Steve talked a little bit about earlier. And lastly, on modernization is our continued commitment to quality, service and cleanliness or QSC, which is foundational to everything we do in the restaurants. As we modernize our brand, we can't, we won't take our eyes off strengthening our tradition of operations and service excellence, which not only green fees, but growth opportunities in and of themselves. There is a clear correlation between our customer satisfaction scores and greater visits and greater sales. We know that continuing to get better at the basics from speed to accuracy to friendliness is what connects our brand to consumers and it drives gains. We're making progress in what we call our customer satisfaction opportunities or CSO. 0% CSO means 100% satisfaction. You can see that we continue to lower our global CSO score, which is in the direction we want to go. That said, we're never satisfied and we know we have a lot more that we can do to improve this. And our goal over the next few years is to get our average down below 20%. This is a part of the business that's always been a special passion of mine. So we'll be focused hard on continuing to improve the service that we deliver around the world by leveraging new tools, training and techniques to help our management and crews continue to deliver the best service experience they can. And finally, broadening accessibility, reaching more customers more often. And here's where we really are looking to be even better and bigger. We're driving greater convenience with more delivery and kiosks. Extended hours in more restaurants across the system and better and faster drive throughs with tandem and side by side ordering and handheld order taking. Right now, for example, 1 out of 2 restaurants in the U. S. Employ 1 of these multiple ordering points. And we'll continue increasing that number to drive more cars and throughput because restaurants with multiple ordering points outperform those restaurants that do not have them. And then there's affordability, a key to accessibility and what the industry is focused on in the near term given the challenging environment that we're in. Compelling value at all price levels is crucial. As consumers grow more discerning and look to more nontraditional outlets like bakeries, grocery stores in their eating out decisions. Across all our markets, we are focused on better understanding what is motivating our customers when it comes to affordability, then sharing and scaling solutions at the entry level price and across our mid, our core and our premium tiers. And you'll hear a little bit more about this focus as the Area of the World presentations come on later this afternoon. And finally, in the area of accessibility, we will grow to the opportunity. By the end of 2013, we'll have opened about 1500 new restaurants globally. In both established markets like the U. S, France, Germany, Canada, Australia as well as emerging markets China, India and Russia. And we will continue a similar growth pattern in the years ahead. What we like to say is we've gotten better at getting bigger. We've gotten smarter and more strategic about how, where and when to open new restaurants and growing to this opportunity in the right way. In a moment, you'll hear about the stronger development efforts in emerging markets like China, but we're also focusing on established markets and using advanced technology and processes to help unlock further growth in these areas. Through our GAAP trade analysis, we are leveraging the most advanced proprietary tools and software to pinpoint where we can still grow in more developed markets. And a quick example of this is the work we're doing in Calgary, Canada. If you look at a map of Calgary and all the places where are in red, it appears that we have much of the area covered. But using our analysis tools, which involves things like centroid plotting, demographic and retail synthesis, we can see in yellow all the areas where we are still under penetrated given our screens. If we zoom down further to just a section of the city, our analysis and mapping tells us that by utilizing a variety of tools from reimaging, relocation and new store development, we could potentially double the number of restaurants and increase our sales from $27,000,000 to $61,000,000 Today, we have the tools, the technology and the expertise that really were not available 10 years ago. So we're better equipped to understand the right number and the right location of restaurants in any market from emerging to established. We're also looking at different configurations and footprints, especially in dense urban areas where our space needs may be limited or where we need to leverage new thinking on space utilization like kitchens on a second floor or in a basement connected by a vertical transporter. And you'll hear more about this especially from APMEA, but the idea is that we are employing the best tools and most dynamic and innovative thinking to further penetrate our global markets and reach more customers. In closing, I want to reiterate my confidence about where we're taking our business and how thoughtfully and strategically we're going after sizable opportunities that are in front of us. We have a strong experienced and talented management team And we continue to have the best owner operators and suppliers in the industry. Together, we are aligned, we are focused, we are committed to building an even stronger future with a strategy of even better and bigger. And with that, I'd like to take the opportunity to bring up Dave Hoffman, who is our President of APMEA and start with the early world presentations. Dave? Okay. Thanks, Tim. Good afternoon, everyone. It's a privilege for me to be here today with all of you. As you may know, I have been leading McDonald's Asia Pacific Middle East and Africa Business known as APMEA for about 16 months now. And prior to my current role, I held various roles within McDonald's during my 20 years including serving as CEO of McDonald's for Japan for 4 years. Here with me today is CEO of McDonald's China and Division President of Greater China, Kenneth Chan and our CFO of APMEA, Dave Garland. Before I get started some headlines about APMEA. We have nearly 10,000 restaurants and serve approximately 19,000,000 customers a day. It is the broadest area of the world in the McDonald's system comprising 37 soon to be 38 countries, 16 time zones and more than eight 100 languages and dialects. We are also the system's fastest growing region today. We represent 28% of the company's total restaurants, generate about 23% of total revenues and account for approximately 17% of consolidated operating income through year to date September. This represents significant growth over where we were just 5 years ago. Today, our markets are executing initiatives that balance near term performance with long term growth opportunities. Our plans align with our 3 global growth priorities to optimize our menu, modernize the customer experience and broaden accessibility for our brand. Before I delve into these in more detail, let me share some context on our current performance and business environment. Since we last met in 2011, APMEA has grown revenue in the mid single to low double digit range in 20112012. More recently, this growth was largely driven by the 775 plus restaurants we added in 2012. Through Q3 this year, APMEA revenues were up 2%, while operating income is relatively flat both in constant currencies. And over the past several years franchise margin dollars have grown and surpassed Macopco margins started in 2012. This momentum underscores the importance of accelerating our franchisee model in APMEA, which I'll talk more about later. APMEA's year to date September franchise margin in Australia and the impact of a weaker yen. Apnea's company operated margins are driven primarily by Australia and China. Year to date September, the company operated margin percentage of 14.7 percent declined 160 basis points compared to that of September 2012. At the outset of the 4th quarter, comparable sales year to date October were down 1.8%, driven primarily by weak performance across the top three markets. We experienced strong performance in other markets that obviously helped mitigate the overall segment's decline. These financial results reflect the significant headwinds we faced this year, including external challenges like avian flu, rising food and labor costs and slowing economic conditions as well as more intense competition that is focused primarily on value. Our results also reflect softer than expected performance of recent new products and promotions that were not strong enough to overcome our negative guest comp momentum. For example, in Australia, results from recent promotional activities were dampened by stronger than expected trade off from other products. And in Japan, our continued efforts to evolve our value platform have satisfied with these results and our markets are adapting their plans to ensure we have the right initiatives in place to navigate the near term challenges. In Australia, our near term focus is to drive value across all price tiers including exploring the launch of meal bundling options to make meal creation easier for customers. We're also focused on building the top tiers of our pricing platform through the launch of more premium menu items. In Japan, we remain committed to balancing a consistent value platform with promotional offers to appeal to price sensitive consumers. At the same time, we'll be introducing more limited time offers including seasonal products to encourage trade up and build average check. And Kenneth will talk a little later about the near and long term opportunities to grow the business in China as well. I'm confident in the opportunities that exist within our 3 global growth priorities to grow the business profitably over the long term. I'd like to now share more insight into each starting with broadening accessibility which is our biggest opportunity in APMEA of course. We have a sizable opportunity across the globe to capture our share of the $30,000,000,000,000 of consumer wealth that will be created in emerging markets. For APMEA's emerging markets, over $18,000,000,000,000 of consumer wealth is estimated to be created over the next 10 years, representing a significant potential for our business. Now China is our biggest opportunity, but it's not our only one. As you'll hear from Kenneth, the estimates for wealth creation in China alone over the next 10 years is over $9,000,000,000,000 with another $9,000,000,000,000 coming from India, the Middle East and Southeast Asia combined. You could say that the total emerging market potential within APMEA is the equivalent of 2 Chinas and we're confident and we believe we're well positioned to pursue both of those. We are targeting development opportunities in our established markets too, but the more significant growth exists in emerging markets. In 2014, we expect to open about 8 40 restaurants and this includes over 450 that are in affiliated and developmental licensees or what we like to call DL markets where no capital investment is required for McDonald's. Of the 840 planned openings, China will still represent the largest single market with 300 restaurant openings planned, but we'll also have over 250 combined openings in other emerging markets such as Korea, Philippines, Malaysia, India and Thailand. And of course, we'll also open up Vietnam, our newest market in 2014. We've recently enhanced our restaurant development model to optimally balance future expansion with profitable growth. Our go to market approach recognizes that our franchising real estate and restaurant development strategies in emerging markets have to be different than in more developed markets to adapt to the different dynamics that exist in Asia compared to our counterparts in the Western world. So let me first talk about franchising. Today across APMEA, as you heard from Tim earlier, we are 71% franchised, but our ownership profile varies by market and is lower in markets like China. We are evolving our franchising strategy in many markets to include more conventional and developmental licensees. Doing so allows us to effectively increase our pace of development to target the significant opportunity that exists within the growing middle class population, while also allowing us to further diversify our revenue stream and optimize capital investments and returns. Our real estate strategies are also evolving in our emerging markets. We know each market is different and we must adapt our strategies to align with different city structures and dynamics. In APMEA, we divide our cities into 3 different categories. 1st metro, which is the highest density central business district or the heart of the city Urban, the area surrounding the metro that is comprised of the new middle class with expanding disposable incomes where most of our customers reside today. And finally suburban the low density outlying areas with lower purchasing power and lower disposable income. In many areas space is limited, so our development strategies must be flexible to allow us to modify our restaurant designs to fit our real estate locations within the different city categories. And doing so allows us to build to the potential that exists and penetrate areas where we had previously not considered possible using an optimized size and cost structure. So I'm going to show you one here in just a second. Here's an example from South Korea on a flexible building design we've developed that provides us with the ability to build on a smaller lot size. In the past, we would have walked away from this type of location and now this is a key part of our growth strategy for the future. So let's take a look. The meeting will resume after this commercial break. Okay. Video today. This site is slated to open up in the next couple of weeks. So now let's talk about affordability, which also falls under broadened accessibility. In 2014, many markets will continue to evolve toward more compelling offers that resonate with customers and generate incremental visits. In some markets, this means adding a mid tier to fill the gap between entry level options and extra value meals. And Australia is a great example. We focused on reframing our value offers to close some gaps we've identified within our mid tier price points. And Kenneth will talk a little bit about the near term plans they are pursuing in China to evolve the value platform as well. Moving to modernizing the customer experience. We are focused on making it even more convenient our customers to order what they want, when and how they want it. Our brand extensions including McDelivery or MDS, dessert kiosk, McCafe and drive thrus are additional sales layers that have significant runway to contribute to our future growth. MDS will be a $1,000,000,000 business for us over the next several years and web ordering represents the biggest contributor to MDS growth. Drive thrus represent another layer for growth. Drive thrus sales represent about 35% of total sales in drive thru locations. This year we opened more than 300 new restaurants with drive throughs and we expect to have over 3,800 across the zone by the end of the year. In 2014 our plans reflect half of total restaurant openings will include drive thrus. Moving forward, we will continue to grow drive thrus at an even faster pace given that the significant growth in balance our global core menu with locally relevant food and beverage choices across all day parts and price points. We are focused on a few areas to drive performance through our menu. 1st, drive our dinner daypart by introducing platters, bundling and new packaging offer new flavor profiles designed to match local tastes offer new flavor profiles designed to match local tastes like the McSpicy platform. And finally, introduce or expand breakfast across our markets balancing our core brands such as the Egg McMuffin with local market tastes like the chicken muffin. Breakfast currently represents approximately 13% of sales across the zone, so significant opportunity remains to further develop the state market, especially given the large percent of the Asian population who eat breakfast away from home. Tim mentioned National Breakfast Day earlier. Almost all markets will participate in what we call NBD 2.0 in 2014 and we fully expect this day to be even bigger and better in driving this daypart strategy. Okay. So with that now, let me turn it over to Kenneth to give you an overview of the China business and the focus that we're going to have on development opportunity that exists in the market today. So with that Kenneth? Thanks Dave. Before I get into the development potential we are pursuing in China, I just wanted to spend a few minutes talking about our plans to fuel growth in the near term in a challenging environment. Now China's economy remains fragile and consumer confidence is soft. We know that providing customers with a consistent and affordable value offering is important to driving guest counts, especially in this environment. So we are focused on evolving our value platform to resonate more strongly with customers. We recently launched a tiered value menu offering extra value meals all day starting at RMB15 or about US2.50 dollars A la carte extra value items with small fries and small drinks start at RMB5 and the popular spicy chicken fillet burger is being offered at an a la carte price of RMB10. And customer favorites like the small McCafe cappuccino will continue to be kept at RMB12. The evolution of our value platform allows us to create a pricing structure that anchors affordable entry price points, while providing opportunities to trade up to more premium products at the other end of our menu. Now we are also focused in China on growing our family business and becoming a family destination in addition to just a convenient option. Our goal is to build a Happy Meal brand that kids love, while winning mom's permission by offering food that they feel good about from a brand that they trust. We will build on Children's Day in June, which is traditionally the highest sales day in China by taking a holistic approach to enhance our family offerings that encompasses our marketing, our merchandising and menu to strengthen our appeal to children and moms alike. I'd like to shift now to talk about the long term opportunity before us to broaden our accessibility in this market. China continues to be the major consumer growth story of our lifetime. And with the backdrop of the megatrend of urbanization and a rising middle class, we are confident in China's long term potential for McDonald's. We are aggressively pursuing this opportunity and have a disciplined plan in place including double digit growth in new restaurants. Now after 18 years, we got to our 1,000 restaurants in China in 2008 and we will get to 2,000 restaurants in quarter 1, 2014, about 5 years later. Clearly, the pace has accelerated. Most importantly, our unit economics and foundation are strong and they reflect our thoughtful approach to broadening accessibility in China, more profitable since 2006 with double digit increases, average store sales by 17%, average store cash flow by 76% and average check by 10%. And as Pete mentioned this morning, in many markets, new restaurant returns grow over time and China's new store returns reflect this. While new restaurant economic start out slower as we expand in areas that are still urbanizing, we ultimately experience growth and in 3 to 4 years results approximate the overall market average. We will open about 2 75 restaurants in 2013. And going forward, we believe an opening pace of about 300 restaurants per year is sustainable and will fuel long term growth. Now today, our restaurants cover between 50% 60% of the urban population. Going