Chris Kempczinski

another sixty years. Companies more than sixty years old now, and many companies over the last sixty years have gotten in the fast food business. Some have done okay, so I'm going out of business. But McDonald's is by far the biggest. You have a market capitalization about a hundred and seventy five billion dollars. What is it that made McDonald's by far the biggest of the fast food companies. I think it starts with the brand. I mean, we have a brand that is one of the most valuable

brands in the world. And how did you get to that brand? It was a combination of things. I mean, it's started with Gray Croc recognized the importance of ubiquity and so That was part of the genius or genesis of of doing a franchise model, because with a franchise model, he could get capital deployed, get restaurants built more quickly than he could if he was trying to do this all on his own. So that was one idea. I think the second was the production system, the speedy production system.

It guaranteed equality of the experience that people knew no matter where you went, you could get a consistent experience at McDonald's. And then it certainly came from, you know, our attachment in the local community. One of the things that also Ray Kroc was very focused on was building the brand at the local level. That's why he wanted the franchise ease engaged in the restaurants, and so you saw getting involved in schools, getting involved with you know,

birthday parties, all those things. Those were all part of building the brand that ultimately now I get the benefit of, you know, protecting and hopefully further shining the arches. So you are the CEO of this company for the last couple of years, and has you been doing this? Uh?

Have you had to deal with the COVID problems in particular COVID has been an issue that's impacted us in every country that we operated in a hundred and twenty countries, and it's been kind of a unique experience because what we've dealt with regional issues before. We've dealt with stars and mirrors and swine flew and things like that, but we've never had an issue where it impacted literally every country all at about the same time, So huge issue

for us. It varied around the world. Some places went into complete shutdown. In the US we were able to keep the restaurants open, but drive through only UH, and that was I think part of where are the genius of our system came to light, which is you were trying to manage this situation everything from Chicago. It never would have worked. The fact that we're a locally owned company with franchise ease, they're able to act much more

nimbly than than we could from the center. And somehow another knock on wood a year later, Um, you know, we are in a very strong spot, and it's it's hard to believe really, So when COVID hit, UH, many people didn't go out anymore. They weren't buying McDonald's products, other people's products as well. Did you have to lay off people for low people? How did you deal with

your employees or the franchisees had to do that. Yeah, we didn't lay anybody off, certainly from the company's standpoint, And our franchisees went through quite a bit of effort to make sure that either through government programs or through things that they could do on their own, that they kept attached to their staff, that they kept the staff uh working and available to the restaurants. And so I think, you know, well, we have forty thou restaurants. I don't

know every particular situation. By and large, we were able to retain our workforce through all of that. What did you learn through COVID about how to manage a company differently, better, or some other ways that you would have not probably learned if you had not going through COVID. I certainly think one of the things that we saw was our ability to stay connected through technology bes Zoom, Yeah, Amazon Chime. I've learned all the different teleconferencing tools and they've all

worked reasonably well for us. So I think, you know, we learned things there that we have the ability to to stay connected. I think the other thing though, that it highlighted for US is um we ultimately are an in person business. We're in person in the restaurants, were in person in the office, and so well, you lose something from culture, you lose something from a connectedness by by being so remote and so, you know, while it worked well for the time, we're committed to getting back

into our offices, getting back into the restaurants. And one of the problems I think some of the franchises are having, not just McDonald's, getting people to come back to work. Either they don't want to come back to work, or they for health or other reasons, or they want to hire a compensation, and they often get at the kind of starting jobs you might have. How hard has it been to get people to come back to work. It

has been very challenging in the US. We have not seen that issue as pronounced in Europe barrel swear on the world, but in the US it certainly has been a challenge. I think it's a lot of different factors in it. Certainly the stimulus UH support had some element. But you know, if I asked the franchise ease, okay, so September, is everything gonna be good? Once the stimulus rolls off the like will know there are other things going on, so I think, you know, there's a variety

of things that play. But it has certainly been a challenge for us on staffing at the restaurants, and it's putting pressure on wages, which is what you see in you know, any kind of capitalist system. UM, So employers like McDonald's are now having to pay more on wages. We announced in our company owned restaurants, UH sort of

a across the board minimum ten percent wage increase. UH that has been carried forward by many of our franchise ease and I think we're just having to get creative about how do we get people uh to come and interview for a job at McDonald's. And you're seeing our franchise ease do things like, hey, you know, fifty dollars for an interview or free iPhone after ninety day is I mean, that's sort of all the things that we're having to come up with right now to make sure

