McDonald's Corporation (MCD)

Status Update

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Mar 1, 2017

Good morning. Hello, everybody, and welcome to Chicago. I'm Mike Floris, Investor Relations Officer, and we really appreciate your interest in McDonald's for taking the time to join us for our meeting today. I also want to welcome those who are joining us via webcast. Today, we'll be using a mobile app. And for those of us here in person, it has the details on our agenda, management attendees, Wi Fi instructions, information on our Investor Relations team, their contact information and other relevant information. So today, we're going to provide you an update on the progress that we've made in our turnaround plan and under direction for the future. We're going to share what we've learned about our customers and the opportunities we have to grow the business by better meeting their needs. Now, your name badge is the access to all events, so please wear it at all times. We will be issuing a press release this morning to summarize the highlights from today's meeting. We'll pass out the hard copies of the release at the appropriate time. The 8 ks for today's meeting as well as our 2016 10 ks will also be posted on our website. In addition, there will be key slides posted on the website. Now webcast participants will see slides, but they will not see our commercials nor the videos. Because we're releasing non public information into an open market, trading on our stock has been halted for the duration of this morning's formal remarks. And finally, I would like to remind everybody that if you could please silent your phones. And now to get us started, it's my pleasure to introduce to you Robert Gibbs, our Chief Communications Officer. Robert? Good morning. Typically, you hear from McDonald's leadership over the phone and on occasion, we've invited you to restaurants, to our innovation center, to our corporate headquarters in Oak Brook. Today, we wanted to do something different, so we invited you to a warehouse. We wanted to give you an early peek in an experience that we're going to be sharing with our owner operators, Board of Directors and company leadership from around the world over the course of the next few months. When all is said and done, more than 4,000 people will have come through this space. Being here today gives you the opportunity to see, touch and even taste where McDonald's is headed and it's not just the space that's modern and progressive, but where it's physically located. We're in Chicago's West Loop neighborhood, which is literally where McDonald's is headed. This time next year, we'll be preparing to move into our new corporate headquarters just down the street, right in the heart of an up and coming neighborhood with a growing number of businesses and most importantly, our customers. The West Loop is seeing explosive growth, making it the perfect home for a business with its own focus on growth. Today, we'll share our plans for picking up velocity and driving that growth and we'll have some fun along the way. So enjoy. Ladies and gentlemen, please welcome President and Chief Executive Officer, Steve Easterbrook. Good morning, and let me add my welcome to all of you and everyone who's watching on the webcast. And I can feel the potential of this business, not just on the screen and not just in this space, but also amongst our team. We have never been more confident our ability to seize that potential and neither has our Board of Directors led by Chairman, Rick Hernandez, who is with us today. Rick, on behalf of all of us, could you just maybe stand up and take some appreciation for all that you and the Board do. We've appreciated your counsel, your challenge, and also your support over these 2 years, and we're better for it. So thank you very much. So I took on the role of CEO 2 years ago to this very day as it happens. And I stepped into the position with just one mandate, which was to turn around the McDonald's business. We had to change for our customers and for our shareholders, and we did. And today, we're going to have a conversation that we could not have had in 2015. And by the end of it, I want you to walk away with the same sense and level of confidence that I have now. McDonald's is a smarter, faster and more focused business. We have a keen sense of who we are, the customers we serve and what we will do to win back the guest counts we've lost. We typically hold this meeting in November, but we didn't want to wait until then because we're ready now. Over the next few hours, we'll share our plans for both near and the longer term because that's how we'll ultimately drive profitable long term growth. We're going to show you what it means to build a better McDonald's because the opportunities we're going after are significant. And that's why we want you to experience them firsthand. So we're going to start and end the day here, talking about the moves we're making and why we're confident that they are the right ones to assert McDonald's as the global leader in the informal eating out category. We'll spend this morning unpacking the progress against our turnaround targets and giving you a stronger sense of our brand purpose, our global strategy, which is designed to grow guest counts and how we're planning to grow in the U. S. And our long term financial growth targets. You'll then get a chance to walk through our long term plans literally. We put together 5 experiences upstairs, you can get a taste for our plans over the course of around 3 hours. And because we're a restaurant company, we've also built an actual McDonald's. And there, you'd enjoy a burger in a restaurant that brings together everything that we're doing. Now, we have an outstanding team in that restaurant run by Alba Heights, who's been with McDonald's for 18 years and is a general manager of a nearby restaurant here in Chicago. And she is the perfect fit to lead our crew here. She's eager to develop talent and build excitement around the brand, And her attitude is infectious. And her future is bright too because she will become the go to person for her region as they adopt what you're going to see here. I'm really proud of her and her team, and I can't wait for you to meet them through the course of the day. We're also going to spend quality time with our senior leadership. They're going to be your guides throughout the day, both here and during experiences, and they're closer to our plans than anyone. So the good news is, I will not be carrying on for 75 minutes straight this morning. You've already heard from our Chief Communications Officer, Robert Gibbs. Also joining me on stage will be Chief Financial Officer, Kevin Ozan our Chief Marketing Officer, Sylvia Lagnado Chief Strategy Officer, Lucy Brady our U. S. President, Chris Kemshinsky and the President of the International Lead Markets and our Chief Restaurant Officer, Doug Gore. Now there's nothing I love more than building a good team, and this, I tell you, is a great team. These are thoughtful innovators, deeply passionate about the brands and know how to challenge the status quo. And we're not the same McDonald's we were 2 years ago or even 6 months ago. Today, we're more customer focused, forward looking, and we are right sized. We've always been well resourced, but now we're fit for purpose too. And it's worth understanding how we got here. The past 2 years, we have transformed our turnaround plans into actions. We made 5 commitments, big commitments in 5 areas, and we're delivering on each and every one of them. And the first of those 5 areas in which we made our change was our structure. We said we'd channel our firepower more precisely, and that's absolutely what we've done. In July of 2015, we move into a segment structure, making it easier for like markets to share what's working. And today, we're sharing and scaling winning ideas across and between the segments faster than ever. Ideas like all day breakfast, where Canada just last week became the 3rd large market to roll out in less than 18 months, or sharing our premium burger platforms or the guest experience leaders, where you'll get to meet upstairs later today. Before, we were not keeping up with the pace of change outside McDonald's. And today, we've become equipped on the inside to set the pace outside. Now our Chief Financial Officer, Kevin Ozan, has been at the center, he's been instrumental in the next three commitments. So Kevin, perhaps you could join me and talk us through the progress in the areas of refranchising, G and A and Capital. Thanks, Steve. Good morning, everyone. Let's start with an update on our refranchising efforts. Our primary purpose for initiating our refranchising initiative was to bolster what makes McDonald's a formidable leader in the market, our outstanding network of dedicated franchisees. In November 2015, we announced our goal to refranchise 4,000 restaurants by the end of 2018, which would bring our franchise percentage to around 93%. We've employed 2 primary franchising approaches, expansion of our conventional franchisee base and establishment of new developmental licensees or DLs as we call them. During 2015 2016, we sold approximately 1,000 company operated restaurants to conventional licensees, primarily in the U. S. And our international lead markets. We've also sold about 500 restaurants to DLs, primarily during 2016 in markets like Singapore and Malaysia. And activity thus far in 2017 includes our announcements of the China Hong Kong transaction, which is the centerpiece of our refranchising and the Nordics. Over the long term, the financial resources and capabilities brought by our expanded network of developmental licensees create opportunities for accelerated expansion and innovation. Moving on to our G and A reduction efforts. At our last investor meeting, we indicated we were targeting $500,000,000 of net G and A savings by the end of 2018. Through a combination of franchising, a new organization structure and a more stringent discipline around spending throughout the company. We've made meaningful progress towards our goal of reducing our G and A levels. Our actions over the past 2 years have resulted in realized savings of more than $200,000,000 and we remain on track to achieve our targeted $500,000,000 of net savings by the end of 2018. The final financial component of our turnaround was our 3 year $30,000,000,000 cash return to shareholders target. In January, we announced completion of this target, including the return of more than $14,000,000,000 to shareholders in 2016, dollars 11,000,000,000 of share repurchases and more than $3,000,000,000 in dividends, including a 6% increase in the 4th quarter. Optimizing our capital structure by adding a meaningful amount of debt was instrumental in meeting this target. The achievement of our $30,000,000,000 cash return target speaks to the significant strides we've made in enhancing our free cash flow profile. As a result of and cost containment initiatives, we've evolved to a less volatile business model with greater financial predictability and stability. The uptick in our free cash flow conversion rates or the measure of our ability to convert bottom line earnings to free cash flow that can be returned to shareholders is evidence of this evolution. We're now converting substantially all of our net earnings to free cash flow and generating more than $4,000,000,000 a year. The significant progress we've made against each of our turnaround financial targets positions the company for long term sustainable growth. I'll come back at the end of this session after you've had the opportunity to learn more about our strategy, and I'll outline what it means for our 2017 outlook and our long term targets. Thanks. Thanks, Kevin, and we'll see you up here in about an hour to talk about those long term financial targets. So those four commitments have made it possible for us to deliver on the 5th and what I would categorize as the most important commitment, that's to return the business to operating growth. Markets around the world have made significant progress since 2015. Our business as a whole is strong. Global comparable sales have been up for 6 consecutive quarters. And as we shared on the earnings call in January, 2016 was our best year of global comparable sales since 2011. As of late 2016, 7 of our 10 largest markets had gained or maintained market share in the informal eating out category. At the same time, we're seeing increasing customer satisfaction in 9 of our 10 largest markets. And our brand health is improving too, gaining strength in 2016 and significantly improved over the last 6 or 7 years. And finally and equally importantly, our franchisees continue to generate cash flow growth that's at or near record all time highs in many markets around the world. The actions we've taken in all five areas put us in a great position to pick up velocity. Across every function and across all four segments of our business, we put the proper foundation in place. We're becoming a better McDonald's by fundamentally changing our company culture, moving faster, pushing harder, taking more risks and continuing to take a sharper commercial resources. And we're leading with the customer and with a commitment to serving high quality food when and how they want their McDonald's. We're much more focused on the ways to create efficiencies in our current ways of working, because those efficiencies are what will enable us fund the growth and many of the efforts that you'll learn about today. And restaurant reimaging is a great example. Our teams have challenged themselves in bringing down average investment costs, so we can redirect that capital we're saving to partner with franchisees. And together, we're able to reimage more restaurants at an even faster pace. And we've reached an inflection point for the business. Our stronger financial discipline is complemented by a greater emphasis on long term sustainable growth. Whilst we remain relentless around the fundamentals of running great