forward, our restaurant coverage will reach over 200 cities to give us a cumulative mass of 80% of the urban population. Supporting our opening plans is a go to market or GTM approach, which Dave just mentioned. We are leveraging this approach in China to broaden our accessibility through franchising, real estate and our development strategies, which includes cost efficiencies. So let's first touch on our GTM franchising strategy. The main focus here is to accelerate franchising. We have tested and now are moving forward with our franchising efforts. The quality of our strong franchisees and proven unit economics underscore why we are confident in our franchising efforts. We have made a lot of progress in this area over the past 5 years. In 2008, we had 3 conventional licensees. And by the end of 2013, we will have 38. Our conventional ITs are young, energized and between late 20s 30s. And while we have 38 CLs in China's system today, we have another 27 registered applicants in training. With our DLs or development licensees, the licensees provide the capital for the entire business including the real estate interest. No capital is required from McDonald's. In 2,008, there were no deals in China, but we're expecting to have 10 by the end of this year. Our DLs have strong local relationships. They understand the landscape and through them we will have even greater success with restaurant openings in the lower tier cities. In total, conventional licensees and DLs will make up about 15% of our restaurant base by the end of 2013 and we plan to accelerate that to 20 percent to 25 percent of the base by 2015. The second area in our GTM approach, our go to market approach is our real estate strategy, getting the right restaurant portfolios in the right locations. As we expand, whether as company owned or through franchising, the discipline of expansion must be governed by an optimized site selection process. Now earlier Tim showed an example in Calgary of using GPS technology to maximize McDonald's penetration in that market. And similarly in China, we have a strong system of city mapping and using profitable market optimization tools to identify and manage our real estate portfolio. We are also looking at our development strategy as part of the GTM process to build different restaurant models for our metro, urban and suburban areas. These flexible models are designed to suit the deferring real estate and construction dynamics in each of these zones. The models reduce fixed investment costs such as real estate footprint, equipment and design specs, while still providing the best brand and customer experience. The metro restaurants and the metro restaurant models are fully optimized with brand extensions like McCafe and Dessert Kiosks. But given their location in high density commercial areas, drive thru is a rare possibility and rising rental costs pressure our model. And so by levering technology, we are able to move production facilities away from the prime retail space, while positioning dessert kiosk and a full menu front counter as close as possible to the customer footfall. Let's take a look at this. So this GTM approach or go to market approach allows us to achieve our restaurant expansion targets using a flexible and disciplined process that also produces cost reductions and improves portfolio returns. Our early results with go to market give us a lot of confidence and we are still fine tuning the process for the future. So with that, I'll turn it back to Dave. Dave? Okay. Thanks, Kenneth. The future in APMEA is bright. We are focused on capturing the significant opportunity that exists to grow the business in the near and long term across our portfolio of both established and emerging markets. We are committed to further building a brand that connects with people satisfies the needs of our diverse and rapidly growing consumer base from those who are new to the brand to those who are familiar, but maybe not emotionally connected. We will do this by offering them what they want, when, where and how they want it at the speed and convenience they've come to expect from McDonald's. And I am absolutely confident that the plans we have in place will solidify the strong foundation that exists today while positioning us to grow the business to achieve our full potential. And like we like to say in APMEA, winning the present and building the future that is APMEA. Thank you. And now I'd like to bring up Dave Garland to join us for a bit of Q and A. Okay. I'm going to be the traffic cop here. Hi. Thank you. This is John Ivankoe from JPMorgan. China obviously the comp was negative in 20 13. I think there are a lot of reasons that you said why. And there was a little bit of a softening in development relative to what you thought earlier in the year maybe last year. And yet there's a slight uptick in development in 2014. And those events aren't necessarily sequential as we would normally see it. In fact, it could have been logically assumed that 2014 would be an even lower development than 2013 given that you lower development, given that you had same store sales. So I just wanted to shed a little bit more light on that decision and make us comfortable that the new units won't affect existing unit performance in any way. And if it's possible to talk about maybe new market opening versus existing market opening just sort of not in a situation where new unit returns are declining and I guess, Horsesh had even affect existing unit returns? Yes. So clearly our vision to grow continues in China for the long term opportunity with urbanization and the middle class growing. I mean in 2013, we took a call to say we're going to be opening at the lower end of our earlier guidance of between 275,000,000 and 300,000,000 and probably opening around 275,000,000. And a lot of these sites again in our pipeline today we have thousands of restaurants down the pipeline in different markets today. And what we've been able to then is to be able to have choice in the sites that we choose. And so while we do have a lot of choice going on, we cited that some of them are a little bit more green. And again, to your point, this year when the results are a little bit softer, we decided to push them over to 214 or to the late years as well. So that's a decision for this year. Going forward again, as I mentioned in my statements that we're looking at a pace of about 300 or so. Again, that pace the color to that pace will be a lot of movement going into some of the lower tier cities, right? So not just staying as in the coastal Tier 1 and Tier cities. And another piece of that pace would be working with our franchisees, especially our development licensees to open a portion of those stores as well. And primarily these deals are also within some of the lower tier markets and the opportunities there. So I think it's a very healthy pace. It augurs well for our organization and also the rest of the training needs that needs to take place in our expansion growth. And the other color I would say there is that we have a good mix as we talked about today about building not just the traditional metro retail stores, but the real blue ocean for us which is drive through and that will augur well for our future. And I would say for across all of ABMEA for 2014 we're going to open up 80 more restaurants on a similar capital envelope in 2014 as 2013. The variation though as Kenneth mentioned would come down to 3 things. So first drive thrus have a longer gestation period. But over time it doesn't matter developed market or emerging market drive thrus is the best performing part of the portfolio. The second thing as you heard about go to market, our pipeline in China is 1,000. To get the benefits of go to market into the pipeline, you have to slow down a little bit to make those improvements. So we're excited about what go to market is going to do, cost avoidance, cost savings, the ownership piece, some of the things you saw around split kitchens, etcetera. And then lastly, and Don said this and Tim said it, we're not going to chase the number. We're going to chase the opportunity. So where we believe we're going to call a certain amount of sites that we don't think are the right sites in the portfolio. And other ones, we're not trying to jam a number in by year end. If the traffic generator hasn't arrived, which in China's case that's we've got some that we're pushing in the Q1, Q2 because the traffic generator just hasn't opened up for us yet. So I think those all are all part of that variation between 2013 and 2014. Thanks. Yes. Hi. Andy Topps with Holland Capital. I just wanted to touch on the incremental ROC as it relates to the developmental license approach in China in the sense that it's about 50% of new units. And how much logistics has to be added to accommodate for most likely a lower profit per restaurant in a development license scenario? Logistics as in distribution. Today actually in China we're in about 150 different cities already. So we have restaurants in those areas where our development licensees are. So our distribution system actually already is relatively efficient going into those areas. And clearly with more scale that's going to drive our efficiencies even further. And then just maybe one follow-up. Is there anything you're doing to reduce your dependence on chicken for the overall China market in terms of new products? We've actually got a really good balance of protein. Clearly chicken is there. We're building our beef brands through Big Macs. And as you know there's a pork is the biggest protein in China and that's something we're looking at as well. But chicken remains one of our core products. It drives a lot of efficiencies and margins for us and we'll continue to focus in all those areas while varying some of our protein mix as well. And just back on the supply chain question, you've heard a lot about rivals going into Tier 3 and Tier 4. I mean for us we had to establish the footprint in as Kenneth would call it key and core cities and then take a more of an blot approach. And we think that's the best way to maximize our supply chain. So that's going to be our how we tackle China. Yeah, please. Joe Buckley, Bank of America Merrill Lynch. Ken, the question to Western QSR brands, KFC and McDonald's, you're both down this year in same store sales. How does that fit in within the broader informal eating out market in China? Is that down as well do you think? Or is there a mix shift going on away from Western for some reason? Yes. I think if you look at Euromonter it shows that the IO is growing. But in our tracking when we look at where urbanization is, where the coastal areas and the markets where most of the brands play in right now, we see that the IO is flat to declining. And if you take that in context of flat to declining IO together with continued unique expansion that's still happening, clearly there's pressure on organic growth. So it's a real fight for market share right now. But for us, we're clearly looking and focused on the long term and the confidence in China, rising middle class, wealth creation. And we continue with our strategies to not just be accessible, but also be an aspirational brand, so that we capture the opportunity today with our accessibility, new stores, value programs, brand trust, but we also ensure that we are an aspirational brand so that as wealth creation happens more and more consumers come and aspire to enter our category and our brand as well. And then one broader one. The other APMEA the other countries in APMEA are kind of big up low single digits. Are there any real standout performers in that group that you'd highlight for us in terms of maybe breaking out into more significant earnings? Yes. And we're heavily vested with the big three Japan, China and Australia. But if you go beyond that Southeast Asia tremendous Middle East Africa tremendous India has been high mark. All of those so as we talk about our growth this isn't just diversifying our our revenue stream for the sake of diversifying it, but having more exposure to those emerging markets would be tremendous. 27 of our markets are positive year to date out of our 37 and 20 of them are over 4% comps. So there's a great story. But again for us it's about making sure that we've got a nice balanced approach and the big three is where the majority of our comp and our income comes from and getting those right is job 1. Yes? Hi. Hi. Sarah Senatore at Bernstein. I wanted to go back to some of the comments you made about like the implied in the Tier 3 and plus cities. What we've heard from other QSRs is that's where the profitability is really the highest. And so I'm just trying to get a sense of are you foregoing some of the higher returns and profit dollars by outsourcing that development? And particularly in light of, Kev's comment about the competition being really intense in the Tier 1 and Tier 2 cities? I think the majority of our openings right now still continues. While we continue to open in the Tier 1, Tier 2 cities, we've already gone out into the Tier 3 and Tier 4 cities ourselves already right now. So we're taking advantage of that model that you talk about. At the same time, we know that there's still a lot of opportunities in the other cities, which we're probably not going to be able to get to the next 5 years. And that's why we're employing the use of development licensees to be able to capture those white spaces still while we continue to get into the lower tier cities as well. So I think we're doing both at the same time. Yes. Thanks. It's John Glass. Kenneth, can you go back to talk about the menu strategy, the menu pricing strategy you're changing and why you're changing it? So McDonald's was I think early on in putting value platforms in place in place in China and that really worked very well. And then your biggest competitor should copy that. Now you're moving a little bit away from it. So two questions. One is, do you risk losing some customers because the value they perceive there you've changed your value there? And secondly, can you talk about KFCs? What they've been like recently as a competitor? They've been more irrational a competitor from a price standpoint as they try to regain comp transaction? How has that impacted your business? So two parts. I'll take the first one. The back in 2009 when the first recession happened in China when the first time when the last recession happened in China really, we actually restructured our pricing again listening to where consumers were. And so we looked at the price point entry price points for breakfast and we look at the entry price points for meals, for example. And given where our position was, we weren't able to take a position of changing our overall meal structure. So we went into certain day parts like value lunch where our biggest size of price was. And we did our value lunch starting at RMB15 which was from our customer research was where the most competitive accessible affordable price points were. That has helped that together with breakfast and value dinner has helped driven baseline for the last couple of years. And so if we get into the next series and all sorts of this climate, listening to our customers again what's clear is that they want value and they want value all day. At the same time they want the same price point. So what we've done is we've not actually changed those entry price points. Those remain the same today. But what we've done is we've managed to deliver those price points all day. One of the most popular items, the spicy chicken fillet burger, we've moved that new price point up, but at the same time we're mitigating it by allowing it to be at a very attractive mid tier alacarte price point as we move through this transition, right? So I think what we're going to see is stronger value all day number 1. And we hope that this helps us deliver the baseline for the forthcoming years. What this also helps us do is that by putting the most popular products and moving that up a little bit on the price scale, It allows us to put relativity into our pricing letter and later on allows us to also then price our future products or our LTOs at a much more at a price point which favors a lot of our margins better. And it's necessary for us to do this as it's difficult for us to difficult for us to take pricing all the time in a market like China where portably is key. So playing using this and allowing our product mix to really play out through our pricing letters can be critical for us. As for Yum! I can't comment on them, but I think we're focused on what we do and we'll see where they go. Bob Schweik, Burnham Asset Management. You mentioned that drive thrus have the best economics. What percentage of your new stores as you look out say next year are going to be drive thrus? 50% for all of APMEA and then China. What about in China? Anywhere between 20%, 25% depending on where the pipeline stands. Anywhere between? 20%, 25%. Why is it so low? Again gestation period in terms of where we have a lot of drive thru pipelines right now. But again gestation period in terms of where drive thrus are going to be. We also spend a lot of time now communicating to the developers who own these plots and land what the drive thru is. So we're doing a lot of roadshows today in terms of communicating with them what the drive thru is, how they build a drive thru, is it beneficial for them to put the drive thru on their plots. So that ongoing communication continues. When do you think it will be when you're able to have 50% of your new stores in China in drive thru and maybe double drive thrus? I think that's the aspiration. But I think again, I think the point for us is that we need to be we need to cite our stores where consumers are. And if you look at the way Asia and China develops, it always starts from a focus of the metro then out to the urban and out to suburban, right? And so where the consumers are today mostly populated around the metro and the urban areas and difficult to get our traditional drive thrus in those areas. But as we discussed today with the go to market strategy, one of the ideas we're trying to put in place like the Korean model that you've seen is how do we get more of these smaller footprint drive thrus in these urban areas so that we can unlock more real estate sites to be able to deploy more drive thrus. One last question. Going out 5 years, do you think we'll get to a point where in a country like China a great percentage of stores will be in drive thru type locations? I think that's the aspiration for us. And if you look at drive thrus for China, it's we're probably the only ones we know how to operate drive throughs. And if you look at where our comps are today, the comps in drive throughs outpaces the comps for retail stores where the small more competition is low. So certainly your point is very good. Yes. Just a bit of perspective. I mean drive thrus are best and that's going to be our competitive advantage. But as a frame of reference, Hong Kong is one of our best performing markets and doesn't have one drive thrus. So it's not that non drive thrus are bad, but we know that's our competitive advantage. Nobody's matching us on that. We're going to drive that home. And I think Kenneth mentioned that's our aspiration. That ring strategy doesn't look earth shattering. But what we're doing in Korea around that urban ring is exactly what we're going to apply to China as well. Thank you. Okay. That's it on Q and A, but we'll be here later. I just wanted to leave you with one final comment on APMEA. When we talk about what we're excited about in APMEA, clearly, we're going to be defined as the growth engine for McDonald's. And you may have heard us talk about 2 Chinas. It's not just the 1 China that we're looking at. It's the 2 Chinas that we're is really the real opportunity. And Vietnam is a step in that journey. Our personality is one of leveraging disruption in our scale to be disruptive. And we're excited about what we're doing around National Breakfast Day next year, World Cup, Ronald McDonald House 40th anniversary to be disruptive based on our scale and alignment. And the last thing is as I would say to our folks internally, we're going to win long term because of our talent. We have a significant talent advantage over anybody else in the industry and we spend a lot of time on that. We're proud of our 40 Best Employer Awards that we won over the last 3 years. Kenneth didn't mention it, but China has won Best Employer 3 years in a row. It's the first time ever by a foreign firm in China. So again, talent is our competitive advantage and we're going to only enhance that going forward. So again, thank you for the questions. For those of you that I've talked to and just wanted to thank you for coming to China on our recent investor meeting. And again, we look forward to speaking more at the reception later on. Thanks very much. And now let me introduce Doug Gore from Europe. All right. Thanks, Dave, for the warm welcome that I got. Anyway, but thanks to all of you for joining us today. And again, it's always a privilege to have the great discussions and also I know some hard questions. I'm joined today on our panel that will all be coming up here for question and answer Jean Pierre Petit, Khamzat Khazbolotov and Joe McDonald our 3 division presidents. Also in the audience today, we have several of our European leaders Patricia Abril, our Managing Director in Spain Joao Lopez, our Regional Vice President of Southern Europe and Piotr Jukka, our VP of Development and actually effective January of 2014, he will become the Regional VP of Central Europe. So together this seasoned group of individuals represents the segment's leadership as well as representatives from some of our major as well as our mid tier markets. Before we begin with some of the formal comments, I want to provide you with an update on some leadership and structural changes that we are making in our business in Europe in 2014. 