Morning, everyone. Welcome to McDonald's Investor Day. I'm Kathy Martin, Vice President of Investor Relations, and hopefully all of you had a chance to sample some of our great McDonald's breakfast products this morning. We had a terrific selection for you. I also want to welcome those who have joined us on the webcast. For those of you here, you should have received an investor book this morning. You'll find an agenda with photos and biographies of today's speakers and our Q&A panelists. We've also included the photos and some information about some of the other McDonald's officers who are attending this meeting today. Today, we're going to share our vision for the coming years and expect to maintain our forward momentum and continue to enhance our shareholder value.
In just a few minutes, I'm going to introduce our McDonald's CEO, Jim Skinner, our COO, Don Thompson, and our CFO, Pete Bensen, who will discuss our strategies and our global priorities for the future. We'll have our area of the presidents join us, Tim Fenton, Jan Fields, and Doug Goare, and they'll provide an update on how our global initiatives will come to life at an area of the world level. Following each of the sessions, we've included ample time for Q&A, which I know you all immensely enjoy. We'll end the day with a final Q&A session with Jim, Don, and Pete to cover anything else that you might have on your minds. Please remember to state your name and your firm number when you're asking questions and wait for the microphone so everyone can hear. It helps the folks on the webcast as well.
During our lunch break, you're going to have a chance again to interact with our management team and sample some wonderful products, including some that are in test, as well as some products from our international markets. We'll conclude this evening with a cocktail reception that again provides some time for you to spend with our management team and our officers from various disciplines from across the company who are here today. Your name badge is your access to all events, and we're going to ask you to wear it at all times so that you can get into the places you need to be. We will be issuing a press release this morning summarizing the highlights from today's meeting, and a copy of the release is going to be available at the courtesy desk in case you want to pick one of those up.
Of course, it will be online. We're going to distribute some handouts, which those in the room should have already received as you walked in. The webcast participants will see the slides, but not the commercials and the videos. Those key slides will be available on the web if you want to access them. Finally, before turning the meeting over to Jim, I want to remind everyone, if you can please silence your BlackBerrys and your cell phones throughout the meeting, that would be helpful. With that, let's start the meeting. It is my pleasure to introduce our McDonald's Chief Executive Officer.
Thank you, Kathy. Good morning, everybody. Thanks for coming all the way to Oak Brook to hear more about McDonald's. The first thing I'd like to do is introduce our Chairman, Andrew McKenna. Andrew's here in the front row. Andrew, say hi. Andrew has provided great leadership and governance, particularly through the Board of Directors during this great growth that we've had over the last eight years and was right there at the beginning of our revitalization. It's my pleasure to really be here with all of you today and to get us started on the day and talk a little bit about the comprehensive look at McDonald's business and where we're headed. I was already pigeonholed this morning by some of my old friends outside, and I asked them to just wait till later.
I didn't try to answer all the questions because I couldn't necessarily answer them without having my team weigh in, and they wouldn't want me to do that. I apologize to those of you who asked me those very pointed questions, and I didn't answer them because it wasn't my place to do so. If you stick around for all the presentations today, which I know you will, your questions will be answered. In the two years since our last meeting, McDonald's has continued to make strong gains around the world, which you're going to hear more about today from all of our area of the world leaders.
This morning, I just want to take a few minutes to talk with you about why I believe we're succeeding as a system and give you some confidence in the future of McDonald's, or at least portray the great confidence that I have in the future of McDonald's. We're succeeding really through the same principles that spurred our revitalization and continue to drive our momentum. Number one, focusing on our customers, delivering at the front counter and drive-through at what I like to call the moment of truth, the most important thing that happens in any McDonald's around the world. We're seizing every opportunity to modernize, innovate, and execute to keep our brand moving forward. Last but not least, of course, is our commitment to financial discipline. These factors have helped us deliver continuous growth over the past eight years, and we're continuing that momentum into 2011.
Somebody congratulated me this morning on a great year, and I said, "The year ain't over." Thank you for that. We're confident that we're going to have a great year. The fact is, year to date, operating income is 9%, and earnings per share grew 10%, both in cash and currencies. At this time, two years ago, we were serving 58 million customers a day around the world. Today, that number is 64 million. Simply put, we're giving more customers more reasons to choose McDonald's. As we look ahead, our message is this: we're staying the course on what got us here, but we're not standing still. We intend to keep following our overall operating plan, the Plan to Win, our focus on elevating the five P's: people, products, place, price, and promotion that all of you are familiar with.
That Plan to Win continues to be the right blueprint for us, and it has served us well, and it remains very, very relevant. Most importantly, it enables us really to focus on the future. One of the things I always like to say is we still have plenty of growth strategically within all of the P's when we pay attention to what kind of expectation we have for the future and strategize around those P's in a meaningful manner. We intend to go after it. Don's going to discuss, and you'll hear throughout the day, we are focused on three global priorities under our Plan to Win: menu, experience, and accessibility. We still have tremendous opportunity to get better in all three of those priorities. We see tremendous potential still ahead for our brand. We are the biggest player in a large and fragmented industry.
In our top seven markets alone, the quick service restaurant business is worth $420 billion, with McDonald's having 14% of that market share and more than four times the sales of our nearest competitors. Despite the economic difficulties that still exist, the overall eating out industry is poised for growth. The world's middle classes are growing, increasing, particularly in the developed markets and in emerging markets as well. Looking ahead, Euromonitor projects more normalized global informal eating out growth of 5% by 2014. We all know informal eating out's been rather flat over the last few years. A 5% growth rate will put McDonald's in a great position to capture our share of that growth. Our strategies are enhanced by an overwhelming competitive advantage in our size and scale, our ability to invest, our brand strength, and most important, system alignment.
With our sheer number of restaurants, we're closer to the customer than anyone else in a convenience-driven business. We can speak louder than anyone with our marketing share of voice. As you'll see throughout the day, we are reinvesting like no one else, making our business even stronger when conditions improve. In addition, we have a brand that's trusted and recognized for our many attributes, from speed to convenience to value.
Perhaps most importantly, our system has never been more aligned or more focused than it is today, with owner-operators who are passionate and dedicated to delivering the best restaurant experience every day, suppliers who perform what I call the McDonald's daily miracle, providing all 33,000 restaurants around the world an assured supply of safe, high-quality products at competitive prices, and our talented and committed employees around the world, beginning with our crew, our managers on the front lines, and extending all the way up to our Senior Management team, a group of experienced leaders who together are one of the best management teams ever assembled. You'll see them today. Talent management and leadership development remain a priority and a passion of mine, and I continue to believe it is McDonald's greatest strength. The best plans are only as good as the people who can execute them.
I started off in this job by focusing on putting the right people in the right place to achieve success and execute McDonald's strategies. I like to say that a lot of people can create strategies. Few people can execute them. Getting the right people in the right place, which I feel we've done, is extraordinarily important. That's what we've done with the leadership team that you're going to see today. Many of you have been in the markets with our team, both in Europe and Asia and certainly in Latin America. Backed by our plans and our competitive advantages, we'll continue to execute what has been our winning formula, building on the basics as we modernize our brand. As always, running better restaurants is our number one priority.
We're getting better at it around the world with improved customer satisfaction scores across our major markets, but we're keeping at it. You have to stay after this. This is where we have the most moving parts. Through a sustained focus on operations excellence, better training for our people, and new technologies that make the restaurant experience easier for our customers and crew. At the same time, we're committed to making our brand even more modern and relevant. Through our robust consumer insights process, we understand what our customers want and need from McDonald's more today. We have a better understanding of that today than any time in our history. The most important thing, though, is that we're on it. It's good to know things, but if you don't do something about what you know, you're not going to be effective.
We're very committed to doing the things that we know are going to be important to our customers and our brand in the future. We're implementing new services around the world, from cutting-edge ordering systems in the U.S. and Europe that improve our accuracy and speed to delivery of products across Asia, which now accounts for over 10% in some of our businesses in those markets where it's offered. We're also pushing forward on our restaurant reimaging plans. Not only do the restaurants we reimage benefit, but when we attain a critical mass of reimaged restaurants, the entire market sees a lift in both sales and brand scores. We expect more growth ahead as we continue to add to those numbers and get to critical mass in more and more markets. We're continuing to optimize our menu with a focus on core products and new offerings that stretch our brand.
The last time we met, we recently launched our McCafé specialty coffees, and we were less than a year away from rolling out frappés and real fruit smoothies. We had high expectations for these products, which you were reminded of often. They have delivered on every level. All in all, our entire McCafé line of both hot and cold beverages has become more than a billion-dollar business here in the United States. It's moving us really toward a beverage destination and added millions of new customers to our brand. There's a lot more room to grow, you know, this part of our business globally with more than 2,700 McCafés across Europe and Asia and more on the way, including I think we're going to have 200 in China by the end of this year, which is a big play for us in China.
In addition, several of our major markets plan to launch blended iced beverages over the coming years, which will drive significant incremental sales into the future. As big as all of this is, I think we said this a couple of years ago. This is just one example of the kinds of things that McDonald's is moving forward with. We're determined to keep finding new opportunities, expanding new platforms, and meeting new customer needs. I always have to say, we do that while not forgetting about the enormous impact that we have through core food at McDonald's, our iconic brands. As we do all of this, we remain committed to fiscal discipline and maintaining a strong financial foundation with our primarily franchised business model. Our ongoing focus in this area has contributed to our success in continuously exceeding the average annual long-term targets we laid out several years ago.
Three to five, the sales growth, revenue growth, six to seven operating income, and a return on incremental invested capital in the high teens. These targets have served us well and will remain intact going forward. We continue really to see them as realistic and sustainable targets for a company of our size, particularly as we invest to widen our competitive advantages and stretch out our brand. We believe they keep us focused on making the best decisions for the long-term benefit of our shareholders. We continue to operate under our same philosophy regarding the use of cash flow. Our first priority is to reinvest in our business. 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 repurchases.
Year to date, through October, we have returned $5.1 billion to shareholders through dividends and share repurchases and expect to finish the year around $6 billion. Our stated mission is to become our customers' favorite place and way to eat and drink. While we continue to make great progress toward that goal, we're not satisfied. Looking ahead, we see tremendous opportunity for McDonald's to keep separating ourselves from our competition by building more frequency in our customer base and attracting new customers to trade in to McDonald's, to continue growing market share by creating an even deeper connection with our consumers, and to position ourselves to sustain our momentum well into a recovery and beyond.
With that, I'm confident that you'll hear today how we're demonstrating this and demonstrating how McDonald's is well positioned for sustained growth and that we're an investment which will continue to yield many returns for all of our shareholders and stakeholders. With that, I will turn the show over to Don Thompson. Don is really the Chief Operating Officer and the operating guy who, through the area of the world presidents, is really delivering on all these strategies around the world. Don, I want to congratulate you on your efforts on behalf of Brand McDonald's. Good morning.
Good morning, Boz. How are you?
I'm good.
That's kind of the normal greeting in a day.
Thanks, Jim. Good morning, everyone. I'd like to share a high-level view of our business before Tim, Jan, and Doug and their teams dive into some of the details by geography. You know, it's been about 20 months since I stepped into the role of President and Chief Operating Officer, and I can honestly say that I'm even more excited and energized by some of the things I've seen and the potential for our brand today, even more so than I imagined just 20 short months ago. I've visited our major markets multiple times. I've met with the teams who are working to bring our Plan to Win to life in the restaurants, and I've seen all three legs of the stool come together in an uncertain economic environment with even more passion and more energy for our customers.
Now, from country to country, teams are doing an even better job learning from each other and working together to leverage best practices, to scale some of the proven system solutions that we have, and grow our business by staying focused on the fundamentals that underpin our existing momentum. That's why global comparable sales are up 5% year to date October. That's on top of 5% in 2010 and 3.8% in 2009. I think even more so, guest counts. Guest counts are 3.3% for the same time period, on top of 4.9% in 2010 and 1.4% in 2009. Important note, we continue to grow guest counts, which have driven nearly 70% of our current year sales growth.
This is a testament to our ability to grow our share and to stay relevant at a time when consumers are keeping a tighter grip on their pocket books, and their expectations of leading global brands like ours continue to rise. Our ability to stay close to customers during these times is a direct result of the plans and the processes that are put in place with the Plan to Win, as Jim mentioned. We're using better data. We have deeper consumer insight today, and we're focused on executing at the absolute highest levels. In short, we have today a more holistic view of how we're building the business. This clear view is why we've been able to continue pushing ourselves to accelerate efforts in those areas within the Plan to Win where we have the greatest opportunity.
That's how we identified our three global priorities, which are optimizing and evolving the menu, modernizing the customer experience, and broadening accessibility to our brand. Today, I want to reiterate that the Plan to Win remains the foundation for all of our efforts. As Jim likes to say, the opportunity within each P is limitless. He keeps us going on that limitless piece. These global priorities simply represent the opportunities within the P's. In other words, they are three areas where we're intensifying our efforts to drive the business and create new demand. That's why, for the last 18 months, cross-functional teams with representation from each area of the world have been working together to ensure that we're sharing and scaling learnings and best practices within these areas. Let's just take a look at a video that provides a little more texture and insight behind each of these priorities.
At the most fundamental level, our business has always been about three things: food, the customer experience, and convenience. That's why we're confident that these priorities are the right areas for us to place added emphasis upon within our upcoming plans. While they're global and focused, what you'll see today is that each geography is placing varying degrees of emphasis on the priorities that are based on market-specific needs. This tells us that we have plenty of runway within each area of the world relative to menu, relative to modernization, and relative to accessibility. You'll hear more about each of the areas of the world's focus throughout the day, so I'll just share a few of the highlights for these three priorities. In the area of menu, menu has always been a key part of our growth. We are, first and foremost, a restaurant company.
As we look to the future, our menu growth will primarily come from five categories: beef, chicken, beverages, breakfast, and desserts. Today, we dominate the beef category with multiple products that are billion-dollar brands like the Big Mac and Quarter Pounder with Cheese. In fact, McDonald's accounts for more than 25% of beef servings sold in informal eating out restaurants. You'll continue to see premium burgers with an emphasis on variety and different components of the sandwich: the patty, the bun, sauces, toppings. You'll see the pub burger that's under development by the US team today and the 1955 burger that's spread across Europe since its introduction about a year ago. These are two great examples that you'll have a chance to also taste today at lunch. Let's go over to chicken. The chicken category is another significant opportunity for us.
In the past year alone, our chicken business has grown nearly five times faster than the rest of the industry. It's such an important category because it also drives good-for-you perceptions and enables us to create special tastes and ways of eating that customers didn't expect from McDonald's. Products like our large wraps from Poland or snack items like McBites from Australia. Beverages, as Jim mentioned earlier, are another major brand differentiator. In the U.S., the McCafé lineup has been a significant source of growth, particularly when you take into account the contributions of our blended ice platform, which offers indulgent items like frappés and smoothies made with real fruit. We're also increasing our focus on specialty coffee by emphasizing quality, flavor, and variety with items like our peppermint mocha that some of you may have sampled this morning. That's just the tip of the iceberg.
We continue to look for new and different ways to leverage this beverage platform. Now, specific to blended ice, many of you ask the question of us quite often. You'll get to try a new innovation today, the Cherry Berry Chiller this afternoon. It's a drink similar to a slushy but made with 100% fruit juice. Breakfast also remains another critical day part for us globally. Although we've been serving breakfast as part of the menu here in the U.S. for nearly 35 years, there are many of our markets around the world which still have a significant opportunity to develop or expand this day part. We've also added products that are portable and provide additional wholesome choices like our fruit and maple oatmeal and the new blueberry banana nut version of our oatmeal that's currently in test here in the U.S. Finally, over to desserts.
They've always been an important part of our business and will continue to be. We're creating excitement by balancing indulgence and portion size. That's a really important parameter with even more emphasis on premium ingredients and quality. You'll have the opportunity again to taste one of these great new products today, our Magnum McFlurry from the U.K. I'm getting a little hungry up here. While we'll continue to build our global menu pipeline, we'll continue to remind customers about their core favorites as well. Jim mentioned this as well this morning. Today, our five flagship global core items: Big Mac, Hamburger, Cheeseburger, Fries, and McNuggets account for about 30% of our total sales. Lastly, we know that when customers feel good about eating at McDonald's, they visit us more often. We're looking across our entire menu pipeline with a lens on quality, choice, and nutrition.
We're confident that this will ensure that we continue to drive both the health of our business and also the health of our brand. Let's shift over to modernizing the experience. All of us have seen that the look and feel of the restaurant represents a significant and a near-term impact to our brand. It's absolutely critical that we have uniquely defined McDonald's designs. It's also critical that we drive world-class retailing, differentiate the family experience, and we reach critical mass more quickly. We've already reimaged nearly 45% of our global interiors, and we expect to hit 50% of the exteriors within the next few years. However, and this is a big point, I can't stress enough that modernizing the customer experience goes far beyond our reimaging efforts of contemporary interiors and exteriors. We must improve customers' perception of our brand.
Therefore, we're changing the way we tell our story and using our dining rooms to communicate quality and community. We're changing the way we interact with customers from elements like our menu boards and dual lane drive-throughs to our front counters and center islands. We're changing the way we engage families by providing small amenities and new ways to play within our restaurants. We're changing the way we leverage technology to interact with customers, whether they're on the go or in our restaurants with mobile ordering, McDelivery, and self-order kiosks. By doing these things in concert with our food efforts, in short, we're changing the McDonald's brand. Our third priority is broadening accessibility, and our goal is to reach more customers more often. Convenience is a significant component of this strategy, and no one is better positioned than McDonald's to capitalize on this opportunity.
Our returns remain strong as we've continued to grow our restaurant base. At the same time, we've put the right capabilities in place: our people, tools, technology, processes so we can grow faster when and where appropriate. We won't grow faster everywhere, but when and where appropriate. We're accelerating new restaurant development in emerging markets like Russia, China, and South Korea. Where opportunities exist, we're also growing in more established markets like the UK and the US. At the same time, we continue to build the capacity of our existing restaurants to handle additional demand. It's not always about changes to the physical facility. In fact, 80% of our restaurants can expand capacity with labor and operation solutions that are built around staffing, scheduling, and positioning of crew and shift managers. Now, restaurant department management in the U.S.
and Europe's web-based crew portal are two great examples that you'll hear more about today regarding these efforts. I also want to quickly touch on a third component of our accessibility strategy, and that's value. Price value leadership remains a critical component of our strategy. We're committed to ensuring our menu offers something for every customer, regardless of whether they plan to spend a little or a little more in our restaurants. We apply the price value screen to the menu development process in every area of the world and with every product category. In fact, the items you'll sample throughout the day are all from various price tiers, which is the best demonstration of the team's commitment to ensuring value remains top of mind across our menu board.
In closing, I just want to reiterate my confidence in our brand as we continue driving toward our mission to become our customers' favorite place and way to eat and drink. We have no doubt that our emphasis on the three priorities of menu, of modernization in terms of the customer experience, and broadening our accessibility will move the needle in the right direction. We also know that the priorities alone, they won't do the trick. We have a strong experience management team all around the world, and you'll get a chance to meet and talk with a number of these folks today. We have the best owner-operators, the best suppliers within the industry, and we have a base of restaurants and average volumes around the world that no one can replicate. I'm excited about the opportunities before us and look forward to your questions throughout the day.
With that, I'll turn it over to our newly named Chicago CFO of the Year, Pete Bensen.
Thanks, Don. That wasn't in the rehearsals. Good morning, everyone. You know, over the past eight and a half years, we've performed well in both robust and challenging economic environments. October marked our 102nd consecutive month of global comparable sales growth. This steady, consistent performance benefited our shareholders as well as the entire McDonald's system. Through September, we've delivered a five-year compound annual total shareholder return of 15.2%. This compares quite nicely to the Dow Jones and S&P 500, as you can see from this chart. Looking forward, we see continued opportunity for growth. We are wisely investing to further widen our gap versus the competition. After more than 100 consecutive months of positive comparable sales growth, I'm often asked, can McDonald's continue to grow, or what inning are we in? In short, I don't think we're anywhere near the ninth inning.
I believe we have a unique opportunity that did not exist 10 or even 5 years ago. As Don said, we have the potential to redefine brand McDonald's in the minds of our customers, stretching our brand in ways no competitor can match. The future is bright for McDonald's. With our focus on the customer and operational excellence, each area of the world has contributed to enhancing overall profitability as measured by combined operating margin. Combined operating margin is a critical measure because it speaks to our fundamental economic model, effectively driving top-line sales growth while prudently managing expenses, thereby increasing overall profitability. At over 31%, we see opportunity for continued growth in this key metric over the long term. As you can see in the slide, a mature, more heavily franchised system such as the U.S. at 89% franchised can yield a combined operating margin in excess of 40%.
Three factors contribute to our combined operating margin. The first and most significant is franchise margins, which are primarily driven by comparable sales. Increasing comparable sales year after year requires discipline with regard to pricing, especially in the QSR segment where value plays such a vital role. It also requires effectively managing product mix by successfully introducing or promoting higher margin items that can expand the average check without alienating the core customer base. Above all, it requires generating more traffic year in and year out. With 80% of our 33,000 restaurants owned and operated by local entrepreneurs, franchise margins are the biggest beneficiaries of our comp sales growth. Our rent and royalty income based on a percentage of sales is a very stable revenue stream, which has relatively low direct costs and capital investment.
