Hello, and welcome to McDonald's First Quarter 2025 Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question-and-answer session for investors. I would now like to turn the conference over to Mr. Dexter Congbalay, Vice President of Investor Relations for McDonald's Corporation. Mr. Congbalay, you may begin.

Good morning, everyone, and thank you for joining us. With me on the call today are Chairman and Chief Executive Officer, Chris Kempczinski; and Chief Financial Officer, Ian Borden. As a reminder, the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website, as are reconciliations of any non-GAAP financial measures mentioned on today's call, along with their corresponding GAAP measures. Following prepared remarks this morning, we will take your questions. Please limit yourself to one question and then reenter the queue for any additional questions. Today's conference call is being webcast, and is also being recorded for replay via our website. And now, I'll turn it over to Chris.

Thanks, Dexter, and good morning, everyone. We entered 2025 knowing that it would be a challenging time for the QSR industry, due to macroeconomic uncertainty and pressures weighing on the consumer. During the first quarter, geopolitical tensions added to the economic uncertainty and dampened consumer sentiment more than we expected. We believe McDonald's can weather these difficult conditions better than most, as we have proven time and time again, and expect to outperform our competitors by harnessing the strength of our brand and the power of our global scale. However, we're not immune to the volatility in the industry or the pressures that our consumers are facing. Our global comp sales in the first quarter declined by 1%, and while we expected global QSR industry traffic would be down in the first quarter, actual industry traffic fell more than we anticipated in several of our large markets, including the U.S. In the U.S., overall QSR industry traffic from the low income consumer cohort was down nearly double-digits versus the prior year quarter. Unlike a few months ago, QSR traffic from middle income consumers fell nearly as much, a clear indication that the economic pressure on traffic has broadened. However, traffic growth from the high income cohort remains solid, illustrating the divided U.S. economy, where low and middle income consumers in particular are being weighed down by the cumulative impact of inflation and heightened anxiety about the economic outlook. We know that leadership in value and affordability is paramount in an environment like this, and we have been expanding and refining our value proposition to meet the needs of our consumers, especially our low and middle income cohorts, as well as families internationally. Building upon the actions we began to take in 2024, we now have everyday affordable price menus, or EDAP, and entry level meal bundles in each of our big five international operated markets. As we've said before, these are the building blocks of what good value means to us, pairing an EDAP menu with items priced at compelling entry level price points with strong meal bundles. In early January in the U.S., we launched our McValue platform, which is a new branded equity similar to the Saver Menu in the UK and the Loose Change Menu in Australia, both of which have been in place for over 10 years. In this environment, we remain focused on the factors within our control, including delivering outstanding operational execution. We believe the scaled combination of our value platforms, the introduction of innovative new products, and the execution of world class promotional and marketing campaigns provide a compelling offering for our customers, not just bringing them in the door, but offering them the feel good moments they've come to count on from our brand. For example, just a few weeks ago, we launched a marketing campaign in partnership with a Minecraft Movie, our largest global campaign yet with participation by more than 100 markets. As part of this campaign, we've combined exclusive digital in-app and gaming experiences with in-store collectibles for fans young and old through Happy Meals and the core menu inspired Minecraft Movie Meal. We're encouraged by the consumer response to the Minecraft Movie campaign, and by our overall performance in April, which illustrates the benefit of our value platforms working in conjunction with full margin promotions and outstanding marketing execution. We continue to expect our guest count and market share performance will improve from the first quarter low point, driven by our emphasis on strong value and affordability execution that we have been addressing. The introduction of exciting new menu items, such as the nationwide launch of McCrispy Chicken Strips in the U.S. should contribute to this growth. However, we remain cautious about the overall health of the consumer. Before I hand it over to Ian to discuss segment performance, I also wanted to touch on the creation of McDonald's global Restaurant Experience Team. It's significant for two reasons. First, through the new integrated structure, we'll be able to execute faster, which means ideas can start showing up in our restaurants even sooner. We can achieve and scale cross-functional product innovations like Best Burger, Big Arch, and McCrispy faster than ever before with menu, supply chain, operations, and Speedee Lab teams all in one place. It also increases our ability to develop and scale tech innovation