Earnings Call Transcript - ARCO Q1 2022

Operator, Operator

Good morning, everyone, and thank you for joining our First Quarter 2022 Earnings Webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer and Mariano Tannenbaum, our Chief Financial Officer. Today’s webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation, also available in the Investors section of our website. As a reminder, to better view the presentation on the webcast platform, please scroll over the upper left-hand part of the screen and click on the arrows to maximize the slides. After we conclude our opening remarks, we will answer your questions, which you can submit using the chat function on the left-hand side of the screen. You will need to minimize the slides to access the chat function. Today’s call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and unaudited financial statements filed today with the SEC on Form 6-K. Our discussion today excludes the results of the Venezuelan operation, both at the consolidated level as well as for the slab division. For your reference, we included a full income statement, excluding Venezuela, with today’s earnings release. Marcelo, over to you.

Marcelo Rabach, CEO

Thank you, Dan. Good morning, everyone, and thank you for joining us. Today we have another quarter of record sales and profitability to report. You will see that these results are broad-based and sustainable, thanks to the focused execution of our Three D’s: Digital, Delivery, and Drive-thru strategy. Our balance sheet and cash generation are as strong as ever, and we are on track to exceed the guidance we provided for investments and restaurant openings in 2022. After the quarter ended, we also executed a historic liability management transaction, becoming the first quick service restaurant operator in the world to issue a sustainability-linked bond. Let's start with the key highlights from our record-setting first quarter of 2022. System-wide sales exceeded $1 billion, and total revenue reached nearly $790 million. Comparable sales grew 42% on the back of strong volume growth and continued market share gains within a consolidating marketplace. Digital sales, which include delivery, mobile app, and self-order kiosks reached their highest ever US dollar total. Digital contributed 38% of the quarter sales and included the highest ever US dollar sales totals for delivery, self-order kiosks, and order ahead. This outstanding sales performance generated significant operating leverage across all cost and expense line items. In fact, the $79.6 million of adjusted EBITDA was a record for the first quarter. Revenue management, including pricing, product mix, and segmentation, plus a highly localized supply chain and efficient operation drove both EBITDA and the bottom line with net income of almost $26 million or $0.12 per share in the quarter. We also started the year with a strong pace of growth with 16 restaurant openings, including 14 freestanding units and 10 new restaurants in Brazil. More on that later on the call. Over to Luis for a closer look at our sales results.