Our refranchising efforts over the last several years have enhanced the stability of this income stream. Franchise margins, therefore, are the most significant driver of overall profitability, representing two-thirds of total restaurant margin dollars. Year to date September, franchise margins have contributed $380 million of the $488 million increase in constant currency operating income. The second element of growing combined operating margin is our company operating margins. For perspective, company operating margins total $2.6 billion year to date September, less than half of the $5.4 billion of franchise margins. Despite challenging comparisons against the favorable commodity environment a year ago, our year-to-date global company operating margin is a healthy 19%. This compares quite favorably to the past five years, as the chart indicates. Looking at commodity costs for 2012, our preliminary guidance is for our basket of goods to be up 4.5% to 5.5% in the U.S.
and 2.5% to 3.5% in Europe. We're prepared for continued volatility in the commodity markets. The third component of combined operating margin is G&A. Our business is growing, and we want to seize the potential for more growth in the future. Our intent is to manage this expense effectively, investing where appropriate while seeking efficiencies where warranted. Looking to 2012, we have two significant events: our biennial worldwide convention in April, which allows our global system to maintain and further enhance the alignment that has been so vital to our success, and the Summer Olympic Games in London, where we are a worldwide sponsor. In addition to these two events, we are making significant investments in technology to extend and accelerate future capabilities in the restaurants, as well as upgrading certain back-of-the-house systems like HR and accounting.
The total cost of these three items: the technology enhancement, the Olympics, and the convention will be approximately $100 million or $0.05 of EPS next year. As a result, 2012 G&A is projected to increase approximately 7% in constant currency. This is a targeted investment in the future and not a change in philosophy. The magnitude of the increase is temporary and will be confined to 2012. Even with these incremental costs, we expect to meet our financial targets in 2012. Over the longer term, we project relatively modest increases in G&A. Some volatility between years is expected due to the convention and Olympic sponsorship that occur every two years. We have demonstrated responsible spending and attention to G&A as depicted in this chart, as G&A as a percent of revenues has declined each of the past five years.
Driving top-line growth while effectively managing expenses yields strong and growing cash flow and returns. Return on invested capital has improved 670 basis points since 2006 to 22.5%. Each area of the world has contributed to this performance. Our one and three-year returns on incremental invested capital of 28.4% and 36.9% are well above our high teens target, reflecting the underlying strength of our business. With these strong returns, we think now is an opportune time to increase new store openings and reimaging. We're operating from a position of strength, a global leader with the financial capacity, the pipeline, processes, and talent to secure long-term competitive advantages. We'll do this by investing about $2.9 billion in 2012, building new restaurants, reimaging existing restaurants, and investing in technology to build capacity and enhance the overall customer experience.
As we increase the level of our investments, we are confident our returns will continue to exceed our high teens target. These investments will yield considerable value to shareholders over the long term as they add to our growth and contribute to redefining our brand. Consistent with past years, about half our capital will be allocated to new restaurant openings, with the other half primarily allocated toward reimaging activities. As you'll hear in the area of the world presentations, we are underpenetrated in many emerging markets, and we continue to have new restaurant opportunity in many mature markets. To take advantage of this, we plan to open more than 1,300 restaurants next year. A little over half of these openings will be in APMEA, with 225 to 250 in China. The growth in emerging markets is well balanced with over 400 new restaurant openings in the U.S.
and Europe, mature developed markets with average unit volumes and brand recognition that is strong. Next year, we also plan to increase the number of reimaged restaurants to more than 2,400, including 800 in the U.S., 950 in Europe, 450 in APMEA, and 150 in Canada. Our customer feedback in newly reimaged restaurants is consistent. Everything is simply better: the taste of our food, the friendliness of our crew, the speed of service, and their overall experience with our brand. As Jim mentioned, we remain committed to returning all free cash flow, that is cash from operations less capital expenditures, to shareholders over time. Over the past five years, we've returned an average of over $5 billion per year. After reinvesting in our business, our first priority is the dividend. We have increased the dividend every year since we started paying a dividend in 1976.
Our current annualized dividend of $2.80 per share is more than two and a half times what we paid just five years ago. The final use of our free cash flow is share buyback. Over the past five years, annual share repurchases have ranged between $2.6 billion and $4 billion and on average have added about 3% to EPS growth. Since 2006, we've repurchased approximately 360 million shares at an average price of $54 per share. We continue to repurchase shares in a disciplined and consistent manner. With our strong business momentum and our increased investments this year and in 2012, I'm confident we'll continue to grow our free cash flow in the future. Finally, I'd like to comment briefly on our capital structure. A strong financial foundation and balance sheet is vital to our system as our franchisees and suppliers benefit from our industry-leading single A credit rating.
As our business grows, so does our ability to modestly increase our debt levels, which we will do prudently while keeping our credit metrics within current ranges. In closing, I remain confident in our strategies and our ability to execute against them. The future is bright for McDonald's. We remain focused on widening our competitive advantages while leveraging our size and scale to build long-term value for our customers, our shareholders, and the McDonald's system. Thanks. Now I'd like to bring Jim up to lead our Q&A.
Thank you, Don. Thank you, Pete. Kathy, please let us know when we're getting to the end of our time here, and we'll take the last question accordingly. Who's got a question? Mr. David Palmer.
Question for you, Don, I think, with regard to reimaging and customer satisfaction, it seems the UK has been such a stunning example of a market that was a problem market for you guys in the past. Now it's really led Europe for much of the last few years, let's say three, five years. Reimaging, I think, has been a big part of that. You said the lift in reimaging in the U.S. has been something like 5%, 7%, or something like that, some number that's a respectable number. It seems like when you look at the UK and when that reimaging has gotten to scale, it's been a much bigger deal because of the employees' engagement and some other things.
Are you secretly thinking this reimaging thing for the U.S., once it gets going, it's going to be a much bigger deal than the 5% lift that you've been talking about?
You know, David, I would say hopefully this is on. David, you know what I would tell you is two things. One, you're going to get a chance to hear from Jill McDonald, or at least hear from the European team, and then Jill will be up here for some Q&A. Not to set her up, but you might want to ask her a little bit more about, and I mentioned this, it's not just the physical asset changes. This is a really important point. If you look at the UK, if you look at the US, you look at other areas around the world, the plan is yes to change the physical assets, but also in the UK, we have a great tiered menu approach. We've done a lot relative to operations in the UK. Breakfast has improved in terms of %, so it's more than just the reimage.
I know Jan and the team are looking at exactly the same thing, and you'll get a chance to talk to them in just a moment as well. I would offer to you, it is much more than just the reimaging piece. When we change the physical assets, as we believe, it opens up the door for us to do even more things and have even stronger consumer credibility relative to our menu and relative to the experience at McDonald's. Yeah. David, I think we have to realize that I think the UK just reimaged their 1,000th store, which is a large part of the base, so they're clearly a critical mass. The other thing to remember about the UK is that we've been through a massive refranchising effort there. At one time, it was a wholly owned market, all company owned. Today, it's 65% franchise.
We know that our business model on a daily execution basis in the communities is better in the hands of franchisees. It's not because our company stores don't do a good job, but because that engagement that you're talking about and the execution around this, and when they've invested their dollars into those reimagings, we've seen the benefit of that as well.
I'm Michael Kantor Goldman Sachs I wanted to ask every year that goes by, it seems increasingly clear that your competitive set is shifting, and the traditional QSRs that you had always competed against for decades, many of which have gone into decline, and now you've got the fast casual kind of group getting bigger and bigger. What does that mean for you guys? Are there opportunities, whether they're real estate or otherwise, because you have some weakened competitors, the legacy competitors? Are there offensive or defensive things that you think about now that the landscape's changing with quick fast casual? Just talk about what that means for your business.
I think first of all, we think about ourselves more in the informal eating out space, if you will, as we pop up against that and fast casual, as you've talked about. Relative to the competitive landscape, as we've talked and as represented by my colleagues here this morning and you hear all day long, it's about focusing on the strategies and the things that we can do best for our customers around the world. As we do that, it continues to separate us from that competitive landscape, if you will, in the traditional quick service restaurants. Yes, are there strategic opportunities with real estate and other kinds of things? I guess the answer to that is yes in some specific markets, but it's not a strategy. It's an opportunity, if you will.
We don't spend a lot of time strategizing over the woes of others in terms of how their business is running. We focus on the strategies that are going to continue to grow our business and separate us over the long term. Number four.
Hi, John Ivankoe, JPMorgan. I think one quick question, one maybe a little bit longer. Pete, could you talk about the dynamics of the U.S. versus Europe commodity inflation for 2012? Obviously, you take a very global view of your business and why those numbers wouldn't be more similar either in 2012 or over time. Jim, if I may for you, I want to follow up on a comment that you made fairly explicit. To paraphrase, franchisees locally serve a local market better than a company. That's an enticing comment. As you think broadly across the corporation, obviously meeting customers is why you come to work every day. Why isn't 80% franchise even a higher number over time? Thank you.
Go ahead, Pete.
Okay. John, we actually buy our commodity differently across the U.S. than we do in Europe. Europe is a little bit more fragmented, and we do more purchasing within individual countries. If I look more broadly at the guidance and just two specific categories in chicken and dairy next year in Europe, we're expecting lower increases than we are in the U.S. That is really by two categories the difference in our growth. You can believe we're trying to do more in Europe like the U.S., as much as we can purchase consistently across the continent, as much as we can use some of the instruments we used in the U.S., we're doing more and more of that to secure the predictability and stability of the pricing versus just trying to beat the market per se.
Thank you, Pete. In terms of the ownership structure at McDonald's, as you know, it's been all over the board over all the years. The business model, as we have refranchised and realizing that the critical mass of franchisees around the world is the best way for us to grow the market, the company over the long term. However, as I say that, I always say the same thing. We will always have company restaurants. You have to have skin in the game. We're in the restaurant business. Our people have to know how to run restaurants. We can't park out orders to franchisees and expect them to live up to the standards of operating excellence unless we're able to do it ourselves. There is a place for company restaurants in terms of the development of people for our organization.
When I say those things, it doesn't mean that we're going to go to the 90% percentile or the 95% percentile. I think the structure the way it is today, because if you look at the various numbers of franchise models, we have 64 developmental licenses around the world, if you will. If you look at Latin America, the developmental license there. Of course, when we have 89% franchised in the United States, that company piece of that business, 11%, contributes a lot to the top line and to the bottom line and are very, very well-run organizations. Depending on the marketplace, we find that a franchising model just works best for us. I think that number over time is going to stay about the same at that 80% percentile. It's not going to move much from that, John. Yes, number two, and then we'll go there.
Hi, Sara Senatore at Bernstein.
Hi, Sarah.
Actually, the question is for Pete, but more broadly, it's about the guidance of 3% - 5% top line and 6%- 7% operating. That's actually, in my mind, a fairly wide amount of margin expansion for such a mature, well-run company. The implication from the top line is maybe that comp will be fairly modest. Clearly, you've beaten this handily for a long time. Can you talk about where you see the most opportunity to get that margin expansion? Is it, I mean, franchise because, as you said, is a relatively lower cost? You don't get a huge amount of margin expansion on sales leverage. Is it the SG&A? Is it company-operated stores in some of the less mature markets? Maybe just talk a little bit about that.
Sure, Sara. It's actually all of them. If I had to rank them, the franchise margin is what drives the most incremental to the combined operating margin. If you look at it, 83% of the revenue that we get from our franchise business falls to the bottom line. If the combined operating margin is 31%, pushing more comp sales through that franchise model is going to be accretive to that combined operating margin. It's not a reiterating that guidance is not some discussion that we think comps are slowing. In fact, as you point out, we've beaten that 3%- 5% every year, and we're disappointed, frankly, if we don't beat it. We're as confident as ever in the top line momentum. That really is what drives the margin expansion, both at the franchise level and for our company-operated restaurants.
Driving comps through there, even with the commodity cost environment, helps cover those fixed costs. Around the world, while our major refranchising efforts are behind us in that regard, we're doing a lot now to what we call optimize the McCopco portfolio. A couple of years ago in the U.S., we put that organization all under one leader. Now that's operated as one organization with the accountability to improve the performance. Whereas before, it had been dispersed amongst the different divisions and regions and didn't necessarily have that same level of focus. Other countries are taking that same model and doing that, which doesn't mean operating a static portfolio of restaurants either. We're constantly looking for opportunities. Are there restaurants that are better in the McCopco portfolio versus better in the hands of franchisees and constantly rebalancing that portfolio as we move along?
Yes. John.
Thanks. It's John Glass from Morgan Stanley. Question relates to capacity expansion within your restaurants. Don, you had mentioned that 80% of your restaurants have the ability to expand their capacity just by repositioning the crew. I wonder if you could expand upon that. Is that something you've actually done? Is that something you're doing in the process of and maybe what the implications are for 2012? Pete, on the remodel side, 2,400 units, how many of those include capacity expansion beyond maybe just remodeling even the drive-through? How many actually make the restaurants bigger or somehow increase sales capacity? Yeah, thanks.
Thanks, John. A couple of several different areas here. One, we have a huge focus around the globe on what we call PR capacity. When I talk about scheduling, staffing, positioning, one of the things in our restaurants is that where you place people basically can inhibit or expand the productivity in the restaurant, particularly at day part and based upon the product mix. We know that we should be placing our, you know, if you have 10 folks on the floor, you should place them in certain allocations across the floor. Having said that, we also know that if you're running a peak hour on average at 10 people, you're probably running a couple of people short for that shift. I know Jan Fields and the team will probably talk a little more about it, Jimmy Johannesen.
The reality of it is when you add that incremental labor, it gives you a benefit above and beyond the labor cost itself in terms of margin benefits. What we've got to be able to do is to get that word out even more broadly. We have done this. Jim talked about McCopco. One of the things we do in McCopco, McCopco is also a bit of a test bed. When you look at things like being able to expand capacity, increasing the number of folks on the floor at certain periods of time, technology deployment, McCopco was the first to have that. We have seen these things, put them in place in McCopco already. We know it gives us a benefit. Our challenge is to get it across the board.
Also, we have Jeff Stratton and our team in terms of restaurant capacity are looking at different changes to operating platforms around the world. Made for You has been a solid platform for us. It is not in all countries around the world. Based upon the PR capacity and the guest counts, Made for You typically has been a system that has yielded great results. It's operating platform, scheduling, staffing, positioning, and it's just the communications and focus on those peak hours across the day part.
From a capacity side, I don't know the number globally, but I know in the U.S., around 80% of the reimages are doing some kind of capacity enhancement. The number one capacity enhancement they're doing is the side-by-side drive-through. To Don's point, getting more orders, we know getting more orders back into the kitchen during those peak hours is going to increase our throughput.
Over here.
Hi. Good morning. It's David Tarantino from Baird. Just a question on the ramp up in investments for 2012. I was wondering if you could talk at a high level what led you to the decision to get more aggressive, especially given all the uncertainty that we're seeing in the global economy. Was it something maybe you're seeing in the external environment that makes you want to be more aggressive, or maybe something in your internal data? What led you to that?
I will start and let Don and Pete give the specifics. I think we were at a point in time relative to our investment portfolio with technology in particular where it deserved some acceleration because it was enabling our restaurants to be able to deliver a better experience and increase capacity and opportunity for us to give a better experience for the customer. It happened to be now, and what better time to do this? We invest for the future, as you well know, and the time is right. This is really the reason why. Of course, the number of new openings, which is also part of that in the reimaging, is business as usual in terms of our investment packages over the last number of years. It just happens to be this year in 2012, more openings, more reimaging, and then this technology piece that Pete talked about earlier.
David, there are several things. We've been working really hard to make sure that we have a higher level of quality relative to the openings that we do have, which means several different things. One, when we slow down development to focus on the core of our business and existing restaurants, absolutely the right thing to do. We have been able to focus on that. At the same time, we focused on the financial discipline around whether it be construction costing and our supply chain's involvement more so in terms of material costs, in terms of new builds. We focused on building up the talent and the development teams. We've been working several years on building up an effective pipeline of sites that we can then turn on an annual basis to get those sites into the pipeline because you can't open if you don't have sites.
You know that's a little bitty piece that we know very well. We've chased that a little bit in the past, trying to open up sites and turn them too quickly. Today, we are in a much better position. Our focus is still broad-based relative to focusing on the core of our business and development, but we have gotten much, much better at this. The other thing I'll tell you, and all of the folks know this very well, you have to earn capital. In other words, people don't come in and provide the plans to Pete, and I, and Jim and say, you know I need X amount, therefore, are you going to give it to me? This is kind of based upon historical returns. It's based upon your ability to open up. It's based upon months of operation. It's based upon the talent that you have.
It's also based upon the quality of those openings from an estimated versus an actual performance. There are a lot of things we look at today, both financially and measurably, that we're able to take a much deeper look at development. Even the change that we're making, probably for many of our folks, they say we could probably go a little faster, but we think that this is about the right pace.
David, one more thing about that. It's about 150 restaurants, give or take a few, in terms of the increase. 100 of those are in Asia-Pacific, Middle East & Africa, and 50 of those are in China. It's China, it's South Korea, it's Taiwan, it's Hong Kong. These are some very targeted areas where we know we're underpenetrated, where our unit volumes are good, and our potential to build great freestanding drive-throughs is very ample.
I would just say, closing off in that particular question, that we have not changed our process around G&A build from the hurdle rates that we created back in 2003. We're still stingy. When these guys bring me a number, they go, oh, it's 2.9. I go, why? It was 2.7 last year, now it's 2.9. There is a lot of explaining to do around making sure, of course, that the one barometer is meeting our hurdle rates and the fight for capital in the segments. Every year I do the same thing, checking off with the leadership, saying, are we getting weak? Are you letting these people have capital that they don't earn? The answer to that question is no. You can ask the presidents today as they have that dialogue with you later. I think we have time for two more questions. We'll go there. Number two.
Thanks, Mitch. Spizer at Buckingham Research. This question is probably for Pete. McDonald's in some ways is as much of a real estate company as it is a hamburger company or restaurant company. Related to ROIC, first off, can you give us a sense of what % of your real estate portfolio is owned or how many restaurants where the dirt is owned? On unit development over the next five years, I'm sure some markets you could own the real estate, some maybe not as easy. Do you think the real estate portfolio will be additive to ROIC over the next five years? Maybe discuss over the past five years, was the real estate aspect of your business a headwind or a tailwind to that very significant improvement in ROIC? Thanks.
Yeah, Mitch. I think globally the number is about 45% of our owned real estate. I'm seeing some heads nod, so I got that number right. There has been a focus, I would say probably internally, back in 2002, 2003, when we kind of put the brakes on capital and really scaled back development that probably encouraged.
little bit more leasing versus purchasing of our people, just generally at the fringe. I think over time, as we've gone through the revitalization and you've seen the average unit volumes grow, you'll see in each area of the world today, they'll give you some of those examples, that we realized the opportunity for us to get in and actually purchase sites and secure that occupancy cost for the long term is better than it's ever been. Part of the increase in CapEx the last couple of years has been a movement toward not only building more freestanding drive-throughs, which we know are higher volume, higher returning assets, but also purchasing more land versus leasing it. Now, it's not like every country we can go in and just purchase because we want to purchase.
There still are countries, especially in some areas in Southern Europe, where landlords would rather have McDonald's as a nice secure tenant for a 20 or 40-year period versus sell us the land. There are some places we'll never be able to purchase land, or they just want such an exorbitant amount of money that the deal won't pencil. For the most part, we're focused on purchasing more where we can, and over time, that is definitely accretive to our business.
Thank you. One more. Go here, number four.
Thank you. Jeff Bernstein from Barclays. Just two questions, I guess. First, on the operating margin, Pete, in your slides, it's obviously fairly impressive to jump 1,000 basis points over the past five years. I think you mentioned the greatest flow-through coming from the franchise side of things. I'm just wondering, without further refranchising, potentially, if we kept that franchise component the same, what's the opportunity to take that meaningfully higher in terms of the franchise component of it with that 80% flow-through? You had that chart that shows each of the three major regions in the U.S. now running north of 43% operating margin. Is it reasonable to extrapolate Europe and Asia-Pacific that over time they can achieve that? They're north of 1,000 points below the U.S. I'm just wondering about that opportunity.
Yeah, those are great questions for Tim and Doug when they come up here.
Yeah, they are great questions, but I'm going to answer it, Pete.
Yes, that's fine.
Look, we're in markets around the world where we have no franchisees, and so that opportunity exists there. If you look at China, for example, and Tim's going to tell you we're going to have some critical mass relative to franchisees over the next number of years, but margins are a top-line game. When you get the margin expansion, it comes through efficiencies and other issues, not just because they're in the hands of franchisees, but in the fact that combined margin growth is driven by top line and then capacity and efficiencies. We expect that trend to continue over time because most of that growth, if you saw, was in the franchising side of the model. We don't have to increase the number or percentage of franchisees on the overall base around the world to continue to get efficiencies in margin. Number one.
Number two, we're going to increase the absolute number of franchisees around the world, and particularly in Asia, as you'll see over time.
Hey, Jim. You know, just Jeff also realized the U.S., a lot of times we like to, you know, extrapolate based on the U.S. It's one country, though. I say that because it's one country and you have the ability to have, you know, a Charlie run McCafé in the U.S. When you get to Europe and Latvia, we're in multiple countries, over 30 and over 40 countries in these areas of the world. If we're going to have a viable McCafé base, which we need to have, even in some of those smaller countries, some of them that Jim's pointing wholly on, but where we're franchised, i.e. Poland and PLT here today, we want to have a McCafé base. It helps us to lead with people development and to be able to do some of the things we need to do.
Just by virtue of that number of countries, you may not be able to get to a franchising ratio similar to the 89% that we see in the U.S. We can't exactly extrapolate the U.S. 89% and say, wow, it'd be great to have 89% in Europe and 89% in Latvia. Very, very different business scenarios.
One last point. Only a third, when we looked at the combined margin growth over that period, only about a third of that was driven specifically by the refranchising mechanics. The other two-thirds were from the business growth that Jim and Don have been talking about.