in new ways, such as Ready On Arrival, Internet of Things enabled restaurant equipment, and Google Cloud connectivity through the eyes of a restaurant general manager to ensure they're all working in coordination with each other. Second, the category structure with dedicated leaders for beef, chicken, and beverages gives us better accountability and a sharper line-of-sight into what it takes to win in each of these verticals. Increasingly, we're competing against specialists, and so we're bringing a specialist focus into McDonald's. In beverages, for example, we've discovered some interesting learnings through our CosMc's test, which has better informed our understanding of consumers' customization preferences and interests in new emerging beverage categories. Later this year, in partnership with our franchisees, we'll be launching a beverage test in the U.S. in some of our existing McDonald's restaurants that will incorporate new menu items inspired by CosMc's. We'll share more details on this in the coming months, as we continue to test, learn, and position ourselves for growth in this space. As Jill McDonald steps up to lead the Restaurant Experience Team, we welcome Manu Steijaert with his rich market perspective and lifelong understanding of customers' needs to the role of President of our International Operated Markets segment. Jo Sempels, previously President of the International Developmental Licensed Markets will now assume responsibility for McDonald's France, which is one of our largest and most important markets globally. And Dario Baroni, who previously oversaw our mid-sized IOM markets will backfill Jo as our IDL President. I'm immensely proud to see these proven leaders taking on new opportunities in some of our most important roles, demonstrating the depth of talent we possess within our organization.

Thanks, Chris, and good morning, everyone. Overall, our first quarter financial results reflect the increasingly challenging industry and consumer pressures that Chris mentioned upfront. Against this backdrop, combined with severe weather conditions, primarily in North America and the impact of the Leap Day last year, our first quarter global comp sales declined 1%. Global comp sales were essentially flat when the Leap Day impact is excluded. In the U.S., comp sales declined 3.6%, largely reflecting broad-based consumer challenges, particularly amongst the lower and middle income cohorts. However, while comparable guest counts also declined versus the prior year, we delivered a positive comp guest count gap to most near end competitors supported by the launch of our McValue platform, which incorporated the $5 Meal Deal offering; the Buy One, Add One for $1 component; and our in-app exclusive digital offers. As with our value platforms in other markets, we'll remain agile to ensure McValue continues to meet consumer needs and positions us for success in a challenging marketplace. While we may adjust our current McValue offerings over time, for the remainder of 2025, we'll continue to include everyday value meal deals starting at $5, given how the current $5 Meal Deal in particular has resonated with customers. In quarter one, we also launched a national marketing campaign celebrating 50 years of breakfast at McDonald's with a national Egg McMuffin Day and expanding the availability of bagel sandwiches nationwide to strengthen our position and drive traffic in this important daypart. In addition to delivering exciting menu innovation and world-class marketing efforts, we remain committed to driving operational excellence and running great restaurants. One key measure for how we are performing is the customers' experience when visiting McDonald's. In the first quarter, we raised our customer satisfaction scores to an all-time high in the U.S. And now, turning to our International business. In most of our major markets, we're seeing a similar story in regards to the challenging industry environment and softening consumer sentiment. In our International Operated Markets segment, comp sales declined 1% versus the prior year quarter. Results were mixed across the individual markets, including negative comps in the UK. QSR industry traffic growth was positive in only two of our big five markets. However, we drove a positive comp guest count gap to most near end competitors across the majority of our largest markets, demonstrating the strength of our value platforms and how they're resonating with consumers. In addition, as in the U.S., we have also raised our customer satisfaction scores to all-time highs in nearly all of the international operated markets, including the big five. In France, we continued to realize the benefits of our turnaround efforts despite a challenging industry environment. For the first time in nearly three years, we delivered positive market share gains in the quarter, driven by the success of our value offerings, including a EUR4 Happy Meal and a Value Meal partnership with League One. At the end of March, we also launched a new EDAP menu featuring a variety of items with price points of under EUR3. We're complementing these value offerings with strong menu news, such as the recent launch of the Big Arch with positive results, marking another step in the continued expansion of this large satiating burger. In Germany, QSR industry traffic continued to contract in the first quarter, but we drove a positive comp guest count gap to near end competitors and increased market share behind a new