Luis Raganato, COO

Thanks, Marcelo. Arcos Dorados generated excellent sales results in the first quarter. We have said it before, and we will say it again; this is a testament to the structural competitive advantages we're maximizing with a flexible restaurant portfolio and the 3D strategy. Once again, guests responded to the industry benchmark, quality, and convenience of the McDonald's experience throughout the region. All divisions improved guest perception of key brand attributes, including favorite brand, and continue to grow market share faster than their closest competitors. Brazil's system-wide comparable sales grew 39%, rebounding from tough results last year, when a spike in COVID led to a resumption of government-imposed operating restrictions in both March and April. Revenue in Brazilian reals grew by more than 25% versus the pre-pandemic first quarter of 2019, nearly offsetting the significant depreciation of currency in that period. Digital sales channels remained strong in Brazil, where they generated almost half of system-wide sales. Marketing activities in Brazil included the Méquizices campaign featuring some of Brazil's top music celebrities describing their favorite McDonald's orders. We also sponsored Big Brother Brazil, the country's most popular reality show, helping fuel sales growth across their 3D. Finally, the family business benefited from the exclusive Disney 50th Anniversary collection in the happy meal. Note that which is now composed of nine markets generates results in US dollars, euros, or relatively stable currencies; system-wide comparable sales grew 24.1% in the quarter, driven mainly by guest volumes with specially strong results in Mexico and Panama. Marketing activities in NOLAD mostly focused on core menu items in the quarter. Mexico reinforced the chicken category with the introduction of spicy chicken McNuggets and the McCrispy Spicy Deluxe. Puerto Rico drove customer excitement with the campaign, and after a two-year hiatus, we successfully introduced a seasonal favorite, the Filet-o-Fish, in Costa Rica, Panama, and Puerto Rico. System-wide comparable sales in SLAD rose 64.3%, more than double the blended inflation in the period. Performance was strong across divisions, especially in Argentina, Chile, and Colombia, where volume growth was robust. First quarter marketing activities in SLAD also centered on core offerings in Argentina. The Más Sabor, Más Fun campaign drove an increase in Big Mac sales while markets like Chile and Colombia focused on strengthening the chicken category. Most markets’ family business benefitted from our exclusive licensing agreement with Disney. Finally, drive-thru and delivery remained very strong in the division, reaching all-time sales records in many markets. Speaking of records, let's take a closer look at the digital sales Marcelo highlighted. Mobile app downloads now exceed 69 million with the highest number of active users in the industry by far. Record quarterly delivery sales included the highest ever monthly sales for the segment in March, and we set another delivery sales record in April. In other words, we have the right strategy to continue taking share as we grow this important sales segment. The unparalleled experience and convenience of McDelive continues driving volume growth despite recovering on-premise sales. Delivery sales grew more than 29% in constant currency with similar growth levels in all divisions. This performance proves that delivery is truly a new consumption occasion that has helped generate structurally higher sales per unit. Self-order kiosk sales also set a record in the quarter. More than half of the on-premise volume in experience of the future restaurants now goes through this digital channel. Importantly, this highly efficient and customizable channel generates a 15% to 20% higher average check compared with the front counter. Order ahead is still in its infancy and has not yet been fully implemented in all markets, but it is showing the value of allowing guests to choose where, when, and how to enjoy their McDonald's value favorites. Sales through the order ahead functionality were almost seven times higher than the first quarter last year. Among the benefits of operating the region's largest freestanding restaurant portfolio is the unmatched availability of McDonald's drive-thru in our markets. Drive-thru sales rose almost 13% in constant currency versus the first quarter of 2021 with positive results in all divisions, especially in SLAD. Volumes remain high, and we are gaining new drive-thru guests on a daily basis. The drive-thru based loyalty program has now grown to four million identifiable members. Later this year, we plan to introduce a more comprehensive loyalty program, leveraging our digital capabilities and insights to drive additional visit frequency and profitability. In line with expectations, the off-premise channels of delivery and drive-thru have remained sticky and generated 46% of total sales in the quarter, even with on-premise sales much closer to normal.

Mariano Tannenbaum, CFO

Thanks, Luis. Marcelo already mentioned that we achieved record US dollar EBITDA for the first quarter. As a result, the trading 12 month EBITDA is now the highest in Arcos Dorados history. All three divisions contributed strong results towards this important new milestone. Brazil's EBITDA margin rebounded after feeling the effects of renewed government-imposed restrictions last year. Notably, the 14.8% margin was also 100 basis points higher versus the pre-pandemic first quarter of 2019. SLAD was strong with double-digit EBITDA margins and significant growth in US dollars compared with both 2019 and 2021. Whether we look at the 570 basis points of margin improvement versus 2021 or 160 basis points versus 2019, the story is similar; better gross margin, efficient payroll, and G&A expense leverage. We are particularly pleased with gross margin performance given how global supply chain challenges and commodity price inflation have generated significant input cost pressures. Having a highly localized supply chain is key to minimizing these impacts. We have also taken a balanced approach to revenue management without overdoing it on pricing. The 3D strategy allows us to use digital tools to optimize sales through the right channels and to drive volume to the optimal product mix. It was through healthy and sustainable top line growth plus efficient supply chain management that we were able to improve Food & Paper costs by 110 and 60 basis points versus 2021 and 2019 respectively. Notably, all three divisions captured Food & Paper cost efficiencies in the quarter compared with pre-pandemic 2019. Turning now to our capital structure and growth plan, let's start with cash flow from operations. Cash generated from operations was seasonally strong and five times as high as the first quarter last year. Net leverage declined and remained healthy at 1.3 times. Our debt profile will look different at the end of the second quarter, following a recently completed liability management transaction. We will tell you more about that in a minute. As Marcelo said, we opened 16 restaurants during the quarter, including 14 freestanding locations. 10 of the restaurants were opened in Brazil. Total capital expenditures were $24.8 million in the quarter. As we have mentioned previously, we have our robust restaurant opening plan and the team is working hard to add to the pipeline and accelerate the pace of openings. Based on the current run rate, we expect to exceed restaurant opening and capital expenditure guidance for 2022.