Very good. Thank you very much. You'll have time this afternoon to grill us some more when the session's over, I understand. Am I turning it over to Tim Fenton? Tim Fenton, the President of Asia-Pacific, Middle East, and Africa. Good morning, Tim.
Good morning. Thank you, Jim. Good morning. I certainly appreciate the opportunity to talk about the business in Asia-Pacific, Middle East, and Africa, or APMEA, as we call it. Joining me is Dave Garland. He's our CFO. He'll be going over the financial results for APMEA. Also is Peter Rodwell, who's one of our division presidents in Greater Asia, the Middle East, and Africa. Since the last time we presented in November 2009, the momentum across APMEA has been very strong. APMEA has delivered significant results with a disciplined focus on the fundamentals of value, convenience, and operations. We are achieving this by providing a total restaurant experience that is connected to our customers and to their needs. Our performance is a result of strong alignment and collaboration across this segment.
The alignment within APMEA has created a culture of learning that encourages transferring and adapting best practices across all of our markets. For example, we've leveraged market learnings to deliver convenience at an accelerated pace. This includes delivery service, which is available in 19 countries, breakfast, which is offered in almost every one of our markets, and an increasing number of restaurants that operate at 24 hours. APMEA is the most far-reaching segment of the system, with over 8,600 restaurants and 37 markets serving nearly 17 million customers per day, from established markets like Australia to growth markets like China, South Korea, and India. Today, APNEA represents 26% of the company's restaurants, generating 22% of total revenues and accounting for 18% of McDonald's operating income. That's double from the 9% it was in 2006.
APMEA also includes some of the world's fastest growing economies, like China, with a 2011 projected GDP of 9%, India at 8%, and the Middle East region at 4%. Over the next few years, these markets are predicted to rapidly expand as economic progress creates a growing consumer base with rising disposable income. The informal eating out industry, or IEO, in this segment is also expected to expand with 2011 projection to reach $876 billion and is expected to grow in excess of 7% in 2012. With our share of the IEO at nearly 2%, we have significant opportunity for growth in our markets, and we are prepared to capture this potential with the strategies that we have in place. Now, I'd like to turn it over to Dave, who will quickly give you some highlights on our financial results.
Hi, good morning, everybody. Thanks, Tim. APMEA has continued to grow over the past five years, and 2011 is no exception. Our year-to-date results underscore that we are stronger, stronger than ever. 2010 marked our seventh consecutive year of constant currency operating income growth, excluding impairment and other charges, something we're very proud of. Through September 2011, revenues reached $4.5 billion, an increase of 11% in constant currencies compared with the same period last year, and operating income grew over 11% in constant currencies before impairment and other charges. The growth rate is on top of constant currency increases of 15.6% in 2010 and 22.5% in 2009. Comp sales year-to-date October were up 4.1%. Specifically, China up 10.9%. Australia increased 3.2%, and Japan was down slightly at negative 0.4%. We're seeing broad-based positive results with most markets delivering strong year-to-date comp sales growth.
Average restaurant sales have grown from $1.3 million at the end of 2005 to nearly $2.3 million as of September 2011, up more than 75% during this period. Clearly, our strategies are working as we capture growth opportunities within the regions. Sales have driven franchise margins from 87.8% in 2006 to 89.3% in 2010 and remained strong at 89.4% through September 2011. Franchise margins in APMEA represent approximately half of total restaurant margins and include royalties from over 1,700 developmental licensed restaurants. This franchising approach, as you're aware, has been very successful for us. It's been a very successful option. Nearly 30 of our markets are developmental licensed, and they require no capital. APMEA's company operated margins have also grown, reaching $672 million and 17.6% year-to-date September. Margin dollars have increased every year since 2006.
Australia delivers some of the highest company operated margins across the world at nearly 24% through September 2011, while China has driven significant margin improvement over the past five years. Year-to-date, China's company operated margin is nearly 16%, and there continues to be upside in the margin in China, especially as new restaurants mature. APMEA's strong top and bottom line growth contributed to return on invested capital, reaching 23.7% for the trailing 12 months, September 2011. Additionally, one and three-year returns on incremental invested capital are strong, 30.3% and 45.1% respectively. With these results and the growth opportunities that exist within the zone, we plan to open approximately 750 new restaurants and reimage 450 during 2012. Lastly, let me share some highlights from our top three markets in APMEA: Australia, China, and Japan. They represent 55% of APMEA's revenues and 70% of operating income.
I'll start with Australia, which recently celebrated their 40th anniversary and remains our strongest market in terms, both in terms of financial results and brand health. Through the first nine months of 2011, operating income grew 2% in constant currencies. Australia continues to produce strong results, having achieved 33 consecutive quarters of positive comp sales. We now have over 850 restaurants that generate average restaurant sales at nearly $4.6 million US. We're growing market share in Australia, where we now have an 11% share of the IEO market, our highest level in 10 years. We achieve this by optimizing the menu and leveraging conveniences such as extending hours and reinvigorating value through the Value Lunch program that was introduced earlier this year. Japan is McDonald's largest market outside of the U.S. in terms of units, with over 3,200 restaurants and average restaurant sales of $2.4 million.
Despite the economic environment and a shrinking marketplace, McDonald's Japan is taking share in the informal eating out category, growing six straight years. Our connection to customers and our brand strength has seen us through these crises in this market and will support the business in the future. We're encouraged by the recent results we've delivered with September and October comp sales at 4.8% and 1.5% respectively. Energy mandates were lifted on September 9, helping sales as more consumers are returning to eating away from home. However, we also realize challenges remain, and we could experience some volatility in the coming months as Japan continues to rebuild. Finally, China. It goes without saying, China provides significant opportunity for our business. GDP has expanded over 9% year-to-date September and is expected to grow at a similar pace over the next several years.
We're taking advantage of this opportunity by accelerating growth, where we currently have nearly 1,400 restaurants with plans to reach 2,000 by the end of 2013. Today, the majority of our restaurants are company-owned. Over time, you'll see more developmental licensed restaurants and traditional locations, rather, with expectations for the portfolio to be 15% to 30% franchised by 2015. Operating income in China grew nearly 15% in constant currencies through September 2011, and it has grown from $23 million to $160 million over the past five years. Average restaurant sales have climbed and are now at nearly $1.5 million US. Overall, APMEA's financial performance is very strong, and our growth potential is significant. We see meaningful opportunity both in more mature markets such as Australia, as well as other fast-growing markets like China, Taiwan, South Korea, and Malaysia.
With that, I'll hand it back over to Tim to discuss our strategies to capture these growth opportunities.
Thank you. We're very pleased with our financial results that we've delivered these past six years. Yet there's still tremendous opportunity for us. Now, within the Plan to Win, we're focused on delivering a differentiated restaurant experience through our three global priorities: optimizing the menu, modernizing the experience, and broadening accessibility. We have opportunities under each of these priorities, in particular, broadening accessibility. Many of our markets are young and they're growing with increasing disposable income, and consumers are looking for new eating out experiences. Our markets are in different maturity stages. With APMEA's restaurant density among the lowest in the system, consumers in our part of the world have many eating choices, so we need to make our brand as convenient as possible with great food and great value. Three initiatives define our broadening accessibility plans. The first is to ensure everyday affordability of our menu through robust value.
This includes affordability across all day parts, including breakfast. A large percentage of the Asian population eat breakfast away from home, providing a great opportunity to deliver a uniquely McDonald's breakfast experience. Today, over 70% of our restaurants are serving breakfast and making a good contribution to the comp sales growth for the region. Now, China's Value Breakfast program, currently offered nationwide, is driving double-digit comp sales, and today breakfast represents 8% of China's total sales, up from just 6% several years ago. This day part continues to be a significant growth opportunity in China, especially compared to Hong Kong, where our breakfast is in excess of 20%. Lunch still generates the largest percentage of sales in China, and the Value Lunch program drives guest counts into our restaurants at an anchor price point of 15 RMB, or just about $2.35 U.S.
Other markets like Taiwan and Singapore are also benefiting from the Value Lunch program. Snacking has always been a popular item within Chinese consumers. Our McWings from the snacking menu can be enjoyed for 7 RMB, approximately about $1.10. McWings in China account for about 11% of our total sales, and the product is also available in markets like Singapore, Malaysia, and Australia. In Australia, value has recently been even more of a focus as the economic uncertainty and low consumer confidence has materialized this year. Australia leveraged the learnings of other APMEA markets and launched a Value Lunch program, which features numerous Value meal options. Value is only one component of broadening our accessibility. Offering convenience through options that differentiate our brand, such as 24 hours, delivery, drive-through, dessert kiosks, will continue to move the brand forward.
Now, over half of APMEA's restaurants are open 24 hours, with nearly 75% in China and over 50% in Japan and Australia. Delivery service is unique to APMEA and has shown great promise. Today, delivery is in approximately 1,500 restaurants, including several countries in the Middle East. Singapore is a market where this has performed well, and their delivery service now accounts for nearly 12% of total sales. Drive-through is a critical point of brand differentiation for us. In China, drive-throughs currently are available in only 10% of our restaurants, and we have plans to include drive-throughs in 40% to 50% of our new restaurants over time, securing first-mover advantage as automobile ownership continues to rise. Dessert kiosks are another way for consumers to enjoy McDonald's. These kiosks generate brand awareness and provide an important point of first entry for consumers to experience our brand.
Kiosks offer varying kinds of desserts, including ice cream, McFlurry, shakes, and nearly 20% of APMEA's restaurants offer this feature and it is becoming very popular with our Asian consumers. The final initiative I'll touch on under broadening accessibility is new unit expansion. We are on track to open over 635 new restaurants this year and expect new unit expansion to be a priority as we continue to grow. New unit expansion is a significant opportunity for the region. APMEA now accounts for over 50% of the global openings, and China alone accounts for over 35% of APMEA's new openings. China is moving towards mass urbanization, with megacities of over 10 million people and a boom of mass transit construction. By 2025, 10 megacities and 140 supercities are predicted with massive infrastructure, transportation hubs of railways, subways, highways, and 18 million new cars on the road every year.
Clearly, we will take advantage of this opportunity and expand amongst this great potential. To do this, we've put together a premier development team by hiring, training, and developing talent. We've also created sophisticated tools to better identify and manage a robust restaurant pipeline. This is especially helpful in developing countries where traditional mapping tools aren't sufficient, given the fast-changing real estate landscape. We're utilizing trade area surveys and site planning analytics that allow us to identify real estate sites where market penetration gaps exist. As a result, our new development pipeline is growing and is stronger than ever. We continue to be excited about the potential in China, and we know we've just begun to scratch the surface on development. We are on track to open 200 restaurants this year.
That's the high end of our guidance that we gave, and we are projecting to open an additional 225- 250 restaurants in 2012, as Pete mentioned earlier. The opportunity for future growth from broadening our accessibility is significant, and the time is right for us to focus on this. As we have said many times, no one initiative will drive our business for the long term. Let me take a few minutes to share what we are doing on the other global priorities. Modernizing the experience through reimaging continues to be an important priority in APMEA. We're adopting best practices from all over the world and have tailored them to create a design that is most relevant to our consumers. Approximately 30% of our restaurant base have already been reimaged, with an additional 450 sites to be completed in 2012.
Our goal is to reach 60% of our sites with new designs by the end of 2013. Australia has been a segment leader for reimaging. While 100% of their asset base has already been reimaged, we continue to update those restaurants by adding capacity in their drive-throughs and refreshing the interiors, which are aligned with the new APMEA designs. In China, we're making great strides with over 90 restaurants reimaged so far this year. I want to show you an example of some of the restaurants we did in early January. I would be remiss if I didn't take a moment to recognize our crew and management. Modernizing the experience also applies to the work experience for the staff that we have working in our restaurants.
We're doing this through better training options and using technology such as continuing the rollout of new PAWS 6, which lays the foundation for many crew enhancements. This has helped maintain strong satisfaction levels, and we have recently won the Aon Hewitt Best Employer Award in Asia in many of our markets, such as China, Hong Kong, Singapore, Malaysia, and Thailand, and the Deloitte Best Company to Work for Award in South Africa. We are extremely proud of our employees and managers for providing the leadership that has led to winning these such prestigious awards. Finally, let me talk about the last global priority, which is menu optimization. Our menu offers value and variety from beef to fish to pork to chicken, and this variety continues to be a significant driver of comparable sales growth.
We're creating innovative, locally relevant chicken products, the dominant protein in this region, and building brand loyalty. In China, we created excitement and variety with the introduction of iconic chicken products, such as the highly successful spicy chicken burger, which at its peak drove double-digit guest counts and sales during lunchtime. I think you'll be testing that today. Japan continues to create breakfast variety and excitement with recently introduced chicken muffin and tuna muffin as limited-time offerings, which have resonated with consumers looking for something new during the breakfast. It's Japan. They love tuna. Yeah, I love the comps with it. Beverages are also a growing category. Later this month, actually next week, Australia will be launching a range of real fruit smoothies and frappés. This is a great example of leveraging a new product from another part of the world.
These new products will expand our beverage offerings and complement the current McCafé line we already have in Australia. Opportunities also exist with our core beef products. For example, we have launched Quarter Pounder with Cheese in Singapore, Hong Kong, South Korea, Japan over the past couple of years with great success. We're continuing to look at core opportunities across APMEA, with Taiwan launching Quarter Pounder with Cheese later this month. These are just a few examples of the ways we're creating excitement around our menu. Regardless of where you visit in APNEA, you'll find McDonald's winning combination of classic core favorites, compelling value options, and locally relevant products. There's a wealth of opportunity throughout APMEA.
We are taking a balanced approach to pursuing these opportunities, whether it's modernizing the experience in a mature market like Australia, broadening accessibility with delivery in a market like Malaysia, or expanding our new restaurant development in an emerging market like China. Our success in APMEA and throughout the McDonald's system is fueled by a pipeline of ideas that is continually strengthened by the diversity of the markets where we do business. In closing, we are extremely excited about the possibilities and the opportunities we have in APMEA. Our future is bright. Our strategies are in place, and we have the talent in place to take care of those opportunities. I believe we have time for some questions if you have them before lunch. Thank you. Two, yes.
Hi, Joe Buckley with Bank of America Merrill Lynch.
Hi, Joe.
Can you talk about the decision to move to more franchising in China? It seems like the returns are still good and the opportunities for growth are still pretty substantial. Do you think about capturing that economic value for your shareholders? Do you think you sacrificed something by moving to franchising? Just talk a little bit about that decision, please.
Sure. We're a franchising company, and we didn't want to get down the road and have 3,000, 2,000 McDonald's restaurants. We realized that some of the outer areas of China would be better served by having local entrepreneurs. We're still going to have a mix of conventional licenses, developmental licenses, and our standard McDonald's. We think it helps us develop faster. We think it takes the ease off of CapEx. In some of the markets that we're going in, some of the outer markets where we've got some of these developmental licenses, very talented individuals have a good sense of business. I have never met an unsuccessful Chinese entrepreneur in Asia.
Keith Siegner from Credit Suisse.
I just have a question about China again, to follow up on this. The opportunity has been there for quite some time. The capital's been available for quite some time. The returns on that capital have been there for quite some time. Today we're hearing about reimaging, new products, unit expansion, signing of developmental license agreements for inland and northern provinces to really commit to growing this country. It feels uncharacteristic of McDonald's to have sat on this opportunity for a while. Why not earlier? Maybe what's changed and why now?
I think we've always saw the opportunity in China. It took us 19 years to get to 1,000 restaurants, the fastest in the system outside of the U.S. It'll take us four more years to get to 2,000 restaurants. I think we had prior results elsewhere. There are a lot of things that happened over the years, be it avian influenza, Chinese currency, and we had bigger other priorities. There is no bigger other priority right now than China. It's taken us a while to get our team in place, to get our inventory of real estate in place. In fact, Peter just commented a couple where we stand on that, if you will. We've had a lot of changes in management in China over the years. Now, if you look, we've had the same team in place now pretty much for.
I think the results are reflective of that stability and that consistency. Anyone have Peter on real estate?
Yeah, Keith, we've got very strong, stable leadership in China now, which we've had for a number of years, and it comes from the bench of Asia. We also have developed with our number one development talent from the region, created a whole very complete mapping system, a very complete process that's enabled us to accumulate a very significant pipeline of opportunities. Right now, we're at that stage where we've been continuing to build up that mass in the pipeline in order for us to make better choices on the right locations. As you and I have discussed before, we're very focused on going faster, but also maintaining great quality control to ensure that we build the right restaurants in the right place with the right brand representation. We're 325- 250 is our target for next year or our plan for next year.
We can see that we continue to expand that over the years, including the DL or the franchise expansion as well, which will enable us to continue to expand in those right across China.
One thing we're extremely good at anywhere in the world is once we get something, we get the right formula, we know how to scale. That's what we're doing right now. We're scaling in China. Yeah.
Thanks. Matt, Prosko Lazard. Tim, I guess can you take us through how you see the annual unit volumes at the store level for China, specifically when you mentioned a lot more of those new stores coming on, being with the drive-through? We all know, obviously, of the hyperinflation that they have in that market. Should we just look at the AUV growing with the inflation rate, superior to the inflation rate, given that you're having stores equipped with the drive-throughs with 24 hours? Historically, should we see now an uptick from what you're doing right now at those levels?
Having lived in Eastern Europe, hyperinflation is certainly not what we're seeing in China. Everything's relative, I guess. On the drive-throughs, in every country, we have drive-throughs. In every country, with the exception of one, Hong Kong, because we have no drive-throughs. Drive-throughs out index, have higher average volumes than non-drive-throughs, and their comps are much higher. It's pretty obvious for us. It takes us a little longer on the development cycle for a drive-through. Remarkably, China is one of the easiest places from start to finish to get a restaurant up and running. You'd think it would be one of the more complicated ones because of the bureaucracy and the government, but it's actually very easy. It takes us, Peter, six to nine months on an in-store?
Absolutely, even sometimes a little less.
The drive-through is,
in the pipeline process, it could be 12 months, up to 24 months max.
What we're seeing is the drive-throughs start out kind of crawling, then they quickly walk, and then they run. Particularly when the ownership of cars continues to increase, we're seeing our drive-throughs that outcomp the non-drive-through stores, and that's kind of the same everywhere in the world. Two?
Yeah, Jason West at Deutsche Bank. This may be more for Dave, but if you could talk about the margins in China, and I think you guys have mentioned that some of the new stores may be pulling down the average margins there. What does the core margin look like on the restaurant level in China if you, say, exclude maybe the last couple of years of new stores? Then separately, if you could just give us an update on the inflation outlook in China into next year, you know, given some of the numbers we see out there, and APMEA overall might be helpful as well. Thanks.
We had a little glitch at the subway show. I mean, we're talking about China. The flight show was black, and you didn't see some of the numbers that were represented, even though you talked about the flight show.
No, didn't know that.
Yeah, I did.
The flight was black.
Okay.
You caught the comments, though?
Okay. A couple of parts to your question. The core margins, which are when we look at just the comp stores, are very strong and continue to grow very rapidly or at a very strong pace. The new stores, and while they take a number of months, so less than a year, to get up to some of the core, the comp average, there's just a really, really sharp focus right now on how do you, if it's nine or ten months, how do you make it six months, or how do you make it five months? There is a drag from new stores. I think there's predominantly in any market that opens up new restaurants, there's going to be drag from new stores.
When you layer on the number of new stores that we're layering on China on the base that they have, it just exacerbates or compounds it, or the number just appears to be a bit larger. There's a significant amount of work by Pete and the team and Kenneth in China to address the opportunities to be able to close that gap sooner to mitigate the drag on China. That is a keen focus, and it's not just in China. We're accelerating growth in a number of other markets, and the learnings that we have in China are applicable in all of the other markets as well, so that we can close the gap and minimize any sort of drag from non-comp stores. I'll tell you, the core stores in China, the comp stores are doing really, really well.
The food and what we're looking at in the way of some commodities are low to mid-single digits are the numbers that we're working up against. Despite some of the food inflation in China, broadly across China being low double digits or in the 11% - 12% range, we've been able to manage that in the 3% - 5% range. Hopefully I got your question or you answered your questions okay.
Three.
Hi, John Ivankoe, Co-Chief at Morgan . Maybe a slightly different topic is to talk about India and even Indonesia as two markets that McDonald's doesn't spend a lot of time talking about in terms of where you are in those markets, how the returns are, and maybe how many stores there could be, and what are, obviously, in the case of India, less so in Indonesia, fairly big population centers.
Sure. Peter, do you want to talk about Indonesia and India?
Yeah. We've had developmental licensing in Indonesia, and recently we had a change there, say, two years ago, and we've got a great partner there. We see a great opportunity to grow a restaurant base at 15% to 20% per year. As they build up their competencies around their organizational structure, there are other possibilities. India itself, we have 231 restaurants today. We'll have 240 by the end of the year. We've been opening at a rate around 10% to 15% new units. We expect to increase that going forward. Next year's plan is 15% to 20% increase in new units. The unit economics in India are very strong. Margin-wise, as good as anywhere else in APNEA.
That foundation work, again, building up the organizational structure, the competencies of our franchise partners there, which is a developmental licensing in India in one area and a joint venture in another area, building up their organization structures as we've done around the region, transferring the learnings from China across to India on how to go about planning development and executing development. Indonesia, 15% to 20% unit growth. India, a little higher going forward. Margins strong in both areas.
There is just a lot of discussion of the McDonald's brand in general, you know, what it means around the world. I mean, is it where, in your opinion, it needs to be in India? Is it sending a relevant message to that consumer?
In India, we're the leading brand in the category, big wide open space. We've been there a long time, and we've got a very well-established platform. We've got great partners in India. On the consumer side, you're probably aware, we've had to create our own menus in India because of the differences in culture. We're very, very in touch with the consumer and what their needs are and what their trends are. In fact, just recently, Tim pointed out the spicy chicken fillet in China, but we recently launched that in India, along with a spicy paneer burger. These are premium products at great profit margins, and it's driven our comp sales 20% +, all based off the consumer insight.