restaurants. To grow, we must grow guest counts. It's as plain and simple as that. In 9 of our largest markets alone, there are 86,000,000,000 visits to quick service restaurants every year, and our share of those visits is around 15%. So although that's significant, we believe there's tremendous opportunity to grow that share further, starting with the near end competition. Our plans are rooted in deeper consumer insights. And as McDonald's is one of the world's most iconic and beloved brands, to bring customers back into our restaurants more often, we must reconnect with them on an emotional level. Our future depends on making McDonald's matter to people. So to provide a view into how that's coming to life in one of the most critical areas of our business, I'm going to ask Chief Marketing Officer, Silvia Leonardo to join me. Silvia joined us in 2015, already a proven and expert brand builder. The leadership Sylvia has brought to the global marketing function to build far greater effectiveness and actually to have a more direct meaningful impact on customers has been wonderful. Why don't you share a little more? Thank you, Steve. Hello, everyone. So yes, I have the privilege of being McDonald's Global CMO, and there is no better time to be a marketer at McDonald's. My job here is like 2 fold. 1st is to define the vision for the McDonald's brand, to clarify what we stand for, how we can be relevant in our customers' lives today and ensure that everything that we do at McDonald's works coherently to make the brand stronger. And the second part of my job is to ensure that we're maximizing the return on our collective marketing spend. As a system, we spend over 4% of our sales in marketing. That's north of $3,000,000,000 So our true north must always be the McDonald's brand. It's our most valuable asset and make it matter to people and doing this at scale. We serve more than 60,000,000 people every day in 36,000 plus restaurants, and everyone in the McDonald's system influences how the brand shows up in people's lives. The 2,000,000 crew, the restaurant operators, everyone in the supply chain, our agencies and our management, of course. And this complexity, as you know, is exacerbated by today's marketing reality, an explosion of communication touch points, which requires 20 fourseven attention. We can't control, for example, how our customers use social media to talk about McDonald's, but we certainly can and we must control how we act in our restaurants, in our food, in all the ways that we engage with our customers. And if we act coherently and authentically, in line with the promise that we know is appealing and is relevant, we will unlock growth, and we'll make the brand stronger. So what do we stand for? From the very beginning, McDonald's was created to serve delicious, unpretentious food and to provide little moments of joy to as many people as possible, but with a very unique and very special focus on serving families. At its best, McDonald's makes delicious, feel good moments easy for everyone, and this will remain our purpose. And the exciting thing for us is that this promise at its very heart is as relevant today as it was 60 years ago, and if not more, and let me tell you why. Whilst life is increasingly hectic and unpredictable, McDonald's is positively, reassuringly familiar. In a world that is increasingly stressful and complex, McDonald's is simple, it's lighthearted. And people, especially through social media, feel pressure to create kind of a carefully crafted public persona. And McDonald's, you can be yourself. We're down to earth. We're unpretentious. So with the promise to be so relevant, our challenge becomes actually quite simple, is to look outside into the lives of our customers and appreciate how much their expectations are escalating. They're escalating in areas that are really core to who we are deliciousness, easy and the overall restaurant experience. So we have to work to become not a different McDonald's, but a better McDonald's. And today, you're going to see a lot of detail of how we're doing just that. So I'm going to move to the second part of my job to work to make our return on marketing spend work harder. The same technology advancements that are so dramatically changing the way that we live are also transforming the way that we market today. We are increasingly able to measure things that we would have not dreamt of measuring just short a few short years ago. So the brand engagement in the form of advertising and promotions for McDonald's will increasingly be right here in the mobile device. And the transactions soon, especially with order and pay, will be here too on the same mobile device. So by closing this loop, we'll move from estimating the impact of our marketing to knowing it and then optimizing it. We'll target our market based on actual behavior and our claimed behavior with great enhancements to ROI. And we'll do it with rigor, with discipline and at scale that no other competitor can match. In the U. S. Alone, we have 500,000,000 transactions a month, an incredible opportunity for us to leverage analytics to unlock disproportionate growth for McDonald's. Some of our markets are step ahead already providing us great learning as we leverage our best practices globally. So in France, for example, we already have order and pay, and we're able to offer a seamless personal experience and collect behavioral insight, regardless of where our customers log in or check-in, the app, the web, the kiosk, the drive through and the front counter. Japan is showing us the way in offer customization. Our digital offers in Japan touch over 25% of our guest counts, and the average check-in those transactions on average is 35% higher. We recently started to customize our offers in Japan at scale based on actual redemption behavior, and the results in terms of customer relevance, average check and profitability for the operators is really exciting. Our approach is to use localized pilots to develop the new marketing practices, prove them and then scale them fast. And one area where we've been scaling in the scaling mode for a while is on leveraging the full potential of the quite sophisticated return on marketing investment models that we have in all our large markets. For example, we're moving all of those from linear to multi touch attribution because that takes into account, as you know, how the mobile customers live and consume media today. At a more pilot level, for example, we are currently test partners with Facebook. We are providing them with feedback in the areas of development for their estimated store visits product, they call it ESV, which we are testing with them in 6 of our markets. With this product, which is still in beta, we can know or they can know as well because of geolocation how many people visit a McDonald's restaurant within a specific time of seeing an ad on Facebook. For us, that's very relevant within a day. And we have other pilots running that will allow us to do something similar, but on other platforms, not just Facebook. One pilot we've recently completed with great results relates to optimizing the ROI on Google search. And that is applied to delivery and that pilot was done in Singapore. And this is how it works. We collect point of sale data from our restaurants and we use it real time, literally real time to switch on Google search advertising in the catchment area of the restaurants that have spare capacity to provide great delivery service to more customers and at the speed of McDonald's. The improvements to ROI in advertising there are really high and we're working now to roll out this capability to other delivery markets. And one area and my final example where we've been making bold moves, and this is definitely not a pilot, relates to agency consolidation. So we recently consolidated here in the U. S. All our national advertising, all our national merchandising development, traditional and digital, including all the production efforts, plus all social listening and social media efforts and all digital menu board content and content management under one bespoke agency tailored to our needs in one place, actually a mile from here, one agency CEO, one P and L. The agency is called unlimited, and it started operating officially 2 months ago. And this type of agency consolidation, in my opinion, ticks all the boxes in terms of improving not only the efficiency, but the effectiveness of our marketing spend. And no competitor clearly has anywhere near the scale that we have to reap the benefits of an approach like this. It costs less because of hard synergies and much better ways of working. We work faster and it enables us to create marketing content that's much better integrated in terms of message, in terms of branding and also content that's much more impactful and ultimately where it matters most, more exciting to our customers. So on the note of customer excitement, I'm going to hand back to Steve, but I'm going to do that like before showing one example of creative work that has had great ROI for us. And that's in the UK. It advertises something very simple, the fact that we open overnight in many of our locations throughout the UK in this case. This real picture of the London tube or subway map in a very popular transport app in the UK shows which London stations are open overnight and which of those have a McDonald's nearby. But what I'm showing you is a piece of film, and you're going to see a film that speaks to this really tangible, simple, functional benefit, but it does so with a lot of heart. In my opinion, it represents McDonald's at its very best. It's simple, it's unpretentious, It's easy. And importantly, it's for everyone. So hope you enjoyed the film. And then back to Steve. Thank you, Sylvia. And the important work you've done to articulate the brand positioning and enhance our marketing efficiency ensures that we remain relentlessly focused on who our customers are and what matters most to them. We know our biggest opportunities, and we also understand the competitive advantages that differentiate McDonald's from every other business in our category. Together, they form an unshakable foundation upon which we're building as we set our sights on those actions that will strengthen our business. We've already begun taking the next step, injecting further speed into our actions to retain, regain and convert key customer groups. And our Chief Strategy Officer, Lucy Brady, is leading up that strategy work. So, Lucy, it'd be great if you would join me. So, we've been taking a powerful approach to planning in a way that only McDonald's can because of the combination of strengths that we believe belong to McDonald's alone. Why don't you share more? Great. Thanks, Steve, and good morning, everyone. We're focused on actions that tap into the competitive advantages unique to McDonald's. Our unmatched global scale and our iconic brands, our tremendous local market presence and our connection to the everyday lives of our customers around the world. Every day, we strive to be a better McDonald's, a company that makes delicious feel good moments easy for everyone. As we continue to build on our momentum, our most important priority is guest counts. Customers vote with their feet, making guest count growth the most reliable indicator of the strength of our brand and our business. To deliver sustained growth over a long period of time, we have to attract more customers more often. However, over the last several years, we haven't done that. In fact, we've lost 100 of 1,000,000 of visits from our core customers, students, construction workers, teachers, farmers, office workers and even families. To find out why, we went straight to the source. Last year, we initiated the largest consumer research project in our history, conducting an in-depth survey with tens of thousands of customers across our top 10 markets. What we learned is this. 1st, the majority of our guest count losses were not on the periphery. They were from our stronghold customers and occasions at the core of our business, fast food lovers and budget conscious customers, convenient quick trips and visits to treat the kids. 2nd, we confirmed that we lost most of these customers to other traditional near end QSR players, not to new competitors or emerging fast casual restaurants. So while it's tough to lose customers in the core of our business, it also means our greatest opportunities are in areas where our brand and our business has the greatest strength. The good news for us and the reason we're confident in our plan is that we've got home field advantage. We don't have to be a different McDonald's, just a better McDonald's. We're going after the tremendous opportunity in our heartland by giving our customers what they really want, not what we think they want. We're tapping into fresh thinking and the collective will that exists across our global system and moving with increased speed and purpose. Our strategy is rooted in 3 pillars. We'll retain who we have, fortifying and extending our great areas of strength regain the customers we've lost and convert the casual customer into a committed McDonald's customer. And importantly, as we move forward, we're going to stop chasing segments and concepts that will never be big enough for McDonald's or where we don't have a clear right to win. When we do this, it provides greater focus and frees up time and resources for the most significant growth drivers. So let's take a look at the 3 pillars. 1st, retain our current customer base. We have clear advantages, especially in the areas of family occasions and breakfast. Yet as a leader, we can't sit still. The competition is always looking to take a piece of our business, so the status quo is never okay. So whether it's celebrating the emotional bond families have with McDonald's are making those feel good moments even more special by transforming the experience in our restaurants. We're developing even better ways to serve breakfast in its purest form with tasty new options and a continued focus on the quality of basic ingredients like fresh cracked eggs. It's our job to ensure we continue to extend those advantages and further build on our strengths. We'll continue to put significant focus and energy towards growing the core of our business. 