2 weeks ago, we announced that McDonald's European business would be restructured into 3 divisions from the current 4 and that would start January 1. Jill will assume the role of Division President of what we're calling now the new Northwest Division. In this expanded role, she adds Germany, our largest market by restaurant count to our previous responsibilities. Additionally, Mark Hawthorne, who currently serves in Day's organization in APMEA as Regional Vice President covering a number of markets across the Middle East and Africa and Asia. We join in celebrating his recognition as becoming the new Managing Director in the U. K. Working with Jill. So Mark is also here with us today. I can't see with these lights on, but again welcome Mark and we're excited to have you join us in Europe. Khamzat and Pietro will be working together and he will be responsible for the new Central division, which is adding all the Central European markets to its existing Eastern European responsibilities. And our Southern division, which is our biggest division will continue under the strong leadership of Jean Pierre. So you may ask about the change and let me give you several thoughts. The current model served us very well and it's done so for many years. What I've seen is I've traveled Europe over the last really 7 or 8 years and living now in my 3rd year in Europe, continuous innovation. I see a wide variety of great initiatives and tremendous impact and some tremendous consumer focused results that are really impactful. However, I can also tell you there's opportunities for our team to more effectively engage and interact. The changes I've outlined are designed to help us work smarter and align our resources in a manner that enables us to continue to improve results. In addition, under the new structure, can continue to build our talent base for the system, allowing our people to grow and create even greater synergy across the markets. So against this backdrop over the next 20 minutes, I've asked Jill to join me in providing our perspective on the economic landscape in Europe, headlines on our financial performance, insights into Europe's biggest opportunities and a few details on the key initiatives that we're pursuing. So, I should also say that doesn't leave Khamzat and Jean Pierre off the hook. But we decided to take the native English speakers to go through the script and they will jump in on the Q and A. The question that remains for all of us will be will they speak in French or in Russian or in English. So we will see what happens. So the current landscape. Europe remains a significant contributor to McDonald's consolidated results. McDonald's Europe has nearly 7,500 restaurants in 38 markets and serves more than 15,000,000 customers a day. With about 21% of McDonald's worldwide restaurants, we contribute approximately 40% of system revenues and 38% of consolidated operating income. We're a leading player in the region. While we have strong local competitors in many markets, overall we enjoy a tremendous size and scale advantage by being larger than our next 9 competitors combined. But however, in the last few years, the Eurozone's economic outlook has impacted the entire segment's performance, as consumers have been more cautious in their spending and the IEO has contracted. In Europe's top 3 markets, IEO visits for the overall industry have declined in 3 of the last 4 years. And for the trailing 12 months through September of this year, Europe's overall IEO industry visits are down another 1%. As you can see throughout the same period, Europe's top three markets combined have managed to grow or maintain market share. Now while the economic situation remains difficult, there are signs that there are some things that are starting to turn. During the last several months, the governance in the eurozone has improved, allowing for better organized response to some of the deep seated problems that exist. Many competitors many commentators are pointing out to better balance between austerity and structural reform rather than just simply austerity as a method of stimulating growth. And while this is positive news, it doesn't reduction of headwinds in Europe. Public deficit concerns remain very real. Unemployment continues to climb. Consumer confidence while improving is still very low and we don't foresee a swift economic recovery. Now to quote Mario Draghi, the President of European Central Bank, he said, I can't share enthusiasm about recovery. The recovery shoots are still very green. But despite the near term circumstances, I continue to see real opportunity for McDonald's Europe over the long term. And our team remains committed to excellence in any environment. As such, we continue to invest in our restaurants, in our technology, in our people and in our food. Before I discuss our strategies and growth platforms, I'd like to cover a few brief highlights of our recent business performance. Now since we met the last time 2 years ago, Europe's ability to grow top line sales while managing expenses has translated into revenue and operating income growth, despite the economic challenges we just talked about. Through the Q3 this year, McDonald's Europe's revenues and operating income are up 3% 5% respectively in constant currency over the same period the prior year. Much of this growth can be attributed to the additional operating months from last year's opening as well as the 170 openings so far this year. With over 70% of our franchise margin is our primary profit contributor representing more than 60% of the segment's restaurant margin dollars. Since McDonald's last investor meeting as well 2 years ago, Europe's franchise margins are down 70 basis points to 78.4% year to date, reflecting soft top line performance. Now over the same period, segment's company operating margins have remained relatively resilient. Through year to date September 2013 company operated margins have remained strong at 19.2 percent down just 10 basis points from the 19.3% performance in 2011 when we last met. For perspective, U. K. And Russia comprised nearly 50% of the segment's company operated margins. Now at the outset of the Q4 comparable sales year to date are essentially flat, impacted primarily by Germany's year to date negative performance being offset by positive results in the U. K. And Russia. Since mid-twenty 12, we haven't been satisfied with our results in Germany. Over the last 16 months, we've reported negative sales and guest counts. But we haven't stood still. We performed a deep analysis to try to understand consumer behavior and have developed a plan to address the challenges in the market. We've aligned operator leadership. We've reset our value platform. We've revisited our marketing calendar and we've made some management changes. Now going forward, I've got great confidence in our team and I believe we're on the right path to build frequency and market share and compete more effectively, particularly against the bakery and cafe competition, which is the key competitor that's growing in the marketplace. So with that as a quick snapshot of our recent financial performance across Europe, let's now take a look at the opportunities for future growth in the context of Europe's overall economic outlook. So we've seen what I would say 3 trends that have emerged throughout Europe that illustrate the dynamics of the current environment. First off, consumers are choosing to eat home more often. We've seen this manifest itself with negative guest count trends in a number of markets in the past 2 years. 2nd, consumers have expectations have risen. When they choose to eat out, they expect more, but they don't expect to pay more. And finally, the competitive set continues to aggressively evolve to meet the changing preferences of today's consumer base. No one is sitting idle for the economy to improve. In fact, the competitive environment is becoming very fierce. So given these market dynamics, we're focused on finding more ways and reasons for customers to choose McDonald's. Now the good news is, we've maintained our overall market share and we're well positioned to address these marketplace realities by further advancing our work under McDonald's 3 global growth priorities. So I'd like to start first with modernizing the experience. First is reimaging and you've heard it throughout the day. We've made tremendous investment in Europe in recent years. Today nearly 100% of our interiors and almost 80% of our exteriors reflect a more relevant and contemporary look. Our customers have acknowledged the changes and give us credit for the enhanced ambiance in our restaurants. Beyond reimaging, we also know that it's critical to complement our modern restaurants with meaningful service enhancements. This is about expanding our use of mobile and web ordering, along with self order kiosks. In fact, we have them now in 1800 restaurants, all of which when combined with a renewed focus on hospitality provide customers with a modern enjoyable experience. Now we're also taking steps to enhance our ability to offer the broad range of menu options and customization that customers increasingly expect. In order to do this, we've begun deployment of the Made For You Kitchen platform across Europe along with the service platform enhancements. The Made For You Kitchen platform provides a smoother, faster and more flexible operating system that enables us to build capacity, offer a wider selection of beef products, be more efficient at completing made to order requests and provide our customers the opportunity to truly personalize their entree. Now as Steve mentioned, we're also encouraging and engaging our customers with promotions and other activities through mobile applications such as Sweden's coffee loyalty program. In addition, we recently completed Europe's largest ever interactive digital book launch. The family experience for us is fundamental to our continued growth and our customer outreach. Now as Europe already as Europe's leading distributor of children's books, we're now able to magnify this using digital capabilities further demonstrating our commitment children and families. We're excited about the potential of further expanding our use of digital in many areas throughout Europe as the system's global digital capabilities are enhanced. So now let's take a little look at our food and optimizing our menu. As you all know, our food is and always will be the number one driver of our business and our brand image. Europe has a strong track record for successful menu innovation in key growth categories including beef, chicken, beverages and breakfast. In the area of beef, we've had many successes and we have many in the pipeline. Past successes and current successes because they continue to resonate with our consumers including 1955 Burger, The Big Tasty and La Am. In the area of chicken, we now account for nearly 25 percent it accounts for nearly 25% of our protein sales. We have chicken options at all tiers of the menu. Chicken also works well in our wrap platform, which now is expanding around the world and it's actually in nearly 30 markets in Europe. In the beverage category, we're building a great foundation in coffee. Jill will speak to this in a moment. And as Don said earlier, there's still tremendous runway for McDonald's to grow breakfast. At the global level, breakfast is a bigger category within the overall IEO than either chicken or beef. But in Europe, we under index the market on breakfast servings as it's the least penetrated breakfast market in McDonald's system with only about 50% of our restaurants open for breakfast. Today, many of our European markets are still in the early stages of developing the breakfast model and the breakfast business. In the markets that offer breakfast, it represents anywhere from 1% of sales in France to 14% of sales in the U. K, our most established market. In comparison, breakfast represents from 20% to 25% of sales in markets like Australia, Singapore and the U. S. Overall, our European breakfast sales represent just 5% of total sales. Given the size of the opportunity, we're placing strong emphasis on the development of the breakfast daypart across the segment leveraging our strong foundation in coffee. With that, it leads me to our next global priority of broadening accessibility. Our future long term is dependent on us meeting consumer needs, being available when, where and how our customers want to enjoy the McDonald's experience. Our restaurant development is part of this growth and we're well positioned to meet our new restaurant growth targets this year and we've got a great pipeline into the future and our returns continue to be very strong. Turning to existing restaurants. While breakfast expands the meal occasions available to our customers, it's also an enabler to our coffee business and optimizes cost and staffing levels. Currently, about 2,000 of our restaurants are open 24 hours at least once a week. Majority of those are actually open 20 fourseven. Overall, we continue to expand operators across the zone, recognizing there's tremendous opportunity to capture more customer visits. Drive Thru is another significant opportunity to broaden accessibility, particularly as we expand our presence across the dayparts. Where we operate drive thru approximately 45% of the sales occur in the drive thru and I know that's compared to 65% in the U. S. This truly is an opportunity to be a differentiator for us in Europe and will accelerate our efforts in this area. With consumers increasingly looking for convenience, we're capitalizing on this major competitive advantage and opportunity. In 2013, we expect over 2 thirds of our new restaurant openings to be drive thrus. Europe's drive thru optimization program, which includes retrofitting of side by side drive thru lanes in our busiest restaurants, has been very successful and will continue, most notably in the U. K, France, Poland and Russia. Now our approach to accessibility certainly wouldn't be complete without making sure our menu and our price points are appealing to a broad range of customers. Our everyday value platforms are critical, very critical component to making sure that we deliver compelling value to our customers. Right now, it only accounts for about 13% of sales on average across Europe. In our markets where the economic downturn has been most pronounced, we've expanded our value options to address consumer needs. For example, in Spain, we ran a 1 euro beverage promotion over the summer, which was very successful, particularly against major competitors with drinks sales increasing by more than 50%. We also continued to introduce some great and the meal priced at under €5. One of our key learnings in France was the importance of competing below €5 at the lunchtime daypart. We responded with a casse crout, a 2 item rather than our traditional 3 item meal And it's been a key contributor to our comp sales success in France. And what's important, it's enabled us to compete more effectively in the nontraditional bakery and cafe category with those competitors that were previously taking some of our business. And now this concept is being looked at and considered in a number of markets where we have a similar competitive set. Hopefully today you had the opportunity to taste a cast kruut, a very exciting sandwich and we've got a number of variations that continue to evolve. We've also seen much success with sharing concepts such as our 20 piece Chicken McNuggets share box in the U. K. And similar share box concepts across other markets. Chicken McBites have also been launched in many European markets as part of the sharing bundles as we continue to evolve value to our consumer. We believe that sharing can be a significant part of our pan European focus on dinner as we design it to offer today's value seekers even more ways to enjoy McDonald's. So as you can see, we're focusing our attention on areas of the business that directly address what we've learned from our customers during Europe's economic downturn. In particular, our U. K. Market, I can tell you, has recognized and responded very well to these consumer dynamics. So now Jill is going to provide some background on our overall success in 2 of Europe's key growth areas breakfast and beverage. Jill all yours. Thanks, Doug. Good afternoon, everyone. As the competitive environment intensifies, we know that our customers have more choices today than ever before. Our mantra of providing good food fast is as relevant today as it's always been, but we have to work harder to earn our customers' visits. Today, building incremental business is more challenging and requires a much more targeted set of solutions. In the U. K, through this approach, we have increased the market's average restaurant sales volume to $3,600,000 and this represents a roughly 20% increase from the end of 2010 through year to date September 2013. And breakfast and beverages have been strong contributors to this performance. Starting with breakfast. Many of Europe's markets are still in the early stages of developing their breakfast business. But in the U. K, breakfast represents approximately 14% of total sales and has doubled in the last 5 years. Through year to date September 2013, the U. K. Breakfast sales are up almost 10% over the previous year. Our growth at breakfast has been achieved through McDonald's unique brand attributes, including our convenience, which enables us to tap into people's daily routines as they walk or drive to their destinations and our strong coffee credentials. Our success has also come from having a selection of core breakfast favorites including the sausage and Egg McMuffin and bacon and Egg McMuffin. Our