Yes.
Okay. Thank you. Last question here and then here.
Sure. Michael Keltzer, Goldman Sachs. I wanted to ask about China. In isolation, the acceleration that you're pursuing makes all the sense strategically in the world. I guess my question is, your primary competitor in that country is moving even faster. I wanted to ask how you think about the prudence of dotting your I's and crossing your T's versus the fact that, especially in Tier 3 to Tier 6 cities, someone else is getting the prime real estate, defining the category, getting that first-mover advantage. The other question on China is, the macroeconomic view there is, let's say, a little murkier than it had been in the last few years. I was curious for you guys to talk about your ability to withstand any sort of slowdown in that. In the U.S. and developed markets, you guys are the low-cost option eating out in many cases.
In China, you are more expensive than the local options. I wanted to hear about how things would hold up if the economy slowed down a bit.
Sure. First of all, when it comes to development, we're best qualified to be McDonald's, and that's what we focus on. We focus on doing what we do best. If you compare it to, say, a competitor, we're going to have 18% unit growth next year. That's unprecedented in the McDonald's family, if you will. We went from 166 in 2010. We'll be at 200 this year, 225 to 250, 275 to 300, and we'll see how it goes from there. We've proven we can go into any country in any market late and still dominate and take market share. We've done it in the Middle East. We've done it throughout Asia. I have no doubt what our plans in China, where we'll end up there as well.
On the macroeconomics, as you know, Peter, give us an update just on Southern China, what happened in 2008 when the crisis hit, and what happened to the Western QSR and to the Chinese QSR.
Right. That's a great point. Back in 2008, when the global financial crisis occurred, we saw a shift from the Western QSR, per se, into the home and then the local. Over time, we've evolved our accessibility platforms, our affordability, and many are aware of our lunch value and our breakfast value. What that's done is enable us to go much deeper into the whole IEO market. Where we've had some hiccups over the last 18 months to two months, where the consumer trend would normally revert back to those same patterns of home and Chinese QSR, it hasn't occurred. We've been able to continue to grow our share. I'd say that is as a result of us broadening our accessibility, more restaurant locations, more relevant focus around our menu, and also more meaningful affordability to them. That trend has changed, I'd say, for both.
However, just reiterating the point that Tim made, we are our own brand. We are McDonald's. We have a great brand. We have a great model, and we'll continue to focus on our model. Our competitors will do what they do. I guess that one other way of looking at it is that the more the Western QSR grows in China, the deeper the Western QSR will go into the massive opportunity that there is. It really behooves us to stay very focused on our brand and our business model whilst challenging ourselves to grow faster and capture the opportunity faster. Of course, franchising is one way of doing that as well.
Now, I know that there were some other questions. If you can catch us during the break or the rest of the day, we can answer those. I think that's it for us. Bring Jim back up.
Just before we go off to have a great lunch of some of the items you saw in the optimizing the menu presentation show this morning, I just want to weigh in on this China issue, okay, because I want to take some responsibility for our growth rate in China since I've been involved with China in different ways for the last 20 years that we've been in the marketplace or 25 years we've been in the marketplace. All the way from the times when I used to originally go there and realize that there were, at that time, 2 million new cars being put on the road every year in Beijing and other and kept asking the management of the company there, where's the next drive-through? More importantly, where's the first drive-through? Because we didn't have drive-throughs, and we were developing the country through an in-store process.
When you look at this particular team here today in this whole issue of getting the right people in the right place to execute our strategies around the world, this is a perfect example of that in terms of what we know about the consumer in China and throughout APNEA and the growth rate in China. These teams over the years had to continue to fight for capital like everybody else. Until we had the development model right, we knew how to penetrate the market. We're not going to be able to scale to the extent that we want to.
The other thing that I think is important for us to remember here is that when you try to bring on a new restaurant, a new McDonald's, at the average unit volumes and the guest counts that we bring on in any country in the world, it takes a minute or two. The training that's necessary to train 60 or 70 people to be able to execute at the front counter and drive-through, as we expect to be done around the world. It's the same in China. When you look at the growth rate of China as a % basis, it's been one of the higher growth rates around the world. Yet, the importance of penetrating that marketplace in the right way. I've said this for years because I've seen it happen.
If you want to accelerate the growth and you build 100 restaurants and you get 10 or 12 of them in the wrong location, you're going to have a problem over the long term. You're going to have restaurants that are not going to deliver at their optimum capability, not only in terms of the top line, but in terms of the bottom line and in the community. To close that out, I would say that we are not in a race with anybody relative to building out China. When you look at the opportunity and the potential in China, it's an enormous opportunity for everybody. Who has the most number of units? I don't think is going to be the tale of the tape over the long term.
What really makes a difference is how we penetrate those vast opportunities and those marketplaces that Tim talked about in these mega cities that are being created as the middle class continues to grow there. We know it's an enormous bet for us in McDonald's, but if we don't do it the right way at the pace of McDonald's, we're not going to reap the benefits that are so important to all of us, and particularly our shareholders. I'm not defending the team. I'm just spelling it out to say perhaps talking about the role that we and the leadership play in this whole thing in terms of the number of restaurants that get opened in China. I want to take that personally off their plate to say, look, if you want to talk about the pace of growth in China, talk to me.
Whenever we get the mechanism and the development capability in that marketplace to the point where we can open 300 stores, we'll do it. In the meantime, we have to penetrate the marketplace in the appropriate fashion, the speed of McDonald's that brings those restaurants on in a meaningful way, both in terms of average unit volumes and execution, the most important thing. It's a small part of our overall worldwide operating income, okay? When Tim says we have other fish to fry, other things to focus on, and yes, there's been some fits and starts of whatever you can imagine going into China when we were in there in 1991 and then what's transpired since then. We have priorities around the system and no more priority than really building out China at the appropriate rate. I just wanted to weigh in on that.
As we continue to ask questions about it the rest of the day, I want to give you my two cents worth. Let's go to lunch.
This presentation contains certain forward-looking statements that reflect management's expectations regarding future events and operating performance and speak only as of November 10, 2011. The forward-looking statements that are detailed in the company's filings with the SEC, such as our annual 10-K and quarterly 10-Q reports, also apply to this presentation. Our website also includes reconciliations of any non-GAAP financial measures we mention in our presentation to its corresponding GAAP measures. Those reconciliations may be found at www.investor.mcdonalds.com.
Okay, welcome back, everyone. If we could take our seats. All right. We are going to kick off this afternoon's session with our US business group. I am pleased to announce or introduce Jan Fields, President of McDonald's USA. Jan.
Good afternoon, everyone. Did everyone get enough to eat? Because we've got some more coming. None of you fall asleep. I know after eating like that, it's easy to do that. I'm Jan Fields. I'm proud to be here today with our Chief Operating Officer, Don Thompson, Controller, Teresa Olson, President of our company-owned restaurants, Charlie Strong, and two of our three division presidents, Mike Andres and Karen King. Tim and I will start out with an overview of the McDonald's USA business before the others come up and join us for some Q&A. I always say that McDonald's is more than a job. It's a way of life. That's how it's been for me since 1977 when I started as a crew person in Dayton, Ohio.
Now, 34 years later, as the President of McDonald's USA, my enthusiasm for and confidence in the business is stronger than it's ever been. Today, I plan to highlight our US results and talk to you about the strategies we're using to write the next chapter of our growth story in 2012 and beyond. McDonald's USA is truly one of the strongest economic engines of our global business, representing 42% of the company's total restaurants, generating about 31% of total revenues and accounting for approximately 43% of overall operating income through September 2011. Our nearly 14,000 restaurants in the United States are about 90% owned and operated by more than 3,100 franchisees. We manage and support these restaurants through an organizational structure that spans three divisions and 22 regions. Our traditional restaurants now achieve industry-leading average annual unit sales of $2.5 million.
Through October of 2011, the US business generated comp sales growth of 4.1%. Through September 2011, our operating income rose 4% to more than $2.7 billion. Year-to-date September, US franchise margins were 83.9%. Company operated margins also remained strong at 20.5%, something we're extremely proud of considering the current environment. We've outpaced the competition by increasing guest counts and gaining market share even in the challenging economic conditions and as the restaurant industry has contracted. In fact, year-to-date October, our comp guest counts increased 2.9%, contributing to a 50 basis point increase in our IEO share, which is now at 12.3%. We've outperformed the QSR sandwich category for the vast majority of weeks in 2010 and 2011, with our weekly comp sales gap averaging nearly 3%. Our return on invested capital has continued to grow, 25.9% for the trailing 12-month period ending September 2011.
Additionally, our return on incremental invested capital reached 24.2% for the one-year period and 36.6% for the three-year period, both well above the global high-teens target. Owner-operators are sharing in this success, although their cash flow has been pressured this year due to commodities. Trailing 12-month September, average annual cash flow per franchised restaurant in the U.S. is now almost $338,000, and average organization equity is now at $5.5 million. Although cash flow and equity have dipped a little in 2011, they remain strong, and these metrics demonstrate the overall good financial health of our franchisees, which is one of our prized competitive advantages in this industry. These results show that we're continuing to build the positive momentum of our growth story, which began more than eight years ago with the introduction of the Plan to Win.
Our unrelenting focus on that plan has kept us grounded in what's most important, and that's our customers. For McDonald's USA, this has meant working to make our restaurant experience fit our customers' evolving lifestyles. Societal trends, such as two-income families, a 24/7 way of life, and ongoing economic woes are causing customers to change their eating out habits, and they're demanding more value for their money. As a result, convenience, good value, accuracy, and friendly service are just green space for the quick service industry. That's why we're giving people more reasons than ever to visit McDonald's by offering exciting new products, increasing our convenience with extended hours, modern technologies, and new locations, renovating our restaurants with fresh decors and exteriors, focusing on our employees' training and development, and engaging in conversations with our customers about what they want from a food company like McDonald's.
We're looking for new ways to do these things and connect with our customers in ways that are relevant to their lives. A great example is the McDonald's USA listening tour, which we kicked off with our national nutrition announcement in July, which talked about our nutrition commitment as well as the updated Happy Meal. As a company, we have a history of dialogue with our customers and stakeholders. With this tour, we wanted to reset the conversation and give them a very real opportunity to weigh in on our business. We've held five listening sessions to date, meeting with moms, registered dietitians, and nutrition opinion leaders, experts in environmental sustainability, and our very own employees. Our efforts generated valuable feedback, positive testimonials, and hundreds of positive tweets and blog posts viewed by over 14 million people.
Social media is just one of the ways that we're connecting with our customers, which we know is crucial to the ongoing growth and success of McDonald's USA. It's why I can say with great confidence that our strategic plan will continue to push our baseline performance in a positive upward direction because I know that we'll be delivering what our customers want and need. Moving forward, we'll continue to drive our growth by aligning with the three global priorities with an added emphasis on a fourth focus area. The first is optimizing our menu. This is about evolving our menu to maintain the iconic products our customers love, our core, while giving them affordable choices and excitement through line extensions and new foods. The second is broadening our accessibility to be available to our customers how and when they want us, while making operations easier on our crew.
This includes enlarging our drive-through capacity with dual lanes, moving to extended hours, and technology innovation, just to name a few of them. The third is modernizing our experience by investing in our restaurants' interiors and exteriors to make them more relevant to our customers' daily lives. Our fourth area in the US business is elevating talent management at the restaurant level through a new management structure and training tools to better leverage and develop our talent across the system. Now, when we talk about optimizing our menu, it's always tempting to jump into the sexy new products and other news that get people talking. The reality is that our strength lies in our balanced approach to creating demand across our business.
Since 2002, 25% of our growth has come from beverages, 23% from chicken, 12% from beef, 19% from breakfast foods, 10% from fries and desserts, and the remaining 11% from salads and fish. Over that nine-year period, average traditional restaurant annual sales have grown more than $875,000. We remain focused on providing our customers with affordable products while maximizing our core business through effective advertising and balancing it all with exciting new products, reminding customers of how easy it is to enjoy McDonald's. This strategy allows us to grow in the future by extending our current product lines, by adding new sauces, innovating by introducing new flavor profiles to familiar product platforms, all the while satisfying the customers who love our iconic products or come to us for everyday good values.
Of course, I'm sure more than a few of you are wondering about one particular product, one that I had at lunch today, by the way. It made its much-anticipated return earlier this fall. Take a look at this ad for our beloved McRib. I'm sure none of you can identify with that. Three great examples of this include our recent extension of the McCafé beverage line with the introduction of a third flavor of real fruit smoothies, the delicious mango pineapple, which I know many of you enjoyed, the update to our premium chicken products with the new chicken patty and in-test McBites products, and the planned promotional food event for the blueberry banana nut oatmeal. All of these products will not only build on our current business, but also attract new customers and give people an opportunity to fall in love with McDonald's all over again.
Since we introduced America to our real fruit smoothies and the delicious frappes in July of 2010, we've sold more than 570 million cups of these great McCafé beverages, which deliver a higher than average checks. In the four months since the addition of the mango pineapple flavor, we have sold nearly 60 million. Needless to say, we're quite proud that these products continue to sustain at levels well above what we initially projected five years ago when we made the business case for CBB to our system. Just to give you a taste of that energy, check out this recent ad for our Hispanic consumer market. Our coffee business also continues to perform well and truly has been the foundation for our recent success with new beverages, as it established McDonald's as having something more than fountain drinks.
Since September of 2009, we've grown our share of the brewed and espresso-based coffee beverage business by more than 2% to over 13%, which is the highest share gains in the industry and has come as we've maintained a leading market share in hot brewed coffee. The beverage category has grown to be about $156 billion, and we've also talked about wanting to move from beverages that complemented our food to being a beverage destination. When you look at our full repertoire from fountain beverages and hot coffee to real fruit smoothies, frappes, and frozen strawberry lemonade, I'd say that we're making progress. While we've surpassed our original goal of adding an additional $125,000 in average annual sales to our restaurant, we're not done. We see even more room to grow with products like the cherry berry chiller, which you tasted at lunch.
Next is oatmeal, which was launched nationally in early 2011 and that you sampled at breakfast this morning. The great thing about this product is it's a feel-good, wholesome product that taps into an enormous category as well as our most profitable day part. That's why we're building on this line with rotating flavors that will keep our customers excited about eating breakfast or grabbing a midday snack. In fact, we're seeing customers order oatmeal throughout the day, with 14% of our sales occurring in the hours outside of breakfast. Four out of five consumers who tried our oatmeal said it demonstrated our commitment to improve nutritional value. Breakfast is a $57 billion category, and we believe this habitual meal will continue to be a meaningful growth driver in the future.
We're going to aggressively protect and grow our position against the competition, even as they steal pages from our playbook. We'll do this with a focus on value, nutrition, and promotional food events. Our efforts are working. We're proud that we've increased demand for our breakfast entrees on weekdays, despite a business environment hit hard by job losses. Through October, sales are up almost 5.1% during the breakfast day part. The enhanced premium chicken sandwich, which I mentioned earlier, is just one way that we believe we can continue to take market share in the overall chicken category. We updated our sandwich by introducing a new flavor with a tasty chicken marinade and by swapping the familiar bun for a bakery-style roll made with 8g of whole grains.
We'll also be introducing new products through promotional food events, like the chicken McBites that we borrowed from Australia, and by improving on those products our customers love, such as the recent reduction in the amount of sodium in our beloved chicken nuggets. To talk about how we're broadening our accessibility and modernizing our experience, I'd like to turn it over to my right hand and our Chief Operating Officer, Jim Johannesen. Jim?
Thanks, Jan. Broadening our accessibility is about being there for our customers when and how they want us. The first surefire way to impress our customers is simply to be open when they need us to be open. Approximately 40% of our U.S. system is open 24 hours a day, seven days a week. Our focus now is to significantly increase this percentage because of what we know about the profitability of these hours. In addition, the results have also shown us that midnight to 5:00 A.M. is the fastest growing day part from a comp sales perspective. I promise you that it's not me, but there are many
of people out and about between midnight and 5:00 A.M. For those restaurants where the needs of the marketplace do not justify 24-hour operation, we will also continue to focus on opening earlier for breakfast. Right now, close to 90% of our U.S. restaurants are open by 5:00 A.M. As proud as we are of how well early opening has been adopted, we know we can do even better, and we know that virtually all of our traditional restaurants should be open by 5:00 A.M. Accessibility is also about making it easier for our customers to order what they want and how they want it. As our menu offerings continue to grow, so too do the choices and options for our guests to customize the product they order to meet their individual tastes. In October, we completed our two-year system-wide rollout of a new technology platform and point-of-sale system.
This allows us to continue expanding our menu offerings while making it easier for our crew to fulfill every order accurately and at the impressive speed of service that our customers have come to expect from McDonald's. This is just the beginning. Our new technology platform opens up a world of opportunity to grow our business. We're now leveraging this new technology in our freestanding restaurants where the drive-through represents 66% of our business. One example of what we are able to do because of this new technology is the use of our handheld order taker, which we now have in nearly 1,000 restaurants. Handheld order takers provide restaurants that are landlocked the opportunity to expand their drive-through order points, delivering even faster and more convenient service to our customers. Many single lane drive-throughs have a capacity limited to a single order point.
By using the handheld order taker, our restaurants have the ability to take two orders at a time, thereby increasing throughput. Handheld is only one option for a multiple order point drive-through, and this option is often used to help determine when to make more permanent changes to the drive-through. We have two additional options we refer to as tandem drive-through and side-by-side drive-through. These solutions are for those restaurants that have the real estate necessary to add additional physical order points to their drive-through lanes. Currently, 36% of our traditional freestanding restaurants have some type of multiple order point in the drive-through, whether it's side-by-side, tandem, or the simple use of the handheld order taker. The results we are seeing from adding an additional order point in the drive-through have been so positive that we anticipate this percentage to increase significantly.
In fact, for the major remodels, rebuilds, relocations, and new restaurants, the side-by-side option is chosen 85% of the time. We are also evaluating other technology enhancements, such as using the handheld order taker at the front counter, mobile ordering from your smartphone, and continued advancements to improve our front counter service system. Lastly, we will continue to broaden accessibility by staffing our restaurants to fully capture the greater demand for brand McDonald's than we are currently serving. As Jan said earlier, the U.S. system has seen sales growth of $875,000 per restaurant over the past nine years, and it's been in all day parts, except we haven't been able to realize that same benefit during the peak lunch hour or the peak breakfast hour. There is significant opportunity to drive growth during these times, and to do so, we are focused on properly staffing and positioning our restaurant teams.
We will continue to provide ongoing education, training, and communication to help restaurants build their peak hour performance in a long-term sustainable way. It's all about making sure that we have the right people in the right place at the right time to ensure our drive-throughs and our front counters are inviting and ready to serve our customers. Modernizing the McDonald's experience is an exciting area for us. It's about revitalizing our brand from the inside out. All customer touchpoints are our priority. We've talked throughout the year about our goal of completing in the U.S. 600 major remodels. I'm happy to tell you that the franchisee demand will allow us to exceed that goal this year. Virtually every franchisee that completed a major remodel is so pleased with the results and brand change to the restaurant that they have signed on for additional restaurants.
We plan to expand our major remodel program to another 800 restaurants in 2012. Remodeling gives the restaurant a new look inside and out. The majority of the restaurants that are undergoing a major remodel are adding capacity to capture additional customers and to achieve our growth goals. We are continuing to partner with our franchisees on this investment. Total investment is averaging about $600,000, with the company contributing on average $275,000 and the franchisee contributing $325,000. We're very pleased by the initial results. While the number of sites that have been operating long enough to evaluate is still relatively small, sales are averaging 5.5 points over market, and we expect that to continue to grow. With time, the customers in the community get exposed to the new look and feel of their McDonald's restaurant, and the sales lift over the rest of the market improves month over month.
In fact, for those restaurants completed and operating for nine months, we are seeing a sales lift of approximately 6.5 points over the rest of the market. In addition, our customer satisfaction data after the major remodel shows strong positive reactions to these design elements, as well as improvements in quality, service, and cleanliness measures. Feedback from franchisees, restaurant crew, and customers has been overwhelmingly positive. Our new contemporary look changes the way customers think and feel about McDonald's, and as a result, changes their behavior and they visit more often. While the major remodel program itself is very exciting, our pace of rebuilds, relocations, and new restaurants also continues to expand. This year, we will complete more than 200 rebuilds and open 160 to 165 new restaurants. Next year, we plan to rebuild an additional 225 sites and open 175 new restaurants.
Even though we have 14,000 restaurants, there is still a great opportunity to grow. As Tim Fenton reviewed earlier, the GAF Trade Area Analysis Tool is in place to scientifically measure where our restaurants are and where we should be, taking into consideration our existing restaurant base and opportunities based on both demographics and traffic patterns. This tool helps us to determine the absolute best locations and prioritize the optimum areas to build. Our end game is to ensure that we are relevant and appeal to our customers with our new look on the outside and a contemporary look and feel on the inside. Between the major remodels, rebuilds, relocations, and new restaurant openings, in a relatively short period of time, the majority of our restaurants will have a modern look inside and out.
For a system as large as ours, that's a remarkable change that our customers won't be able to help but notice. This is definitely a brand changer, and now I'll turn it back over to Jan to cover the work we're doing to elevate talent management.
Thanks, Jim. Our people are the ones who bring the customer experience to life, and we're focused on ensuring that we have productive and passionate crew and managers who can meet the demands of our ever-changing customers. That's what we mean when we talk about leveraging our talent. Four years ago, we embarked on a people strategy meant to drive higher employee engagement. We saw an opportunity to leverage the size and the scale of our system, redefining our employment brand and differentiating ourselves from other retail employers. Today, I'm proud to report that we built upon a solid foundation of benefits, hiring, orientation, and training to achieve the lowest annual turnover rates among crew and managers in our company history.