2nd, regain the customers we've lost. Some of our best customers just aren't visiting us as much as they used to, and we know why. As customer expectations increased and evolved, our historical advantages of quality, convenience and value didn't keep pace. Let's start with quality. We're making meaningful improvements in our food, particularly our burger and chicken offerings to rekindle growth and recapture lost share. We will become the go to destination once again by enhancing the taste and quality of our core classics and by enticing guests back with new menu items and local flavors that customers' lives easier. It's about providing a more accessible and more personalized experience and enhancing the hospitality of our crew in a more modern and inviting environment. This creates a more convenient and satisfying customer experience and makes our food much more enjoyable. We've already seen how our experience of the future restaurants change brand perceptions while delivering sales uplift in mid single digits and strong market share growth. Later, you'll hear more about the success we've had in many of our large markets like the U. K, France and Canada. As a result of this success, we're accelerating the pace at which we're implementing experience of the future, especially in our U. S. Restaurants, and Chris will share more shortly. Finally, value. Value is vital to our business and our brand. Our entire system is designed to deliver value, tapping into our unmatched scale and unparalleled operations to ensure our customers feel good about what they get for what they pay. When value is customer driven and locally relevant, it drives guest counts. So we continue to learn from markets with strong value programs like the U. K. And Japan, and we'll apply those lessons in markets where Gap still exists today. Our 3rd pillar is all about converting casual customers into committed customers. As large as we are and as many occasions as we support, there are still some valuable white space beyond our major occasions. That's why we're going to fuel underdeveloped categories like coffee and snacking. Coffee, the beverage, is inseparable from coffee, the experience, and we've only started to tap into this very habitual high frequency occasion. There's so much more opportunity. When brands make it easy to get a great cup of coffee, customers reward them with their loyalty, and that's what we've done in Australia. Building that daily ritual with high quality coffee, dedicated McCafe baristas and a cafe ambiance, that high quality barista made coffee is also available through the drive thru, giving customers a great cup of coffee with the convenience and speed they expect from McDonald's. McCafe is now 14% of the business in Australia, and it continues to provide a strong source of growth. Canada is another market with a vibrant coffee business. The approach in Canada is slightly different because Canadians are really passionate about a consistently great cup of brewed coffee. They even named McDonald's the best coffee in Canada. In both markets, even though the approaches are different, convenience, value and great taste make McDonald's a destination for coffee. Like coffee, we've also had success with tailored snacking offers around the world, like desserts in Latin America and baked goods in France, And we'll continue to encourage markets to innovate to meet the untapped demands that exist in the afternoons and in the evenings, and will be more purposeful about identifying and scaling winning ideas from our markets. Underpinning our efforts to retain, regain and convert customers are 2 essential elements of our DNA. First, our brand essence that Sylvia described earlier. We have to make delicious feel good moments easy for everyone at each of the millions of moments of truth when our customers visit McDonald's every day. And second, operations excellence. We need to make sure at those moments of truth are consistently fulfilled day in and day out. Running great restaurants is table stakes. And it certainly is. And the way we are running great restaurants is changing. Technology is disrupting everything around us, and we want to put ourselves at the front end. If we were together just 5 years ago, would you believe that the biggest taxi company in the world, Uber doesn't own a single car or the biggest hotel in the world or provider overnight accommodation, Airbnb, doesn't own a single room or even a single bed. And the world's biggest film provider, Netflix doesn't own a single cinema, not even a single screen. The point being here is not that technology is disrupting the world. We all know that. It's disrupting traditional industries. We're part of a traditional industry. Our choice is do we want to be disrupted or do we want to be the disruptor Because the world in which we and our customers live demands new approaches and a very evolved mindset. So as we went through the traditional planning process, we got ourselves to a pretty good place. We're confident of plans, we're confident with the initiatives we're putting in place and we knew it would move us forward. That wasn't good enough. So we stepped back and challenged ourselves to identify the disruptive actions that would have the biggest benefit on the most people in the shortest possible time. How do we disrupt the planning cycle? With concepts that are powerful enough and big enough to accelerate all of the efforts you've heard about. And as we went through that exercise of the team, 2 concepts rose to the top right away, digital and delivery. Both drive incremental profitable growth. They expand our dayparts while creating more satisfying and lasting relationships with customers. They transform convenience, and they help us become a better McDonald's. We began to accelerate our efforts in the digital space several years ago. Admittedly, we got a late start, but we've made significant progress, especially in the last 12 months. We're pushing hard to unlock the true potential that comes when these efforts intersect with our size and our scale. That's why we place renewed emphasis on reshaping customer interactions, energizing our existing service models through the power of technology, whether the customers eat in, take out or drive through. Later today, you'll have a chance to see the progress we've made with our drive through, our global mobile app, self ordering kiosks and the ways we're tapping into technology to enable table service and curbside pickup. We're using digital technology to enhance the experience in our restaurants, and the benefits for our customers are tangible. When you're rushing to work, we're making it easier to get your morning cup of coffee. When the kids are in the back seat and can't make up their minds on what they want to order, we're taking the stress out of how you place the order at the drive thru. Or when a group of teenagers are hungry after the movie, we're making it easy for them to pull up their app, place an order and satisfy their late night craving from McDonald's fries. We're giving our customers even more choice when it comes to how they order and how they're served. When we hand over the reins and let the customers personalize their experience, it feels better, and that's what builds a more enduring relationship. Now, delivery. Restaurant delivery is a $100,000,000,000 market, and it's exploding. In my opinion, it's the most significant disruption within the restaurant industry in our lifetime. For delivery, speed and food quality are the 2 most important factors for customers. To ensure hot food and fast delivery, you can only reach the customers who are reasonably close to the restaurant. So consider this, in our top five markets, the U. S, France, U. K, Germany and Canada, nearly 75% of the population lives within 3 miles of a McDonald's and 85% live within 5 miles. Globally, that translates into 1,000,000,000 customers that live 5 to 10 minutes from a McDonald's. We're closer to more customers than any other restaurant company in the world. Here's something else to consider. McDonald's is already one of the largest delivery players in the world. Listen to these statistics. We have over 2 decades of experience in delivery. Last year, we had nearly $1,000,000,000 in delivery sales across both company and franchise restaurants. And right now, over 3,500 McDonald's around the globe provide delivery. Our most developed delivery markets are in Asia and the Middle East. There, our top delivery restaurants generate up to 40% of their sales from delivery. In fact, in China, delivery now accounts for 10% of overall system sales. What that tells us is there's significant opportunity that we haven't even tapped into yet. In addition, over the last few years, there has been a proliferation of 3rd party delivery companies and capital flowing into the delivery space to take advantage of the consumer demand. Companies like Seamless, Grubhub, Uber Eats, Postmates, Deliveroo, Foodora, Food Panda, DoorDash and Amazon Restaurants, just to name a few. In addition to our owned McDonald's delivery service model, where we control all aspects of the delivery process from end to end, we're experimenting with different models, including partnering with 3rd parties for ordering and fulfillment. We're doing this in both our established markets in Asia as well as in other large markets like the U. S, Australia and Germany. One thing is very clear, we're not even close to meeting all the demand that exists in those markets today, let alone the markets where we don't yet offer delivery. Given our decades of experience in our store density, we're well positioned to move rapidly to satisfy the unmet demand. That's why we're working aggressively to define the right model. We have a number of pilots already underway in the U. S, Asia and Europe with plans to scale quickly based on the results. Overall, we're incredibly about the potential of this business. There will be a lot of hard work to achieve the vision we laid out, but the potential is there, and we are better positioned to capture the opportunity than anyone else. Thank you very much, Lucy. So when it comes down to it, our strategy is rooted in things with we know work that build on solid business cases that have been proven elsewhere in our system, just like delivery in Asia. At the same time, we do generate a fair amount of cash. And it will be foolish not to foolish of us not to explore opportunities to get our hands on the best intellectual property, the best talent or the best technology that will play a significant role in how we disrupt our own industry. Now you'll hear more from Lucy and Ian Borden in the delivery experience this afternoon. But before the experiences begin, however, I want to give you an overview of how our global strategy is activated in a local market. Let's do a deeper dive into one market that happens to contribute around 40% of our operating income. Chris Kemshinsky has been in position as U. S. President since January and has already set a meaningful change in motion. Hey, Chris, why don't you come and join me? Thank you. Good to see everybody. Now I understand you warmed this place up for us yesterday. You had a couple of groups totaling 300 of our operators. Yes, we had about 300 U. S. Owner operators. I'm actually very surprised they were able to get it cleaned up so quickly. So it looks good. It's a great driver on. Thank you for using it. Why don't you share what you're up to? Yes. Well, listen, we had a great conversation yesterday with our owner operators. It was both a celebration for the progress that we've made, but was also a call to arms for the opportunities that are still available to us. You know, they do say timing is everything and I feel incredibly fortunate to be assuming the role of U. S. President at this time. Thanks to my predecessor, Mike Andres, we've made a lot of progress in the U. S. In the past couple of years. We've returned the business to growth and I'm confident we can accelerate on our momentum. As Steve has noted, we're moving from turnaround mode to growth mode. In the U. S, it all started with running better restaurants. We refocused our crew and our owner operators on the operational basics that have always been a strength of McDonald's, fast accurate service from a friendly crew, serving hot, delicious food in a clean, hospitable restaurant. We introduced enhanced, unannounced grading significant improvements in our customer satisfaction scores over the last couple of years. By no means are we satisfied, but we are heading in the right direction. 