we can staff the restaurants. But most of the people who are young who do work at McDonald's, are they minimum wage people and they go up from minimum wage or are you above the minimum wage? The legal minimum wage. Now, yeah, we're above the legal minimum wage, so it's seven and a quarter. Uh. And there are very few places these days that you can be competitive in the marketplace paying

the federal minimum wage. I think from our vantage point, what we announced in our company owned restaurants is eleven dollars is the starting wage, and then you know, as you move up, you would you quickly progress through that. If you are a restaurant manager, someone who's maybe been there for a couple of years, you're earning anywhere from fifteen to twenty dollars an hour, and I think that's been largely Um. You're seeing a similar type of thing

with our franchise. So while we don't collect information around what is you know, the average wage paid by our franchisees, I would expect it's probably about ten dollars that we're paying right now, just because again, the marketplace is driving it. Uh. And I think that's always been one of the questions, is you know, is this something that you want to

be legislated or wanted to be in the marketplace. Our view is, um, we're gonna do whatever we need to be successful as a business, but we also don't oppose if the federal minimum wage is addressed either. So during COVID there were some problems. You had some franchise I guess where there were some strikes or something. Employees weren't happy. What was that all about? We always have something going on at McDonald's around the world there, certainly, I think

what you're referencing. There were um some protests about either were were doing enough to protect essential workers? Um, which is you know how we were deemed as a business. We went to a lot of effort there to make sure that we provided ppe into other things like social distancing the restaurant, but we had protests on that. Well, we'll get protests around wage rates. Um, that will crop up. So the thing about McDonald's is, no matter what has happened in society, you can be certain it has some

permutation that affects McDonald's. And it's both the challenge of the job but also what's interesting about it. Let's talk about the major things on your menu, which I've sampled over the years. Of course, Um, so the most popular thing that you have on your menu, is it a big mac or a quarter pounder or the French fries? Well, I mean from a volume standpoint, the fries are by far the biggest within sandwiches, probably the Big Mac. It does vary a little bit around the world, but but

the Big Mac is probably up there well. The fries are intoxicating, lee difficult to avoid eating one. Can you tell us what's the secret? What do you put in the in the batter or the cooking oil or whatever you do that is the secret? Is it the potatoes? What is it? We have a room here that I haven't taken you too that has all the secrets on that. But I would just say there's there's a lot of

things that go into it. It's starting with, um, you know where we get the potatoes from, and we have proprietary relationships with that, how those potatoes are then processed, Uh, what we will put on those potatoes, and then ultimately how they're cooked in the restaurant, the cooking oil that we use, the amount of salt that we use. So there's a lot of things that go into the secret recipe. Some people might say the French fries might not be

that healthy. Some people might say that, I don't know. If you would say that, um, what would you say about that? I'd say, you know what we try to do on our menu is to have choice. So we have a variety of things on our menu, from more indulge in items to healthier items. And you know, it's no different than if you go to the grocery store. You can go to the salad bar, or you can go to the ice cream section. And that's how we

approach our restaurant, which is about choice. The other thing, though, you know, I get asked a lot of times, why don't you have more of this? Why don't you have more of that? Or why did you get rid of this? Um, it all comes down to did itsell. So our restaurant and what goes on the menu is all based on what moves gets on the menu, what doesn't move comes off the menu, and so ultimately we're letting the customer decide what we do or don't carry on the menu.

Since McDonald's was started some sixty plus years ago or so, there's been a greater interest in the United States and maybe around the world healthier eating. Have you tried to reflect that in your menu? We've tried, um, And I would say, you know, it gets back to again, what what sells gets on the menu and stays on the menu.

What we have seen consistently is, as we've tried to broaden UH more of what you know, people might say are better for you items, uh, there's just not as strong a demand for them as there are for some of our iconic classics. And so you know, we're not in the business of telling people what they should or shouldn't eat. Our view as our obligation is to provide them with total transparency and nutritional information to make sure that we afford them choice. But ultimately what the consumer

buys is up to them. Suppose I'm a vegetarian or a vegan and i want to go to McDonald's, is there anything there for me there? So you could certainly have UM right now a salad UH in a restaurant. Depending on if you're vegetarian or vegan vegetarian, they're going to be other offerings that you have. If you're in India, for example, we have quite a broad sample of vegetarian menu items, less so if you're in Lubbock, Texas, for example. Uh So, again it depends on the customer and what

the customer wants. But we've also talked about launching mcplant UH and mcplant for us as a plant based burger. Uh that is available in some countries already. Uh, it's something that we're gonna be testing later in the U s. So, uh, maybe we'll get you a mcplant Another product I don't want to overlook as your famous Coca cola. Now, you

used to work at Pepsi. I know, so to Pepsi people ever call you to remind you that you have coke and maybe you should be had a few dialogue over the over the years, and you know, my my short answer is the way to get pepsi into McDonald's is get people to prefer pepsi over coke. Back to the point of we're gonna sell whatever the customer wants. UM.