breakfast variety also extends to locally relevant products such as porridge and the bacon roll, both of which are very British. And we've tapped into the customer desire for breakfast on the go by introducing the portable big breakfast wrap that I hope you have the opportunity to sample earlier this morning. The U. K. Has recently launched a smaller breakfast wrap called the Snack Wrap, which offers a great tasting but smaller alternative at a very attractive entry level price point. And taken altogether, the U. K. Breakfast has wide appeal from a variety of the products to the emphasis on both quality and value. Now Doug mentioned coffee. And looking at the U. K, France, Germany, Italy and Spain, we have grown coffee visits by nearly 10% over the last six years. In addition, McDonald's Europe has gained 1% market share over the last 4 years, while coffee sales in the overall IEO market have decreased. We continue to see meaningful growth potential with coffee, particularly with a strong value proposition based on taste, quality and price as well as the McCafe brand. And McCafe helps us attract a broader customer base and drives positive perceptions about our brand. Our offer of high quality coffee at a price more affordable than our competitors and in a modern McDonald's atmosphere puts us in a unique position at breakfast but also throughout the rest of the day. Now in some of our markets, the McCafe brand is used to denote a specific cafe style area of our restaurant. And we're on track to add nearly 200 McCaffes this year, taking us to approximately 1875 in Europe by the year end. But similar to the U. S, in the U. K, we use the McCafe brand to describe our range of specialty beverages. And by learning from the success here in the U. S, is helping us expand upon our vision of becoming a beverage destination. But this goes way beyond coffee. And earlier this year, the U. K. And Ireland spearheaded the European launch of iced fruit smoothies and frappes. By adding the cafe smoothies and frappes to our menu lineup, we've clearly signaled our intent to become a beverage destination. And with a rich pipeline of flavor variations, the opportunity to further stretch the McCafe brand is significant. Now I'd like to show you how we used advertising to introduce the U. K. To these new blended iced beverages. In addition, by following a well sequenced marketing plan, which focused on seeding in smoothies first and then introducing frappes through the 1st 5 months, sustaining sales have met our expectations. As with coffee, we believe that we've got the value proposition exactly right for our customers. The drinks really do taste fantastic and the product quality and appearance score really highly. We launched with very competitive national price points of £1.99 for smoothies and £2.19 for frappes. Sales are impressive, but the source of these sales is even more encouraging as they're delivering extra visits during non peak dayparts and taking some of those visits directly from competitors. Following the U. K. Lead in the rollout of Macafe smoothies and frappes, other markets in Europe now plan to scale these beverages either as a full rollout or as a market test to over 4,200 restaurants by the end of 2014. Thanks very much. And I'll now turn it back to Doug. Thanks, Jill. So as you can see, I guess the backdrop of economic downturn, some challenges out there. We've certainly invested in our customers' changing expectations and make sure we know what they're thinking and try to respond to their needs. At the same time, we've remained very diligent and focused on the areas that hold the significant growth potential for our European markets. Our confidence in McDonald's Europe and the competitive advantages that we enjoy are truly a reflection of our ability to build and learn from the past to be purposeful and agile as we move forward and strategically plan and evolve as our customers' needs change. So with that, I'm going to invite Khamzat and Jean Pierre who absolutely need to get a question or 2 from you. And Jill and I will also join to take those questions. Thank you very much. Number 3. Hi, good afternoon. It's David Tarantino from Baird. My question is about Germany, which has been a soft spot this year. I was just wondering if you can maybe elaborate on what you think the key issues are there and what maybe some of the specific plans are to address those issues and get some positive momentum back in that market? All right. Thanks, David. I bet you thought, well, he'd never get a question on Germany. But that's okay. I will take that one here today. Next year or 2 years from now Joe will take that question. Germany is an interesting market. And as I've had the opportunity to travel to Germany literally the last 7 years, German consumer is a tremendously value conscious consumer. I probably shouldn't call it the consumer cheap, but certainly frugal. And I would say we've made a couple of blunders over the last several years and we have to learn from them and our system is learning from them right now. We made a price change on our everyday value proposition of €1,000,000 cheeseburger last November and actually a little before that on the chicken burger price. And our consumer without giving our consumer a new proposition certainly punished us in a very severe way. So we went back to the drawing board and we're working through that resetting the value proposition. We had held that €1 cheeseburger price for nearly 10 years. And again, we've got the operators back on board. And I believe that we are making significant progress in resetting the value proposition. But it's also more than that. And as we reflected on the business, we did a deep dive to understand what the consumer was thinking and we asked a lot of questions. And in that analysis, we came back with a number of strategies to review and assess. And clearly, our focus now is on the key opportunities including growing peak hours, reconnecting with young adults, energizing our family business as we have started to lose some family business addressing specifically the bakery and cafe competition that was taking in particular the lunch day part and refreshing our value proposition. Obviously, along with that, we've made some management changes to try to bring some new energy and perspective into the marketplace. And we've got a lot of hard working operators that I can tell you that are aligned, fully embrace the plans moving forward and are engaged in turning the trend in the business. To report to you, I think we made some mistakes. I think we're back on the right track. And the proof will be as we continue to battle in a marketplace that IEO continues to decline. We need to get more than our fair share. Thanks, David. Number 2? Thanks. Matt DiFrisco. A question with respect to breakfast. It obviously looks like a tremendous opportunity, but it's not really a new region and it's not a new issue. The gap's been there for a while. I'm curious, can you talk a little bit more about what is the difference in that market? Is it the low price bakery option structurally that people go to? And it's an opportunity, but I didn't really see how are you going to change or attack that. Is it going to be more marketing dollars? And if so, are you concerned with that having a limited halo effect? In the past, I think you've spoken about focusing too much on beverages in advertising or focusing too much on a daypart in advertising doesn't have a halo effect to your main burger business. So I'm concerned about redirecting marketing dollars towards that opportunity. Matt, thank you. Good question. I'll take the start of that. And I've got 3 folks here that are very much engaged and committed in the breakfast business in different markets. First off, anything we do has to be done in a balanced way. So we know we can't throw all of our marketing dollars to a daypart where we do 5% of sales. So we have to manage through that process. And yet at the same time, we have to understand what the consumer needs and opportunities are and also understand what the competitive set is. In terms of the markets though, to generalize and say there's one solution would be very wrong for me to do so, because the consumer is very, very different. And I think it'd be good to hear from each of the folks as they have went through that journey of breakfast. And we've got Jill with U. K. With 14% leading Khamsat in dollars probably in Russia leading the geography. And Jean Pierre who has a couple of markets now that believe they can take a run at breakfast and the time is right. So I'll start with Germany. I'm going to turn to each of you because it's a big topic for us. And in Germany, we've had low energy and breakfast for many, many years. And the operators have committed this past year that we're going to make a long run serious effort to take the McCafe business along with the breakfast proposition and make sure that we provide a differentiated McDonald's experience as well as meet the needs when it comes to their baked goods and use drive thru as a differentiator and make sure we bring great value. And in fact, we are now serving an Egg McMuffin and a coffee and a combo, a 2 item combo at €1.49 every day. In fact, it's the only daypart right now in Germany that we can say we see the light right now. And it's not big numbers, but it's going in the right direction. And I think for and maybe we'll go Jill, Khamzat and Jean Pierre because it's a big topic for us and I thank you for asking again. Jill? Yes. In the U. K. I talked a little bit about sort of the role of menu variety, but we found another a number of other key drivers in helping us achieve that double digit growth this year. I think the first thing to say is breakfast takes time. It takes time to build up and it takes time to break consumers' sort of rituals and habits in the morning. For us, the key kind of sequencing that really started to break in enabled us to reach 14% talked about. And if people start their morning with a cup of coffee, it's pretty habitual behavior. And if you've got a strong proposition around coffee, for us, that combination of quality, taste and value that makes us competitively differentiation with convenience. In the U. K, McDonald's really is the only major drive thru player. So breakfast on the go is a key opportunity. But the other piece that really helped us accelerate breakfast was when we started moving to 24 hours and starting to open restaurants longer and suddenly kind of the day joins up. So being able to open earlier, so we have majority of our m. And communicating that to consumers so the certainty they know you're going to be open when they come to you has been really key. And I think the point that Doug is making about balance is very relevant. So it's around 9% of the U. Advertising money goes behind breakfast. We do ongoing support breakfast. And some of the activities that APMEA were talking about in terms of being disruptive around breakfast to disrupt people's habits is actually quite a cost effective way of getting cut through. So we've got kind of lots of learnings in terms of how we think that we've built that daypart. We did launch our breakfast in 2,005 and still the biggest and fastest growing daypart in our market. Today breakfast represents almost high single digit sales and guest counts. Just to give you an idea, when we launched breakfast, there was no business, no lunch no breakfast available in the country. Today breakfast provided by McDonald's represents almost 20,000,000 visitors per year, huge potential. And I believe that Brexit will play a significant role in our future. So having huge volume stores and almost 10% of guest counts that represents huge big and part of our business. So breakfast still have great opportunity. And Jean Pierre, I think a little different scenario in Southern Europe, but you guys have some great plans going forward. So Yes. I think we don't have plans. We have some good plans. Not in France, but you got other markets that do? Yes. Davido, what you can tell is your experience on the French breakfast when we walked the 2 of us in Paris downtown to see if there is a different reason. There's a French there is no breakfast market. People and when they get out of home when they go, they don't go. And breakfast is not a meal that we have in France. We have a cup of coffee or something. So there is some potential that we are looking at in a few restaurants and we are making progress. But on the the market doesn't exist yet and I don't see that we are going to spend a lot of dollars to go after breakfast in France, which is not the case in other country or other than division, because as a source of growth it's clear that in Spain, in Italy, in Switzerland, in Netherland, I think it's the right potential that we are going to explore in the coming years. And Spain is going to launch breakfast next year in Italy as well postponed a little bit in few restaurants. So I think it's clear for growth. And even in France, we are very looking after. But I think today it's difficult to see a return of investment on breakfast in France. As a market it is today, things may evolve in when I say the market, market as a whole. We may have some potential in price, how we are in the tourism zone. But And I think that's Matt that's the key is we still have to go and look at the consumer, the consumer proposition in each market. And we have very different cultures across the geography of Europe. Number 3? Hi. It's RJ Hodavy from Morningstar. Coming on the heels of the discussion about franchising opportunities in the last presentation in Aimia, just curious about what kind of long term opportunities you saw on the franchising side, whether it be from conventional license or conventional franchisees or developmental licensees, particularly in context of what is still a difficult lending market in Europe right now? Thanks RJ. Maybe take a shot and Hamzah might want to talk a little bit about what you see in Russia and Eastern Europe. I think first off from a franchising standpoint, you see us at 70% a little over 70 percent franchise compared to 90% in the U. S. But you take Rush out of there which is 100% Macopco today and we're closer to 80%. So that number sometimes the averages lie. And what we are continuing to do is to optimize portfolios in Macavco and make sure that we're running the right restaurants and we're running them well and that we are putting restaurants in the hands of operators that can continue to grow the business where that fits. So we continue to go through an optimization of the Macauqua portfolio and that will continue in the coming years. We also have I think some significant opportunity to take some green markets as well as some of our Central European markets and begin to explore franchising in those markets. And Hansa just a comment or 2 about we're actually going to have our 1st franchisee in Russia an institutional franchisee opening a store. I don't know when? Yes. That will happen next month and that is not conventional HD model and we did start as a developmental licensee because that does protect brand legally and operationally. And if that works perfectly, we do believe that we have huge geographies with a great potential to develop development licensees. That is our aim. And we do have about 13 markets in my division who lead Agdale markets small markets, but proven that having this kind of relation works so well for company and for partners. And I think on top of that as Hamzah said, we've got great opportunity in Central Europe. So we may not have the magnitude of what Dave and Kenneth shared with you on APMEA. But we have some clear opportunities across Central Europe to significantly grow in those emerging markets. And as we go through this restructure, one of our objectives is to create good sound strategies to take some of these existing DL markets and make them bigger and better and at the same time as we continue to accelerate across Russia. So number 4. Jeff Bernstein. Just two questions. 1, on recent conference calls, people have talked about maybe Europe showing some early signs of improvement. And I know Don on the call has said, be careful that we're not necessarily seeing that just yet. It seems like investors more recently are talking about looking to Europe as a recovery in 2014 and playing that trade. And obviously McDonald's would fit well in there. I just want to make sure from your perspective that you would agree that with McDonald's you think would be in a position to benefit from an improving macro? Or whether you think there's something maybe brand, region or something QSR specific where McDonald's might not necessarily rally or see the fundamental improvement similar to an improving macro in broader Europe? Okay. Thanks, Jeff. I'll start with the macro and maybe one of those pieces you're referencing is in France. And we see signs of some recovery and we all read the newspapers. And yet at the same time, we also see some forecast that IEO is going to continue to decline. So while we've had some success in recent months, There are still many pockets of serious challenge. And so I believe we've got plans to address opportunities. And again, we see some signs and France being one of those that we've seen some signs of recovery, but we're cautiously optimistic. And I don't know Jean Pierre just a comment or 2 about France because I think that's the one that everybody is looking at. Yes. We are pleased of course with the trend of the last few months. And as you say, we have to be very prudent because the environment is still very dedicated. I mean we are going to have a VAT increase beginning of the year. Employment is still increasing. GDP is still increasing. Confidence is very as low as. So let's see. I mean the environment is going to be what it is. But I think what we did also we put in place and we focused on a few very simple strategy like we reinforce the price platform with for instance Petitplezier at €2 with Happy Meal at €4 We have Happy Meal at the same price €4 for the last 10 years. And the licensees are behind this strategy because they will accept to have €4 for the next year in 2014. You have the you see that we talk about the cash crude. So our platform our price platform is very strong. It's a permanent platform. We also reinforced the core in premium. That's something which has been very important. We also are very strong and happy meal absolute on the family platform. So we reinforce the basic and it seems being for the French consumer as Steve talked this morning. Also we will pursue the strategy in 2014. On the top of that, we will have a source of growth like McCafe. Even if I was prudent on the breakfast, breakfast is also a source of growth in France even. It's on the long run. 24 hours, 24 hours is a source of growth. So combining the basic strategy of this new source of growth and the digital, we have as you know kiosk in France in most of the restaurants. We just launched last month the web order in our restaurants. So the digital is going to play an important role in the coming years. So I think we are in good shape to face the business environment in which we are in 2014. I don't want to tell you the idea is going to change. Nothing is going to change. So I think we have the such a life of what we are going to do is on our hands. It's not outside. Number 1. Hey, David Palmer, RBC. Over the years, particularly during some of the good times in Europe, it was a region that was very good at sharing best practices, For instance, some of the good reimaging stuff from France, U. K. Did and added its own spin on things. And arguably that particular market might have gone from worst to first in terms of country within Europe. Now it feels like the middle of Europe for you needs a little help in terms of best maybe something to bring