2nd, we made a number of important moves to upgrade the quality of our food, like removing artificial preservatives from Chicken McNuggets, using real butter on our Egg McMuffins and announcing our commitment to migrate to 100% cage free eggs. And then, of course, there was all day breakfast. This was a galvanizing initiative for our system because it was a reminder of what can happen when we listen to our customers. For years, customers have been asking for us to serve breakfast all day. And for years, we came up with a list of operational excuses for why this was not possible. Our operator leadership, together with Mike and the team, resolved to stop making excuses and just make it happen. And as you know, the rest is history. So as a result of these actions in a very benign commodity environment, today, the U. S. System has never been in better financial shape. Our operators are enjoying record cash flows, record gross margins and record equity values. Quite simply, it has never been a better time to be a McDonald's franchisee in the U. S. Now despite this good fortune, our operators also recognize that their windfall will be short lived unless we can reverse our guest count declines over the last few years. And I'll just put this into perspective, McDonald's USA has lost over 500,000,000 transactions since 2012, with the majority of these going to our competitors. And that was the subject of our meeting with operators yesterday. How can we return the U. S. System to sustained profitable long term growth, retaining our rightful leadership in the QSR industry. There are 3 elements to what we're calling our bigger, bolder plan. First is value. For the past several years, McDonald's value offering has lagged our nearing competitors, each of whom has invested significantly more to drive traffic into their restaurants. Our initial McPick program helped to slow these losses, but quite honestly, it wasn't strong enough. While customers love the flexibility of MYC PIC, the program offered too many value combinations, which diluted its overall impact in the market. At one point, we offered over 120 different MCPick combinations, making it difficult for customers to assess our relative value versus competitors. We also learned that McPick combinations at lower price points like $2, $2.50 $3 performed better than those at higher price points, suggesting that entry level pricing was very important. And we learned that McPick, when paired with an aggressive local beverage value program, outperformed all other value programs. So we've used those learnings to refine our 2017 value program. We've simplified McPick to far fewer value combinations. We've increased our emphasis on entry level pricing and we recently announced the national rollout of Dollar Any Size Soft Drinks beginning in Q2. And we're going to monitor these results along with competitive activity and continue a very robust dialogue with our operators on this subject. We cannot drive sustained long term growth without a stronger national value program that cuts across categories and all price tiers of our menu. I do want to point out, however, that while we must be fully competitive on value, we are not trying to win on value. That's just a race to the bottom. Instead, we plan to win on 2 other elements of our plan, food and experience. On food, we need to improve the quality of our burger and chicken offerings so that they are perceived as best in QSR. Some of this is going to come from menu innovation, like the launch of Signature line later this year. Signature establishes a premium range on our menu showcasing high quality burger and chicken products with more food forward ingredients. We need to bring more food news like this in order to appeal to millennial customers who are seeking new taste experiences. You should expect us to step up our level of menu innovation in the U. S. In the years ahead. At the same time, we're also reevaluating everything about our core burger and chicken products, from the proteins that we use to the equipment in our kitchens to our cooking procedures. No doubt you've heard some about some of these tests that we're running and there are many other initiatives underway. For competitive reasons, I'm not going to get into the details of any of this other than to say, I've been very encouraged by what we're learning. We also believe that coffee remains a significant opportunity for us. The coffee category is huge, over $30,000,000,000 and growing in the mid single digits. We've built a solid foundation with McCafe, but there is so much more we can do with this equity. In Q3, we will relaunch our espresso line with enhanced quality, an expanded lineup of flavors and a new look and feel. We'll also increase the presence of McCafe in our restaurants, evolving the brand from being nearly a product to a place. This enhanced in store presence will allow us to merchandise baked goods and desserts under the McCafe line, adding additional sales layers to the business. And finally, as you'll see later today, we have a tremendous opportunity to transform the experience of our customers at McDonald's. For the past several years, we've been refining our experience of the future concept in restaurants around the world and we now have a global standard that will be implemented across the U. S. We first started piloting this EOTF concept in Florida in 2015 and of course, in 2016 and we're expanding it to other parts of the country, including New York City. We're seeing enhanced customer satisfaction and mid single digit sales lifts when we deploy the full experience of the future with modernization. We expect it will be deployed to roughly 2,500 restaurants by the end of this year with the goal of converting most of the system to EOTF by 2020. To encourage our operators to move faster, we're offering a staggered partnering program. The faster you go, the more partnering you get. Operators who wait to deploy EOTF until after 2020 will see dramatically less partnering than those who move beforehand. Importantly, EOTF isn't just about transforming customers' dine in experience. With over 70% of our sales coming through the drive through, EOTF also encompasses the dine out experience. We've been testing digital menu boards through the drive through and we're including this in our partnering program. In Q4 of this year, we're also launching mobile order and pay, plus curbside check-in across all 14,000 of our restaurants. This will offer customers a new level of convenience, giving them control over how they order, pay and pick up their food. And that's just the beginning. That's why we're testing with Uber Eats in hundreds of stores across Florida. Customers are embracing this new way to enjoy McDonald's and we're very excited by the results that we're seeing today. With 14,000 restaurants in the United States, we are structurally advantaged to win in delivery and we plan to roll out to additional restaurants later this year. Digital and the global mobile app will be the glue that connects all these experiences together. In the past year, we've doubled the number of app downloads to 18,000,000 and we're seeing strong customer participation in our mobile offers. In fact, 1 third of customers who would have redeemed offers who would not otherwise have come to a McDonald's. And as you just heard, we'll also be launching the mobile order and pay in Q4 later this year. In 2018, we're also going to launch an enhanced loyalty program that will create further opportunities to segment and target our customers. Digital should be an area of competitive advantage for McDonald's I am confident we'll ultimately win in this space. So there you have it. In about 15 minutes, that's the plan we've been building with our operators, stronger, more competitive national value, a leading food and beverage offering and a transformed customer experience both inside and outside our restaurants. Thanks, Chris. You shared a lot there. Pretty good energy for 2 months in the job, right? There's a lot of vigor. I love the bolder, the bigger plan. So I really appreciate all you're doing and why don't you tell us just a little bit more? Yes. Well, one of the things that is different about this and I think it's going to help us move this plan forward is, we're talking about this with our operators at the leadership level. So they've been building this with us together and we've got a lot of operator engagement. And we've been talking about this for the last several months. So yesterday was really kind of the coming together of all this. But in the surveys that we've been doing leading up to this, 90% of our operators are either supportive or very supportive of the plan that we're building together. So we feel really excited about that. The other thing that we feel good about here is this plan is coming together as a holistic plan. This is not a piecemeal approach, which has been one of the things that I think has happened in the past. This is not something we're going to have operators pick and choose. I like to do this part. I don't like to do this part. It's the whole bundle. And so for operators to receive the level of commitment and partnering that we're offering, you have to sign up for the whole plan. You can't just pick and choose. You know, we've got a unique opportunity here and there's never been a better time for our system to recommit to growth, which is why I do believe timing is everything. I think timing is everything. And I think 90% approval rating from what they've heard can only be enhanced once they actually experience it and actually see it for themselves. So thanks for all you're doing. Appreciate it. The U. S. Strategy like our larger global strategy is rooted in the competitive advantages that we believe has always made McDonald's great. It's how we quickly bring a compelling integrated customer experience to more customers around the world. In fact, we'll have mobile order and pay solutions in 20,000 restaurants across the U. S. And our international lead markets by the end of this year. The U. S. Plan also demonstrates the changes we're making as we become a better McDonald's. When we bring the biggest benefit to the most customers in the shortest possible time, I tell you good things tend to happen. You've heard what we're committed to doing and how we plan to get it done, and I want to share where we plan to go, and I want to keep my commitment to bring Kevin back. So Kevin, why don't you come back and talk about our long term financial targets? Okay, I want to begin my look at our future growth with key headlines related to our 2017 outlook. We're targeting capital expenditures of $1,700,000,000 with 2 thirds earmarked for reinvestment in existing restaurants and 1 third dedicated to opening new restaurants. In the near term, we're redirecting a portion of our capital saved from refranchising to modernizing the remainder of the U. S. Estate, where we plan to reimage about 6 50 restaurants in 2017. When combined with previously modernized restaurants that will update with Experience of the Future elements this year, as Chris mentioned, the U. S. Will have roughly 2,500 Experience of the Future restaurants by the end of the year. We also continue to see potential to expand our global footprint, so new restaurant development will continue to be a component of our growth equation. We plan to open about 900 new locations during the year, over half of which are in DL markets where we don't invest capital. About half of the dollars that we're spending on new restaurants will be to invest in established markets like the U. K, Australia, France, where we continue to see opportunities to grow our restaurant portfolio and achieve high returns. Once the U. S. Modernization work is substantially completed, we expect our total capital expenditures to decline by about $500,000,000 So while we're intensely focused on achieving our growth goals for 2017, we remain equally focused on our long term goals. Over the last 2 years, we have fundamentally enhanced the strength and stability of our business. We've shifted our focus away from managing a large number of disparate international markets along with associated cost pressures and are now keenly focused on growing global top line sales that directly support our critical revenue stream. This new business model supports our ability to achieve new average annual targets beginning in 2019. These updated targets reflect our ability to increase system wide sales 3% to 5%, grow our operating margin from the high 20% range to the mid-forty percent range deliver earnings per share growth in the high single digits and raise our return on incremental invested capital target from the high teens to the mid-twenty percent range. Steve, Lucy, Sylvia and Chris all talked about our plans to drive comparable sales growth. So I'll touch upon the drivers of operating margin, earnings per share and ROIIC. We ultimately measure overall financial efficiency by our operating margin as it serves as the most comprehensive gauge of our overall performance. We've taken significant steps to capitalize on the strengths of our business model, achieve efficiencies with our G and A and minimize our P and L exposure, all of which are yielding significant benefits to our operating margin. As it relates to G and A, as I mentioned earlier, we remain on track to achieve our targeted $500,000,000 in net G and A savings by the end of 2018. All of this is being achieved at the same time we're increasing our technology spending to fuel our critical customer facing growth initiatives. In addition, by the end of 2019, we believe we can trim another 5% to 10% off of our remaining cost base. So excluding the impact of currency changes going forward, we expect our ongoing G and A run rate to be $1,800,000,000 to $1,900,000,000 beginning in 2019, which would bring our G and A as a percent of system wide sales below 2%. Between 2015 2016, our financial performance and turnaround efforts changed the trajectory of our operating margin performance, returning our overall operating margin to the 30% plus range. We expect our established more heavily franchised system will yield an ongoing operating margin in the mid-forty percent range, meaning we'll be bringing nearly half of our revenues down to the bottom line. We expect earnings per share growth in the high single digits as a result of the improvement in operating margin and ongoing share repurchase activity. We'll continue to augment EPS growth with our long standing dividend track record, which provides a steady source of income to our investors. So with an EPS growth in the high single digits and a dividend yield currently at 3%, we expect to deliver a total shareholder return in the low double digits. Regarding our returns, we've built a strong foundation that can deliver reliable top and bottom line results and generate the cash flow needed to support investing in opportunities to drive long term profitable growth. Our discipline around how we invest our $1,700,000,000 of new capital in 2017 is an essential part of improving returns. Going forward, as we reduce our total capital spend, we expect ROIIC to increase significantly. As I said earlier, our new targets will