The fact that our turnover rate is significantly lower than the rest of the industry proves that our success is not merely driven by the high rates of unemployment, but that because of our business success and our focus on employees, we are recruiting and keeping high-caliber talent. When our restaurants hire and retain the right people, train and orient them effectively, and provide a competitive compensation package, it truly makes a difference in terms of service, speed, and accuracy, as well as the feedback our customers give us on crew friendliness. Our next step is redesigning how we structure and develop our restaurant management teams with new roles and training tools that allow our managers to achieve a better work-life balance while being even more effective and efficient in their work. We call this change restaurant department management, and we began rolling it out nationally this year.
Restaurant department management elevates the role of each restaurant manager to one of a general manager and spreads out much more clear responsibilities and accountabilities to three department managers who own the kitchen, people, and guest service. In turn, the newly formed departments allow for greater delegation and ownership of results throughout the restaurant, which is having an outstanding impact on the commitment of our people. The redesigned development program employs an industry-leading learning management system, which allows us to offer a more robust and dynamic training program for our managers. To date, 3,590 restaurants across the U.S. have made the transition to the new structure and training approach. We're extremely optimistic about the impact RDM will have on our business.
At its earliest stages, we have already experienced a 10% decrease in manager turnover, a 24% decrease in crew turnover, and a 5.6% improvement in our own internal customer satisfaction metric. As I've said before, to go from annual restaurant sales of $1.6 million to $2.5 million, as we did in the last nine years, and even greater in the future, it takes a different kind of manager and crew. I'm confident that these new tools will give our folks the resources they need to lead our restaurants into the future. We also recognize that it's important to share this story externally, which was truly the motivation behind the National Hiring Day event, which we held in April. Similar to July's nutrition announcement, our intention was to reset the conversations around careers at McDonald's.
With more than 1 million applications, McDonald's USA and our franchisees were able to surpass our goal of hiring 50,000 people to hire 62,000 people in that one single day. It also resulted in more than 892 million media impressions, with 95% of the coverage being positive to neutral in tone. I believe we made incredible strides in improving the perception of what working at McDonald's means by demonstrating the very real opportunities for success that are available under the arches. In fact, in the weeks surrounding that event, we welcomed approximately 100,000 people to the McFamily. Now, in closing, let me repeat the one thing I want you to all walk away with today. The future is very bright at McDonald's USA. In my more than 30 years in the business, I have never felt the passion, focus, and alignment as strongly as I do today.
Our opportunity is to harness that passion as we sustain our growth story and continue to focus on the Plan to Win. We'll continue to strengthen our core business while introducing a pipeline of new products over the next several years. We'll employ new technology in our restaurants to make the ordering experience easier on customers and crew, and we'll create a modern, fresh restaurant that will be vibrant parts of their surrounding communities. Our growth plans not only represent incredible immediate opportunity, but also reflect how we are building our business to meet our customers' needs and desires in the long term. By continuing to evolve, we will be relevant parts of their daily lives and will satisfy them with quality products at the speed, price, and convenience only at McDonald's.
Thanks, and now I'd like to call up Karen, Steve, I mean Mike, and Teresa to help with some Q&A. Welcome, everybody. As you get seated, I'll start with the first question. Is it number panel three?
Four.
Hi.
Hi. Jeff Bernstein from Barclays.
Hey, Jeff.
As we look at the company operated margins, they seem to improve for a number of years, obviously running into this year, but then there were headwinds that seemed to be out of your control. I'm just wondering if you could talk about how much of, I think it was an 80 basis point year-to-date decline you saw in those margins. Can you break that out in terms of what the margins would have been or how the impact of commodities have had on that? If you could just talk maybe more theoretically on how you look at those margins, whether you want to take pricing to literally protect those margins or is pricing somewhat secondary, and if you're driving the traffic, then the margin is really not the focus.
Great. I'm going to have the President of our McDonald's corporate-owned stores, Charlie Strong, answer that one since he lives and breathes this every day because he knows that that's the number one question you ask.
Yeah, it's what I do for a living. Let's start with the second piece. I think the piece about pricing and how we go through that, it really is, and I think it was said in the opening today by Jim, traffic and sales solve most of our margin problems. We use an outside company that gives us counsel about when we take a look at menu pricing. It is about trying to balance that and being very customer-focused about how we try to take price, how much we take, and when. We feel very good about the third quarter results, as you saw, and you see them continue to get better. We just went through the process in the last week and took a price increase that will come out, the amount at the end of the month. We'll tell you what that was.
Thirty days after, we measure the resistance and what happens to product mix by the customers, but feel very, very good about where we are with it today and where we're going.
We have record margins on the McCafé and we have been able to do a little bit more on the price. The majority of what we've seen in the reduction has been commodity-based.
If that's three to, I know you guys were talking about maybe getting up to 3% - 4% pricing by the end of the year, would that be enough looking at that basket for next year that you're talking about from a commodity standpoint? Would that protect the margin expand or leave?
I think you have the rollover from year to year two. We took pricing this year, we'll have taken three price increases and we'll take price increases next year. Not everything from a commodity standpoint hits at one time. As it rolls in, we'll be able to measure the impact because we want to balance the guest counts along with the margin, but I'm confident that we'll be able to do some price increases. We measure this against food at home and food away from home. You see that both of those are growing significantly. I think we feel pretty confident about being able to manage through that.
Okay.
Number one.
Hi, Nicole Miller, Piper Jaffray.
Hi.
In looking at your competition, and for example, I believe Burger King is going to be building out in the next few months their beverage platform, something to do with ice cream, for example.
Gosh, I wonder where they got that idea.
Exactly. To the point that this is a market share conversation more so in the U.S., perhaps, than globally. When your peers or competitors, however you want to look at it, make those changes, does it grow the overall category and help you continue to grow those day part or new platform sales? Or do those become market share gains and losses amongst the eating out group? Thank you.
Thanks. Karen, you want to take a stab at that one?
What we found with desserts and with beverages is that when we enter a category, we literally invent the category, and it actually grows larger. Like most of the discussions around categories and our product lines, we will execute our strategies that are unique to McDonald's in a very strong way that our customers appeal to. If other competitors enter the category, then they do theirs, but it doesn't necessarily change our strategy or our implementation.
I think the category does grow too.
Hi, Jan. John Ivankoe here.
How are you?
The question's on marketing. I mean, I guess as your share of voice is multiples, three, four X, that probably of your number two at this point, you're still growing some units modestly in the U.S. You're growing sales in the U.S. Your marketing budget continues to go up. The question is just what is your return? I mean, in general, I guess on incremental marketing spending, do you have an opportunity to spend less and still get the same effectiveness? I mean, are you at the point now where you kind of, customers know exactly what you are, who you are, what it is that you're selling? Would you have an opportunity to perhaps help franchisees save margin by spending less money? Or can you spend your current amount of money better?
Yeah, I think we always look, first of all, it's unlikely that we'll spend less money. You want to keep your share of voice out there too, but we spend it in different ways. I think we talked a little bit about social media and everything from outdoor advertising. Neil Golden's with us today, our Chief Marketing Officer, and we look at that every year. Our operators understand the need to invest in advertising. It isn't a place that they immediately look to pull back on. Different years provide different levels of spending. In a year that there's elections, Olympics, the costs end up being a little bit higher. You may in fact get a few less GRPs, but spend the same amount of money. I would tell you that we invest in media.
One nice thing for us is because we've had the value messaging for a long period of time, we don't have to spend as much on that. We're able to spend on other products in a bigger way also and give other messages. The dollar amount from a spending is unlikely to go down in order to save money.
Maybe, again, just thinking about traditional media, there's a lot of other ways that you can market. I mean, does it make sense for you to somewhat spend and invest more back at the customer level, like couponing or doing different things?
I think you're finding that. We certainly do. Different markets do a heavier amount of couponing. Couponing is getting bigger and bigger, but it's also geographic also. We look at the different ways. We're always looking and moving at the shift of media, and the vehicles that we use change every year and oftentimes quarterly as we start to make those purchases.
Could you comment on the benefits of the new POS systems now that the rollout, I believe, is pretty much complete? Secondly, talk about the opportunity for fourth-tier products in the U.S. There always seems to be a lot more news coming out of Europe on that, and just kind of curious if you think that's an opportunity in the U.S.
I will ask Mike if you want to do on the POS and Jim on the.
Hi, Joe. We just completed the sixth. We're very excited about that. Customer side as well as the back office side. Specifically, our orders now will be able to be completed on one screen for the crew person, which if you just do the math, that just allows us to create more orders over a period of an hour. Also, if you look at what we talked, what Jim just talked about relative to multiple points of order in the drive-through, side-by-side, handheld order taken, the ability to take cash outside in the drive-through, all those things allow us to build capacity. That is clearly what we're seeing with the 6.5. Another initiative we're testing is management of the shift. It's very exciting.
Some of the features of that allow us to actually compare the results in five-minute increments a restaurant is doing in the drive-through versus other restaurants in the marketplace. You literally see a screen in the drive-through, which would compare their order times, their % times, their cash times with their peers in the marketplace. The restaurant managers will be able to make immediate responses to any bottlenecks, changes that that's all just going to drive throughput. There are a number of things in the back office at 6.5. The other thing, clearly, we're not going to be able to talk about optimizing the menu. We haven't been able to without the 6.5 capabilities. Plenty of keys to do whatever we want in the future.
Jim?
I'm going to connect the two pieces of your question if I can. From a technology perspective, just one last caboose. One of the back office benefits of this new technology is that we're going to be so much better at scheduling and positioning our people appropriately. We believe, therefore, we're going to be able to deal with the peak hours better than we ever have before. Huge benefit from technology. Tied to the fourth flavor items, I won't bore you with all the details, but in the absence of our having made this investment in technology, we would have significant restrictions on our ability to add new products. You literally just run out of key punch assignments, buttons that you can press. With the new technology, that is no longer an issue for us. The world is available to us.
We have a pipeline of 150 international products around the world that we can draw from, and you had a chance to taste some of them today. Our owner-operators are excited about the ability of getting the payoff on the investment that they've made in technology by being able to sell these new products that otherwise would have been unavailable to us.
Hi, Dave Palmer, UBS.
Dave.
It seems there's almost a fast casualization going on of the traditional fast food chains out there. A lot of on the food side, particularly, you've seen the growth of the fast casual burger chains, and it seems to have gotten the attention of the Wendy's and the Burger Kings who are upgrading the quality of some of their core menus. They're renovating their menu, basically, and upgrading the quality, sort of value engineering by adding the value back to the food. It looked like you did something similar with the chicken sandwich lately, and you've been doing things like this for years, arguably, starting with the chicken nuggets way back when. Do you think you need to do more of this, do a new version of some of your core in the coming years?
Yeah. I would tell you, you know, core is something, there's a reason why it's core. Don talked about it this morning. It is beloved, and you know, it is a huge part of the menu. We always look at different tweaks to it as we go along. Jeff Stratton's here and can tell you from a global standpoint, the recipe and the different things that we have to make, whether it be sodium or some small cooking changes. I don't see us significantly changing core. The changes and the additions are what we do in the fourth flavors, the promotional food events, you know, the limited time offers. That's where we really end up getting most of the variety. The core you wouldn't want to change.
You know, whenever we advertise core, when people talk about the pipeline and how important it is about this pipeline, I always take them back to when we advertise core. It goes up significantly. You advertise something like Chicken McNuggets. We may have a different sauce or a new sauce. Believe me, the increase that we see in that is as good as putting something else in the pipeline. We wouldn't and don't look at significant changes to the core. There are tweaks as we move along and always have been.
Thanks. Mitch Spizer of Buckingham Research. Two separate questions, if I can. First on kids' marketing, which is in the news a lot, and your Happy Meals. You did make some changes, I believe, starting just recently. Can you give us a sense of the profitability of the Happy Meals? With now the inclusion of apples in there in lieu of French fries, does that change the profitability profile that much? Secondly, just on digital menu boards, if you can just give us a sense of how many stores have these menu boards and has it ever been thought about? It seems like it's easy to change prices with digital menu boards. Would you ever consider having different prices for the same products throughout the day, or is that just way too ahead of the curve and only done maybe with the airline industry?
I'll answer your Happy Meal, and then I'll give Jim the digital menu board if I can. The change on the Happy Meal, which we just now are rolling out, that was the announcement that we made in July, and it includes adding a fruit, vegetable, or dairy product to every Happy Meal that we sell. We were able to do this at a very low impact from a cost standpoint because we reduced the size of the fry that had been in the initial Happy Meal. It's now a 1.1-ounce fry. It's in a really cute red box and a half of a portion of the apple. What were apple dippers, now are apple slices. It's a quarter of a cup. The pricing ended up being significantly less than if we just had made the wholesale change and added something to it.
I think that we're going to be okay from a profitability standpoint. We expect to sell more of it. You know, we would expect parents to accept it at a greater level than before. We're not looking at any significant impact from a Happy Meal costing standpoint. On the digital menu board, Jim, you want to talk about our McCafé board?
Sure. Relative to digital menu boards, we are going to continue to monitor digital closely, and we're waiting for that moment when the prices come down far enough and the technological benefits come up high enough that those lines cross, and then we would jump. We are going to continue to migrate to a more contemporary menu board, both within the inside of the restaurant as well as in the drive-through. They're not digital, but they have been specifically designed to be digital retrofittable, if that's a word. It is very important to our owner-operators that they only buy things once. As we make these improvements to our existing static boards, the new boards that will come in that are more contemporary will be modifiable to receive a digital application down the road when the timing for that is right.
You know, we introduced the McCafé digital menu board. It's in all of our restaurants, and it's working out very well. One of the things that you have to remember on that digital platform is there's a cost to operate it. It isn't like you just invest in the board and then everything else is free from that point on. There's ongoing cost in those. The other thing is technology is changing so quickly. At what moment do you jump in and at what platform? We're pretty confident now that we have the digital McCafé board. We have enough time to really measure the results from it, and then we'll go from there. Next question, yes. Number four.
Hi. Andy Barash from Jefferies. Question on the kind of the operation side of things. The menu is certainly growing, more items, more flavors, more complexity from my perspective. Just from an operations perspective, we've clearly heard about new POS, but in the back of the house, where are you kind of making adjustments or where are you seeing bottlenecks that have to be addressed and sort of holistically as you approach more menu items going forward?
You know, Karren or Mike, either one of you guys want to do this one?
I can start. We have a lot of productivity and labor-saving pieces of equipment that have been part of our platform offerings for many years. What comes to mind is the new prep table. It helps condense the size and the length of our prep table so that we can continue to move the products down the line in the HLV. That's one example. The work that's being done with grills is another. Coming out next year, the operators are really excited about is Teflon, or we're not calling it quite Teflon, but cooking with it doesn't require us to have scrapers and spatulas. A lot of productivity and labor savings opportunity in the kitchen. No major changes to the platforms as we see it in the foreseeable future.
I was just going to say, we run an innovation center that we are able to go through the differences in product mix and see what the changes do. Jeff runs that group over there, Jeff Stratton. We're able to make changes there to then see what needs to be done in the field. We don't have to test a lot in the field. We're able to test it there, finalize what we want, and be able to roll it out into the field.
Number two.
Thanks. Sara Senatore at Sanford Bernstein. Just a couple of questions around page six of the deck. The first question is, I think the owner-operator cash flow has come down. I think last I heard it was $360,000, now it's $338,000. Still, obviously, industry leading. I'm sure the franchisees are very happy with it. Can you talk a little bit about that? I assume some of that is just commodity. Adjacent to that is the incremental return on invested capital has also come down. Is this the kind of thing where we're seeing some investments now and we would expect returns to trend back up after some investment years?
Teresa.
Thanks. Cash flow is, as you had said, at the end of last year, we were at the all-time high of $364 million. We're at $338 million now. It's trailing 12 months September. Still very high and significantly over where we were in 2009. What we're seeing is strong cash flow there. Also, what that's enabling us to do is make the investments that we've talked about currently. Our franchisees are very aligned with the Plan to Win and where we're at. When we look at where we're at versus the competition, we have outpaced ourselves in terms of not only sales, but cash flow, which is then allowing us to make these investments.
When we talk about that and the investments and the return that we'll get from not only the technology that we've done, but also the reinvestment in terms of the reimaging, we also have set ourselves apart in terms of the capital that is available to our franchisees as well. Not only do they have the cash flow that is extremely high, but they also have the access to capital.
Okay. Number four.
Hi, Howard Penny with Hedge IRS Management. I know there's a lot to fit in in a compressed timeframe, but it's rare that the marketing guy doesn't get any airtime.
He wanted it. We didn't have enough chairs.
There are three buzzwords today that are important, I guess. Social media, you mentioned briefly, but connectivity and loyalty are also two buzzwords that are, you know, a lot of your competitors and competition, they're using the mobile community to drive traffic. I was just wondering if there are initiatives on that or if the POS system can drive connectivity or loyalty. A question on the $5.5 million in owner equity. How do you calculate that or what are the components of that $5.5 million?
I'll answer that first one on the connectivity. Neil, if you want, you can grab a mic. He's never found a microphone he didn't like. Teresa, I'll let you do the equity thing.
Mine's fine.
The social media and the whole connectivity is huge. It's the way the world is moving. I got on Twitter last week. We know that it's an important element. It's part of that mix that you asked about earlier. I will say that every McDonald's in the U.S. that can have Wi-Fi has free Wi-Fi. We've had that. We're the biggest location for free Wi-Fi in the U.S. The whole connectivity, the customer loyalty is something that now that we have the platform from a POS standpoint, you could argue it's a little bit of the IT person versus the marketing person, which one came first. We will be able to move into things like that. We're working through that. It's a huge opportunity. We absolutely see it, agree with it, and are working our way towards that. Neil?
Ditto.
He's never been that quiet. From a timeframe standpoint, it's ongoing. It's actually ongoing. I would tell you that it's not going to be all in one point. We've already started a number of things like that. I know it might sound funny. The mobile app, you think, oh, that's childplay. It is compared to some of the things that are out there. We continue to introduce things. We just got the POS done, literally within the last, it was right before Halloween. We've got to take things in steps. That's the way that we do things best, when we scale and we stay focused on something instead of trying to go after everything. Get in something, get deep in it, and then you can move to other things.
Jan, just beyond the, I want to say, beyond the loyalty type of program, you talk about mobile and connectivity. Take a look at the Monopoly program. A huge number of consumers played the game with their mobile phones. They entered the codes that way. We are clearly expanding even now well into that and continuing to develop programs that will have even greater one-on-one type of communication.
Thanks. Teresa, on the equity?
When we look at equity, we look at really a proxy for what that gross value is of the restaurant. We look at a cash flow multiple after G&A and then the average restaurant organization size, and then we back out net debt. We keep those constant. When we look at where we're at and we look at the historical trends and when we look at where we were since the beginning of the Plan to Win nine, ten years ago, our average equity per organization is three times up where it was back then.
Okay, I've got two more that I can do. Number one?
Thanks. It's John Glass from Morgan Stanley. I wanted to go back to the beverage platform. You said it's in excess of $125,000. I wonder if you're willing to talk about what it is actually. Number two, when's the next time or what's the next milestone you'd like to set for that business? Third, on beverage, what's happening in the fountain business? There's been some innovation there, Coke Freestyle, some other things. Are there opportunities beyond McCafé and beverages? What do you think they are besides the dollar platform?
Tim, you want to start and then I'll tag on at the end?
Sure. I guess working from the back, we have Freestyle in a few of our restaurants and we're learning about it, just trying to make sure we're conversant with it. With virtually all of our restaurants running two-thirds of the business through the drive-through, that gets a whole lot more complicated. It is more of an application for an inline location. We're monitoring that closely. The great thing about the beverage initiative is the heavy lifting has been completed. We did all that work several years ago. We invested, the owner-operators invested, getting that sell right, getting the drive-through present booth large enough to handle that additional capacity, having all the necessary equipment.
Now when we talk about adding a very, very chiller, I don't want to say anything's easy, but it's as easy as it gets for us in terms of an execution of a new product. It is an opportunity to lever existing investments.
I would tell you, you know, when people ask me, you know, the upside on the beverage, we don't know what it is. Every time we bring something out, it's gone extremely well. The strawberry lemonade was a huge hit. The pineapple mango smoothie, huge hit. You know, the upside is unlimited when you think about beverages in general. Whether it be teas, which we haven't really touched on other than the sweet tea and the unflavored iced tea, I think that we have a lot of upside on it. It's bigger than we projected, significantly. One more question, then they're number three.
Thanks. Matt Prisco Lazard. A question with the reimaging and specific to the in-store dining occasion. Have you seen the in-store dining occasion comparable sales number? Is that growing a little faster than the rest of the overall comp, especially in those stores that you have remodeled? What is the benefit you get from that consumer? How is that consumer different? Is it a higher-end consumer? Is it a person who spends more? Also, not to nitpick, and I like all your information you give us, so I don't want to discourage it, but the 12% beef growth that you quantify is basically a couple of almost $100,000 or a little over that in dollar terms.
Has that also implied that you've held your share or have you lost share over the last nine years in overall beef occasions or away from home beef occasions, if you can give us any data on that?
Okay. You want to start, Jim?
Sure. I'll take the first piece of it on the lobbies. What I can tell you is that the information that we get and the anecdotal feedback that we get from our owner-operators and our company leadership is these are incremental visits. It's a different occasion of use. People are coming to us now, taking advantage of free Wi-Fi that we have in virtually all of our U.S. restaurants. They're there, businessmen and women coming into our restaurants now who maybe prior to that lobby being done didn't. They were only using us for the occasion of use when they wanted to come through quickly through the drive-through. Somebody's having a meeting. They're in the lobby, having a meeting in a much warmer, contemporary environment. Families. We're very pleased by the incremental visit aspect of the new lobbies.