back to that. Are there some best ideas that you think that you're importing? I mean you've mentioned breakfast, but aside from that? Yes. David, I think it's a good question. And I would tell you I believe we are getting better at sharing and learning from each other and then trying to scale those ideas. But we've got to do it in the context of what's important to the consumer in that market. And probably to give you just the most recent example, October 15, I believe was a kickoff or last half of October in Germany that as we went through our consumer research where we were getting hit at lunch was a very similar situation to what was happening in France is that the bakery cafe that little sandwich business was carving a piece out of us. And we actually introduced a casse croute 2 item combo with a McBaguette bread fit to the taste of the German consumer. And there again not just to lift the idea from France, but to understand what the consumer was telling us what was happening in the marketplace and we had some similar activities. And so I think there's a lot of quality dialogue at the same time grounded in our consumer research to understand what's happening. I think as I look at some of the other examples, while sometimes we are slow to scale those ideas, part of the challenge of this group is to continue to do things in a way that we explore those ideas, understand them in the context of the local environment. And in fact, as you heard Jill talk about the frappe and smoothie business and the success that we had this summer in U. K. And Ireland. We'll have over 4,000 restaurants next year. And there again that's driven through that exchange. And so not only did U. K. Sell a whole bunch of smoothies and frappes, all of Europe and all of management in Europe was getting those same daily and weekly and monthly reports, doing research, doing testing and trying to determine if it fit their marketplace. So clearly, I believe that exchange continues. And while maybe you don't see it as evident, I think it happens in subtle ways and it will continue. And hopefully as we evolve here through this change that it will get even greater. Thanks. And we're done. Kathy says we're done. Thank you very much. Okay. So we're going to take, especially for the webcast folks, just to know we're going to take a 20 minute break. We'll be back at my watch at 3:40. Okay? All right. We'll see you in a bit. Okay. Thanks for coming back on time. Appreciate that. So we're ready to begin the last feel like the teacher up here. So we're ready to begin our last two sessions of the day. We're going to start with our U. S. President, Jeff Stratton and then we'll go into our final Q and A and Jeff will turn it over to Don. But we'll have our final senior management panel with Don, Tim and Pete and Steve Easterbrook. And so I am going to say it is my pleasure to introduce and it truly is Jeff Stratton, our U. S. President. Thanks, Ken. Good afternoon, everyone. Good afternoon, Brett. How's everybody doing? Good. Good. Thank you, Kathy. I appreciate it. I'm proud to be here today to represent the U. S. Business along with Kevin Newell and several members of our U. S. Management team are also in the audience, including several of our field leaders that are here that I'm very, very proud of. Our Central Division President, Lee Renz is here along with our Macapko Central Division General Manager, Jim Floyd. We've got Charlie Strong, our Division President, who handles all of our company operated restaurants from around the country. And we have 4 of our best from the country that run 4 of our most important regions. We have Karen Garcia in Florida. We have Mark Moreno out of Houston. We have Pancho Gonzales out of Michigan. And we have Debbie Stroud out of Raleigh. I'm very proud of each and every one of those folks. For those of you I haven't had the opportunity to meet, I want to start by saying that it's a privilege for me to lead our U. S. Business. I started at McDonald's as Tim did as a crew person 40 years ago in Detroit, Michigan. Throughout my career, I've managed various aspects of restaurant operations in the field as well as at our global headquarters. And prior to being named President of the U. S, I served as our Worldwide Chief Restaurant Officer in the corporate side of the business for the last 8 years. Today, I'll share a perspective on the current environment, briefly highlight our U. S. Results and spend the majority of our time talking about the strategies that we put in place to solidify our business and write the next chapter of our growth story. McDonald's U. S. Is the largest economic engine of our global business, representing 41% of the company's total restaurants, generating 32% of total revenue and accounting for approximately 43% of consolidated operating income year to date September. We manage and support our 14,000 plus restaurants through an organizational structure that spans 3 divisions and 22 regions. Our traditional restaurants now achieve industry leading average annual unit sales of $2,700,000 and cash flows of approximately $330,000 Now while the average sales volume is higher this year, average cash flow has declined compared to 2012 levels. The U. S. Continues to grow both revenues and operating income. Since we last met, we've achieved revenue and operating income growth in the lowtomidsingle digits for 20112012. Through Q3 of this year, McDonald's U. S. Revenues and operating income are both up 1% over the same period in the prior year. Now given modest comparable sales performance of 20 basis points, the majority of the increase was driven by net restaurant additions, including additional operating months from last year's openings along with the contribution to system wide sales from the 140 new openings so far this year. With almost 90% of our restaurants owned and operated by franchisees, our profitability is driven primarily by the franchise margin. Our franchise margins have been strong despite soft comps. Year to date September 2013, our franchise margin dollars have increased, although the margin percentage of 83.7% is down 30 basis points compared to the same time last year. Our company operated margins, which represent less than 20% of total margin dollars have declined. Through year to date September 2013, our company operated margin of 18.2% is down 130 basis points compared to the prior year due to softer comp sales along with higher operating and commodity costs. At the outset of the Q4, comparable sales year to date October were up 20 basis points. Challenges that we face today are clearly reflected in these results. Now from an external standpoint, as Kevin will discuss in a moment, the IEO industry remains stagnant in the U. S. Competitive activity has become more aggressive as the battle for fewer customer visits continues. This slide depicts actual competitor activity that we experienced in our very own central division alone this year. This level of competitive activity has pressured our sales and our guest count trends. Our results also reflect internal challenges. During 2013, we introduced a number of significant new products and limited time offers to provide more variety and flavor options to our customers. While the balance between our core products and new menu news was right, the pace of product introduction, in my opinion, too fast. This created challenges for our restaurants from a training and staffing standpoint that limited the product's contribution to top line performance. In addition, the adjustments we made in June to pull Angus and Chicken Selects from our menu also impacted performance. However, these were the right decisions to support our long term menu pipeline, allowing us to expand our core lineup even further to fuel future growth. For example, removing Angus, which was always intended to be a limited time offer only, sets us up for new items like the Clubhouse Burger, which you hopefully had the opportunity to try at lunch today and I hope you enjoyed it. We're learning from 2013 and making adjustments to areas like pricing, advertising and media support as well as product sequencing in order to bring new products and limited time offers to market in more compelling ways in the future. Now as we've reevaluated our plans, the entire U. S. System remains focused on aggressively pursuing the opportunities that exist within our 3 global priorities. At the same time, within these global priorities, we've established more specific goals to drive near term growth in the U. S. Business. They are as follows. 1, develop and execute an aggressive food and beverage This is where we'll optimize the menu. 2, bolster our already powerful brand through greater customer engagement, broadening our accessibility and 3, reinforce our foundation of people and service and modernize the customer experience. Now I'll turn it over to Kevin Newell, our Chief Brand and Strategy Officer for McDonald's U. S. Who will discuss our menu innovations and strategies. Kevin, I think most of you know is responsible for menu, marketing, strategy and insights. Kevin? Thanks, Jeff. Good afternoon, everybody. As Jeff indicated, we continue to operate in a very challenging environment. The U. S. IEO market remains pressured with current forecasts projected the industry to be down in 2013 and relatively flat through 2015. Our IEO market share performance in the U. S. Over the last 18 months has been relatively flat. And most recently, we have experienced some slight declines. Now to better understand our customers' behavior in this environment and more importantly to obtain insights into what they want from and what they think of McDonald's, we recently held Pulse Groups throughout the country. I want to share some of those key learnings with you from those groups right now. Customer IEO visits continue to be driven by 3 main factors: convenience and speed, value and taste variety. However, in addition to these green fees, customers are rewarding those restaurants that deliver on the promise of better service, food quality and nutrition and restaurant ambiance. Now, the good news is that the primary drivers reflect some of our key competitive strengths. Customers value and they give us credit for our fast service, affordability and accessibility and they also shared a lot of very positive feedback on our ongoing modernization efforts. The Pulse Groups also confirm that lunch remains the primary IEO dining occasion for the industry and that affordability continues to be a critical component of the IEO offering. Customers never forget the essential affordability proposition, getting something you want for a price you're willing to pay. And with our consumer today being more stressed and strapped for cash, it will continue to be important that we work on how to best meet this and other consumer needs. These insights provide the foundation for our comprehensive plans that will allow us to grow our business in the near and longer term. Now, I'll first start with building an aggressive food and beverage pipeline, which is part of optimizing our menu. Now when it comes to our menu, our core products remain front and center because these products truly are their own iconic brands. Classic favorites, you know them all, the Big Mac, the Quarter Pounder with Cheese, our world famous French Fries and Chicken McNuggets. These make up about 30% of our U. S. Sales and will continue to be strongly marketed in 2014 and beyond. Now we must continue to energize the core by offering innovative new products and exciting limited time offers to create a relevant customer eating out experience that drives the business and continues to build the brand. We are focused on building a strong product pipeline targeting those areas that we believe have the most potential. Two examples of those will be beverages and customization. And let's start with beverages, in particular, McCafe. Coffee, quite frankly, has been part of our strategy the very beginning. If you look at our operations and training manual from 1958, you'll see that we've taken coffee seriously for more than 55 years now. The evolution of our coffee business over time has contributed significantly to the growth of our business. From the launch of McCafe in 2,009 through 2012, sales of our total coffee line including drip, ice, espresso and frappe base have increased 70%. But despite our growth in the category, we know there's even more opportunity to increase our share of the coffee market. Today, we only capture 12.8% of IEO coffee service in the U. S. So significant potential still exists for us. And to capture that potential, we're elevating our focus on the coffee business, treating coffee quite frankly as critically important as we do our iconic fries. Our goal is to enhance our coffee culture at McDonald's. We know that we have a very high quality coffee product and we need to be very proud of that. Now we know we need to further enhance the customer coffee experience at breakfast, but also throughout the day. Now our coffee strategy includes leveraging brand and cafe, enhancing the marketing calendar to support coffee, introducing new flavors and always positioning coffee as coffee and, so that we can sell more of delicious food. And as you probably heard, we will be providing consumers with a new way to enjoy the cafe coffee at home. The fact of the matter is more than 70% of coffee consumption in the U. S. Takes place at home. So in collaboration with Craft, next year we will be testing the retail sales of our premium roast coffee, including packaged ground, whole bean and single serve options. This test will allow us to tap into the demand that exists for home coffee and it highlights how serious we are about leveraging the McCafe brand potential. At the end of the day, this retail test is about driving greater awareness of the McCafe brand and therefore selling more coffee in our restaurants. Now hopefully you guys had a chance to try the pumpkin spice latte this morning. You did, right? Pretty good? Now this is just one example of how we're adding more variety to the McCafe lineup. Now customization represents another important opportunity for our business. We are focused on elevating our menu and ingredients satisfy our customers' changing tastes and preferences. For example, we are going to be introducing bold new flavor extensions that will allow us to enhance our core equities and set us up for future innovations. And we are ensuring that our kitchens are ready to deliver. The U. S. System will have new assembly tables in all restaurants by 2014. Now these tables will allow us to do 2 very important things offer greater customization by accommodating more ingredients including fresh toppings and improve overall speed of service by improving the overall design and efficiency of the prep table. Our second area of focus is to bolster our already powerful brand through greater customer engagement. This falls within broadening our accessibility. McDonald's is one of the 10 most valuable brands in the world, but we're never satisfied and we are always looking for ways to improve even more. Let's begin with affordability, which is foundational to our brand identity. Now our goal is simple, to make sure our value offerings satisfy our customers' broad taste and preferences, both in terms of products and in price points. Now this month, really just Monday, we introduced the Dollar Million more nationally. This platform is designed to continue to attract guests into our restaurants by providing them with greater taste, variety and choice at compelling price points across the menu. For example, the new barbecue ranch burger and Buffalo Ranch McChicken will be available for $1 in addition to some of our current dollar menu offerings like the Grilled Onion Cheddar Burger and Fruit and Yogurt Parfait. And for $2 customers can choose from the bacon McDouble, bacon buffalo ranch McChicken and we'll be also featuring our 20 piece McNuggets at $5 Now customers are in our restaurants. When they get there, we're going to be focused on providing them with appealing choices for add on purchases or even trading them up to more premium items to build the average check. Now I'd like to show you one of our new commercials for the Dollar Menu and More menu. The meeting will resume after this commercial break. Now it's okay. We are closely monitoring the early results, but we have solid expectations couple of blocks up the road, right Charlie? And stop by your local McDonald's. Maybe you want to go to the one over here by Spring Road just a a couple blocks up the road, right Charlie? And stop by and try one of these great new items. I'm sure you'll love them just as we do. Another important element of our brand strategy is our family business. We know that families have grown up with McDonald's for generations, but today's families have different needs and expectations than they had when we started. Happy Meals. Happy Meals are foundational to our family business and we are focused on several key areas to enhance our Happy Meal offerings, including providing more fruit or vegetables or low fat dairy options, evaluating alternatives to toys with items such as books and evolving our food offerings beyond hamburgers, cheeseburgers and Chicken McNuggets. Now from our system wide support of RMHC, our current nutritional commitments or our new global partnership with the Clinton Foundation and the Alliance for a Healthier Generation that Steve talked about earlier in his presentation, McDonald's is committed to doing what is right and supporting the well-being of kids everywhere. With that, I'll turn it back over to Jeff. Thanks, Kevin. Under modernizing the customer experience, our third area of focus is reinforcing our foundation of people and service, particularly at lunch. Customers have told us that we must improve here and we've listened. You've heard us talk before about the moment of truth. This is the point at the front counter and the drive thru that really defines the customer experience. Our goal is to consistently deliver a positive moment of truth across our more than 14,000 plus restaurants with all 28,000,000 customers who visit us every day. We know our crew is critical to this effort since they are the face of the brand. They keep our restaurants clean and they execute the service experience for the customer. Therefore, we are going to focus intently on improving the overall crew experience to ultimately lead to a better customer experience. We've also defined some very clear priorities for improving the customer experience focused on being clean, fast and accurate. We're using simple customer focused language that's easy for our crew to understand and deliver on. In addition, we know that the best most actionable feedback we can get is from our customers themselves. As a result, beginning early next year, we'll be rolling out a new customer feedback system to all 14,000 restaurants in the U. S. This tool allows customers to provide more robust timely feedback directly to our restaurants, enabling us to quickly address and fix any service related issue. Moving forward, we're also building our capacity to build volume during peak periods. We know that today there is more demand in the market than we're capturing, especially during peak periods like lunch. We know it's there because we see it every day, whether it's cars that drive past our restaurants due to long drive through lines or customers who stand in line and leave because of the wait. We are committed to capturing the demand that exists by building capacity within the restaurant And it's all about combined solutions. Our kitchens are built to handle even more volume than they do today. So it's about ensuring our restaurants are using all the tools available to help them improve speed of service at the front counter as well as the drive thru. We're