apply beginning in 2019, following completion of our near term initiatives. We expect to actually refranchise 4,000 restaurants by the end of this year, a full year ahead of our original timeline. However, we'll still have activity as we right size both our ownership and cost structures through the end of 2018. So year over year comparisons for 20172018 are expected to be a little choppy. Beginning in 2019, we believe our new long term average annual financial targets are realistic, achievable and sustainable. We remain committed to returning all free cash flow to shareholders over the long term. As we begin 2017, the strength and reliability of our for the 3 year period ending 2019. For the 3 year period ending 2019, representing over 20% of our market capitalization. This new target reinforces our confidence in our long term strategies and financial targets and takes into account restaurant sales proceeds under our ongoing refranchising as well as our ability to modestly increase our debt levels. We will do so prudently, keeping our credit metrics within our current ranges. So I'm confident that we're well positioned to deliver sustained long term profitable growth for our system and our shareholders. We're taking a disciplined approach in all areas of the business, discipline in the definition of our priorities, discipline in the deployment of our capital in G and A, and discipline in how we align key priorities. As you've heard this morning, our biggest growth opportunities are right at the heart of our business, and we have a well developed strategic plan to seize them. We've evolved our financial structure and capitalized on the strengths of our business model to maximize the benefits for all stakeholders today and well into the future. Thank you. Now I'll turn it back over to Steve. So we've talked about the size and the scale of McDonald's and one place where that really comes to life is in the amount of cash in our business. We are simply unmatched in our industry. So in addition to giving us the opportunity to return considerable capital to shareholders, it also enables us to continue strategically investing in modernizing the business. And it's for those reasons that I'm confident in our ability to deliver on the plans we're sharing today and the returns we expect to generate in the form of our long term targets. Another reason for my confidence is the set of customer outcomes that we've identified, which sits alongside these business outcomes. We will continue to improve the quality and taste of our food. We will offer a high level of convenience as defined by our customers and we will gain traffic share. And our ability to deliver on these commitments is what ultimately enables us to achieve the financial targets that Kevin shared because we are simply a machine when we get going. So I hope you're looking forward to experiencing the opportunities we're going after from the perspective of the customer. So, now I'll turn it back to Mike Flores to guide us on what next. Mike? Well, thank you, Steve. And that concludes the first part of our meeting. For our webcast audience, we're going to be taking a break now and we will return at promptly 2:35 p. M. Central Time. Please welcome back Mike Flores. Welcome back to all of our webcast audience. I hope all of you are here with us, enjoy the experience and have a clear understanding of the plan that we're implementing. Now I would like to invite back to the stage Steve for some closing comments and then we'll be finishing the day with Q and A. Thank you, Mike and good afternoon to you all. And again, good afternoon to everyone who's dialed in. So what you experienced, that is what realizing our potential looks like and what it feels like. We have certainly had a great and we really enjoyed sharing our roadmap with you all on how we plan to become a better McDonald's. We shared the research we've done, the plans we're building and now how it's coming to life through the eyes of customers that we're seeking to retain, regain and convert. Now the ways in which we're taking even bolder steps on food in the areas we know matter most to our customers, that's taste and quality. You had a chance to experience the work we're doing to integrate accessible, user friendly technology inside the restaurants to make the customer experience more modern, more convenient and frankly just so much easier. And you experience how we're offering greater choice, control and personalization beyond the restaurants so that McDonald's is the obvious choice for consumers around the world. We showed you how we're going off to the pent up demand and redefining convenience for everyone, everywhere through what we believe will be game changing delivery programs. And you saw how we're adding firepower to our kitchens to deliver the highest quality food fast. And the sum of each of these actions is far greater than that of the parts. So that's why you saw how everything came together in our Experience of the Future restaurant. We're confident that once our core customer groups consistently experience what you did with our brand around the world, will drive greater perceptions of McDonald's, will grow guest counts, achieve stronger and finer business results and we'll reassert our leadership position within the informal eating out category. We have a powerful growth plan, and we've absolutely got the urgency to act on it. We call our growth plan a velocity because it's more than just speed, it's moving fast in a clearly defined direction and it's our path forward. Common sense says you cannot build an addition on your house unless you have a sturdy foundation. It's the most critical part of the house. 2 years ago, our foundation wasn't sturdy. We were slow to act, spent too much time looking inward instead of outward, but not anymore. Now we have fortified our foundation, thanks to the purposeful changes we've made. We restructured. We refranchised. We saved cost and returned cash to shareholders. And most importantly, we returned to operating growth. So we're ready for that addition today to transition from revitalizing the business to strengthening it, to seize the significant opportunity that exists in QSR and the broader IEO. We're ready to pick up velocity and return to growth as a truly relevant McDonald's. And just as we are delivering on our turnaround plans, I have every confidence we'll deliver on these growth plans. We'll build momentum and unlock incremental growth by focusing on those actions that have the biggest benefit to the most customers in the shortest possible time. That's the path to becoming an even better McDonald's because when we combine our size and our scale with speed like this, nothing can stop us. So thank you very much. And Mike, why don't you lead us into the Q and A. Thank you, everyone. Well, thank you, Steve. So now we're ready to begin the Q and A. We have the IR team in the audience and they're going to help us manage this. So I'd first like start by introducing Mike Cieplick, Liz Kluge. There's Liz. There's Liz over there. Veronica Jungles, There she is. Mary Kate Boyce and Debbie Schroeder. Great. So if you have a question, please raise your hand. We're gonna keep track of the queue, a lot of questions already. We'll keep track of the queue. Somebody is going to bring you a microphone and we ask you to please wait till you have the microphone before you ask your questions so that those on the web cast can hear you. Please state your name and the name of your firm. And to give as many people as possible a chance to ask their questions, please limit yourself to one question. So now we're going to start with the first question. We've got right over here, we've got John Ivankoe. Thank you. It's John Ivankoe, JPMorgan. CapEx guidance was given at $1,700,000,000 in fiscal 2017. That included, I think, 650 U. S. Re images. I think we have about 6,000 re images to go. Correct me if I'm wrong on that. So can you talk about how much the capital plan will include those re images the next couple of years? And if it's fair to ask, could we get an 'eighteen CapEx number? And is the $1,200,000,000 you talked about long term, is that a 'nineteen number, 20 number or a number for some year in the future? Thanks, John. So let me start with we have about 12,000 freestanding restaurants in the U. S. Of the 14,000, about 12,000 are freestanding traditional restaurants. Right now, about 55% or about 7,000 are actually re imaged. So we've got about 5,000 left, let's say. As I mentioned, we'll do 650,000 in 2017. From a CapEx standpoint, what we're planning on right now is somewhere in the neighborhood of the $1,700,000,000 for the next, I'll say, 3 to 4 years through 2019 or 2020. That gets us to most of the U. S. Restaurants to reimage. The only caveat I would say is while we're planning for around that 1.7 for the next several years, what you may see is potentially an acceleration of some of those where you may see a shift from 1 year to the next. So you should think about around 1.7 for the next several years as the total capital envelope, but it's possible that if we're able to get momentum going and get more of these done sooner, you may see a shift in some of the timing of that. The 1.2 then would be once we're done with the U. S, it could be 2020, it could be 2021, but we'll know more as we progress. And once we're in that $1,200,000,000 CapEx range, it would seem like your cash efficiency would actually be over 100 percent of net income. Is that what do you agree with that comment? And I guess how much over would free cash flow to net income be in the out years? I'd say that we'll be pretty efficient in converting the net income to free cash flow, even more so than we are right now. So right now, we're nearly 100%. It could get a little more efficient. So thank you, John. And if I could I'm sorry, if I could possibly just add to Kevin's Kevin is absolutely right. A couple of things we're tidying up as we accelerate into this in the U. S. Is we've had a program where we've been reimaging restaurants for a number of years. The EOTF element has up to now kind of been running along parallel. As we go so we've got some reimaged restaurants we need to retrofit for one of the better word with the EOTF piece. As we start to look forward through 2017, we'll be combining those into a onetime investment, frankly gives us a bigger uplift from a customer perspective because the customer see a far greater noticeable change. So I think that's one thing worth stressing. The other piece, and Chris spoke about it in his U. S. Piece earlier, we are minded to offer greater partnering to the operators that step up sooner. And frankly, I think that's totally reasonable because there's a the risk profile changes. If you're the 12,000 or 13,000 restaurants who go through this in 3 years' time, there's a far lower degree of risk as the business case worked out, momentum is built. So we want to help reward the early adopters, which we think will add some impetus and some excitement to it from an operator perspective. Great. David? Hi. It's David Tarantino from Baird. Steve, I have more of a qualitative question for you. I think one of the themes has been the speed of going to market and the velocity of the initiatives. And I think one of the risks of speed is going too fast and running into execution issues given the scale of your system. So I guess my question is, how are you managing that risk as you go down this path? It's a fantastic way. It's and this is where the operational side of our business starts to kick in because the skill first of all, let's build a pipeline of growth drivers. If you look back through the late 2000s, we had 4 or 5 platforms of growth, whether it's the value programs, extending hours, reimaging, introducing coffee, for example. And those growth platforms layer upon each other to give a very solid uplift. And we experienced that around the world. Something that we where we started to hit the brakes a little bit as a business, which we didn't then refill the pipeline with future growth drivers. Now we believe we've got 2 or 3 very strong growth drivers and a couple more that we'll come on to in the next year or 2. The skill now is sequencing them not as an excuse for going slowly, but so the restaurants can accommodate it and also customers can embrace it as well. So but we're not starting from scratch. We have markets around the world that should have already absorbed the premium burger lines and customization along with self order kiosks and mobile ordering. So we've got a lot of tangible granular experience in getting this done. The piece where the speed works in is, if we know how it works and how to get it done, let's not go and try and learn from scratch in each and every market. Let's just pick up all the things we got right, all the things we got wrong, cut out the things you do wrong and just accelerate a proven business case. So but ultimately, we cannot derail the operation because with 60 odd 1000000 customers a day, they've become to they expect things to work well. What we tried to show you upstairs today was how we have been very mindful at incorporating these growth drivers into the existing operation. And if that means we've been a little slower to get to market with some of these and some of those around us, we acknowledge that. It can be frustrating at times, but we want to get it right. So it's a very fair point. Thank you. Thank you. Over here. Thank you. Jeff Bernstein from Barclays. Just specific to the U. S. Business and the comps specifically, I had maybe a 2 part question. Just the first part seemed like in 2016 was going to be a year all about innovation in terms of new product news. And in reality, in 'sixteen, we saw more of maybe McPick 2 and the old day breakfast extension and now the Big Mac extensions. But it all seems like it's your existing products just kind of repackaged. So I'm just wondering whether you think 'seventeen is going to be a year where we should see some new product news? And as it relates