Luis Raganato, COO

Thanks Mariano. A sustainability linked bond ties a company's financing strategy to the achievement of specific Sustainability Performance Targets (SPTs). We have aligned the SPTs for this bond with our long-term commitments; namely, reducing absolute greenhouse gas emissions by 36% in restaurants and offices by 2030. These are categorized as Scope 1 and Scope 2 emissions and reducing greenhouse gas emissions intensity by 31% in our supply chain by 2030. These are categorized as Scope 3 emissions, both long-term commitments we will use 2021 as the baseline year. The two key performance indicators or KPIs for the bond are linked to these commitments. The first KPI is the absolute level of CO2 equivalent emissions in restaurants and offices. We have established an SPT to reduce this Scope 1 and 2 emissions by 15% by 2025. The second KPI is the intensity of CO2 equivalent emissions relative to our food and packaging volume. We have established an SPT to reduce these Scope 3 emissions by 10% by 2025.

Marcelo Rabach, CEO

Thanks Luis. We have a long and diverse history of collaborating with and contributing to the communities in which we operate. Our social commitment and sustainable development team works across six Recipe for the Future pillars, which are youth opportunity, providing thousands of young people their first formal jobs and helping them develop soft skills necessary to succeed in the workforce. Climate change, taking actions to reduce the environmental impact of the operation, such as the ones in our sustainability-linked bond. Sustainable sourcing, ensuring humane and sustainable supply chain practices; circular economy, supporting recycling inside and outside restaurants, commitment to families offering nutritious family menus, and giving to McDonald's from charities and diversity and inclusion, developing initiatives to promote diversity of gender, race, sexuality, and generations. Last year, we published the Arcos Dorados Social Impact and Sustainable Development Report for 2020. It was the first time we or any other quick service restaurant in Latin America issued an audited ESG report. Today, we are proud to introduce the Arcos Dorados social impact and sustainable development report for 2021. This report has been prepared according to GRI and safety standards and once again, it includes content audited by EY. Please visit the Recipe for the Future website to download the report and learn about all our ESG efforts in 2021. I will wrap up with the summary of the main takeaways from today's presentation. 2022 is off to a great start. We delivered the third consecutive record quarter, and the trailing 12 month EBITDA total is now the highest in Arcos Dorados' history. These results were broad-based, and the positive trends have continued so far into the second quarter with both top line and profitability ahead of this year's plan. Cash flow remains robust, and our balance sheet is strong with no material maturities for the next five years. Against this backdrop, we expect to exceed guidance for restaurant openings and capital expenditures in 2022. We are committed to our Recipe for the Future. I'm proud of all the hard work we are doing in ESG. This is what allowed us to become the only QSR in the world to have issued a sustainability-linked bond, tying our financial strategy to long-term climate change commitments. We are confident about the future and believe the results we are reporting today will be sustainable over time because of our structural competitive advantages and successful 3D strategy. The truth is Arcos Dorados and the McDonald's brand in Latin America and the Caribbean have never been stronger. Dan, over to you to start the Q&A session.