increasing our training efforts, so that our restaurants have the right people in the right places serving more customers each and every day. We're also making improvements to the order assembly process including the new more organized prep table that Kevin mentioned earlier. Finally, I'd like to discuss the investments that we're making to continue to modernize our restaurants. Our modernization efforts changed the way the customers think and feel about their local McDonald's. And as a result, customers change their behavior and they visit more reimage restaurants outperform the market by 6% to 7% after 1 year. As a result, we continue to focus on reimaging our restaurants to ensure that they're relevant and appealing to all of our customers. In 2014, we plan to re image approximately 300 restaurants, reflecting a reduction from 2013 levels as we and our franchisees prioritize investments in our kitchen to deliver enhanced menu choice and speed of service to the customer. Now in addition to reimaging, our modernization efforts also include new restaurants and rebuilds. Between these three areas, we'll touch over 70700 of our locations in 2014. And by the end of 2013, close to 50% of all of our restaurants will reflect our current contemporary look both inside and out. Going forward, our plan is to have about 2 thirds of our restaurants complete within the next few years. Now for a system as large as ours, that's a remarkable change and it's a change that our customers have noticed. And they praised us in the pulse surveys that Kevin talked about earlier. A hallmark of successful companies is that they are never satisfied and we certainly are not satisfied with our current results. At the same time, we're in a strong position. Our franchisees, our suppliers and our company employees are aligned and focused on what matters most, our customers. With a strong collective focus on the following: developing and executing a strong menu pipeline engaging our customers more actively elevating our brand and reinforcing the importance of our people and service. And we're confident as a team that we can deliver on these issues. Our customers are looking for a meal that satisfies at an affordable price from a world class brand. They're asking for great tasting food and beverages that we're known for, delivered quickly and with a smile. These things are at the heart of our plan to win and they're well within our reach. By continuing to evolve, we will remain relevant in all of our customers' lives and we'll satisfy them with quality products at the speed, price and convenience that only McDonald's can offer. So I thank you for your time today. And now I'm going to ask our leadership team to join me on stage and we'll handle your Q and A. Thanks everyone. So with me is Heather Smetstad. Heather is our Senior VP, Chief HR Officer Jim Johannessen, our Chief Operations and Support Officer and Mike Sankey is our CFO. Okay. Hi. Nicole Miller from Piper here. Hi, Nicole. Hi. How are you? Good. Can you talk about the retail test on the whole bean or baked coffee with craft? Do you know about how many markets where you'll test? How many SKUs, price points, flavor, plain, etcetera, etcetera? Thank you. We'll finish all the rest of those too? Yes. I think I'll hand this to Jimmy Jay and he can give you our thoughts on this. Nicole, I'm not going to be able to be as forthcoming as you might hope. We have some confidentiality restrictions with our partner on this. But we will be testing this in 2014. It will take place. Those tests will take place in multiple markets around the United States that are diverse in all the material respects that we need to understand our customers and how they think about things. Because at the end of the day for us, this test with craft is all about driving coffee sales in our restaurants. We believe that as our customers get a greater awareness of McDonald's coffee, they'll be reminded that 3 years ago Consumer Reports said we were the best ones on the planet. They'll be reminded of why they helped grocery stores is going to manifest itself in the sales of greater levels of coffee in our restaurants. Thanks. Okay. Hey, John. Hi. Thank you. John Ivankoe, JPMorgan. The question is on re images and this is obviously an important part of the strategy over the past couple of years. And according to your remarks, it's still a 6% to 7% sales lift versus kind of the market and that would suggest that the ROI is still 2014. And it seems like you're suggesting that you need to re ramp up to like in 2014. And it seems like you're suggesting that you need to re ramp up to like 1,000 plus a year in the next couple of years get to that 2 thirds of the system whatever the next few years means. I don't know if that's 3 or 4 or what have you. So to slow it down to significantly take it up again given those returns and please put this in the context of what's going on with your competition that is ramping up their re images in 20 14. Yes. And I don't mean to say that we're not real happy with what's been done already, because I think it's changed the psyche of the customer in many of the markets that we've done it. And I know we've talked about this before. But we have made a conscious decision to redirect some of our CapEx. And part of that is engaging in greater capacity building in the kitchen. And in order to do that and get where we want to go on the menu side, we have made a decision to kind of step back a little bit there and put our kind of our money where our mouth is on making sure that we're building that capacity the right way. We're going to do that in lockstep with our operators. We're fully engaged in the conversation, but it's all about building capacity and offering the consumer more choice. I'm very excited about where we've come in a few short years on reimaging and we have every expectation that we're going to continue on that process. But I would point to really good returns also on our new restaurants and our rebuilds. And we're not taking a step back there, okay? And if you don't mind me pushing excuse me, if you don't mind me pushing on topic. Yeah. That's right. Why are the 2 mutually exclusive? In other words, why can't the re images and the kitchens be done together? Because then it then it seems like you would have not only the restaurant that looks better, but from the back of the house perspective actually acts better. It seems like they would be great to be done together. Sure. Go ahead. So if I can just add to the answer so far. First of all, the systems enthusiasm us and the owner operators for the major remodel process continues unabated. Our owner operators especially our owner operator leaders understand that this is a break in the action, a slight pause and then in 2015 we'll be right back into it. Because the demand is there, people see that this hits on all cylinders for the customers. It's what they want. We are trying to be respectful of the pace of the reinvestments that our operators make. You saw that cash flow is down slightly this year. We're trying to be respectful of the investments that we're asking them to make in 2014. And as Jeff indicated instead focusing on the high density prep table that we believe is going to give us an immediate ability to satisfy our customers in a greater way than we currently are. So it's just a movement of the emphasis of how we're going to spend those dollars in 14. And John, I think I would also add, hitch on the number of hitting 700 different projects, okay, in terms of making a greater statement on the brand in the U. S. And that will be done in all the regions across the country. So that's a big number, okay? And at the same time, those 700 projects are going to go along with the change that we're going to be making in the kitchen. So there's an awful lot of work to get done. My belief is get that capacity and foundational piece, get it right out of the box, get it done, okay? Offer the restaurants the opportunity to really execute the way that they need to execute. Then we bring the new news and we continue on with our projects on reimaging the brand and building new and rebuilding those that need to be rebuilt because of the aging of the system. Thanks. Got one over here. Sure. Number 1? Hello. It's David Tarantino. Hi, David. Jeff, you mentioned the pace of initiatives last year, this year being a little too fast for the system to handle. And I was just wondering if you could elaborate on what the specific issues were in the restaurants Kind of how you identified that as an issue? And how easy it will be to fix? And whether you think you might have left some sales on the table as a result of some of the operating challenges related to that? Yes. I would point directly to the cadence of change. We went hard on new platform additions, but the pocket of time that you could point to on my comment would be you're out of the box on introducing the new McWrap platform. You're following that up with Egg White Delight. So you literally stop one focus. You go to Egg White Delight. You immediately went to blueberry pomegranate and then we put in the new line of Quarter Pounders. We did all that between the end of March and middle of July. And then from there, we went right into monopoly. So there was no time if you would to seed appropriately over the long term the platforms. And we've taken we've learned a lot, okay, because we did that in order to strengthen our look at the 2014 calendar and be able to give the folks in the field the time to vertebrate properly between 2013 2014 in a better way than we probably did, vertigrating between 2012 2013. So I was of the, I guess, look to a lot of change. Let's get it out there. Let's get going kind of thing. And in retrospect, I probably would have taken a little bit more time on that. And so that was what my comment was about. Great. And I guess what does that mean for 2014? Fewer new products but longer promotional windows? Well, a lot of people have asked me that question today. And Kevin maybe you can take a look at it because Kevin's in the process right now of building the calendar 2012, we had 16 limited time offers that were put into the U. S. Business. We had 4 this year. So but we had a lot of new news on platforms and core, all right? And I think the balance on that, we have to continue with limited time offers. We've got great products like McRib and you tasted the Clubhouse sandwich this afternoon at lunch. We've got to have time and space in there. But Kevin some thoughts on this? Yes. I think you hit a point Jeff exactly right. What we're looking at is making sure that we have the proper balance between the $1,000,000,000 brands that I talked about earlier these iconic brands Big Mac Quarter Pounder with Cheese Fries and McNuggets as well as continuing to bring our customers, because customers want new news. They want variety, but having the right balance between the two and ensure that we're providing the adequate support to get them excited and more engaged about whatever we're bringing to market. Something very interesting, the reason why I want to hit a little bit on this core platform, if you will, our core products, there are a number of customers out there within the millennial age range that we talk about often who need to be better engaged with our products. They know more of our new products. They're less familiar with and have less of an affinity, if you will, to our iconic brands like Big Mac and Quarter Pounder with Cheese. And we think the size of that demographic really makes a lot of sense for us to start engaging with them at a much stronger level related to those core products. So we're looking at a better balance between the 2. Obviously, limited time offers will always be part of our repertoire because customers are engaged. They're excited about them. We get nothing but call it fan mail if you will about when is McRib coming back and those products like that it has a cult following. But we've learned that we need to be a little bit smarter about how we roll new products out. We got to be smarter about following the insights that lead to some of the decisions we make relative to introducing new products and how we and cadence the products into the restaurants. So that a, our customers are engaged and they get they bring these products into their set as well as the restaurants are able to execute them at a high level. Jimmy? And just a caboose to that last piece about the restaurants executing at a high level. We have really talented people in our 14,000 restaurants and we believe they can do anything. But we also believe they can't do everything. So for the last 6 months, we've put in place, what we call the gatekeeping process to try and rationalize what the execution calendar looks like in the restaurants, so we get into the cadence of new product implementation that Jeff and Kevin have both spoke to. We believe that in 2014, we have put in the necessary foundational work to make to have that make a lot more sense at the restaurant level. Thank you. Number 2? Hi. Jason Craft from Cato Partners. Hi, Jason. Can you talk to menu board awareness and menu board confusion? And really specifically to the recent high profile LTO, Mighty Wings, And the decision to launch Mighty Wings when at $1 per wing on average, if you're a consumer going through the drive thru, you were a bit confused when you looked at a $5.20 McNugget sharing the same sauce packs. Is that something that you learned from this year as far as rolling out an LTO with that type of pricing specifically when you've talked about affordability and consumer weakness? Sure. Kevin, do you want to Yes. Sure. I'll take that out. Let me start with the menu board, because you have identified an area that we clearly as well have identified as an area of opportunity for us in terms of being better able to connect with our customers to make the ordering process easier for them, remove some of the confusion. Because particularly at the drive thru, we find that the menu board has a lot going on and we need to simplify that. We're going to engage in some consumer research to help us better design that menu board. And as well, we're going to be moving into the digital age over the next few years as it relates to menu board, which will help in managing the message flow by day part and by product and what we want to sell. So a lot of work going on with the Media Board, but the static board as you accurately have identified is an area of opportunity for us and we're actively engaged in working at that. Regarding Mighty Wings, we tested Mighty Wings at a price point that appeared to be and the results from the test came back, it was a price point that consumers were good with. I think going forward, we have to be smart about Mighty Wings in the context or any other limited time offerings and the price that we offer in the context of the entire 1,000,000 board and what they can get with other offerings versus the limited time offers. So lot of pricing work going on. We have a team. Some of the folks here in the room working on what pricing ought to look like. Our goal is to provide affordability across the entire menu board not just at the dollar menu level if you will, but across the entire menu board and being smart about where we bring our limited time offers at. And I think I'd add 2 things price and spice to the reasoning there. And I think my partners that are here today would probably say the same thing. We make recommendations on pricing, all right? But we don't stipulate to our licensees what the charge on the price. So I think we did have in certain pockets of the country a bit of a pricing issue on the product. I was really proud of the product though. The general consumer response that we get in all the time, The number 2 customer contact was praise for the product, okay? The taste, the profile, the way it was executed in the restaurant, we actually in my opinion did a very good job with that. And the spice, learnings, it is a spicier product. And maybe when we come back with a product like that, there needs to be another alternative and we need to talk about that right upfront. So or if we stay with the existing product, we blend the spice message into the marketing. So price and spice would be my answer. Okay. Number 1. Thanks. Sara Senatore from Bernstein again. I had a question about throughput. And if that's really the problem and people are leaving the line because it's too long, that's a high quality problem to have and should be something where we would see the results right away. But I guess I wanted you to put that in context of first of all, I think you've been adding labor to the stores kind of pretty consistently over time to address that. And so I'm wondering what's different or what should we see now? And then also you can maybe quantify what the throughput might be with transaction times or how many more people you can serve and what that translates into sales? Sure. Jim do you want to start and then? Sure. There are a lot of specific reasons why there is a greater demand for brand McDonald's than we are currently serving. And somebody mentioned earlier from the podium that we see it every day when we come to our restaurants and see the driveaways and the drive bys. Regrettably, we have about the same number of people on the floor today at lunch that we did 10 years ago when we were doing $1,000,000 less in sales. We need as a system to do a more effective job of getting the right number of people on the restaurant at the restaurant, especially at lunch to make it real for you because I know you're all consumers just like me as well. When you pull up to that drive thru and the person isn't quite ready to take your order, it's because they're making cash for the person in front of you. When you get to the point of payment and not able to get them to look you in the eye, it's because they're talking to the person behind you. When we do what we call split the functions of order taking and cash payment, we substantially improve the throughput in the restaurants. So it's things like that. When we open both sides of the prep table, now the new high density version with a greater level of throughput afforded to it. When we opened both sides, we're able to produce a lot more out of the same size kitchen. So what's going to be different going forward, I believe, is going to be a function of the relationship with the owner operators and our ability to communicate with them well. In the United States, we have 3,000 owner operators and we're getting better every year with how we're communicating with them. They're as aligned as they've ever been. So 2 weeks ago, we had a system webcast talking about the 2014 through 2016 plan. In the old days, folks would have met in Oak Brook talked about that with owner operator leaders. Others would go out and present it to the divisions, to the regions, to the co ops, etcetera. And it was almost like that game telephone tag that we all played in school. By the time you got to the last person maybe the message wasn't where it started. Today, it's a webcast with we had 4,500 lines participating. Don't know how many people were on because obviously more than one person was on different lines, but literally 4,500 lines participating. There's a real hunger for information. So we see that as a system huddle, the ability to talk to everyone at the same time, bring them up to date on where we're going and the why behind why they ought to make those kinds of investments in for example labor at lunch and we think we'll be stronger because of it. I'd like if I could Sarah without adding mass, there's also a way that we're looking more intently every region, so region by region in a quintile way. And we know the operators and the company restaurants that are winning in this environment. Additional comps positive