So yes, my my pepsi friends periodically check in. But some people say that your coca cola is made in a certain way that's better than the coca cola could buy in the bottle. So what is it that you do that's different with your coca cola? So I would agree, I think it's better. Um. One of the things that we have as an advantage is because of the volumes that we do in our restaurant, um our volumes tend

to be higher than than anybody else out there. It allows us to buy equipment that is able to be tight traded or calibrated more precisely than maybe some of our competitors. And so what we're able to do because of the equipment that we're able to buy, which is more expensive equipment, is we're able to deliver what Coke would describe as their gold standard product on a more consistent basis than somebody who maybe has inferior equipment in

their restaurant. So I should disclose that I am an investor in McDonald's in effect because my firm bought a piece of the China business with a Chinese partner and with McDonald's UM and in China, as I understand that, uh, chicken is very popular, maybe more so than beef. Is that unusual where chicken is more popular than beef and in a given market, Uh, you know, China is largely a chicken market. I think this is one of those things. It does vary depending on which part of the world

you're in. Brazil tends to be more of a beef market. US is about fifty fifty between chicken and beef. So, you know, we do see that the trends evolving, but chicken globally is growing faster than beef, and certainly our expectation over the next five years is that chicken, more so than beef, will be the dominant protein in our restaurants. So there are four ways you can buy things at McDonald's, as I understand, each begin with a D. So let's go go through. That one is a drive through? Is

that a big business these days? Drive through drive to you, it's a huge business for us, particularly in the US. It's about seventy of the business in the US. In Europe you would see at the inverse you would see dining and being a much bigger part of the business in Europe, but through the pandemic we did see drive through also become a pretty significant part of the business. Another D is delivery. You have ability to deliver? Do you deliver yourself? Do you use one of the services

deliver people's home? We do both. It started for us in Asia where we were doing our own delivery, particularly in China. In the Middle East, we also have a pretty sizeable delivery business where we do the delivery ourselves. And then in other parts of the world, like in the US, we have partnered with third party operators like an Uber eats or a door dash. So right now we do about six billion dollars of sales a year through delivery, which is growing, you know, high teens globally.

It's it's been pretty remarkable. Another day is digital. You can buy things digitally? How do you do that? So the app? For us, everything is moving to the app. I think for us it's been it's been an interesting evolution to see where you know, for years and years the center of the relationship that we had with the customer in the physical restaurant, and what we're seeing, particularly with gen Z and millennials, is it's moving to much

more of a digital relationship through the app. So yes, today UH in almost every single one of our countries, the US being a prime example of that. You can download the McDonald's app, you can order your products through the app and UH. An exciting thing we're doing right now this month is we're rolling out loyalty, So when you buy with the app, you also get loyalty points you can redeem later for food and other benefits. It's

your frequent flyer version. You got it. So and the last d is dying in which used to be the thing that people did. But now is that a smaller and smaller part of your business and you need all those spaces anymore in your restaurants. It's I think still a really important part of our business because a lot of the interaction and the memories that people form about McDonald's comes from the dying in experience. But I think you're right in recognizing that it is certainly, through the pandemic,

a less prov part of the business. I mean, our view is that it is going to come back. Um. I think dining and eating is such a social experience. There's always going to be an element of it that is in person. Now, how much of it comes back, time will tell. And if at some point, you know, maybe we need to reduce the space for dining seating that we have in our restaurants, we can always calibrate and do that, But for now we're kind of on

a watch and c mode. I assume you have a lot of people saying the food isn't as healthy as they might want it to be. Is that the biggest challenge or just growing the company? Ray Kroc had a famous line that gets quoted around here fairly off and even today, which is if you're not green and growing your red and rotten. Let's talk about your background. Where did you grow up? So? I was born in Boston, grew up on the East Coast until we started moving around.

I went to high school in Cincinnati, uh, and then ultimately went to college down in North Carolina. Well, you can say the name, it's I went to do Yes, we shared that. And after you graduated, what did you do? I went to Procker and Gamble. I went into their band brand management program at the headquarters in Cincinnati. And after that, so after that, I went to Harvard Business School UM and got my m b a UM, and after that I went into consulting for a few years.