to that, just on the market share because we're starting 'seventeen, it's a challenge for the entire industry. Your market share gains that you kicked in with in early 'sixteen were great in terms of the old day breakfast boost. But each quarter of 2016, the market share gains shrunk to a point I think you ended the year pretty much flat with the industry. So I'm just wondering with your 'seventeen plans, where you see your market share relative to the industry? Yes. So on menu, not that this was menu innovation, but in terms of just connecting with the customer that you can't argue that all day breakfast and that initiative was anything but successful. So I think that really helped underpin some of the return to growth in the U. S. I think Chris, again, very openly said during his piece, we recognize the need to step up on menu innovation. I don't think you're going to see it to dramatic levels because, again, customers aren't asking for that because sometimes you can innovate with limited time offers, sometimes it could be through value, sometimes it could be through customization like the signature line that Chris referred to later in the year. But I wouldn't be surprised and you should be surprised if you see a little more energy around menu innovation in the U. S. Going forward. With regards to market share, it's competitive out there. I mean, that's the reality. It's we've got in our favor, we've got pretty benign commodity costs. But there's no other real tailwind lifting the overall sector. So it is a market share fight. So there's winners and losers. We're planning our business to be a winner. So we are planning to gain market share this year. But there's no gimmes out there. You got to battle for it month in, month out, quarter in, quarter out. You know what this quarter is looking like. It's we got one less trading day in February, had one less full weekend in January. That said, I were to go into a market share fight with anyone, I'd love to go in with McDonald's on my back, that's for sure. Comment at all on the current trend in the environment? It seems like everyone's talking about a slowdown in December and then a slowdown in the Q1. I don't know whether you'd opine it all upon whether you're seeing similar or whether you're really not touching the Q1 at all? No. We'll be able to give you a lot more context when we come to the quarterly earnings. I mean, we don't plan to comment on first quarter trading now, not for any other reason, but we think we got into a good habit. We think quarterly is a more meaningful read on the trends in the business than anything shorter term. So, don't read anything else into it apart. We just want to be consistent in the way we communicate the business. Howard? Hi, thanks very much for the question. Howard Penney with Hedge I Risk Management. My question is on delivery. And the most successful delivery models have 3 components to it: the customers, the brands and then logistics. Obviously, you have the first two, but the 3rd piece you've set out, at least the way you described it today, to 3rd parties. So one, why did you decide to do that and maybe not build your own distribution business or logistics business? And 2, did you look into the health of some of these other third party distributors because they're or logistic companies because there's certainly a lot of noise as to the health of those companies? And what happens if a year down the road, they're not there to be able to deliver on your delivery strategy, I guess? Yes. No, it's a very good question. If I can just take a minute or 2 just to back up and provide a more historical context around certainly the way I see delivery and then we'll get into specifics and maybe even Lucy would like to comment as well. But probably 3 or 4 times in our 60 year history, we have found an entirely new growth driver that societally wasn't present before. So when we introduced the Drive thru to a Drive 2 business, that created a whole new revenue stream incremental business. When we another great example is when we extended into breakfast, we started to create a day part for eating out that just didn't exist. If I look at both those examples, both of them are somewhat capital intensive, somewhat cost intensive. They are slow burns because you start with a low level of demand and you have to create that demand. And that does make them wrong decisions. That makes them smart decisions, but real long term payback. With delivery, there is existing demand that we just have not we have not up until now chosen to meet. Low capital for owner operators, low capital for us, low G and O for us, low cost for the owner operators because this is an incremental business across their restaurants. So to me the business case opportunity is significant. With regards to logistics, as I do the end to end piece from taking a customer order all the way through to do the end to end piece from taking a customer order all the way through to turning up at their front door. And we know how that works. We know the profitability of it. There are a number of other variables you got to consider between extending that model and then going to a 3rd party. One of which is depending on which market you're in, how much time do you want to spend hiring training drivers, how much time do you want to spend assessing the cost makeup of labor versus a speed to market option where it may be slightly lower margin that you can extend and take advantage of the market opportunity that is there far quicker for a third party. In terms of the reliability of third parties, there are many of them out there. And of course, we're talking to plenty. We'll be testing with a number. And we believe we're in a position where should a business opportunity arise that we will have an opportunity to control that type of market should we wish to as well. So Lucy, is there anything you want to okay. Does that answer your question, Howard? The one piece of it though that the risk that you have, right, is not investing in this part of the business I understand this low capital incentive is that you're spending 100 of $1,000,000 if not 1,000,000,000 of dollars on the McDonald's brand, and you're putting that experience into the hands of a third party in terms of the delivery of the food and the time of the delivery and also whether it's hot or cold or Yes. No. So that's the No, that's it's you're 100% right. You can imagine the sorts of conversations we have internally to let go of some of that type of brand control. The reality is customers are used to ordering through 3rd parties across the whole spectrum. So that's not unfamiliar to them, certainly in the Western markets. The other piece we're going to stay extremely close to is the customer feedback we get. So we've got more than a couple of 100 restaurants now. And even though it's only 6 or 7 weeks, that is 1,000 upon 1,000 of orders that we fulfilled. One of the key things we look at is the and the way they call it in the 3rd is kind of the dissatisfaction rate. It's kind of the thumbs up, thumbs down type. We are just coming straight out the traps, just starting from scratch. We are running at half the level of dissatisfaction than is typical across the 3rd party piece, which I think when you start from scratch and you start at that level, that's encouraging. Customers are comfortable interacting with us and ordering for us. They like and accept and appreciate the quality of their food. And we haven't even started trying to get better at it yet. When you think about equipment innovation, when you think about packaging innovation, when you think about further using technology as we start to build our digital capabilities, we can shave minutes off the transactions and we can save degrees centigrade into the quality of the product. We'll only get better from here. So I am really reassured early stages of how customers are responding, but the sensitivities I totally accept. David? David Palmer, RBC. The comments that you've made today around convenience and the technology stuff and value that seems to be clearer and we can see perhaps the future more clearly in those areas. The quality side, arguably in the U. S, that's your greatest area of upside or at least consumer perception wise. And it would be helpful if you could give us a feeling about the pace of change there. You're on a journey, but is that journey going to be an accelerating one? And what areas are we going to see that improvement, whether it be prep, ingredients? Help us see the future here. Yes. I think you're going to see us continue the path really that Mike set in place probably 1.5 years ago, 2 years ago on the food journey for the U. S, which was kind of multidimensional. Some was around the running great restaurants piece is let's follow the procedures we have just to prepare hotter, fresher food. So let's just be better at what we should be good at. So there was a real nuts and bolts operational piece, working with the owner operators, raising standards, taking out the underperformers, encouraging putting more restaurants in the hands of the high operational performers. So that's just kind of a that's our day job. That's what you'd expect us to do. Then we've got all the other elements that customers care about. It could be around sourcing, could be around labels, could be around the ingredients or it could be around us getting back into our kitchens and innovating again around how can we use our innovative spirit? How can we work with the kind of equipment suppliers that can help us produce hotter, fresher food? And plus, I mean, you would have seen and heard about a number of the other tests we've got going on. I mean, some are more higher profile than others, but yes, we're testing fresh beef. We've made no secret of that. If customers care for that, they respond to it, that's something we're interested in because that can provide a juicier burger because whatever we can do right down the heart of our menu, we know we'll get the greatest response. You've heard me say this morning, if we can provide the greatest benefit to the most people in the shortest possible time, good things happen. So we can do that down the core burger lines. We've done a great job with chicken nuggets over the last year, year and a half here in the U. S. We've seen a 10% uplift in units sold. We still have worked on the burgers. We're working premium end, but we're also working on the operational standards. Again, if anyone from the team would like to add more, feel free. But getting a few nods of approval from the team. So I seem to have done a reasonable job. Sarah? Thanks. Hi, Sarah Senatore. Where are you, Sarah? Hi. Yes. Hi. From Bernstein. I wanted to ask, I guess, an adjacent question. Basically, go back to the idea that the traffic share loss has been to your closest near competitors, who I don't think of as necessarily having up leveled quality, but more have just accelerated LTOs and kind of a real value push. So I guess I'm trying to reconcile what I see as the competitive strategy of the people to whom you've lost some of your traffic versus this kind of longer term potentially taking quality up. So I guess that is one piece of it. And the second is when I think about other markets, the U. K, for example, where I feel like the quality improvement was a very big part, and certainly, you can speak to this better than I. Is there a qualitative or quantitative difference between the emphasis on value that you might have seen in these other markets versus the competitive set in the U. S? Okay. That's a multi dimensional question. Again, broader perspective, so if I give a very quick perspective on my experience in the U. K, my experience at McDonald's and the brand, everything communicates. So if you are enjoying your meal in a newly remodeled restaurant with great customer service, your Big Mac meal tastes better. It just does. It's because customers don't dissect every single element as much as we perhaps do. They just think about the broader experience. So I think the markets that have had the sustained growth have done a very, very good job at building the broader brand, whether it's the employee reputation, whether it's around food quality, whether it's around menu innovation, whether it's around the facilities, whether it's around service brand advertising, they tend to pull all those levers. Whichever way you turn as a customer, you're seeing a business and a brand that's kind of got its mojo, feels good and you want to be part of. So what we're doing, whether it's here in the U. S. And one or 2 other markets is how can we shorten the time it takes us to get to that similar type of place because we know that connects well with customers. In terms of the traffic share, just one thing I wouldn't mind saying about the traffic share because we sometimes you'll find probably mine and Kevin's style, we prefer the brutal honesty because we think it gets to the answers quicker. So when we talk about 500,000,000 lost visits, I think some people have interpreted that as 500,000,000 lost customers. It's not lost customers. This is visits over a number of years. So let me put it in a different perspective. If someone comes in 3 times this month instead of 4, that's a loss visit. It's not a lost customer, it's just a loss visit and we want to get that visit back. Here in the U. S, if you look at the fundamental drivers behind the loss visits here, there is no doubt that a meaningful percentage of those started to fall away from our business when we pulled the dollar menu. Now we've said that before. This is not new news. It's just the reality. Now that doesn't mean we want to go back and fight on price alone. And Chris said, we want to be competitive on value, but we're not looking to win on value because that is a bit of a race to the bottom. We will allow others to try and win on because they will end up getting themselves into position which is difficult to pull yourself back out of. But we want to be competitive and that will help us get some of those lost