comps, positive cash flow are the ones that are staffing the restaurants right and staffing them at the peak, especially at lunch and especially in the drive thru, okay? On average in our central division alone, the difference between the top and the bottom is 7 people on the floor, 7 people, okay? But they also have positive cash flow in this environment and positive movement on sales and we're really proud of them. And we've got 40% of the system is really rocking on this. And we're influencing now the other 60% through what we're trying to do with this people and service focus that we're putting into play in the U. S. And it's really intense right now on what we're trying to do. Next please number 2. Yes. Thanks. Jason Weisz with Deutsche Bank. Hi Jason. Hi. So on the Dollar Menu and More rollout that just happened, there was a bit of a breakdown in the testing on the Mighty Wings versus the sort of actual execution of that product. And just a little concerned rolling out a change to the dollar menu when you talked about how competitive it is out there. Yes. And removing I believe the McDouble from the dollar price point just your confidence that that's not going to have more negative reaction than you might have predicted in the test markets? Yes. Go ahead. Yes. Relative to confidence high degree of confidence that we're going to be successful with the dollar menu more. We tested in the 5 markets and it performed to expectations in the 5 markets. The reason why we added the additional sandwiches to the menu was because we knew we were going to transition to make double to a higher price point. And we wanted to make sure that we still had a very compelling consumer offerings at the dollar price point as well as some additional new news at the $2 price point. If you think about Dollar Menu as a platform, we instituted this back in 2000 and 3. It's been foundational to our business for over 10 years. In fact, we have evolved it. The change that we recently made was not the first change. We've evolved it a few times over the years. And every evolution was designed to make sure that we stayed relevant with our customer base. So where we are right now is just a continuation of that evolution. It was tested. We feel confident coming out of the test that we are ready to go national with it. And as I said in my remarks, we're going to continue to monitor it very closely to make sure that it does remain relevant. And if we have to make some decisions along the way as we have in the past, we'll do that with the dollar a million more. But we feel pretty good that the breadth of the offering with the 5 new sandwiches, which are I got you're the dynamite, you got to go trial. I think we have an offering that the consumers are going to be excited about and they demonstrated that in test markets. And I think that's about it, right? And so if I could just as Dave and Doug did, just a couple of closing comments and then I'll introduce Don. In the U. S. Business, strong focus on the customer, energized by the strong alignment with our operators and our management teams throughout the business, focused on areas that we believe very strongly are going to deliver the greatest benefit to the customer and to the business confidence in the management team, a very high degree of confidence and it's all about creating the best overall experience for the customer. Everything we do is going to be with the customer in mind. So thank you for the time today. We'll be around this evening, the entire team and we'll see you at the cocktail party. Now it's my pleasure to bring back up our CEO, Don Thompson. Thanks. All right. Home stretch. So how was that for transparency? I mentioned to you all earlier, one of the things we wanted to make sure is that you all took the time and invested to come in and visit us. We have a number of learnings that we've had over the last couple of years. And for us, those learnings have to pay off. So I want to thank Jeff and his team and as well as thank Doug and the European team and also Dave and our team Asia. So Asia Pacific, Middle East and Africa. I want to thank all of you again for taking the time to join us today. We always appreciate the opportunity to demonstrate why we believe McDonald's is a solid investment and how our markets around the world are executing against our plans today and how they're preparing to execute against those plans for the future. Now our optimism and my optimism is grounded in the real opportunity that exists in the marketplaces. So this is not pie in the sky. It's the real opportunities in the IEO category. And the fact that we are built for growth. We have invested much. Our franchisees have invested much. Our suppliers, our advertising agencies, our partners, and we believe that our infrastructure is solid and that's why we say built for growth. We're evolving alongside our customers. That is the most critical thing. If there's nothing else that you take away from today, we are evolving alongside our customers. They are the driving force behind all of the things that you heard today. Again, we are investing to build demand. I think that came through quite apparently in all of the presentations and particularly in the one relative to the U. S. And enhancing our focus on execution and operations excellence. Our commitment to offering customers great tasting food and beverages and a modern contemporary relevant restaurant experience is second to none. We also understand that we have to provide affordability and great value to all of our customers around the world, particularly in times like these economically. What I hope you haven't heard is that we're saying we're waiting on the economies to turn. That's outside of our control. What we can control are the things we talked about today. The passion for delivering on this excellence and delivering on customer experience, I think again is apparent. The system is aligned. Our owner operators around the world, again our suppliers, our employees, everyone is aligned around what it is that we're going to need to do in the various markets. So just a few headlines to get a little more tactical, because I think I want to make sure that you all in the midst of us being transparent and giving some of the rationale for the plans. Today at lunch. We've talked about it in each of the presentations. And if you it today at lunch. We've talked about it in each of the presentations. And it's got to be great food even before you visit a McDonald's, even before you visit. The brand perceptions of McDonald's have to build upon a customer's expectations prior to coming to McDonald's. Steve Isterbrook talked about some of these things in his presentations and you saw some creative that really talked about the quality and provenance of our food. Energy and excitement. Our marketing leadership has to provide energy and excitement when we bring products or offerings to the marketplace. Why? Because that is the unique selling proposition. It's differentiated by our service and our ability to deliver in the restaurants, but it has to be appealing and energetic. You've heard a lot about operations today, a lot about operations and service It is at the core of everything we do. Even the greatest marketing in the world doesn't matter if you can't deliver on it at a restaurant level. And so, Tim talked about it quite a bit. Again, you heard about it in all of the other areas. And so, Tim talked about it quite a bit. Again, you heard about it in all of the other areas. And so, Tim talked about it quite a bit. Again, you heard about it in all of the other areas. So what am I excited about? I'm really excited about the fact that we are innovating. You saw us talk about innovation from a real estate development perspective. Kenneth and Dave talked about that. They went fairly deep and shared some things that we're looking at from a go to market strategy. You've heard us talk about the innovation in our production system. You saw that. And you saw one piece and part of it. In the APMEA presentation, you saw a different piece in the U. S. Presentation. There's a different piece that Dave and or Doug and Jill and the folks talked about. We are focused on our operating systems and platforms. You saw energy around breakfast, both breakfast expansion and breakfast in terms of the existing products that we have leading with coffee and the McCafe brand, but also pairing that with food. We are a restaurant company. We are not a coffee house, but we think that we can sell a heck of a lot of coffee when we don't have our fullest extent of share at this point. We have a strong management team. I'm extremely proud of all the folks who were here, who presented and everyone else who's sitting out in this audience. If you haven't had a chance to talk to him again, please do. There are no other teams as strong as this team that we have in McDonald's. Hands down, no doubt about it. Am I biased? Absolutely. Am I sure of the fact? Yes. Experience in tougher times. Our team has experienced ups and downs before. We know what it was like when we shifted and we thought we wanted to open a lot more restaurants and not focus as much on the core. We don't like that. Also know what it's like when we didn't think we gave enough time to development opportunities and in markets where we might potentially have fallen behind. A balanced approach to growth in the future is critical for us at McDonald's. I mentioned this before, we're not waiting to act. We're not waiting on economies. The things that we're doing and talking about are the things within our control. And the other thing you heard and Tim has fostered a lot of this, we're sharing more aggressively, but we're adapting based upon local conditions. We're not adapting blindly. Some things that work in Europe may or may not work in the U. S. Some things we're doing in France with Jean Pierre may or may not work in China. But we're sharing and we're adapting those things that we can learn from each other. So a couple of people have talked to me and said, so Don, I want to get a little more insight on sales. Talk to me about the numbers. We want to know what's in the plan next year. Well, I know that you all know we're not going to give you the marketing plans. So having said that, I would say this. Relative to the sales plan, look for core excitement from a menu perspective, look for core excitement, look for a combination and balance between core and limited time offers. You heard that in the U. S. Presentation, you've heard it in the others. Look for us to expand in the areas that we've mentioned and been consistent with for the last for quite a few years breakfast, beef and chicken and beverages. In breakfast, coffee and McCafe as a lead along with food pairings or the daypart expansion particularly in areas of apnea and Europe. In beef and chicken, look to the pipeline. You tasted some of it today. You've seen some of it in the presentations, but it will be balanced again with the core. Relative to beverages, you've heard us talk about blended ice. Doug talked quite a bit about Europe and what we were doing in Europe relative to blended ice. The key though to delivering on the menu and I will say it one more time and that is consumer based insights are driving our actions. Consumer based insights are driving our actions. This is not us talking to each other. And on the marketing end, Steve and I and Kevin and others are having conversations with our agencies as well. And basically, we're saying you have to bring energy and excitement. We're accountable for that energy and excitement. It can't be the same old same old. We have to differentiate the brand in our promotional activities. On the digital front, it is a journey. We believe consumer engagement from a digital perspective is a thing that will elevate our brand. Steve, Atif, all of the people, all the folks we have around the world will be focused on that. However, it is not going to be an exit stage right and everything is digital. Has to be a balance and a migration relative to some of the allocations of media. And so we're going to be very balanced about that. But we're also not looking at just traditional individuals and organizations that have supported us. We're looking at larger partnerships and we're looking at global scale. Ongoing capacity enhancements. We have customers in some cases we're not serving, not because the operational platforms and systems don't work or afford it. Jimmy Johansen mentioned it. Sometimes it may be staffing. Sometimes it may be the fact that we need to have additional density or additional support out of the prep kitchen and out of our operating system. So we're looking at improvements to the system, but the system itself and the engine itself does drive it. We haven't forgotten affordability, so look to see that in the plans. And the incremental changes we'll continue to monitor as we have value platforms around the world. And lastly, I think you saw quite a bit relative to development and our development expertise. Some of us were around when we were developing sites and we were, if you will, cannibalizing some of our existing sites. We're not going back there. That is not a place we want to be, but we will be balancing growth and we think we have tremendous opportunity. So again, I thank you all for being here. We're well positioned to capitalize on the market opportunities to grow our business. We do have the right strategies in place. We have the right people leading those strategies and these major markets and supporting our business. We are financially strong. We have the capital and the resources to smartly invest and execute. And we remain committed to managing this business for the long term and the benefit of our shareholders. I'm confident that the investments that we're making today will generate enduring and profitable growth. So with that, I thank you for your continued investment, your continued interest in McDonald's. And I'd now like to open it up for one final Q and A session before I turn it over to Kathy Martin to close this out. So questions? No questions at all. We'll go right now to the reception and drinks. I know I saw Jeff down. We got somebody up there. Number 2 please. Hi. It's Howard Penney with Chick'Sai Risk Management. First, I just want to thank you for putting this together. I know that takes a little time and effort to do this and I really appreciate it. I have a couple of questions. First, I want to start on the beverage. And if I remember, I'm of questions. First, I want to start on the beverage. And if I remember, however many meetings ago whenever it was, there was 3 components to McCafe. The first one was hot, then the cold. And then you actually had a bottled beverage component to it. And I know you put water up there as a beverage part of your strategy. Is that what happened to that first of all? And are you going to revive that if it died? And then digging into the beverage and specifically the coffee, you gave a market share 2 years from now. Is there a market share number? Is there some benchmark that we can look to for you to prove out your success in taking market share in coffee? And then the third question is, are we going to see a partnership with Coca Cola to develop a beverage in the supermarket category in 2014 or 2015? Wow, Howard. All right, buddy. Buddy. I will hit some of the history stuff. And on the Coca Cola part, I'll make a comment about that. I'll save the U. S. Folks on this one. So the original strategy you were right. It started with drip coffee back in 2000 and 7. The notion was for the U. S. Business drip coffee first then espresso based coffee both of those being hot. It went then went to iced coffees and it was coffee initially then it was iced blended coffees. Iced espresso and iced blended kind of kicked in about the same time. The results went from about 2% of sale as I recall back in 2007 to upwards of 7 plus percentile today in the U. S. So it's been some substantial growth yet and still the folks gave the market share numbers. We still have some opportunity to grow it. We won't forecast on what that would look like Howard, but there will be tremendous energy. I think the biggest part that I would add at this point is this is not a U. S. Strategy now. Matter of fact, it started outside the U. S, New Zealand and Australia. And as it's migrated, it's now kind of making its trip around the world. We have different aspects of that mid cafe strategy that will be taking place in different markets. So we're going to have different share targets and opportunities we're going after around the world. The last part of that on the bottles. What happened with the bottles was that we did test it. The margin on the bottles was lower than what we would have wanted. So we shifted our focus back to the fountain base where our margins are much, much stronger. The other opportunities we had about 4 or 5 that we did test and the resonance actually wasn't as great. If you have a big volume, a big selection, a big variety, it tends to work better in the bottled beverage space. So we decided to leave that part alone and focus even more so on the ice blended and on the other beverages. And so that was where we went. Relative to development with Coca Cola, not that I know of at this point. However, we're always working with Coke on certain things. And you've seen certain things out there. I mean you know about their jet program or the multi dispensing system where you program in your own drinks. We have worked with them on that. It's called Freestyle now. Okay. I'm used to the old code language. So freestyle, but some of those things we'll continue to work with them on how. Coke is a great partner, but Coke also works with us on things outside of CSDs. Don question for you. It's RJ Hadid. Morning. Sorry. You've talked a lot about infrastructure being positioned for growth and I don't think anyone's denying the McDonald's scale. But it seems like the last couple of years been some incidents where the infrastructure has actually been constraining in terms of getting enough supply to roll out a new product on a timely basis. Maybe just and this is particularly in the U. S, maybe just elaborate on some opportunities in terms of getting things to the market quicker, maybe some learnings to be a little bit more nimble, especially as you talk about adding new ingredients in a prep table and expanding in different proteins in that regard. Okay. I'm going to ask Tim to touch base just a little bit relative to the operational. I think you're asking about several things. One is operational capacity. I think we've talked a little about it, but Tim can chat a little bit more about it. The other aspect really relative to our supply chain and for those who don't know Jose or Mario is here somewhere. Jose, put your hand up. I want to make sure they catch you at the reception. Jose is Head of Global Supply Chain. So relative to any questions or thoughts about the supply chain and what we're capable of doing, Jose can answer those questions. But RJ for us at McDonald's anything whether it's entering into the poultry space with Mighty Wings, we're talking it takes us sometimes a year plus to be able to have enough supply to be able to support just the U. S. System. The same thing happens across some of our markets across the rest of the world. And so on the supply chain piece, Jose can tell you a little bit more about that, but it does vary. And based upon the product, it varies. But on the other parts of that, Tim? Just a couple of things quick things to add. When we went into the McCafe or Combined Beverage Solutions, we did a lot of work with the drive thru and bumping that out to get some capacity to have that throughput for it. From a supply chain standpoint, that's just the formula of size. When you're I guess we are, you got to get some