Operator, Operator

Thanks Marcelo. In order to get started, please minimize the presentation slides so that you can access the chat function on the left-hand side of the webcast platform. Please limit yourself to one or two questions so that I can read, understand, and convey them to our speakers. We will now pause briefly to compile your questions. Okay, great. Our first question came from Marcella Recchia from Credit Suisse. Hi team. Thanks for taking my questions. And she asked us, well, one of the questions she asked us is, can you give us a trade update on the second quarter early trends?

Luis Raganato, COO

Yeah. Good morning, Marcelo, and thank you for being with us today. Well, the trends we saw during the first quarter of this year have continued into the second quarter. I would say that the whole business is performing ahead of this year plan, and that's both in terms of revenues and in terms of profitability. Total guest traffic, excluding dessert centers, is already near, or even above the pandemic levels, and our digital tools are helping us to recapture the on-premise business, the on-premise volume in a more profitable way. So I think we believe that the pandemic has been a catalyst that permanently changed our channel mix and off-premise channels are still generating a significant portion of our system-wide sales because those channels have demonstrated to be very sticky. Guests have responded well to the ease and convenience of the delivery and drive-thru, which have remained very sticky even with the situation that the on-premise sales continue to recover at a faster pace than we were expecting. And Marcelo, I would like to give a little bit more detail. First, when we talk about on-premise, on-premises McCafé plus Food Court plus dessert centers, they are performing in line with each other. The off-premise is delivery. What we are experimenting is normalization activities and the mobility, I would say all across the region. And even though we are seeing a recovery in on-premise sales, I would say at a very good pace, we are having a very, very strong performance in off-premise sales. Just as an example, talking about delivery, we posted a quarterly sales record in the first quarter, and this includes not only that we increased sales by 29%, but we had the highest ever sales in a single month in March; and on top of that record, we had in April, we set another monthly record. So the trend is very strong for the channel and we started this channel, this, we implemented it back in 2017. So what we saw is it was 4% of sales in 2019. Today, it's around 16% of total sales. The pandemic worked as a catalyzer, but that unification remained is sticky. Okay. So we really think that this channel is going to be an engine of growth in the near future. And if we talk about drive-thru, the second line I wanted to give you some detail there too; 2019 was 22% of total sales after the pandemic that participation of total sales remains around 30% in the first quarter. And we saw an increase in system-wide sales of 13% in this first quarter, but the good news is that we are gaining new guests. Just in 2021, we won one out of seven guests was a new customer, and it's very positive because when they try it for the first time, they love it because it's convenient, it's safe, it's fast, it's fun, and this is a competitive advantage for us. Just in Brazil, we have 2.5 times as many units as our main competitor, and it's not only about the footprint. It's about the experience, the operational experience we are seeing, impressive improvements in operations in every market. So we see this channel as the second engine of growth, and of course, the digital platform has boosted sales through these channels. We talked about this before through customized offers and targeted marketing campaigns, but we are going to keep investing in new technologies and new capabilities because we still believe that we have a huge opportunity to grow value.

Operator, Operator

Great, thanks, Luis. The next question is actually an overlap between questions from Santander and Jacco from Goldman. They both ask questions related to gross margin performance after congratulating us on results. Jacco, for example, asks how our gross margin is split between or how the performance is split between price, supplier negotiations, and mix; a little bit different also in terms of price mix and segmentation, and how we're able to pass through those costs to the guests. So I'll turn that one over to you, Mariano.