visits. We believe menu innovation will get lost visits. We believe modernizing the facilities will get lost visits. We believe that making it's taking the stress points out of the visit, particularly through technology, helping people order in different ways, pay in different ways, be served in different ways will just make them more likely to come to McDonald's than go somewhere else. So we believe we've got the plans in place to recover those lost visits. And whilst it pains me to acknowledge on behalf of our business we've lost to the nearing competition, Those are the easiest customers to get back if you get yourself back in the game again. So I'm heartened by the future even if I'm frustrated by the past. I'm sorry, I know I just because I've been mic, I'll take advantage. Can I just ask about pricing, which is you've been pricing a little bit above food away from home? Is that something that is a part of this value strategy to kind of bring it back in line and have our sort of franchisees on board with that? Do you want to take the pricing one? If you're asking our does our pricing come into play with the value, Certainly, price points are going to be a piece of it, whether it's offering certain things at a specific price point or bundling things at a certain price point. As you mentioned, we do when we look at pricing, we keep our eye on several different things, including food away from home as well as food at home. As you know, there's been a big gap between the 2, certainly in 2016, where food at home was significantly lower than food away from home. Going forward, we'll keep our eye on both things. We generally try to keep general pricing in line with food away from home over the long term. You may see quarters a little up or down depending on how we adjust. But as we think about value, pricing becomes a piece of that also. And Sarah, let me also customers don't tend to think about if McDonald's pricing is a percent ahead of food at home, people can't compute that. That's kind of slightly more instinctive over time. I'll tell you where the battle is. Let's just be competitive against the people next door to a cedar side. That's where customers and that's where the more instant decision making takes place, which is I want to go out for somewhere to eat. I've only got a few dollars in the pocket. Where can I get value? And you can drive down the road, you've got 3 places to turn into. What's going to make them turn into McDonald's? Be competitive. Great. I've got Brian and then over here Brett and Matt. All right. Thanks. Brian Bittner with Oppenheimer over here. One question on the financial guidance and then I have a question on the experience of the future. On the financial guidance, you guys have talked about 2019 and beyond and you've given us a great framework to think about it under a 3% to 5% system wide sales growth, high single digit EPS. I think that makes a lot sense, very easy to understand. I think the difficult part about that is understanding what base we're at once we're there. And so the question I have is, with all these moving pieces on the refranchising G and A cuts, obviously going to be buying back stock. If we assume that same 3% to 5% system wide sales growth in 2017 2018, is it going to be a similar type earnings growth framework or below or above? If you could any color you could shed on that would be helpful. And then I have a follow-up. Yes, Brian. So I mentioned in my remarks that 2017 'eighteen are going to be a little choppy and here's why. If you think about what's going on certainly in 2017, we have some big refranchising transactions, things like China, Hong Kong. So what you have is half of the year in 2017, where China and Hong Kong are wholly owned markets and then you have half a year that they'll be DL markets. When you go in and look at 2017 or go look at 2018, you're not apples to apples for those years. So if you want to say does that financial algorithm that I talked about for 'nineteen, does it apply to 'seventeen and 'eighteen? Here's the way I think about it. It may apply in total between 2017 'eighteen, but it may not apply by year because we're going up against big charges in 2017 and refranchising activity into the so you may see higher growth in 2017 and lower growth in 2018 because of things like that, because you're not into what I'll call apples to apples by year. Makes sense. And on this experience of the future, we got to see the kiosks and we got to kind of see just what that experience is like. And we heard 4% to 8% sales growth or mid single digit sales lifts. Can you talk a little bit more about, one, what's really driving it? Is it average check at the kiosk or is it just a better experience is driving more frequencies? So that's question 1. Question 2, how much is the all in cost for the franchisees to convert to an experience of the future or I guess re image the inside of the store for lack of a better word? Thanks. We'll take the first one. It's a little bit of everything. So we do get an average check lift. And again, the point that we've been keen to reinforce through today is this isn't guesswork or wishful thinking. I mean, we've had self order kiosks fully rolled out in France for 3 or 4 years. So we've seen how consumer behavior starts, starts with 3% or 4% of customers using them, then 10%, 20%. Now in the peak hours, well over half of our transactions. And some restaurants, up to 80% of them through the kiosk because customers have just become habitual for customers, they like it. So we see average shake because people have a little more dwell time, they can explore the menu a little longer and perhaps just build a slightly bigger order. We see a frequency benefit because the broader experience is more enjoyable and therefore they're likely to come back more often. And we also see it particularly strong with families. So we start to see group sizes return as well because it's if you're a mom with 2 or 3 children, being at the front counter is probably the most stressful point in McDonald's visit. There's now a few at the kiosk, either the kids can take a table or they can come up there and you can go through the experience yourself. It's actually a fun thing to do with your kids as opposed to a stressful point where you feel you've got to hurry your order. So we're seeing group size benefit, average check benefit, frequency benefit, But it starts slow. The usage, just like when we first started going to airports and we had to start using a kiosk then, I didn't particularly value that because I like doing it all in one go. But then over time you get used to it, you start to look for it because you can start to change your flight, check the times or what have you. No dividend at McDonald's. The piece we believe that will be strong on top of just the ordering experience is As we play out the table service side as well, that brings a whole new element to hospitality that we really haven't offered in the past. And frankly, no one in our sector does either. So we believe that's a bit of a differentiator for us as well. Regarding the all in costs that you asked about for EOTF, I'll preface this that we have to be careful of averages because we're going to have a wide range. It depends what a franchisee has in their restaurant today versus kind of what end state is. Having said that, I'll give you an average anyways. So if a franchisee has not remodeled their restaurant, kind of reimage, and so they've got to do a full reimage as well as include all of what we call EOTF elements, Experience of the Future elements, On average, that will be around 700,000. If you have a restaurant that is modernized, so you have re imaged it, you just need to add those EOTF elements, if you will, that's probably more in the neighborhood of around 150,000. And then if you need to do EOTF elements into a dining room, that's a couple of 100,000 more than that 150,000. But again, you'll have a wide range, but as far as averages, that's in the ballpark. Great. We've got Brett. Brett Levy, Deutsche Bank. Three questions. First, do you see any challenges with the future refranchising initiatives as you've had one deal fall off due to ownership potential ownership concerns and another deal with a differentiating unique structure? How should we be thinking about capital returns for 2017? You gave us a $22,000,000,000 to $24,000,000,000 number. Should we think about that as a straight line? Or is that going to be accelerating, decelerating? And then just if you could provide a little bit more color on the partnering with the franchisees and owner operators on the restructuring for Experience of the Future. And what was really the you said they have to be all in. What were you getting pushback from on their investments? So sorry, the first one is the one I missed. Can you repeat your first one? With respect to some of the deals you have out there, you had one in Asia that fell off due to what were speculated to be ownership concerns. And then you had the China structure, which isn't a straight deal. It's more of a unique hybrid structure. Do you think that how are you thinking about refranchising as it relates to those structures? Are you going to see more conventional since you can't get since you might not be able to get the bigger deals in a standard deal structure? I'll give you a broad structure piece on point 1 and then Kevin you may want to add to it. Part of what has been really beneficial to us the last, I'd say, 12 months, and I know 'seventeen is going to give us an even better opportunity to get focused is with 80 or so 120 markets already under DL ownership and we have another number of transactions in the works, as you already know, we literally are going to go market by market and find the best structure for that particular market. It was a 30, 40 restaurant market, maybe a DL, if we think there's a strong growth opportunity. For China, we wanted part of the action. We believe in China. We also believe that finding the local strategic partner will grow quicker than we would do on our ownership. And it also allows us to reallocate our resources, whether it's human resource, financial resource to higher return markets. So it's a win win for us. But I mean, that's our approach. We literally now know that the number of owned markets left is a diminishing number. And we can literally take a country by country view on it, depending on the business situation, the upside potential in terms of scale and the types of partners that exist within that marketplace. So I've never felt better about it because the conversations and the markets around which you're having conversations just gets narrow and narrow, which means you can just get more and more focus and you can put our smart kind of global franchising resource focusing on just a handful of markets over the next 12 to 18 months. So, in the U. S. And the international lead markets, the 5 kind of biggest international markets, in some of those, you should expect to see some additional conventional franchising. You certainly won't shouldn't expect to see any DL of those out of any of those markets. And you shouldn't expect certainly any other DL transactions, anything close to the size of the China Hong Kong, but you may see some other smaller transaction related to the DL stuff. Related to the cash return to shareholders, we're going to maintain some flexibility. So it's 22% to 24% over the 3 year period. I don't think we'll get any more specific than that, just so that we can maintain some flexibility on that. Related to the U. S. Partnering and what pushed back, I'll maybe Chris wants to give some texture on his discussion with the franchisees. Yes. So I think first, with the franchisees, with 2,500 franchisees in the U. S, it's tough to say the mood or the feedback of the franchisees is any one thing because I'd say it's quite varied. And so what you find is you might find some operators who say, I'm not in a chicken market, and so I don't agree with the emphasis on chicken. Or I'm in a chicken market, I don't agree with the emphasis on burger. Or I'm in a high cost market and I don't like the value program. Part of the issue has been that when you do everything in a piecemeal approach, everybody can find that one thing that they don't like that then slows you up versus when you put everything as a holistic plan, sure, there are going to be bits and pieces that maybe don't appeal to you. But are there enough other things in there that you say, good, let's move? Because the power of our system is when you can get 14,000 restaurants to all move at 1. And so that's why we've been really emphasizing this is a holistic plan. Sure, there might be a couple of things in this that you, particularly for your restaurant, for where you are, maybe you don't like, but is there enough other good stuff that you really feel excited about it? And that's been the feedback that we've been hearing, which is, again, as I said in my remarks, overwhelmingly supportive to date. We're not done, but overwhelmingly supportive to that. Your specific question on franchising, our standard franchising or our standard partnering agreement is typically about 40%. Partnering is typically what we've been doing in the U. S. And so what we're talking about doing in the kind of the next 3 year window is upping that amount to a 50% partnering. But then as I said, after 2020, it would drop off dramatically from that. And so there really is an incentive for the owner operators to pull at what is a richer partnering program than would ordinarily be the case. The other thing that we're doing is that this partnering program is transferable. So let's imagine you're going to think about wanting to sell your restaurant. You want to participate in that partnering because if you wait till after 2020, that comes right at your equity value. So there are things that we're doing in there to really drive and incent the system. And as I also said in my remarks, financially, the financial health of the system has never been in a better spot