lead times on that. I know some of you had asked questions in some of the meetings we had earlier in the year about Mighty Wings and why would it take so long or how come initially you wouldn't do it. We had to figure out and get the crop growing and getting into it. And on the prep table, I think Jimmy Jay addressed it earlier that it's not only capacity for new products, but it's ease and throughput for existing products on just ease of operation bigger containers so on and so forth. But nothing more to add. Hi, Joe. Hi, Don. Joe Buckley. Just a question. It's more of a S. Question I'm afraid, but kind of ran out of time in that session. How expensive is the investment around the assembly table? And the fact that you're addressing the assembly table makes it sound like the speed of service side of the equation, some of that issue might be on the preparation side of the counter as opposed to the customer side of the counter. And generally I thought otherwise that it was more on the customer side of the counter. So could you talk a little bit about the investment cost per se And then just that issue of where you think the speed of service is? And maybe one last one on it some way if I can. Is it setting the stage for additional new product or new product platforms? Okay. Let's do this. Let's have Jeff talk about the U. S. Specifics. And then on the second one, I really want to have Tim talk about setting the stage, because that it is a much broader question. And I think he can talk to you a little bit about we are setting the stage around the world, but it's in different ways. So, Strat? Sure. I would I'd call the investment modest in terms of what needs to be done on the prep, because there's different stages of it Joe. For example, the high density prep we're talking about right now, it's going into all of our new stores relos and rebuilds and it has been for over a year. So in those restaurants, if we're to add anything to it, it might be the addition of a refrigerated rail, all right? Fairly simple, all right? There are others that will need more capacity into the production system all the way to replacing the old table with the brand new. It'd have refrigeration on it not only in a rail, but underneath so we can handle more capacity. And does it offer us better opportunity in terms of product in the future? The answer is yes, it does, okay? Specifically what that's going to be, certainly I'm not going to say anything on that today, but we need that. And the question flexibility in terms of what we do in the future, I think to be honest with you it's a very good one. And I think a lot of our attention through the work that Kevin's doing on the brand side, Greg is doing on the menu side is all about getting us more nimble in terms of more ideas, faster to market, okay, but doing them the right way. And that's where the capacity, the staffing and that side of the business comes in. So I said earlier in my conversation, combined solutions. If you just do one without the appropriate staffing level, okay, especially during those peak periods, we're not going to get what we want, all right? We've got to do it all. And that's where we're working very, very hard with our operators and our company restaurants to get that done right now. Well, Jeff, I was going to mention a couple of products, but I certainly am not now. But on new products, I think what this allows us to do in some of the consumer research that we performed is there are some requests or some demand for more customization, more ethnic flavors if you will on some of our products not only across the U. S, but global. We've you've tasted some of the products we had today. They're not just from the U. S. They're from Europe, from the Middle East. And we found that great products travel well that a good product doesn't need a passport. It can cross lines. In order to do that though, you got to have the capacity because you can't slow down that engine that's in that grill area for us, which really drives the business for us. So more requests for customization, we're seeing more and more competition out there that's driving that in some of the research we've got. And this allows us to kind of get more into some of the flavors and tastes and different topics that we can put on and implement some of the great global products that we have out there. We talk about this being customer and consumer led. Maybe Steve you could touch base just to touch on. We're kind of talking in a little bit of cold language and we're seeing the table and this and that. It's driven by some consumer insights that we've had that Eric Hess, who's Head of Consumer Insights is here and Steve Eric is also Head of Menu and Steve have really determined and it's helping to set the world stage relative to how we proceed with our menu. So maybe Steve you touch base on that a little bit. Yeah. I think the last two questions linked together. One point I'd like to stress is just because we can do more doesn't mean we should, right? So that's the first thing we should stress because the temptation is you've got this really powerful engine you can just pump those stuff out. The customer can only take so much. And this is where the precision comes in. And this is where we get deeper rooted in customer insight, more precision in the products that we launch in our menu development. But what it does mean is when we do find sort of the bull's eye, we can then be nimble, because then have the platform to then deliver it. We don't have to suddenly sit there and wait for our configuration to catch up with us. So it does address the nimble question. We also I just want to stress this doesn't mean there's going to be a scattergram kind of approach where we're just going to launch a whole load of stuff. There needs to be precision. And to Jeff's point, there needs to be a cadence in how you launch products. You're going to do so much. Our system we are an operating business still. So we need to get them established, need to get the platforms developed, get consumers use them, get our restaurants really familiar with it and be a little more precise and allow the consumer to guide us. Number 1. Hey, Don. Dave Palmer, RBC. Hey, Dave. I want to dig into the innovation pipeline and just particularly in the United States. The innovation strategy for years it felt like as you were coming out with a couple new products per year that were particularly more incremental, more sales layer like. And those were very well tested. And I know you seem to have hips basically since 2006. Every year you had put these through many gates such that we could count on the incrementality of these innovation items. You seem to go a little bit different in 2012 where there was a lot of products sort of extensions and then you went and changed again in 2013. Maybe you changed to 2 new bigger platforms, but they weren't as tested because the innovation pipeline I sense bare. Coming into this year, how is the pipeline of really tested to your standards such that you feel confident you have the visibility on the incrementality of that innovation? Mr. Stratton and possibly Greg Watson. My answer and I know it will be the answer to folks up here, we do have a solid pipeline. And the other thing I would offer is that many of the products that you saw today, believe me, some of those products have been in market for quite a while. So we have a good understanding as to the strength of the global pipeline. Maybe Greg could touch base relative to the U. S. Pipeline. Sure. Thank you. And thank you for that question. What I would say is the work that we've been doing over the past 12 to 18 months has really been grounded in the consumer. And as we've been getting smarter about the products that we're bringing to market, as Jeff talked about earlier, we've learned more about the cadence of introducing these products. We've also learned more about the importance of really staying true to those core insights and making sure that the execution is a keyword, I would say, the execution from test market to launch stays at a very high level. So you'll see exciting products. You'll see fewer of them because of the focus on the core that we'll also have, but you'll see extremely high levels of execution to make sure that we get the benefit of what we've seen in test come to fruition when we launch it nationally. And we all have a commitment from our U. S. Marketing team via Kevin that we will launch with excitement, energy and relevance in everything we do. I think that's right. Okay, good. Okay. Number 2? Hi, John. Yes, sir. It's John Glass. My question is around the same topic maybe a little bit more pointed. The company used to call itself a fast follower. And I wonder if you still think that's an accurate characterization. I'll give you an example. This fall you launched a pumpkin spice latte. You launched on the 10th anniversary of Starbucks pumpkin latte. Why did it take so long for you to pick up an idea that was already in the market place and successful? So my questions are, are you really outward looking enough at your competition? Another example would be everything pretzel was popular this summer. Could you have seen that earlier or maybe capitalized on that? Or do you just take a pass because you can't? And can you work with your supply chain more closely in order to do you see a food trend get into the stores quickly before consumers get bored of it? Because I think consumers are getting more quickly bored with trends come faster, but they also go faster. By the time you get there maybe it's long gone. Thanks, John. This is a I think thanks. This is a broader question than the point. So the answer is yes. Relative to being a fast follower, do we see ourselves as that? We are a mass market provider of services, goods, products. We serve 69,000,000 customers a day. When we move with energy in any product arena, we will see results. So the fact that we are implementing blended ice or just implemented it in the U. K. When smoothies have been around for quite a while, we're okay with tapping into that marketplace. Now what's interesting is there's a lot of our competitors that smoothies after we did and follow the strategy. So I think what we're looking for more so than whether we're a fast leader or fast follower is we're looking for the consumer trend. We're looking for what customers are eating, why they're eating it and are they eating it in mass or drinking it in mass. And when they are, that's something that we want to go after. So it's less about whether or not we lead or follow. It's more about the market opportunity and the market potential. So we don't have a real screen relative to, and if someone else do it, should we do it, shouldn't we? We have a screen that says, is it worth 100 and $40,000,000,000 in the marketplace? Or is it worth $2,000,000,000 in the global marketplace? And based on the way our system is, a $140,000,000,000 opportunity globally, we'll go after aggressively as a global system. A $2,000,000,000 opportunity maybe in 1 or 2 of our markets, maybe those markets will go after it. So the answer is we there are some things we may follow the trend until it's established. There's other things where we may lead and move forward to establish a category. Just a hook on that and I'll take fruit smoothies in some of the countries. We had some competitors that nicked our idea and scaled it faster than we did. They didn't do it better than we did though. And I think it's more important for us to get it right than to do it right now. And when you look at just the volume that we're doing in fruit smoothies in some of these countries, it's phenomenal compared to getting there first. We've also proven we can come late. We don't like to, but we can come late and dominate in that area when we do it right, when we execute right, when we put our scale, our marketing and our penetration behind it. Yes, last question. Mr. Eimigrove? We got 2. I'm sorry, who do we got? Well, we'll take 2 then because I called John's name. So John and then we'll come back to number 3. Thank you. John Ivankoe, JPMorgan. I might be a little bit off on the year, so just bear with me on this. But I remember way back when the U. S. Started seeing negative comps, weaker comps in the mid-90s and you kind of ticked up unit development. Europe maybe was 99 to 2001 comps kind of were uneven and you really are making a pretty aggressive push into Continental Europe opening stores. And what I want to do and it's kind of in a public format, it's hard to ask this question like this. But how profound were those lessons that were learned, which were very negative lessons for the organization and kind of led to a major rebirth of the organization as you kind of approach the strategy today. Because you kind of just look at it just very superficially and say maybe comps are a little bit lower, unit development is a little bit higher. And are we kind of in the beginning of a capital intensive new unit development trend instead of comps in the ROIIC which really did drive your stock over the past 10 years? Thanks, John. I'm going to ask Pete to chat about this one. However, here's what I would say. Steve experienced some of this when he was in the U. K. Tim experienced this. Doug experienced this. Hoffman experienced this as he was a part of the leadership team. Garland was part of the team when we so Stratton was a part the reason I'm saying that is this. Many of us remember the days when we decided to shift to units because of the top line sales, not because we had a real market opportunity. Now there were opportunities, but the level of technology and data that we have today, this was a very, very different piece. So I'm going to ask Pete though to talk to this because he keeps us on guard relative to this. Yes. John thanks for the question. It really does have to do with a shift in philosophy. Back then, we actually were growing to hit committed revenue growth targets. And believe it or not prior to the plan to win, we didn't have capital budgeting within McDonald's. If you ran a region or a country, you were given an opening number for the following year not a capital budget to maximize. And so one of the things the Plan to Win did was really institute that financial discipline, the competition for capital amongst the business units, the focus on returns, which wasn't there before. And that continues to permeate these conversations. And it's using some of those tools that Tim highlighted that that coupled with the growth in the business over these years has given us the confidence to say, we think we can continue to increase our development pace, but it's not like we're going to go from opening 1500 units to 3,000. It's a gradual where are the opportunities, how confident are we in our team and in our ability to execute in those particular areas and allocate capital accordingly and not just chase growth for growth sake. And when we really sit down and talk about this as a senior group, we always focus on the fact that without driving comp sales, you don't generate enough margin leverage and cash flow to fund this kind of growth. So it's all back to what are the consumer insights that are going to allow us to drive comp sales to help enable us to get as we say better and even bigger. And very quickly, out of that 1500 to 1600 gross units, how many will be net for 2014? Do you have a view on closures? We've closed 300 ish a year. So if you use that for now, I'll have a better number in January. And then the one other thing is we didn't have a significant amount of DLs 10 years ago. So out of that 1500 to 1600 about a third of those will be opened between joint ventures and DLs where we're not using any of our capital. And I'm sure you all probably know, but just to make sure you do for each of the markets, they get a number of targets now that we didn't get to Pete's point before. There is a very separate new store sales target. Notice I didn't say new store units sales versus comp sales. So they are very different. And we look at base trend lines. We look at economic environments to establish comps. We look at market opportunity to establish new store development, new unit development, new sales, months of operation etcetera. So we are much more analytical by how we approach it. And we don't just give out one number and say get to it any way you can. We're a little bit more steeped in analytics and data today. One more question? Hi. David Fuchs, A. Loewe Family Group. My question is around demographics and coming back to this emphasis on consumer insights, given that so many of you have been around for such a long time, if you look back 10 or 20 years and then you look forward 10 or 20 years, to what extent is there a structural change in demographics of your consumer in your major markets? And to what extent does that change the strategy of the business if at all? Thank you. I'm going to ask we get a mic up to Mr. Hess. And Eric your comments and then Steve I'll have you close it out. So Eric Hess, I work in Consumer Insights. You lead Consumer Insights. I work for the consumer. The demography is definitely changing, right? But what we really look at is their need states. And oftentimes the need states as I get older and older, but I still have similar need states. So at breakfast I have to go fast. I have to get in and out. Lunch I may be with my family. I may be with my workers. Maybe I sit down for 15 or 20 minutes. So we have to make sure that we're meeting the needs. That's the big screen. The second piece though is for McDonald's for all of us in everything we do we have to stay modern and stay young. So whether I'm 50 years old or 40 years old I always want to be with a brand that's a reflection of me. So even though the demos are getting a little bit older, we have to stay young. So I think everything you do when you talk about energy and excitement that's putting that screen on it. Steve? I mean the reality is we will be our customer base will now be across multiple generations, which I think is fantastic. As you look back 20 years ago, the grandparents' age were difficult to get to because they didn't grow up at McDonald's. Now everyone in 20 years' time everyone would have grown up at McDonald's. Reality is they have a lot of commonalities, but also they have different needs. So I think what will change and the way we'll be adapting our model will be the way we engage with those different generation with different consumers. So for some the mass market 32nd ad in the middle of a TV show isn't you're not going to connect with them. You're going to miss them. So that's why we want to get to this more personalized approach. So it's only going to heighten the need for consumer insight and accurate consumer insights not just random research. It's really getting under the skin of what really matters. But also don't treat them too differently either. From the 62nd ad there from U. K, end of the day, the old fellow and the young lads, they're still like a Big Mac Meal. But how you communicate with them and engage them and be relevant to them may be different. At the end of the day, they're not going to come in. They're like our food, not drinks. So we just need to be smarter and just more precise I is probably the way I'd say it. Thank you all very much for the questions. And with that, we'll bring up Cassie. All right. Okay. So I'd like to thank you all for your interest in McDonald's and for coming here and sharing time with us today. And I certainly want to recognize the efforts of our IR team. Boy, that was a mouthful. The Corporate Controller Group, the Area of the World Staff Communications Creative Services all the Area of the World's service all the efforts in putting this together. So that brings the afternoon session to a close for those who are listening on the webcast. And thank you for joining