Mariano Tannenbaum, CFO

Thank you, Dan, and Jacco for participating in your first call, and thank you, Tiago, for your question. I will attempt to address both inquiries in one response. Regarding margins, we have effectively managed our food and paper costs since the pandemic began, despite ongoing input cost pressures seen across the market. Analyzing our profit and loss statement, you'll notice that we have even improved gross margins compared to the pre-pandemic period. In the first quarter of 2022, we increased our gross margin by 80 basis points compared to 2019, reaching 65.1%. This gross profit of $490 million was reported as 10% higher in US dollars than in 2019, notwithstanding the depreciation of local currencies, particularly the Brazilian real and the Argentine peso. Looking at the current situation, this year started with significant spikes in global input costs due to COVID, climate issues, and the ongoing conflict in Ukraine, which has exacerbated the rise in international prices of key commodities. Speaking of commodities, while we are subject to price volatility in this area, we maintain a diversified cost structure where no single item accounts for more than 9% of our total food and paper costs, except for beef. Moreover, the commodities represent an even smaller proportion of our cost structure. To counteract rising input costs, we employ various instruments and negotiate with key suppliers. This includes using commodity hedges negotiated directly with suppliers to provide some coverage against price increases as well as locking in prices through advance purchases, leveraging our strong cash flow generation. Our pricing protocols allow us to capitalize on our economies of scale, enabling us to secure better prices with main suppliers. While I have detailed our cost management efforts, it is also essential to consider how we manage revenues. Arcos Dorados has been implementing effective revenue management strategies. We have closely examined pricing strategies, generally aligned with inflation, to protect gross margins while maintaining our market share. Digital strategies continue to play a crucial role through segmentation and personalized offers. Our digital offers are strategically utilized to enhance sales by increasing our average check, attracting new customers, and encouraging repeat visits from existing guests. Our mobile lab capabilities are growing, enhancing labor efficiency and allowing us to better focus on guests' needs and preferences. Through price adjustments that match inflation, we have managed to raise our average check beyond inflation levels. This, combined with our effective cost management strategy, has enabled us to enhance gross margins despite significant cost pressures. Furthermore, I would like to highlight that we have successfully managed more than just gross margins. Other lines in our income statement, including payroll, rent, and general and administrative expenses, have also improved as a percentage of sales due to the robust cost controls we implemented during the pandemic. This overall performance contributed to an EBITDA margin of 10.1% in the first quarter of 2022, resulting in our highest first-quarter EBITDA in history. We are optimistic that if the sales trend continues in our key markets, we will achieve another year of strong EBITDA, both in US dollars and as a percentage of revenue.

Operator, Operator

Great, thanks Mariano. So I'm going to bring it back to Marcella Recchia from Credit Suisse, to be fair; actually asked three questions. We took the first one. She also asked a question in terms of on-premise sales versus pre-pandemic, I think Luis has already addressed that. And our third question is what's our expectation regarding our comments around exceeding full year 2022 guidance for openings, and what color can we give on what to expect there? So over to Marcelo.

Marcelo Rabach, CEO

Excellent. Yeah, when we provided guidance this January, we said that we would open at least 55 restaurants, with around 90% of them being freestanding units. So we said, at least. We also said that we have a robust opening pipeline, and at the time we said that the development team was working hard to both increase the pipeline and accelerate the pace of openings. Increase the quantity, but sustaining the quality of the openings we are doing because we will always remain focused on our proven underwriting process to maximize the ROI. As you have heard and seen with our first quarter results, we have had a very strong start to the year with both top line profitability ahead of expectations, and we are setting a new base for our plan of openings for this year. Even the fact that we already made 16 restaurant openings in the first quarter, including 14 freestanding, which put us on pace to exceed opening guidance by around 10 additional restaurants. Notably, recent openings have been performing very well with returns above expectations, and with the potential we mentioned in our goal in January that we see the potential to open at least 1,000 new restaurants in the next 10 years. We are confident that we will be able to continue securing and developing sites for highly profitable new restaurants, but as important as unit growth is for the long term, it's important to say that recent trends have been driven much more by organic growth in our existing footprint, which by the way, still has room for improvement as well. So we are very pleased with the way we are balancing our growth between the organic growth and new restaurant openings. We are very confident in our pipeline of new restaurants, particularly for freestanding units, and recent results have been outstanding. So a very good outlook in this sense.