Yeah, they're loving it. From a share of beef standpoint, I believe it's equal. We've maintained our share of beef without a question. It's up. Neil tells me. Okay. With that, they're telling me my time is up and I get the opportunity to introduce the newest Area of the World President, Mr. Doug Goare. Doug?
Okay. I see people stirring around. Probably the best thing to do is everybody stand up and then sit down, because you got another 45 minutes to an hour here. A quick stand up, sit down, and we'll go at it. I know everybody needed that. If you ate half as much as I ate at lunch, you needed that. No smoke breaks. Here we go. All right. Jan, thank you. Great job. Great job to the team. Thanks to all of you for joining us. Before I start, Jerome Tafani, Europe's CFO and my partner in crime today, is joining me on the stage as well as in the audience. I want to have some folks stand. CEO of McDonald's UK and President of Europe's Northern Division, Jill McDonald. CEO of Germany, President of our West Division, Bane Knezevic.
CEO of Russia and President of our East Division, Khamzat Khasbulatov. In addition, as you all know, Europe is a collection of 40 countries. There are many issues around our markets. It was a great opportunity for us to also have some of those markets join us. In some of the dialogue you have in the reception, you can pick their brains. Joining us today is Managing Director of Poland, Piotr Ziuka; Director of Italy, Roberto Massi; and João Lopez, Senior Vice President of France and Europe's Southern Division. Many activities across our 40 markets in Europe. They'll be glad to dialogue about their geographies as well. Over the next half hour, I'd like to provide headlines on our financial performance, outline key strategies and initiatives, and share our plans to continue Europe's momentum in 2012 and beyond.
I probably ought to first talk and share with you a little bit about myself. It reminded me, 33 years ago, I was generating P&Ls for Jan Fields as she was running a restaurant in Ohio. I would rather take the position of some of the media in Europe who introduced me as being 33 years old, but they didn't have the picture. I did start in 1978 in the accounting side of the business, moved into operations. I operated several business units in the U.S. prior to my most recent responsibility of leading the global supply chain and the restaurant development groups. In these roles, clearly, I had the opportunity to travel extensively, learn about the various geographies, and being a member of senior management, got great exposure and great learning and great perspective.
It's truly a privilege for me to be here today to lead this very important business segment. A little bit about McDonald's Europe. We have over 7,000 restaurants in 40 markets, serving more than 14 million customers per day. With about 20% of McDonald's global restaurants, we generate about 40% of total revenues and account for 38% of the consolidated operating income through September 2011. Europe's success in recent years has been driven by a clear focus on our priorities under the Plan to Win. We have balanced the global size and strength of our brand while increasing McDonald's local relevance for our diverse customer base. We've driven trust in our brand by focusing on the quality of our food and developing our reputation as a progressive employer. All of this has helped us create a closer bond between our customers and our brand.
We are also focused on relentless progress, making sure that our customers see that McDonald's is a brand on the move. We have a rich culture of innovation in Europe, and we're committed to learning, sharing, and scaling those initiatives that work best and make the biggest impact. Europe has the right strategies and a team of proven leaders in the markets. I'm confident that we can continue to deliver future growth to McDonald's system. Let's look at the facts and the opportunity. We're a leading player in the region. We enjoy tremendous size and scale advantage by being larger than the next nine competitors combined. As consumer expectations about choice and variety continue to change, they are increasingly looking for high-quality food that represents good value, is sourced responsibly, and is served in comfortable, appealing surroundings.
Our continued emphasis on these fundamentals has enabled us to increase market share in both the QSR segment and the informal eating out market for the last 14 quarters. There is still significant opportunity for future growth if we continue to broaden our menu offerings, modernize the restaurant experience for our customers, and maintain our strong value credentials. Now, despite the economic downturn, we've continued to invest in our food, our restaurants, in technology, and in our people in a time when many of our competitors have fallen behind. We'll continue to leverage this advantage by investing wisely and to further differentiate the McDonald's brand in the minds of our customers. All of this added together brings us real opportunity. Before I discuss our strategies, I'm going to have Jerome walk through the highlights of our recent business performance in Europe. Jerome?
Thanks, Doug. I'm very pleased to share that Europe's year-to-date September 2011 results reflect the continued strength of our business. Through sub-quarters this year, McDonald's Europe revenues have increased to $8.2 billion, up 8% in constant currencies over the same period in the prior year. Comparable sales, year-to-date October, were up 5.4%, led by performance in the UK, France, and Russia. Germany's year-to-date comparable sales have also remained solid. Europe's strongest traffic has been a key to sales performance in 2011, contributing roughly 60% to the segment's overall year-to-date comparable sales growth. In addition, Europe's average restaurant volume has increased over $1 million over the last five years to more than $3.6 million, reflecting a greater than 50% increase for the period.
With over 70% of the restaurants now owned and operated by franchisees, Europe's franchise margin is our primary profit contributor, representing more than 60% of the segment's overall restaurant margin dollars. Since 2006, Europe's franchise margins have grown 80 basis points to 78.2% in 2010. Year-to-date this year, margins are up again an additional 80 basis points, boosted by the segment's strong comparable sales. Company-operated margins have grown significantly over the last five years to 19.8% at year-end 2010. Through year-to-date September, despite the current environment, our company-operated margin has remained very strong at 19.3%. Europe's ability to grow top-line sales while still diligently managing expenses has translated into operating income growth of approximately 9% in constant currencies through September. Europe's return on invested capital has also continued to increase, reaching 22.6% for the trailing 12-month period ended September.
Additionally, our one-year and three-year returns on incremental invested capital have been robust and well above the company's global IT targets at 29.3% and 33.2%, respectively. These increases have been driven by performance across Europe, reflecting the success of our strategies and enabling further investment to drive even greater shareholder value. That's a big picture across Europe. Now, I'd like to share some highlights from our four largest markets: Germany, France, the UK, and Russia. Combined, these four markets represent about 65% of our revenues and about 70% of our operating income. I'd like to start with the UK, which is still showing strong momentum in a dynamic and highly developed QSR marketplace. We have seen sustained performance over the past three years as we have re-energized the brand with local customers. Through September, operating income has increased 13% in constant currencies.
The UK's performance has been largely driven by leveraging our comparable sales growth, which has brought the market's average restaurant sales to $3.2 million. In addition, the UK also benefited from our refranchising program. Today, 64% of the UK's nearly 1,200 restaurants are owned and operated by our franchisees, compared with less than 40% just five years ago. We continue to evaluate opportunities to optimize the market's restaurant mix for the long term. Next is France, still very close to my heart. As a leading QSR player in the country, McDonald's France has a very strong financial story to tell. Today, 82% of France's more than 1,200 stores are operated by franchisees who enjoy average unit volumes of nearly $4.9 million. As of sub-quarter 2011, France reached 32 consecutive quarters of positive comparable sales and delivered 7% constant currency growth in operating income.
In Germany, where as well 82% of the market's more than 1,400 stores are run by franchisees, with nearly five stores per organization, results have been solid. Average restaurant sales volume are now at nearly $3.5 million. Through September, operating income in Germany was up 5% in constant currency. In addition, despite a highly price- and value-conscious consumer, our business in Germany has been outperforming the QSR segment on both sales and visits. In fact, year-to-date September, Germany's sales trend has outperformed our competition in the QSR segment by 5.5% in sales and 6.2% in visits against the backdrop of a challenging market. Finally, I want to mention Russia. Through the first nine months of 2011, operating income grew 16% in constant currencies, contributing $208 million to Europe's operating income with just 279 stores.
Most notably, over the last five years, on average, each individual restaurant in Russia has contributed nearly $800,000 in operating income annually. The Russian economy is still volatile, and economic challenges remain. However, with about 143 million consumers, Russia provides significant growth territory for McDonald's. In fact, our existing restaurants average more than 2,000 transactions per day, one of the highest volume in the world, which demonstrates the tremendous consumer demand for McDonald's in the market. These four markets are very well complemented by 36 others, including Spain, Italy, Austria, and Poland, all of which are generating good returns and have well-developed eating out cultures. Now, let's have a look in more detail at our opportunities for future growth in the context of Europe's overall economic outlook. While the situation varies by country, Europe's overall market landscape remains challenging.
Recent IMF and EU estimates project GDP to grow slowly or not grow, and unemployment, which is very high in some countries such as Spain, is expected to stabilize at higher levels. Despite stable but low levels of consumer confidence in the earlier part of 2011, we have seen consumer confidence fall significantly in the sub-quarter, impacted by new austerity plans and uncertainty around the European debt crisis. This will likely further impact consumer spending for the remainder of the year. We know that in about half of our markets, there is a significant correlation between consumer confidence and eating out behaviors and IEO and QSR visit declines in markets where drastic austerity plans have been passed. However, great execution of our existing strategies is what we focus on to buck the trend and grow our share. UK and Spain are two very good examples.
In light of the current environment, the informal eating out market, which is a $185 billion industry in Europe, is expected to be relatively flat for the remainder of 2011 and throughout 2012 and return to positive growth in 2013. For these reasons, we know that our growth at existing stores, particularly next year, will continue to come by growing our market share. We also know that despite this challenging economic environment, there are significant opportunities for new restaurant openings in Europe. Now I hand it back to Doug to discuss Europe's 2012 opening plan and strategies for the future.
Thanks, Jerome. We're obviously very pleased with our financial results, especially since we're facing some very difficult economic times and the conditions are only getting tougher. We've made good progress in increasing market share in both the QSR market as well as the wider informal eating out market. In fact, we serve 55 million more customers in third quarter 2011 compared to 2010. There's still significant opportunity for future growth in the eating out market if we continue to optimize our menu, modernize the restaurant experience, and broaden our accessibility. Let me take a tour through each of these areas in the eyes of Europe. I'm going to start with modernizing the experience. Europe continues to lead the company's reimaging efforts, particularly in the major markets.
At the end of last year, about 40% of Europe's exteriors and nearly 75% of our interiors reflected modern, vibrant designs such as those you see here. This year, we'll have reimaged another 15% of our total restaurants or about 1,000 locations. Reimaging will continue to be a differentiator for our existing restaurants in the years to come as well. By the end of next year, we expect to have reimaged around 90% of our restaurant interiors and about two-thirds of our exteriors. This will include about 950 full reimages that we planned for 2012. It's a huge undertaking and it speaks volumes about our brand to new and existing customers who clearly appreciate the updated surroundings. To date, in our reimaged restaurants, we've seen an incremental sales lift of 5% to 6% over and above the market's comparable sales performance.
Another opportunity to modernize the McDonald's experience is through the McCafé concept, where it makes sense to do so. McCafé helps 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. This combination provides us an opportunity for growth and we're moving very quickly on capitalizing on this emerging consumer demand. We're on track to add about 150 McCafés this year, taking us to about 1,500. For 2012, Europe plans to open more than 150 additional McCafés. Now, technology, as we've heard a lot about today, plays an important role in modernizing the experience for our customers.
One of our major technology initiatives is our new POS system that will be rolled out to roughly 30% of our restaurants by the end of next year, with implementation to be completed by 2014. We're a bit behind the U.S., but we're learning from their implementation and we'll be moving forward. In addition, we're using handheld order takers in the dining areas and in the drive-through lanes to speed up service. We have self-order kiosks in 850 restaurants, mainly in France, that allow our customers to explore the menu at their leisure rather than giving their order at the front counter. We're investing in future web ordering through the use of smartphones. Continued innovation is also a critical component of enhancing the experience for our customers.
We've recently opened two restaurants to test some new concepts for our family customers under our overall family banner of smart eating, fun play, favorite experience. We call this initiative Spirit of Family, and it combines a wide range of ordering options, interactive video, and different theme zones. This concept is in the very early stages of development, and we're still evaluating which aspects might someday be suitable for wider rollout. Most importantly, this test speaks to our ongoing commitment to raising the bar on consumer relevance with breakthrough innovation. Let's take a look at the video. We also see opportunities in the digital world to help us to connect more with our customers outside the restaurant. The work we've done with our new Happy Studio launch this year is a great example.
This unique extension of the Happy Meal brand brings together children's favorite characters in one website for play and educational purposes. It's not just the experience for our customers that matters. We're also working on modernizing and upgrading the experience for our employees since well-trained, energized, and engaged staff are essential in all of our restaurants. We have a diverse workforce and our training programs are increasingly carried out online. This enhances the effectiveness of our trainings and our staff values the flexibility that it brings to their busy lives. We have successfully created an online engagement tool or crew portal called Our Lounge that relates to our staff in a way that they understand and includes topics that interest them. This work.
Portal can also be used to review work schedules and request changes. Our allowance is currently available in the UK and is being rolled out to other European markets. Where possible, McDonald's training programs in Europe are aligned to nationally recognized qualifications. This is a significant benefit for our staff, and it provides proof that our standards of training are high. In over 30 of our 40 European markets, we've developed a suite of nationally recognized qualifications. This really differentiates us not only in the restaurant industry, but across the business community as well. To be recognized in over 30 markets for being the best employer is a testament to that fact. Now, I'd like to make a few comments about broadening accessibility. Our future growth depends partly on driving guest traffic, getting more customers to visit more often, in addition to building new restaurants.
For Europe, broadening accessibility is being manifested in several ways. At the forefront is making sure our menu and price points are appealing to a broad range of customers. This covers many facets of our business, but our everyday affordability platforms are a critical component to delivering compelling value to our customers. While the names differ from market to market, for example, SMS in Germany, Savor Menu in the UK, Uno por Uno in Spain, and there are many others, we also have many options on those menus based on what works best locally. Everyday value menus account for about 14% of sales overall. Also, in many markets, we've successfully rolled out a fourth tier, our Petite Plaisirs, or little tasters, a range of small but very tasty and appealing items with a higher than average margin.
In common with our other partners around the world, we continue to extend our operating hours. We've got a lot of opportunities, though. Today, we have over 1,600 restaurants open 24 hours at least one day of the week. Going forward, we're going to continue to look for additional opportunities to expand the availability of those expanded hours to meet our customers' needs. Europe also has a huge opportunity to grow breakfast, and it's becoming an increasingly important day part for us. Today, our largest market serving breakfast is the UK, where it accounts for 13% of total sales and is growing. This day part is also growing in Germany, Austria, Russia, and Poland. However, in many countries, the morning meal tends to be a coffee and a pastry rather than a protein-based entrée.
To appeal to the broadest range of customers, we're working to make our coffee even more compelling. In fact, we sold over 335 million cups in 2010, and our share of the I.O. coffee sales has increased from 2.5% to 3.5% from 2008 to year-to-date 2011. I must also reference drive-through. Unlike the United States, the market in Europe has relatively few drive-throughs. Currently, we have just 63% of our restaurants offering drive-through service, and those restaurants' sales account for 45% sales coming through the drive-through lane. As people are increasingly looking for convenience, we're capitalizing on this major competitive advantage, and we expect over two-thirds of our new restaurant openings this year to be drive-throughs. To further enhance that customer experience, we're also adding customer order displays in most of our drive-through lanes, helping to improve order accuracy and streamline the order process.
We're looking at the other great ideas around the world and looking to scale those, such as side-by-side drive-through lanes, to increase capacity where we actually have that volume and demand. Finally, certainly not least, we will also continue to support top-line growth by opening new restaurants. In fact, there's potential to add a significant number of restaurants in Europe, and we're focusing on opening even more restaurants moving forward. We opened an average of 160 restaurants per year between 2004 and 2009. This year, we expect to open between 230 and 240 new restaurants. For 2010, we expect to keep up the pace, concentrating on Russia, France, Italy, Spain, Germany, Poland, Austria, and the UK as our biggest markets. In fact, we expect that total to exceed 250 restaurants in 2012. Now, to our food.
The European business has had a successful, tremendous history, and a legacy of food innovation, and we're committed to continuing the tradition of great taste and great value, balancing our food offers and promotional activities across the four tiers of our menu. We continue to develop the premium end of our menu, and our innovation reinforces our leadership on beef. We introduced La M a few years ago, and this year introduced the 1955, which many of you took a bite or two today. That sandwich has been launched in over 20 markets, and overall sales and customer feedback have been very encouraging. Chicken is also a growth opportunity, and we're creating new news at every level with products like Value Chicken, Chicken Bacon Onion, Chicken Legend, Chicken Mythic, as well as Chicken Wraps.
The large wraps represent a completely new platform, thanks to the work carried out by our colleagues in Poland and Austria. Large wraps appeal to customers for their taste, freshness, convenience, and offer endless combinations, including beef, chicken, shrimp, and curry. We even have breakfast wraps in several markets. By the end of 2011, large wraps will have been introduced in 21 markets across Europe. Let's take a look at an ad from France for this new product offering.
You want to translate that for us?
We also know that food events promoting both beef and chicken, often with side order, dessert, or beverage, create excitement and interest in our markets. They allow us to tie in with seasonal events, such as Christmas or summer, or to celebrate local relevance with locally themed menus, such as McItaly or Hutten Gaudi in Germany, and also to promote our American heritage, such as the Stars of America promotion. We also continue to provide support for most of our existing famous products: the Big Mac Chant in Russia, Favorites in the UK, Double Cheese in France, and the Big Mac EVM in Germany. Moving on from our food and looking at the success in other areas of the world, beverages are clearly an opportunity that's untapped in Europe.
While McDonald's coffee is already very popular throughout Europe, we're just beginning to explore expansion of our beverage lineup with options like real fruit smoothies and frappes. We're also keeping a watchful eye on consumer trends towards a healthier lifestyle and nutrition. Our Happy Meals throughout most of Europe are available with fruit as an option, and we're committed to making fruit and vegetables more fun for children. As you can see here in the example, we're introducing new innovations, such as Kiwi on a Stick in Italy, and using licensed characters to make fruits and vegetables more appealing. We also run local events, such as Crunchy Wednesdays in France, where a fruit or vegetable option is free for children.
We also continue to be very open and transparent about the nutritional profile of our food by including information on our packaging, as well as rolling out menu board labeling in the UK. Now, a couple of comments about quality. Having led the supply chain for over four and a half years, I know that our quality standards set the industry benchmark, and it's important that we communicate this to our customers. We do this in a variety of different ways. For example, we actively seek out local endorsements, such as the AMA stamp in Austria. We source ingredients locally where it makes sense to do so, and we use iconic local ingredients in promotions, such as we did with Charolais beef in France earlier this year.
We also use sustainably certified coffee across Europe, and just a few months ago, we were the first major retailer to have its whitefish certified by the Marine Stewardship Council. We have more to do, but great progress has been made to communicate that we will not compromise on quality. Let's take a look at an ad from the UK that represents our passion for quality. Connecting with our consumer on quality, but it's really about our brand. What do we stand for? I want to make a few comments before I conclude about building our brand and the bond with our customers. We're committed to being a good neighbor and playing a role in enhancing the communities we serve. Our goal is to show we live the values we've set for ourselves, and we're responsible in everything we do.
This takes many forms, from providing a range of high-quality, balanced choices on our menu to supporting sports and physical activity in children, to initiatives that promote sustainability. Sustainability and the environment are of paramount importance to our European consumers, and we've made great strides in the last few years. We're working to reduce our impact on the environment with energy management tools that enable us to use green energy in markets where available. With the help of these tools, we've been able to reduce our overall electricity consumption. We're also making improvements to our construction standards and being more energy efficient by requiring that all of our new and reimaged restaurants conform to green building guidelines. Finally, we're recycling more and actively working to minimize the carbon footprint of our European business. I'd be remiss if I didn't make a comment about our upcoming Olympics in London.
Next year, the UK will be the host of our Olympic sponsorship. London 2012 marks the ninth consecutive time that McDonald's will serve as the official restaurant of the Olympic Games. As part of that sponsorship, we'll demonstrate our commitment to quality food and champion the farmers who provide ingredients to McDonald's UK restaurants every day. In addition, we'll underscore our commitment to children's well-being by launching a new global program that encourages a balanced approach to nutrition and activity for children. As you can tell from this tour, McDonald's Europe continues to leverage the most successful strategies from around the world to keep our brand relevant, contemporary, and compelling to our customers while driving improved profitability. As we look forward to 2012, our plans are focused on building market share with the right mix of comparable sales and guest count growth, strategic reimaging, and expansion.
While much has been done to improve our business in the last few years, we still have a lot more work to do, and we'll be relentless in driving that momentum. In closing, what excites me most is that future potential, continuing that journey, leading innovation in the restaurant business, differentiating ourselves from our competitors, and ensuring that our customers continue to see that we are moving from fast food to good food fast. Thanks for your attention, and now I'll invite my partners in the room to take your questions. Thank you. I'm just the opposite. I have to put my glasses on to see this. Awesome. Number one.
Thanks, RJ Hodavy from Morningstar. In an environment of tighter credit in Europe, is there any concern about franchise ability to grow, remodel, reimage, or put in a lot of the initiatives that you put in place in the presentation in 2012 and beyond?
Jerome, I think it's right up your alley.
So far, I mean, we monitor the environment very, very carefully. However, as you can see, top line is still doing well. As in other areas of the world, when top line is doing well, our franchisee cash flow is doing well, and our franchisees are still committed to invest. The good news is that thanks to the, let's say, good grading of the brand, so far, we don't have any issue for franchisees to have access to funding, and they still have access to funding at a very, very good rate. No change.
Number two.
Thank you, Joe Buckley Bank of America , Merrill Lynch.
Thanks, Joe.
2011 sales performance has obviously been very good, but have you seen any signs of consumer behavior changing from macro influences? As the macroeconomic news gets worse out of Europe, how do you position yourself for 2012? Are there any changes in the game plan as you try to sustain the positive same-store sales growth?
