Global Growth and Performance
Globally, same-store sales declined 1.3 percent in Q4 due to dragging comps in international markets. For the year, systemwide comps slipped 7.7 percent.
Comps were positive in October, but moved back to negative in November and December because of rising COVID cases and additional restrictions internationally.
For International Operated Markets, same-store sales decreased 7.4 percent in Q4 and 15 percent in 2020. International Developmental License locations sank 3.6 percent in Q4 and 10.5 percent in 2020.
Growth in markets like Australia and the U.K. were more than offset by double-digit falls in France, Germany, Italy, and Spain. There were bright spots, however—Japan and Australia posted their fifth and seventh straight year of positive same-store sales, respectively. Comp sales in International Operated Markets are expected to remain in the low double digits as government restrictions remain in place in most markets.
Stores outside the U.S. have hurt more because they tend to rely on dine-in business. Kempczinski said McDonald’s had success driving customers to drive-thru, delivery, and digital, but that’s been limited by operating hour restrictions. Dealing with mandates has been a challenge, but the CEO said international operators are set up well to succeed. In managing COVID restrictions, McDonald’s discovered just how much capacity it can handle in the drive-thru.
“We think in the last year we've moved something like 300 million additional cars through our drive-thrus,” Kempczinski said. “And if you had asked me a few years ago, I was thinking that we were pretty, pretty maxed out on drive-thrus.”
McDonald’s invested $1.6 billion in capital expenditures in 2020 to open almost 1,000 restaurants across the globe and modernize 900 U.S. stores. In 2021, the brand plans to spend roughly $2.3 billion in capital. Half of it will be used to debut more than 1,300 restaurants globally—roughly 500 in the U.S. and International Operated Markets and more than 800 in International Developmental Licensed Markets, including 500 in China.
The other half of the $2.3 billion will be reinvested in U.S. and International Operated Markets. About $500 million will be used to modernize approximately 1,200 U.S. stores. More than 90 percent of U.S. modernization projects are expected to be completed by the end of 2021.
For the year, revenue sank 10 percent from $21.36 billion to $19.21 billion. Operating income decreased from $9.07 billion to $7.32 billion and net income slid from $6.03 billion to $4.73 billion.
The stellar performance of franchisees comes amid what appears to be a feud between the company and operators. Franchisees have voiced displeasure over McDonald’s asking for higher fees and ending a subsidy for Happy Meals, according to CNBC. The operators stopped nonessential communication and plan to resist future value promotions, per the report.
Kempczinski, who ran the U.S. market for three years, cautioned onlookers to not generalize the overall sentiment of franchisees because “you have 2,000 CEOs and presidents of their own businesses with a lot of different opinions and perspective.”
He added McDonald’s business is very decentralized, meaning the action happens at the restaurant level. And at that level, Kempczinski said the U.S. interaction between company and franchisees is strong, pointing toward the operating and sales performance as evidence.
“There is absolutely noise and there absolutely are some disagreements that happen right now between the national operator leadership and our U.S. team,” Kempczinski said. “I've dealt with those when I was in the U.S. They flare up from time-to-time. We're certainly in one of those moments now. But I'm confident that Joe Erlinger and the U.S. team along with Mark Salebra, who leads the operator group at the national level. We always find our way to work through these, and I fully expect that that will be the case in the U.S.”
Kempczinski also acknowledged the debate around a potential federal $15 minimum wage requirement. The CEO said while talk at the federal level has picked up steam, he noted it’s happened at the state level for the past several years, including Florida, which recently passed the measure during the 2020 general election.
As those higher costs rolled into certain states, Kempczinksi said McDonald’s has “seen and developed quite a bit of experience with how this works out.” As long as the minimum wage requirements are launched in a staged manner and done equitably across the market, McDonald’s has been fine. Kempczinski added that in those areas, the chain balanced pricing on the menu and productivity savings.
Another example that gives him confidence is the brand’s work after seeing minimum wage increases in Canada.
“That team working with the franchisees did a spectacular job of working that through on to the menu through pricing, through productivity,” Kempczinski said. “So, I think our view is the minimum wage is most likely going to be increasing, whether that's federally or at the state level as I referenced. And so long as it's done, like I said, in a staged way and in a way that is equitable for everybody, McDonald's will do just fine through that.”
Peter Saleh, BTIG restaurants analyst and managing director, said as President Joe Biden's administration pushes the $15 minimum wage, BTIG expects operators like McDonald's to offset the pressure by raising menu prices, streamlining the menu, and automating tasks.
BTIG is anticipating McDonald's will roll out Apprente, it's voice ordering platform, in the drive-thru sometimes this year to reduce labor hours. It also believes franchisees will raise menu prices in excess of the usual 2.5 to 3 percent annual increase.