Operator, Operator

Great, thanks Marcelo. Our next question comes from Steven Grey of Grey Value Management. Steven congratulates us for the presentation and the very strong quarter under very challenging circumstances and asks that we address a note that we have in our release related to net debt, that net debt rose due to the decline in the value of the derivative instruments we use to swap some of our US dollar debt into BRL. So he asked us to provide a little more color on how that works and how the derivatives are structured and how that might drive value, lower or higher. So over to you, Mariano.

Mariano Tannenbaum, CFO

Perfect, thanks Dan. And thanks Steve for the question. Every time that Arcos Dorados issues debt, we go to the US dollar capital markets. We have been doing that since 2009. We think that's the most efficient market that we can access, both in terms of cost reflected in interest rates, and in terms of maturities. Not many companies in our region have access to these markets, and we are taking full advantage of that. A proof of that is that we, in the recent transaction we just described, obtained the lowest spread over treasury that we ever got. And on top of that, we extended the maturity of our debt from 3.9 years to six years now, but there is going to the US dollar capital market generates a mismatch between the cash flow we generate in local currency and our liabilities that are reflected in US dollars. And we always mention—and that's our policy—to take a very prudent approach to risk management. That's why we use derivatives in order to convert part of our debt from US dollars to Brazilian reals, and to do that, we use derivative instruments. Those derivatives have a mark-to-market price that when the Brazilian real depreciates against the dollar, then our debt goes down together with our lower EBITDA in US dollars. When the Brazilian real appreciates against the dollar, then our debt goes up in US dollar terms, as at the same time as our results and our cash flows rise. And that's how the derivative works and how our risk management approach works and links. What we are trying to do is to link our cash flow generation with the outflows that we have, and what happened in this particular quarter is exactly that; the Brazilian reality appreciated against the dollar. We are generating more cash flows in US dollar terms, and the debt is going up and that's how the risk management policy works.

Operator, Operator

Great, thanks Mariano. The next question comes from Ulises Argote and again, I mentioned earlier that both had some overlap in their questions. They also asked similar to Ulises. So congratulations on results market share dynamics, how our market shares have been performing across the region, and again, thanks Ulises for your questions.

Marcelo Rabach, CEO

Okay, excellent. So according to our research, we increased total market share and share gap against our nearest competitors by about three percentage points across the business, and this is, I would say, very consistent across the region, several markets. So year-over-year share gains in the mid-single digits, and why is this happening? I would say that there is no silver bullet. We believe that this is a testament to our competitive advantages and particularly the successful 3D strategy. Our digital platform is driving market share gains for sure because it is allowing guests to choose where, when, and how to enjoy their McDonald’s favorites, and we talk a lot about the stickiness of premise channels. Luis mentioned some details around that, but for example, if you talk about Brazil, our biggest country, we are the leaders in the entire delivery segment, and this includes every player in the marketplace, for example, all the pizza chains in Brazil. We are the leaders of that market, thanks to the consistent way we are working with our partners in Brazil and the coverage of this service across our footprint leveraging obviously our freestanding units, which are the best units to offer these delivery segments. So we are very pleased with the market share gains we saw in recent years and very pleased that we continue to see those good numbers in the first quarter of 2022.

Operator, Operator

Great, thanks Marcello. Bob Ford from Bank of America sent us a number of questions. So we'll try to break this up a little bit. One relates to what percentage of sales are currently identified, and so I'll turn that over to you, Luis.

Luis Raganato, COO

All right. Hello, Bob. I will link this question to the loyalty program because is the engine that we are using to increase identifiable sales. Currently, our loyalty program is exclusive to the drive-thru sales, okay. And it's called the club VIP automotive. We have talked about this already. Today, we have through this program, four million identifiable members. This is generating a 15% to 20% increase in frequency, the program plus the number of identifiable members that we have; and today, as we said earlier, we're working on a more comprehensive and then I would say sophisticated loyalty program. In this new program, we will take the learnings that we are having with the VIP club—with the club VIP product and other best practices that we are taking from 40 markets to have implemented in a loyalty program called My McDonald's Rewards. All right. So what we expect is to leverage on that and just to build not only on those experiences, but to have our own experience. And the good news is that this loyalty program is not only about points or discounts, it’s about experience, and that's why we have worked so hard to improve our experience in our restaurants. I can tell you that our goal for 2025 is to reach 40% of identifiable sales.