But you spent a lot of time in the food world because you were before PEPSI, you were you were after after PEPSI were a craft as That's right. So just something about food that you really appeal to you, I'd say what I love is being in consumer industries. UH. For me, what I really find sort of energizing as having a tangible product that I can see, touch, feel, etcetera. UM, and also one that you know people can relate to when I say, you know, I work at PEPSI, or

I work at craft or I work at McDonald's. Um, immediately you can always have a conversation with people and kind of the fun thing for me and my current job. You know, no matter where I am in the world, UM, people have an opinion about McDonald's and want to talk to you about McDonald's, and it just it makes the job fun. So you came here, and that here was here in Okay, and then you rose up pretty quickly to become the head of America's that's right. And then

in two thousand nineteen you became the CEO. That's right. And the stock is up and the market cap is up about since then. So I assume your board is happy. So far, so good. Yeah, but some of your predecessors had problems. They didn't last that long and for health or other reasons. So is there a bad karma you feel to being CEO or you think you can outlive the bad karma? Yeah? I hope not. I try not

to think about it too much actually, UM. But you know, I think when you're in these jobs, you know, you're you're just very grateful for the time that you're in the role. And I don't spend a whole lot of time thinking about you know, sort of you know, the future and all that stuff. It's it's about you know, so long as I keep delivering for the company, us, long as we keep performing. Um. I certainly, you know, feel really fortunate to be in the role that I'm in.

So it's a global company. UM now that COVID is not behind us, but certainly receiving a bit. Are you traveling the world? Are you expect to travel the world war I do expect to travel starting next month. Uh, and you know, between now and the end of the year, I've got five international trips lined up. Are when you travel internationally, you're trying to tell the local franchises to

do work more, do better job? Or what are you trying to do when you travel you're recruiting it franchisees or are you telling them why your new food products are going to be good or why Yeah, there there's a variety of things I'm trying to get done. When when I'm out there, the biggest thing is listening, so you know, hearing what's on the mind of our franchisees,

hearing what's on the mind of our people. That's one thing I'm looking at the second is making sure that the strategies that we're talking about at a corporate level are they cascading down and we're seeing those in the restaurants. A lot of times, what can happen is you think you've got clarity around what the strategy is and then it doesn't actually end up getting executed. So I'm looking at the connection between our strategy and is it showing

up in the execution the restaurant. I also will just spend time being a little bit of a cheerleader. Um when I go into the restaurant. As you would imagine the role, Uh, it's it's about creating excitement and appreciation for the crew working in that restaurant. So I try to do some of that. And then I also make time when I'm traveling to meet our young up and coming employees kind of our high potential. So there's a

variety of things I'm doing. So when you meet with your local franchises anywhere in the world, do you have lunch at McDonald's or do you say let's go somewhere else. We we will always eat in the restaurant. Dinner, we typically will go somewhere other than McDonald's. But breakfast and lunch will always be in a McDonald's. And do you ever go to your competitors stores and kind of see what they're doing to get some new information? We do?

We do, UM, usually don't stay there too long. Usually the service isn't as good and the food isn't as good either, but we will go in there to just check. So McDonald's is always coming up with new products. You know, everybody's coming up with new products in every line of business, but you're always coming up with new food products that people will presumably like. But do you taste them all yourself? And do you have to approve a new product? Or you just say I've got to the people that do

the food tasting. Yeah, we have a great menu team. Uh. It's their job to work typically with franchise ease and ulultimately customers to develop the new food items. Occasionally I might just say, hey, I'd be interested in trying that. The team will usually humor me on those types of things. UM. But if you don't like it, what happens nothing ordinarily other than just it's interesting that you didn't like it.

Where I will where I do exercise as CEO authorities around our core menu, So you can't touch the big Mac, you can't touch the quarter pound, or you can't touch the fries, um, you can't touch hamburger cheeseburger and make any changes to those without my approval. But outside of the core menu you have a lot of latitude and certainly on new items. So what do you think is the biggest challenge of being the CEO of McDonald's just

just keep growing the company? Or I assume you have a lot of people saying the food isn't as healthy as they might want it to be. Is that the biggest challenge or just growing the company? I mean, I think it's about UM As a business, we have to be growing. And Ray Kroc had a famous line that gets quoted around here fairly often even today, which is, if you're not green and growing, you're red and rotten UM. And I think that philosophy is part of our business,

which is we are a growth business. So how do we grow is a big part of it. But where it will come up is and things that you were talking about, you know, for example, you know the menu items, UM, if we're perceived as not meeting the needs of customers, were not going to grow. So if customers are seeking healthier food options and we're slow on delivering those, it's going to impact our growth. So that that's what I viewed my job is all about. Thanks for listening to

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