to be able to go after these things. So the system has the financial firepower to go after it. Thank you. And Matt, I am sorry. I would also say something that Chris given Chris' 1st year in the business as he traveled around the world in a strategy role, was having seen the pockets of success, particularly in the other international lead markets and some of the high growth markets, that's very transferable evidence of the key drivers that work. So you've been able to bring that back into your conversations, which I think has been very helpful. Matt, for SKU Guggenheim. I just follow-up on that question with the 1.2 CapEx number beyond 20 nineteen-twenty 20 timeframe sort of, I guess that implies then only the development CapEx that is right now in your number of around $1.8, $1.9 As you said, 2 thirds of that would be for development. So is there an assumption then that you would be also having would that still break down to 1 third, 2 thirds as far as development and money back into the system for reimaging? Or are you structurally changing your system with more DLs where beyond 2020, regardless of if it's the experience of the future, you're just not going to share the cost with your franchisees in the future longer term. So today, just to reiterate that the 1.7 is about 2 thirds reinvestment, 1 third new openings. The 1.2 going forward, a couple of things that will happen by then. The U. S, as we've talked about, essentially will be almost completely modernized, let's say, so it doesn't need any reinvestment in it, doesn't need significant reinvestment in the near term. The international markets right now on the reinvestment, we generally don't partner with capital. We partner through rent, and so that doesn't impact that. What it does assume is that going forward, the partnering related to capital for the U. S. Would decline significantly. But I guess I'm wondering also though about the 1.2, you're saying it's going to be modernized in today's modernized terms. As you've learned, things that were modernized 5 years ago are not even on this board anymore. So I mean, isn't that a number that we might be 1 to 2 years, but we should expect that to accelerate and be a rather a percentage of the overall system sales? One comment I'd make to that is we believe we've given ourselves enough flexibility because the support doesn't have to be through capital. So if there is further modernization or the next wave of modernization that could be done through rent and or capital. So we've got flexibility with that. The other variable that I would throw out there and again, we haven't modeled this because performance will either dictate or otherwise. As we grow demand, then a lot of our restaurants may reach capacity. And that means either we continue to modernize our restaurants to meet that capacity or the nicest problem is maybe we need to open more restaurants. And that could be in our developed markets as well. Again, if I speak from a U. K. Or from a Canada perspective, we've had 8 to 10 years' worth of growth. They're now serving 30%, 40% more customers than they were a decade ago. So that does mean there is opportunities to meet that demand by adding new restaurants as well. So DL markets clearly will do so under their own capital, but our fully owned markets, which are high return markets, aren't bad places for us to put our capital either. So we will reinvest in the business first. That's our primary use of free cash flow. Beyond that, we'll return to shareholders. Bob? Yes. Steve, Bob Barrington, Telsey Advisory. As I step back and I think about the conference calls that I've heard from other restaurant companies recently, it seems like everyone is flirting with the idea of getting into some kind of delivery, 3rd party, they do it themselves, whatever. My question is, when a consumer thinks about delivery, they're either thinking about a really craveable experience or maybe a real value laden experience for them to make the order. And while your group has put together a very impressive presentation with technology and mobile order, mobile pay, At the end of the day, 2 or 3 years from now, when the rest of the industry offers delivery, what is it that is so craveable about what you're offering to consumers that you think will make them come to McDonald's as opposed to everybody else and his brother offering service or otherwise? Convenience is the major play here. I mean value is important. Speed of delivery, where we think we may have an advantage over many as we get better at this is another differentiator. If you can consistently deliver within 20 minutes rather than 40 minutes, sometimes it's very impulsive order. The other piece, and I think Lucy has some very compelling stats on it, our sheer physical footprint makes us more convenient to more of the global population than any other business. And that's hard to match. We haven't leveraged it yet because we haven't chosen to get into it in any meaningful way. So I think we have a natural advantage we haven't even started to leverage. But convenience is more compelling than anything else. It could be you've had a couple of drinks, you don't want to get in your car and therefore you're willing to take that. It could be that you've got the kids at home and you don't really want to bundle them into the car and go. So there's a convenience play there. It could be you've got a meeting going on in the office or you've got a breakfast meeting and therefore we're suited to that. So there are different use occasions of it. But convenience is probably more overriding than value. And the only reason I say that is customers have already got very used to paying for a delivery fee. So if that's say a standard typically around the U. S. For around 5 dollars per order, these aren't people who are looking to penny pinch on the value side. It's where convenience is proven to be more of a driver of their behavior than just that sheer value piece as well. So again, anything you want to add to that, Lucy? If we have a spare microphone in the front. The only thing I would pick up on is your point around craveability of the food, because I do think that that is important. And you know, look, we're going to as we move forward now, we've got it we think that there's enough demand with our existing craveable menu items, but we see a lot of potential to expand and innovate, to think about what do we need to do to continue to raise that bar and innovate the menu offerings to tap into the new source occasions. So I think it's a good watch out for us and something that's absolutely on our horizon. Great. RJ? Yes. RJ Hodavy from Morningstar. Two questions on the mobile order and pay. 1, with rolling out to 20,000 locations in the year, U. S. And the other markets you talked about, do you expect any incremental cost that goes along with that, whether it be marketing, whether it be training at the restaurant level? What kind of expectations you have on that front? Second question, obviously, you've put a lot of thought into integrating it into the existing operations of the restaurant. That was pretty clear in the presentations. But how do you really stress test for the capacity issues that you might run through? I mean, it does seem like it fits well with the existing operations. But you really never can tell, especially with this being a fairly new initiative, how do you really get confident that you're ready for something that could be free of that much capacity and get everybody on board? Incremental costs, effectively, there's no incremental cost in the technology development technological infrastructure we're building now anyway. So if we go into a restaurant level or marketing cost, we release typically 3 or 4 times a year training bundles into the restaurants. It could be on new products. It could be reinforcing existing standards. So we would incorporate a training module, if you like, for our crew into one of those bundles. So that's kind of part of business as usual for us. On the marketing side, I think you'd probably see no greater emphasis to it than you would do currently just on maybe the tag lines at the end of our main TV ads, for example, around the mobile app. But we can just reference now available to order in advance. Now I'm not sure we're going to have full on dedicated marketing to it. In store materials for sure, as we build the 1 on 1 connections with customers, we can communicate to you as an individual about it. In terms of mainstream marketing costs, I think we'd leverage the existing channels we have. And so Sylvia already spoke this morning around how we're getting better informed about measuring the effectiveness of all of our broad marketing spend across multiple media, this is a great opportunity where the more effective we get on, let's call it TV or radio or digital, we can reinvest that effect any effectiveness or efficiency savings, we can reinvest to meet whether it's supporting delivery or developing or supporting mobile order pay. The second part of the question was? Stress testing for capacity. Stress testing for capacity. The reality is if it's an in store transaction, it's very similar if you were to order in advance to just any customer coming in. You can just scan your phone, take a seat just like an ordinary paying again, that's just a more efficient drive through transaction for us. So, again, that's just a more efficient drive through transaction for us. So that's easy enough. That's better for us to handle. The interesting piece would be if we can get up to that 20% mark on the curb side because then that's another different route to run the order. I'll tell you what, if we get up to 20% on the curb side and that frees up the capacity for the drive through, then we have one hell of a wonderful challenge to meet because we'll be just starting up for the growth we're getting. So whether it's when we added dual lanes to the drive thrus and created demand that way, We have these pull forward windows now where we can if the order is not ready and the normal presenter window, we pull forward and we can run the order down that way. We've maximized and enhanced our service model a number of times over the last 10 years. This is just another service option for customers. We'll be in good shape if we can get that volume up there and that demand up there. Very good. We have time for one last question. Matt McGinley, why don't you take us home? Matt McGinley from Evercore. I have a question on the G and A target. You outlined a plan initially to do $2,100,000,000 in G and A and then cut it further. So I think it's $1,900,000,000 ish, which I think you said equated to just under 2% of system wide sales. I guess, philosophically, when I look at that compared to your peers, you have much higher system wide sales. And therefore, I would think that potentially your G and A levels could be materially lower than some of your peers. But on the other hand, you have AUVs that are much higher than your competition. So what is that grounded in? What is that $1,900,000,000 support? And how did you kind of build up to that number over the long run for the right target? Yes, it's a good question. I'd say we didn't we built from the ground up, meaning that we didn't go after specific numbers saying, how do we get to this number and what would we have to cut. It's more around what are the costs and the cost structure that we believe we need to drive the growth in the business. And as we went through and did some of our restructuring, and the additional 100 and the additional 100 to 200, if you will. Part of this is a culture change within the company of kind of more financial discipline and looking at how we be efficient and how we focus on what are the costs needed in order to drive the growth in the business. So it really is it isn't what can we cut to get to a number, it's what is the right number in order to achieve the growth that we need. And we look at various metrics. So we look at G and A as a percent of the system sales. Also look at G and A of how much operating income that's driving. We look at various metrics. As you mentioned, one of the things we believe is one of the reasons we're able to achieve the higher average unit volumes in the restaurants is because of our business model. So in our mind, some of the G and A costs are incurred related to real estate, related to the higher unit volumes. And we believe in total, those help drive those higher unit volumes. Do you know what the next $100,000,000 to $200,000,000 in cuts will be? Do you have it specifically targeted or it's opportunistic? I'd say we've identified some areas as part of our initial $500,000,000 when we were going through that exercise. We've identified some additional areas that now we believe we can achieve that. And it wasn't just a number thrown out. It was specific areas that we believe is opportunity that we hadn't identified in the initial 500. Matt, if I could also add to that, Kevin, it's absolutely spot on, is we will not cut a single penny that would impact our ability to grow. And as we have got increasingly confident in our growth plans, that enables us to then take another look back at where else we have cost that isn't supporting the growth plan. So it's kind of an iterative model. But our commitment to each other and our commitment to our people and our commitment to the shareholders will be growth is the most important driver of shareholder return and we will not take out costs that would impact our ability to grow. Okay. Thank you. Great. Thank you very much, everyone. So I'd like to thank all of you for your interest in McDonald's, and I'd really like to recognize the efforts of the team that helped pull this whole meeting together. Thank you very much. This brings our day to a close. Thank you for listening on the webcast and thank you for joining us. Any final thoughts, Steve? I look forward to seeing you upstairs for a cocktail. We're heading upstairs for a cocktail. Thank you, everybody.

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