Joe, let me kick it off, and I'm going to throw it to my partners here. We just had the opportunity to go through what we call our phase two planning to look at the upcoming year. I will tell you that overall, in the plans we saw, the focus continues. The Plan to Win is working. The detailed focus in the plan is still relevant. I think clearly value plays a role, and we've seen a number of our markets continue to evolve their value proposition and looking at making sure that we keep that connection when our consumers are a bit more crunched with some of the austerity measures and the rigors that they're going through in their businesses. I'll throw that out to Jill and Bane. You're two of the markets that certainly have some challenge. Any thoughts?
Okay. As you saw from the graph that was shown earlier, the UK has had declining consumer confidence. However, we continue to see very strong growth, both in sales and guest counts. Interestingly, growth is right across our menu and right across different day parts. Value is important, but what we're seeing from consumer behavior is when it's all a bit doom and gloom out there, giving yourself a little affordable treat is certainly playing through in the UK. We're seeing just as much growth from our premium platforms and our premium food events as we are from our Stabler menu, which is our everyday affordable pricing platform. Through a whole sort of multiple layering of different initiatives, we're managing to buck the trend in declining consumer confidence, which makes me confident that we're in a good place to weather different economic conditions.
Bane, any thoughts?
I think so. Concerning German consumer, German consumer is most price sensitive. I'm sure that overall, the global market will play a role. There's no question about this, at least in Germany, because when you know that in front of you, you need to bail out one third of Europe, certainly German consumer will not be happy, nevertheless. Having said that, GDP growth is slowing down, but if I compare all quarters, quarter three in Germany was the strongest quarter with 4% same-store sales. Absolutely, once when we have all three tiers in the position, then I'm absolutely confident, especially the lapse between us and competition is growing, then we'll see good results and excellent results in the future. Especially the business model of McDonald's. It's not the first time that we're going through crisis, especially not in Germany. We had this two years ago, and it was positive.
It was last year it was positive. The business model of McDonald's is a very funny one. You can do bad economy, good economy, growth, no growth, employment, no employment, still sales growing.
I'm sorry. Anything on Eastern Europe? You're in a different situation.
We have to end on a continent that's growing up. You can see by results, we have more penetrations than ever before. We have more guests coming to stores. We have shifted from value to more premium product. We have straightened now every check. It's totally opposite.
I wanted to follow up on the first question about access to capital, since it's such an important part of your growth algorithm. Maybe when you did experience the crisis a couple of years ago and franchisees had to make decisions, what did they forsake? Was it the new unit growth? Was it the remodels? Was it building the McCafés? When they have to make choices, what kind of decisions do they make? Looking further, if capital markets do seize up more significantly than they have, just as you went into the real estate business, would you go into the banking business?
Jerome,
we saw Louisiana. We are not in the banking business, and we will not. We never lend any money to a franchisee in Europe. There is no one case where we would do it. About investments, it's through the franchisee who makes its own decision. We are there to partner with them and to guide them. We have what we call an investment roadmap, which sequences what they have to invest. Clearly, as you saw, you have seen through the presentations our priorities. We started reimaging about seven years ago. Now we are going to the end of the cycle of the big reinvestment, exteriors and interiors. We will probably be done somewhere at the end of 2013. End of 2012, we'll be done with interiors. Now they have to be prepared for some investments around IT and service.
However, the magnitude of the investments which are in front of us has nothing to do with what they have done in the last seven years. The good news is that we have been able to align the franchisee with us on this strong reinvestment piece, which was reimaging. As you saw the numbers, most of it is done. What is in front of us is much less than what we did. The cash flow is still growing, and we monitor very closely their debt-to-cash flow ratio to make sure that they are not too leveraged. This is why maybe in some countries we have slowed down a little refranchising to make sure that they keep funding available to go to reinvestments instead of buying company stores.
Because of that, we were confident that they still have access to capital and they still have capacity to face the reinvestment they have to do.
I would add to that. In the last couple of months, as I've had the opportunity to travel markets and meet some of the operators, the attitudes are so positive. Success breeds success. The investments that they've made have returned for them. They're proud of their business and the brand, and they see this as an opportunity to continue to drive forward. They're in the best position financially in their lives with unprecedented success, and I would suggest that they've been very responsible in growing their business. I think we're in a great position. As we continue to have the opportunity to grow and bring new innovation, I think they're absolutely, as I've gone to the different markets and been introduced to the franchisee groups, there's a lot of energy to continue this momentum with the franchisee group.
Okay. Thanks. Larry Miller with RBC. You mentioned in one of the slides that half of the markets were subject or conducive to weaker consumer confidence. Obviously, it doesn't sound like the UK or possibly Germany. What are the markets that are more sensitive to consumer confidence? How does that weaker consumer confidence play into pricing plans across the European businesses there? Can you give us a sense of how you're thinking about taking price in 2012? Thanks.
Okay. Let me start, and you guys can all kick in because there are, again, 40 markets. You have almost 40 different points of view. In some of the more extreme situations where you've got severe austerity, that consumer confidence is almost creating paralysis. You take Greece to the extreme or Portugal. You have tremendous concern because the folks are being faced with some severe situations in their countries. In other situations, and Bane already mentioned in Germany, Germany is a pretty darn healthy economy. Yet the German consumer is very concerned about what Germany is going to do to help everybody else in the eurozone, and it takes on a different flavor. In the UK, while there's concern, there's still a lot of energy in the marketplace. It's hard to put one broad answer. Guys, you want to add, and then we can go back to the pricing second?
No, I mean, I think you have said it all. I think now we can explain how we can play through the 40s with the pricing, and then you can take some examples where we have still strong value. Before we go to some examples, you have to understand that all the work we did in the past years with the brand, with the reimaging, has positioned us at a level where we have, let's say, more power to communicate to franchisees and to customers and to convince our customers about the good value they can have within McDonald's. We have some permission to sell them some good premium products. Maybe you have some examples on how you play with your fourth tiers in your markets.
Yeah. We introduced, actually, following the lead from France, a fourth tier a few years ago, which is sort of price positioned between our entry-level menu and our core menu. That just enables us, we continue to sort of try and retain some really iconic price points on our stable menu, but we will obviously continue to move prices forward in a very planned way. We have an external company called RMS to help us with some facts around pricing moves. As we continue to sort of move our prices up, we have a fourth tier that we can sort of help fill a space in our menu between core and that entry-level price. Certainly, for a number of markets in Europe, that's playing very strongly.
Okay. Number four.
Hi. Dave Palmer, UBS.
Hi, Dave.
Question on the reimaging front. I guess this is for you, Doug, and also Jill. I noticed that reimaging overall in Europe is happening at a faster rate, at least now, but it seems like over the last few years, the % of the overall system is happening faster than what is happening right now in the U.S., where only about 7% of the system is being reimaged per year. It feels like the direct sales lift that you guys were talking about, something like 5% to 6% type lift, is similar to what's being quoted in the U.S., but you guys are moving faster. We've seen reimaging, at least I perceive from the outside, that it's played a huge role in maybe the most improved market in the world for McDonald's in the last four or five years, which has been the UK, where you've gotten to scale.
Are there lessons from the UK? I keep on wondering about this. Are these markets, Europe and the UK in general, should we be stepping on the gas? In the U.S., it's going to be the question I have for Jim and the gang. Am I perceiving this right? Am I perceiving this right as far as you guys going faster because you see something more here?
Let me give you just, I'll give you a perspective. Again, you know I'm two months in, less than two months in this role, but I've been traveling for the last five years, and so I've had a chance to experience Europe in a significant way. I would not underestimate the holistic plan that is encompassed in driving the business. I think while in Europe, the energy started perhaps a little quicker, but I would also suggest to you that there might have been greater need. That's just from, I'll give you a little of my observation. As the momentum gained, it was not just the reimage. It was all of the elements within those country plans that are driving the business. When we talk about the success in the UK, reimaging is just one piece of that. It is the holistic plan to improve operations.
It's to bring value to life. It's to reimage the restaurants. You know, it's that execution. It's expanding the accessibility of the restaurants through extended hours. It's that whole collection of business strategies driving it. I think the same thing as you know I have the chance to experience at me or experience in the US. It's the collection of strategies. The priority focus may be greater or lesser in one geography, and you take a beverage platform in the US. I would suggest to you that we didn't quite have that same energy in Europe, but it's still an opportunity for us. I think it's a collection of strategies, and it's happening in different ways in the different areas of the world. I don't know that there's one better way than another, but it also tells us that we can learn from each other in each geography.
I think that's what we all try to do.
Just to confirm that when we started in Europe in the year 2000, the level of brand perception in Europe and in the UK had nothing to do with what it was in the U.S. As Doug said, there was a real need to change the brand perception. Reimaging was the kind of green fee that allowed us to improve the brand perception, to improve the employees' pride, to improve our employee image, to improve our corporate responsibilities. We had to do it because we were far away from the U.S.
Just to build on that, I think that is a key point. The reimaging has provided a tipping point for brand McDonald's reappraisal in the UK. If we'd just done reimaging, I don't think we'd be seeing the results that we're seeing now because we have been focusing on extended hours, operational excellence, menu innovation, as other markets have. We had a greater need to represent brand to customers. We'd got a little bit too out of step with design trends. I think we were coming from a different place to the U.S.
Okay, I guess we got time for another one. Number one.
An easy one. Nicole Miller from Piper Jaffray. As it relates to the self-serve kiosks where the customer can order for themselves, how does the average check compare to ordering at the traditional point of sale?
Jerome, you get to.
The average check is much higher, but I'm not sure this is something you have to focus too much on because if you just move consumers from the front counter to the settlement kiosk, you don't make more money. What is key is to compare the average check of the store before you put in place a settlement kiosk to after you have put it. What we see is a lift in average check, which is probably in the range of minimum in France, which is a market where we have a large sample, which is about more than 1%. With 1% average check lift, it gives you a payback in less than one year. You have a second benefit, which is a little more discount. The first benefit is the average check of the store is going higher.
Okay. We got time for one more here. I guess we can take another one. Anybody else?
Everybody's in need of a bio break.
Huh?
Got it?
Oh, I'm back here. Number two.
It's Bob Coleman, Gardner Rousseau & Gardner.
Hi, Bob.
You mentioned that the spirit of the family stores, the comps were at 15% in some cases. Is that a true statement? More importantly, over what time period does that measure? Is that one month, three months, two months? More importantly, are you entering a period where you're going to have to spend more at a faster rate because you're introducing more technology to the store?
I'm going to start because we have the two chiefs of the two restaurants that are in test. We're in a great position for that. With any innovation, you have to have a learning lab. I would call the spirit of family restaurants learning labs to bring family energy back into our restaurant. I would suggest to you that we've done a great job in reimaging the brand across Europe, and as we're doing it around the world, we need to make sure that we don't lose sight of that family business. We felt like there was an opportunity to connect in a bigger way as we've continued this journey. It's part of that. It's just looking at the elements that resonate and are of interest to the family and the child.
You know it's not just about building out and blowing out a great restaurant that you saw the two examples here. It's about trying to take those learnings and understand how we can continue to be relevant and connect in the family business and with our little consumers and engagement with moms and kids. You guys can talk specifically about each of your restaurants because you're each doing the test.
I want to just nail the "were you telling a lie" question. I'll let you go. I wasn't telling a lie. The period that was referring to was 10 weeks into the test, and the store was reimaged at the same time. That is the comp sales growth that we're seeing as a result of the reimage, which obviously included the spirit of family within it. As Doug was saying, it's early days. It is a truly amazing store. There is certainly nothing like it in the UK, and I'm sure not in Germany as well. We need to give that time to bed in, operationally understand how it's performing, also to get a better understanding as to which bits of that concept are scalable. It is a true concept store. Some stuff will work brilliantly. Some stuff probably won't work so well.
It's at a really, really early stage, but it's very exciting.
Germany is actually a brand new restaurant, so it's not comparable. It's like three months old. Basically, what we can say is only that this restaurant is an extended trading area than restaurants without a family spirit concept. This is something which is clearly seen. The point in this German restaurant is we project these restaurants around to be €2.3 million. So far, it's progressing to be €3 million, so it's far above projection. Again, it's three months old restaurants. We need to go through the winter, and then we'll be more clever next year.
Okay.
Just a thought on that. I call it innovation, and I call it a lab. I will tell you, in meeting with Michael Henrici, it's the opportunity to continue to bring new news in our restaurants. We are going to evaluate those opportunities based on their merits and the returns and what it brings to the consumer. I think everybody's seen them. Don, I don't know if you have any comments. You've seen at least one of them, if not both of the restaurants. It's trying to understand that energy that it will bring.
Yeah. Just a couple of things. One is we have 33,000 restaurants. For us not to test would be, it would be definitely not prudent. I mean, we should test. The other thing is you have to understand the restaurant's pre and post. If we do a rebuild in the U.S., we may get 15% to 20% comp sales increase based upon the rebuild itself. When we've done this restaurant, to Jill's point, it was a reimaged restaurant. What we're trying to test out with the spirit of family concept is which aspects of technology may be scalable to the points Jill made in a broader context. We're not looking at taking a model or a test store and stamping that out all around the globe. Having said that, there are some things that we're seeing that we say, wow, this is very relevant to a certain aspect.
The other thing that's not transferable, I'll call it, and I think it was a question that Nicole asked, you have to understand also the dynamics of the various markets. If we talk about a kiosk as an example, kiosk in a restaurant that has a much higher in-store percentage is very different than a kiosk. You couldn't just stamp it out, say, in the U.S., where you've got 66% of the business going through the drive-through. We might look at a different approach relative to the drive-through. It's just very important not to take a certain comp benefit and say, wow, if they did this around the board, bam, they plug it in. Next piece. On technology and investments, we will be very prudent relative to our investments.
Believe me, there's no way that we're just going to approve a budget of a technology increase to stamp out the spirit of families all around the globe, and it impacts us from both a capital expenditure perspective and a return perspective. You all have to rely upon our historical prudence relative to how we budget and how we execute within our resta urants.
All right, Dave. Thank you. Kathy, all right.
Thank you. All right. We are ready to get started. We are going to begin our last session of the day with our Senior Management Team, Jim, Don, and Pete, for about 45 minutes of Q&A. Jim's going to start with some concluding remarks, and then he'll moderate the Q&A, and then I'll come back up to lead us to our next event. With that, I'm going to turn it over to Jim.
Thanks, Kathy. Kathy asked me what order I wanted to do these closing remarks, and I thought, maybe I'll do them now because after the Q&A, you might not want to hear them. As I always say on the conference calls we have for earnings, I always have a closing piece, and I always wonder if anybody's on the other end of the phone when I get to the closing. I see heads shaking. I know what the answer is. I want to do this now as a run-up to our final Q&A session. I just want to thank everybody for coming out. I've seen a lot of old friends today, and it's a pleasure to see you back here on behalf of McDonald's and your investment in many cases.
We appreciate the opportunity to provide you with a comprehensive look at the McDonald's business and our plans for sustained profitable growth over the long term. I want to reiterate the optimism that I hope I gave you this morning that all of us have had in the ongoing success of our brand and what you saw today from the area of world leadership. McDonald's continues to drive results around the world by offering what customers are looking for more than ever. Great value is at the top of the list, but outstanding convenience, modern restaurant experience, relevant great tasting menu offerings. Our entire system of owner, operators, suppliers, and employees remain aligned around our Plan to Win. I said that this morning. The most important thing relative to our success over the last eight years is the alignment of the system.
We work tirelessly to make sure that that alignment doesn't start to shift. It's important for all of us to be on the same page: operators, suppliers, and employees. As you heard today, our focus is on driving growth by optimizing the menu, modernizing the customer experience and employee experience, and broadening accessibility to our brand. It's apparent that there's still a great deal of opportunity, as you saw today, and we plan to take it as best we can. We will continue to run our business by listening to our customers and transforming their needs into winning growth strategies across our system. We are in a unique position to truly extend our leadership in the marketplace in every market we operate in.
We have the right strategies in place, as you saw today, and the right people to lead them, and the capital and resources to invest and execute at the highest level. While the economic recovery, depending on where you are in the world, continues to have starts and stops, some places it's starting and some places it's stopping or being delayed, we are staying focused on what we can control. This is the important thing about the McDonald's business model. We can control quite a bit, but we control it within the parameters of our business model and our capability to do what we can and staying committed to our winning plans and delivering an exceptional experience for our more than 64 million customers and growing around the world every day.
Our unwavering commitment to and outstanding execution of the Plan to Win has created significant brand differentiation and strong business momentum. I know you saw today, but we are well positioned for sustained profitable growth, and I'm confident that the investments we are making will yield long-term value for shareholders well into the future. Thanks again for coming and your continued investment and support of McDonald's. Now we're ready for those tough questions that you have for Pete, Don, and me, or whoever else might be down here if we have to toss it to them. Thank you.
Hi. Ben Walker from TCI. I see in 2006, 2007, and 2008, the gap between your comps and guest count was above 3%. It's fallen down a bit, and now it's on its way back up. I assume that's a price mix. Is that something you specifically target, and do you think you can get that to above 3% again next year?
We don't necessarily target the gap per se, but what we do, if you look at our pricing and you look at our menu and product mix breakdown, we price against food away from home, food at home, and most important is to maintain guest count traffic at a reasonable level and growth of that traffic, particularly during difficult times, 2008, 2009, 2010, in those economic environments. When you start to add new menu items on the higher end of the menu, of course, you get some impact on average check, but it all balances itself out over time in that relationship. We do not target specific gaps, but we target our pricing relationships so that our traffic continues to grow.
If we do it right regarding what our consumers want from McDonald's, you know some of those are premium items, and some of those are dollar menu or those fourth-tier items that we talked about earlier. Until you just told me, I didn't really realize what the difference in those gaps were in those years. It doesn't mean I shouldn't have known, except to say we don't really target the business in that particular way. Thank you. Did we have one? No here. Number four.
Pete Bensen from Credit Suisse. Pete, this is a question for you. Clearly, the franchised business model is working in a tough economic and inflationary environment. Even with McDonald's operating margins down slightly, franchise margins are up in every single region. You know leverage off of comps is part of that. Two years ago at this meeting, you talked about exploiting opportunities in the commercial real estate market, buying a little bit more real estate underneath existing units, including franchisees. The nice thing about that is it's instant margin, right? The revenues don't change, but the rental piece of that goes away. Over the last couple of years, how much did you buy? Maybe what benefit did this have to margins? Is that opportunity still there?
It's much less than we had hoped, Pete, to be honest with you. We thought with the recession that we'd get more opportunities to purchase real estate. The reality is in some of the international markets, the landlords didn't want to give up the property. They had a great secure tenant in McDonald's, and they wanted that cash flow versus giving up that property. In the U.S., a lot of the properties were tied up into some of the off-balance sheet structures and other things. It wasn't just one owner for each parcel of property per se, which became much more difficult. That being said, we're still looking at opportunities. Someone mentioned earlier the competitive landscape. We're seeing other operators of other brands that are closing shop, and we're taking advantage of acquiring some of that real estate if it makes sense.
Not as much as we would like, but it's certainly on our radar screen, and we'll continue to pursue that where we can.
There is no meaningful contribution to those franchise markets.
Not that I could quantify, no.
The other thing that's important, you know, real estate markets and real estate sites in the high streets and very valuable real estate doesn't go down as much as people think it does in that sort of environment. Obviously, you had a lot of real estate in the housing market and all of those other kinds of housing prices going down. The valuable real estate on the corners where highest and best use is for someone like McDonald's, you know, those really don't go down to the extent where there's so many tremendous values out there. Other than this whole issue about portfolio owners who had a lot of properties or whatever, we might be able to renegotiate leases and do some of those kinds of things. We did some of that, but it wasn't measurable in terms of the overall impact. Number one?
Bob.
Pete, I know you're doing all of your reporting and running your business on a constant currency basis. Obviously, that's the right way to do it. So that this group of analysts are not going to be disappointed with your results next year, at least you've given them a heads-up. Let's assume the dollar gets even stronger in a tougher situation in Europe and all. What kind of a reversal effect, or maybe you can certainly measure it from the current levels, would you see on currency, which has been a big plus this year? What would you see being the effect on results next year? While you're on that slightly sticky issue, would you pinpoint a little bit more the effect of some of those accounting charges that will be realized next year related to, I think it was the Olympics and special costs?
Is it worth our knowing what that is in terms of its impact on earnings?
Okay. In terms of currency, if we look at today's rates where the major currencies are relative to the averages for the year, obviously, most of the major currencies are weaker than the average. That does imply that we will have a negative currency impact next year. I don't have all of the plans, the detailed plans from the countries yet loaded into our system to be able to quantify that for you. Again, at today's rate, looking where they are compared to the averages year to date, I couldn't imagine today that it would be more than a few cents negative. By the time we get to the January call, I'll have all the plans loaded in and be able to quantify that in a little bit more detail.
Regarding what you referred to as charges, this is an additional $100 million of G&A that is split between our support of the Olympics in London, our cost associated with the Worldwide Convention in April, and the increase in our technology investments around the world. Roughly half of that is related to technology, and the other half is related to the Olympics and the convention. It is spread amongst all of the different initiatives you heard in the area of the world presentation. New, what we call new POZ, NP6, the new point-of-sale system that's done in the U.S., that's going to over a dozen countries next year. While it's a global system that they put in the U.S., that means about 80% of that is transferable around the world. The other 20% has to be localized for local VAT schemes, local fiscal reporting, integration with the local back-office system.
There has to be work done in each country to get that system ready for mass deployment. By doing this in a dozen or so countries next year, that is a significant cost. You saw Doug talk about our lounge and these crew portals. That's going to several other countries next year. That is going to be some expense.