Operator, Operator

Great, thanks, Luis. So Bob also asked a number of questions related to the family business. What percent of sales come from families? What proportion of those are happy meals, and how should we think about the happy meal schedule in terms of promotional properties for this year? And I'll pass it over to you Marcelo.

Marcelo Rabach, CEO

Okay. Yes. The family business used to be and continues to be a very important part of our business; typically was around 40% of our business directly related with families. And even during the pandemic, when families weren't able to visit our restaurants, they continued to enjoy their favorite meals from home through delivery, or visiting us through the drive-thru, and this part of the business has recorded very fast. In fact, in many markets, we are seeing units per day of happy meal sales already above pre-pandemic levels, which is very, very important for us and we know that part of the explanation of why is that happening is our roster of properties for the happy meal program this year. As you may know, we are the only quick service restaurant that has an exclusive agreement with Disney. And this year we have some properties coming from our parent, Disney, which are very popular. And during the weeks that we are offering those kind of properties in many countries, we are seeing regular high numbers of happy meal sales. So we are very pleased with this part of the business that continues to be very important for us. And it is a strategy going forward for the company.

Operator, Operator

Great, thanks Marcelo. We have a couple of questions related to Experience of the Future and self-order kiosk sales. Richard, who actually sent two questions, one relates to the increasing guidance, which I think we've already addressed for you, Richard. The other is that we mentioned that half of orders in EOTF restaurants are being made through the self-order kiosks. If we have an idea sort of where that can go and related to that, David Hertzberg of Stifel asked if you know the average check growth between or average check difference between the self-order kiosk and the front counter; sort of what drives that difference?

Marcelo Rabach, CEO

Okay, great. Let's begin with the first part or the first one. Before the pandemic, in 2019 for example, typically in the restaurants where we have self-order kiosks in the EOTF restaurants, we had something around 30% of the guest counts inside the restaurants made through the self-ordering kiosk and 70% still at the front counter. After the pandemic and in recent weeks or months, that number grew to about 50%; more than half of the customers that are visiting us at the restaurants are ordering through the self-ordering kiosk. We already have some of our markets, the ones that introduced EOTF in early stages in 2017 and 2018, where this participation of the self-ordering kiosk is already about 70%. So we still see room for improvement in this. We continue to see an increase in the share of orders made through the self-ordering kiosk, and the great news about that is that the second question mentioned, typically we see something between 15% and 20% better average checks in the orders made through the self-ordering kiosk. The main reason for that is that there is a lot of intelligence, a lot of thinking about how we display the offers in the self-ordering kiosk, the artificial intelligence that these capability features have in order to walk through different offers and different products, depending on what you are ordering. So that's why typically in these orders we see not only a higher average check but a better margin for us. So that's why this is so important. That's why we are so encouraged by the results we are seeing in terms of the investments we made in the past, and we will continue to make for deploying EOTF across the region.

Operator, Operator

Perfect, thanks, Marcelo, and one last one here from Bob; he asked about mall store guest counts compared to pre-pandemic levels. So over to Luis.

Luis Raganato, COO

All right. Yeah. What we're seeing is today, we are still negative versus Q1 2019, but we are very, very close to the normal volumes of that. And this is due to the negative impact that we are seeing in the shopping mall overall, right. I wanted to highlight that in freestandings, we are flat versus Q1 2019, and in US dollars as reported, they're very, very positive.

Operator, Operator

Perfect. Thanks, Luis, and actually, we don't have any more questions in the queue. Wanted to thank everyone for joining us today for all your interest in the company. Great questions. Look forward to speaking again—speaking to you again in August on our next earnings webcast. Until then, please stay safe and have a great day.