Let's just put this in terms of earnings per share. It sounds like the foreign currency is going from a $0.20 positive to maybe up to a nickel or so negative. If this other, if it's $100 million, that would, given your tax rate, that might be.
Another 5.
$0.05 or $0.05 a share. Now, this year, have there been any special costs that won't exist next year?
Not of any significance.
I think let me just take the rest of this, Bob. First of all, we have a non-recurring expense every two years at McDonald's. Every two years, we have a worldwide operator convention. Every four years, we have the Summer Olympics. Every four years, we have the Winter Olympics, and they're two years apart. Every two years, we have this non-recurring expense. The only thing that is out of the ordinary that's non-recurring in 2012 is this technology piece that's different from our normal course of business and our spend that otherwise would have impacted our G&A. That's the way I always look at it because I ask them the same questions when we do the G&A review. The other thing that I would say is if we could be that good at predicting the currencies, we could simply phone our scores in.
I don't think anybody knows for sure what the overall impact of the currencies are going to be in 2012, certainly sitting here on November 9th or 10th. I realize we all like to have some prediction and some understanding when you look at the projection in the outcoming year on the constant currencies and all of those other things. I appreciate the question, and Pete answered it as eloquently as he can based on everything we know right at this moment. Those rates, as you saw the difference, three days ago, the euro was down $0.035, and Greece had a problem, then Italy had a problem, euro went down, euro went back up. When you look at it over a 12-month time frame, and the other basket of currencies that we have around the world also have fluctuated, it's very complicated.
This team does about the best job of any that I know of in being able to sort of factor that in and what we might expect to happen over the next 12 months on an as-reported basis. Number three.
Hi. John Ivankoe. We've seen a lot of different operating platforms over time, from Grill Direct to Bridge, Made for You. Made for You, of course, came in the U.S. in the late 1990s, and it's interesting to see that Made for You is kind of talked about as the operating platform of the future for some countries now, as I guess it's the most flexible and perhaps efficient system that's out there. The context of the question is maybe it was four years ago or six years ago, I can't remember now, at an analyst meeting, there were some flexible operating platforms, modular operating platforms, kind of McDonald's of the future of what it could be in the kitchen of, hey, it's less we're concerned about labor costs. We want to be more efficient. We want to have more flexibility, all these different things.
Obviously, it wasn't the point of the meeting today, but just wanted to get your sense three to five years out. Is there a real opportunity to change the way that the kitchen, back of the house itself, if you will, is actually run?
We talked about it a little bit earlier today. I'll take this, and maybe if we could ask Jeff Stratton to weigh in on this. Jeff is the head of RSG, Restaurant Solutions Group, and all the equipment and technology migration in terms of that orchestration, in terms of enhancing the customer experience. You know we have been all over the board on the operating platform over the years. We have landed now in a place where we say the best and most efficient operating system for any restaurant in the system today relative to menu proliferation and our technical capability is Made for You. We had Bridge operating platform in Europe, which we sort of said, okay, you can use that now because that's a bridge to the Made for You.
I think we've now landed on the idea that the best system for the best use in most of our restaurants around the world is Made for You. Jeff, do you want to talk a little bit about that?
Sure. I'll make a comment on the future operating platform also that we talked about a couple of years ago. Jim is exactly right. We have made the decision that we think the best operating platform for us is Made for You. It's our intent to, over the next few years, right timing, to put that in all of our freestanding restaurants where it makes sense. We're moving forward. One of the things that happened, many of you have seen the modular operating platform, as you referred to, John. Instead of doing that kind of whole hog in the system, we've actually taken the best of that testing and actually have begun to implement that throughout the entire company. Someone talked a little bit earlier, I think it might have been Jimmy Jay or one of the folks on the U.S. business, high-density prep.
The reduction of that prep line, but with more capacity, high-density UHCs, the changes that we made in our drive-through to make it more efficient, what we've done with technology, not only at the back of the house, but the front of the house. That was all part of that platform testing that was done at the Innovation Center and in our Romeoville restaurant a few years back, which I know a lot of you had an opportunity to see. We've done other things too. Audio remediation, better audio communication with our customers. All the changes we made on our POS system that Pete and Don and Jim have referred to have caused us a significant increase in order accuracy and our ability to perform on the customer side.
Kiosks, restaurant order proposal, automated ordering, these types of things, these efficiencies are all being woven into the operating platform changes throughout the system. That all came out of the modular operating platform testing and the way in which we've made decisions to make life easier for the restaurant managers. It's paying big dividends. You heard a lot in the presentations today, a lot of commonalities on the initiatives that are being pursued all over the globe. I think we've done a fairly good job working with our area of the world partners on making sure that these are all blended into our plans and the way in which we want to operate our restaurants moving forward in the future. You know.
There's another part too, and I know Jeff and the team are working on it, John, but we're at a point now where we also have to integrate service and production much more effectively than we have historically. We have quite a few tests that are looking at, if you look at Europe, we have some tremendous peaks in some of the markets and high items per transaction. The integration of service with production is important. We're testing things, and they won't mean much to you guys, but we're testing everything from kiosk setups, which we talked about, to dual point ordering versus pickup. The other thing that we have to be mindful of is relative to technology, and someone asked the question early on kiosks. What is the technology of the future? It's very akin to the digital conversation.
We don't necessarily want to move forward and put a lot of kiosks in if we're going to go to a mobile platform with smartphones. It would not be the most prudent investment. We have to, in markets like Asia, be able to look at how's mixed delivery going to factor into any service platform that we put in? How's that going to be housed in the restaurant? When you implement the beverage strategy that's in the U.S. now and other parts of the world, how do you integrate that from a production perspective relative to how that's integrated then in the service platform that we have?
Jeff and the team are doing a lot of work, a lot of tests around the world that are really the next phase, if you would, of all the work we did before with the evolution from Grill Direct through Made for You, Bob's, etc. There's still a lot of work that's going on, but a lot of these folks, there are tests going on in their market.
The way we look at it, John, really is from a practical standpoint, it's about continuous improvement on whatever operating platform we're using in whatever country and whatever store. People have been asking me over the last few years, or after I had some credibility in the organization, I have a couple of years in the job, what's the next big thing? Even the board of directors, and you remember, you know one of our first strategies, what's the next big thing? I think everybody was somewhat dismayed when I said I have no idea.
I say it that way because when you look at the way we spend our time on continuous improvement on all of our equipment and technology platforms and the delivery systems, and the way we are structured today, and the freedom within the framework and the food studios, development studios, equipment, and technology labs, all then sort of orchestrated through the Innovation Lab and Restaurant Solutions Group, we've gotten really smart about understanding the protocols of innovation. What I say after I say I have no idea is that I know that based on our protocols and our processes around this innovative sort of evolution of our McDonald's delivery system, we'll find it, we'll scale it, and we'll execute it better than anybody else.
I say that because back in the day, who would have thought drive-through, you know that was an innovation, and we weren't necessarily the first, but when you scale it, McDonald'size it, and then execute better than everybody else around that. It takes time to take those new ideas and those new things to be able to work the bugs out and get them in a position where you can scale it. We're not interested in scaling something across 5,000 stores. We need something that can be applicable across the world. Yes, back here. Oh, wait a minute. Do I have to go there? Okay. Number two.
Mitch.
Mitch.
Thanks. Mitch Spizer, Buckingham. I'd like to follow up just on the question or on the topic of 2012 and how you can maybe help us out modeling. I guess, Pete, this is a better question for you. The combined restaurant margin, I believe, for the first three quarters of this year is down about 60 bps, and that's despite comps up about 5% and franchise margins up about 50 bps. As we think about 2012, you told us food costs in the U.S. probably up about the same as in 2011. Europe food costs up, maybe not as much as last year. The first question, can you give us maybe what Asia-Pacific, the food cost outlook is there in 2012 versus 2011?
As we think about that combined restaurant margin, what levers should we think about other than, I guess, comps growth to grow combined restaurant margins, given that they are running a bit down this year, even with comps up about 5%?
All right. Combined operating margin is up 9% through the nine months.
Mitch, are you talking about company operated margin?
Oh, you said combined.
Yeah, I know what you said, but I think it's the other.
Yeah, I think company operated based on.
Don't let him off the hook.
The company operated are down.
The combined franchise margin has been.
The company operated margin is down.
Correct.
The franchise margin's up.
Correct.
The overall combined restaurant margin is up.
Is up.
I'm sorry.
Yeah.
As we look to 2012, with food costs running up about the same, maybe a little bit better, comps running up 5%, should that same algorithm be in check for 2012? Are there any other pressures that we should think about when we think about that combined restaurant margin?
I think the algorithm is pretty much similar. You know we don't predict comp sales. You threw out a number. We feel pretty confident in the ability to continue the top line momentum. If you think about the U.S., when we started 2011, we had no pricing carrying over from 2010. Yet, when we start 2012, we're going to have a little more than 3% price increase carrying into January when we start the year. We'll have some benefits earlier in the year to help combat some of those commodity cost increases. As you point out, the cost increases in Europe next year are going to be lower from a commodity standpoint, at least as we sit here today, compared to this year. Atmia, the number, I think Garland mentioned this, very similar in terms of the commodity cost increase expected next year.
As Jim mentioned earlier, the biggest contributor to our margins is growing those top line sales, and we're confident that momentum is going to continue.
I think the other thing is, Mitch, we continue to be behind the cost of food away from home and food at home. We still have, as was mentioned, I think in most of the presentations today, some pricing flexibility, pricing power, if you will. We are a company that's reluctant to take that. We certainly don't take it to pass on all of our costs to the consumer. Our indexing would tell us that as we move through 2012, as we did in 2011, we'll take a look at these parameters, and I think we still have some flexibility there.
Yes, ma'am.
Thanks. I'm going to reask sort of a question that I've asked a couple of times already. It's Sara Senatore, by the way, from Bernstein.
You shifted seats. You were over there.
Yeah, try to keep you on your toes. It actually comes down to the return on invested capital. It sounds like there's a step change almost in the way you're thinking about investments. I think you said integrating service and production more effectively than ever before. Obviously, we've seen an uptick in CapEx. Is the way to think about it that we're kind of in a period of heavy investment, maybe it lasts a couple of years where incremental returns on capital are a bit lower than we're historically used to, and then you get to ride on those investments a few years from now, and then we get back up to the kind of incremental returns we have seen in recent years when it was very much, you know, you were comping really well, you know, and combined margins were up.
I'm just trying to think through, you know, this period, does it differ from, you know, the recent history?
I think we talked about this quite a bit today. The technology piece is a one-off 2012 piece. The convention in Worldwide I talked about earlier. Beyond that, there is no reason to think that technology investment won't accrue the benefits that we expect it will. I think Pete said in his presentation that is not necessarily a sign that that kind of spend is going to continue in 2013, unless I heard you wrong.
You heard me correctly.
All good. I don't think you can read anything into this about how we are spending more and expecting less in terms of the return side. We're spending this money in 2012 because of where we find ourselves in the migration to the technology that's going to enable our restaurants to be able to do a better job, because it is so effective for us and so many countries and stores need to get on this POS system that's going to help us so much into the future. That's why we're willing to spend the money.
If you think about that, Sarah, mechanically that could mean that little incremental spending in 2012 could put a little pressure on the incremental return, but they're at such high levels, you know, not talking about them going into a freefall. If they come down a little bit, exchanging a little bit of that for future growth we think is a pretty good trade-off.
Agreed.
Yeah, hi, thank you. It's Paul Westrick, Howard & Company. I have two questions, one for the U.S. and one for Europe. On the U.S., Don, can you just talk a little bit more about the beverage program, the way you framed it of a $156 billion business opportunity, assuming all beverages sold anywhere in the U.S.? I mean, what does that exactly mean? Does that mean you can capture occasions within the McDonald's box that are now sold in convenience or supermarket stores? Does that mean you may, do you have grab-and-go cases of bottled beverages? What does it mean, what does it not mean as you look out in the next five or ten years? My question for Europe is really just a follow-up on the drive-through question.
I wish I got it in during the European section, but you mentioned 63% of your existing stores I think have drive-through, yet you're only building new stores that have roughly the same ratio. Is the opportunity in drive-through, it doesn't seem like you're capturing it in new store development. I know the percentage of sales in drive-through, of sales that go through the drive-through for stores who have it are less than 50%. My question is I didn't hear a lot about the reinvestment, 90% of external stores are reinvested, but you didn't seem to grow the amount of drive-through lanes. Just give us an idea of how aggressively you're going after the drive-through and what are you doing to really capture it in Europe?
I'll take an initial shot and then we can ask Jan and then Doug to comment on the different pieces. I think in the U.S. piece, the U.S. team was conveying that this overall beverage sector is about $156 billion. Many of you may recall about four years ago, we gave a presentation and we talked about, you know, wow, there's this big category of $60 billion in beverages. Boy, did we undershoot. That's because we were looking at certain aspects of it. What Jan and the team are talking about is that whole beverage industry is about $156 billion. We're not suggesting that we're going to tap all of that $156 billion. We are saying that there's more opportunity. I think that's the headline that I would take away from that. If you translate that into the other markets around the world, the same thing bodes true there.
We're saying that there is additional beverage business that we have not yet captured. If you break down blended ice, we're already talking about an espresso base in terms of coffees. There's teas out there, there's the carbonated sector. We've done a great job relative to value-based pricing in terms of that commodity sector, I'll call fountain-type beverages. We'll continue to execute in those regards, but there's a big opportunity in beverages and that's what the team kind of relayed today. On the European side, drive-through, so 63% at 45 and then 45% of the sales, excuse me, in those restaurants. Now, when we just went through all the business reviews in Europe and Asia-Pacific, Middle East, Africa, and the U.S., believe me, every site that we look at, we are trying to find drive-through sites that we can own. Those are the first two criteria that we're looking at.
In many cases, it's difficult to get the ownership piece. In many cases, it's difficult to get just the drive-through pad. We've not said we don't want to be in that marketplace. However, those are two criteria we're looking at. I will tell you that the percentage of sites that are in the incoming portfolio and incoming pipeline are greater than the percentage that we have of drive-throughs today. We're growing relative to drive-through base in both Europe and in Appmea. With that, I don't know, Jan, if you want to talk more about the beverages and then Doug, maybe just touch on the just real estate sites. You or Jerome.
You've really answered the big part of it. I think there's one other piece on the beverages. Besides the flavors and the teas and bottled drinks, if we should go into that, we are not going into it right now, but should we, you know, decide down the road, there's a lot of opportunity. One other thing to remember is the fact that we have the drive-through. A lot of other people from a beverage standpoint don't have the convenience of a drive-through that you can go through. One of the things that we see, people are using the drinks during a snack period. They come through, an anecdote about the sweet tea. I swear the people come three times a day. They will tell you, "I'm in there all the time for a tea." It also had an impact on average check, but the visits, they're there.
I think that, in addition, the reason why we're seeing such an expansion on the beverage business overall is because of the convenience, the variety, the price point that we have. You add to it the flavors and the uniqueness. We just see that there is still a tremendous amount of upside with it.
Thanks, Jan. In terms of drive-through, as the numbers played out, you heard the 63% of the stores with drive-through, and those stores are doing 45% of their sales through drive-through. That number is growing across all the markets with drive-through. That's a very positive trend. I think that's typical of what we saw over the years in the U.S. as drive-through is something that grows over the course of time. That's happening in all our markets where we have drive-through. The 2012 number, which was two-thirds, that's just the way the pipeline shook out for the year. Our focus is on drive-through. Where we can get freestanding drive-through restaurants, that is a priority in all our development plans.
We also have a number of opportunities across Europe, and there's focus on the high-density populated locations such as transport areas, airports, train stations, and some of those opportunities are starting to open up to us. We're taking advantage of those. Some of the number play, I think, in 2012 is a function of just what's coming to fruition through our pipeline. I can tell you in every market, the first thing we talk about is freestanding drive-throughs and how we're growing the marketplace and situating those restaurants where we can be set up for the future. Not to ignore some of the highly populated, dense marketplaces where we perhaps haven't penetrated in some time. I know we've got downtown Paris where we're back in the market where the business model can work again. We're not going to discount those opportunities as well.
I think you have to remember that's how Europe was built out. Europe was built out from the inside out and was an in-store-based development plan over all those years before we started to migrate to drive-throughs in the suburbs and outside the big cities around Europe. We started off with some markets with no drive-throughs and then built our way along over the years. Two more. I got time for two more, I'm told.
Okay. Yeah. Hi. Sean Meter from Meter Investment. When you talk about driving incremental sales, and Don touched on this a little bit ago, we talk about when, I guess there was a quote, there was a statement that the kiosks tend to have, let's say, 1% more, 1% bigger average check. When you get into all the new point-of-sale systems, has there been a lot of thought into how you can drive even more incremental sales besides just price, that a tea is a dollar, but actually giving that little incremental nudge because it seems like the people are giving it to themselves when they're at the kiosk. This is one of those things where you don't probably have to spend any more money.
It just may be a little bit of training where somebody, or what you track it a little bit so that if somebody is there three times a day and earlier in the day they had this or the other day they got that afternoon tea and they grabbed a small fry, but maybe today they're not doing it, that maybe the point-of-sale system knows it somehow if they use some sort of card. You keep getting that incremental sale, incremental sale, and it doesn't really cost you anymore. It seemed like people want to nudge themselves, and maybe there's a way if they're not nudging themselves at a kiosk, because there aren't very many of them, that maybe there's a way at the point-of-sale system to nudge them.
I think just anecdotally on the kiosks, we've tested them in a lot of different places, and what we find is that when people are on their own ordering without somebody looking over their shoulder, they buy more food. It's just human nature. Oh, I'll have one of those and one of those and so on and so forth. How we translate that into behavior and loyalty, I'll let maybe Don talk a little bit about that. Because as you say, even though that's the experience we have, we don't have a predominance of kiosks in all of our restaurants around to be able to take advantage of that opportunity.
Sean, three things. One, great points you brought up, but one of the things Jerome mentioned is, and I don't know if everyone picked up on it, he says you got to be careful of how you quantify the increase in kiosk sales. The other part of a kiosk sale is that the question is whether or not, especially if you're tracking guest counts, that's one person that was ordering for three when three used to order at the front counter. We have to really dive a lot deeper, and I think that was Jerome's caution to us as you look at those numbers, but we are looking. On your other points, yes, relative to the point-of-sale system, there are things that we are looking at testing relative to when a person places an order.
Everything from what the amount of change that's left, is there an item you would suggest of sale, all the way through to based upon this order, there is also smarter software that looks at what's a great complement to the order. Those are things that we are looking at. We also have to be careful not to badger customers, though. The last thing you want is someone always asking you, don't you want more? Don't you want more? Can I take the last $0.69 out of a $5.31 check? You don't want that. We have to do that in a smart way. The other aspect gets into mobile ordering software, smartphones, and it gets into customer relationship management.
Once people log into the site, once they're paying with a debit card and they're doing this mobily, we have the information to be able to send them coupon offers to be able to get their favorite orders so that we could be at a point where if a person's coming into McDonald's, we could say, you know, would you have your normal order today, or we might even be able to do it through a mobile app. This new point-of-sale system and our ability to go mobile opens up a whole world of customer relationship management.
One more. Herb.
At previous meetings, you've had food and other suppliers attend the meeting. Several years ago, I'm thinking back to potato suppliers or Johnsonville Broths, which was an experimentation. I'd like to know what is being done today to enhance productivity work in regard to supply chain management and getting the potatoes to the right place at the right time at the right price.
Okay, I think I can handle that. If I get off course, Doug, help me out or all you supply chain leaders here. Our supplier partners that deliver that daily miracle that I talked about before, first of all, when you consider the fact 33,000 restaurants and other stock keeping units and the food and products that we serve around the world, the food safety is, you gave them the mic? You're not confident?
Your mom just wants to stand by.
Okay. When you look at that daily miracle, particularly from a food safety standpoint with all of the vulnerability there is around the world today, we most recently had the head of the FDA come here and meet with me and Margaret, I forget her name, Hamburg, interesting name. I said to her, you know, she was in the job since 2009, what a great job she must be doing. She said, why is that? I said, I haven't heard one bit of controversy out of your department. She was here to look at the way we logistically deliver safe food around the world. When you start looking at free trade agreements and everything around the world, their job on compliance and performance around food safety and labeling and all the other kinds of things that are going on is going to get tougher and tougher.
It's a great compliment that we have these resources and people from the government working with us to see how to get it done. On the collaboration of our suppliers with us on a regular basis, they build out all these logistical scenarios all the way from efficiency. We hold their feet to the fire regarding what they can bring to the party, as you said, safe, guaranteed supply, competitive prices. We haven't had a supplier here in a while to go through that. We could certainly do that at the next meeting because in most cases, those are the same suppliers, and I'm sure we're at that meeting. I don't know about the Johnsonville guy. We still do that promotion up in Wisconsin and around.
I think you would be pleased with the partnership we have with our suppliers and understand the great contribution they make, not only to competitive prices. It's not just a one-way street there, but the high quality of those processes and in the end state of food and products that they serve our restaurants. Was that okay, Doug? Okay, thank you. I think that's it, Kathy. Am I turning it over to you?
Yes.
Okay, thank you.
Thank you.
Hey everyone, just to wrap this up, I'd like to thank all of you for your interest in McDonald's. I do want to recognize the efforts of a group of folks who helped to make this meeting a success. The IR team, our Corporate Controller group, Area of the World staff, our Communications, Creative Services departments, and many others for putting this together. Thank you. We are now going to head over to our Grand Oaks Pavilion at the lodge where we'll hold our cocktail reception. There is a covered walkway back over to the lodge. We've got folks who can help get you there. We'll see you there in a few minutes. Thank you.