comprehensive value offering, McSmart Snacks, which is an EDAP platform. We now have all aspects of good value and affordability effectively integrated in the market and working in conjunction with meal bundles, which will be complemented with exciting menu and marketing news through the year. In Canada, where QSR industry traffic increased in the first quarter, we delivered both positive comparable sales and guest count performance, driven in part by our $1 coffee offering and our Hockey Showdown limited-time promotion. As a Canadian, I can tell you that Canadians are extremely enthusiastic hockey fans. This passion was evident in the results with the Hockey Showdown promotion being one of the top-performing earned media brand affinity campaigns with over 50 million impressions and driving a lift to the overall sandwich category. And in the UK, where QSR industry traffic declined versus the prior year quarter, we are actively addressing the opportunities that are within our control. We understand what it takes to succeed in the UK market, which continues to build upon their value and affordability foundation, and we remain confident in our ability to revitalize the business by improving our execution and leveraging successful strategies from other markets. And lastly, to round out the big five, in Australia, we are making progress despite declining QSR industry traffic. With a new Managing Director in place, we look forward to seeing our momentum built. Finally, in our International Developmental Licensed Markets, comp sales for the quarter were up 3.5%, largely driven by positive results in the Middle East and Japan. And in China, our performance remained stable, driven by an increase in delivery share, the success of the Big Bites, Value Meal, and strong performance in chicken. Turning to the P&L. Adjusted earnings per share were $2.67 for the quarter, which includes a $0.04 headwind from foreign currency translation. Adjusted earnings per share increased by 1% compared to the prior year in constant currencies. Despite the challenging market conditions, top line results generated over $3.3 billion of restaurant margins for the quarter, and adjusted operating margin was about 45.5%, highlighting the durability of our business model. Results for the quarter included lower company-operated margins, reflecting pressured top line results and commodity inflation, particularly in Europe. This was partially offset by lower G&A spend, which was primarily driven by the timing of investment and the comparison to prior year costs related to our biannual worldwide convention. We remain focused on optimizing our run the business spend as we continue to invest in our strategic growth priorities, such as digital and technology, and our transformation efforts led by our global business services organization that will drive long-term efficiency. With respect to the remainder of the year, while we remain cautious about consumer sentiment, we are reaffirming our full year 2025 financial targets that we outlined in February, which include the impact from tariffs that are currently in place. We expect foreign currency translation to be a tailwind to 2025 earnings per share of about $0.05 per share based on current exchange rates. That's a significant change versus our previous estimated headwind of $0.20 to $0.30 per share, reflecting the recent weakening of the U.S. dollar versus major currencies. As always, this is directional guidance only as rates will likely change as the year progresses. Despite the ongoing industry headwinds, we know that McDonald's is well-positioned to succeed due to the resiliency of our business and our overall financial strength. And we remain confident in our ability to deliver long-term profitable growth for the system and to create value for our shareholders.

Thanks, Ian. A couple of weeks ago, McDonald's top leaders from around the world gathered in Hyderabad, India to discuss the path forward on our strategic priorities. We're clear on the enablers of our Accelerating the Arches growth strategy and specifically our commitments to sustaining leadership on value and affordability, capitalizing on our new category teams to strengthen customers', taste perceptions of our food and accelerate menu innovation, ensuring restaurants deliver feel-good experiences where customers keep coming back and employees are excited to work, and continuing to lead with our values as the foundation of how we do business. After meetings like this, I'm always impressed by the strength and resilience of McDonald's three-legged stool. It was yet another reminder of the ways our dedicated franchisees, hardworking crew, and arguably the best global supply chain in the world come together to make sure the golden arches shine brightest for our customers even during challenging times. It's a defining feature of our system. Our commitment to serving local communities is not just our mission, it's the essence of our franchisee model. We're a global brand, but an incredibly local business. Thousands of franchisees running our restaurants have a deep connection to the communities they serve and a keen sense of how we can bring the most positive impact and add the most value. In most communities, if not markets where we operate, McDonald's and its franchisees is one of the largest employers. When it comes to providing quality ingredients, we prioritize sourcing from local farmers and suppliers to serve the food our customers love most. While we anticipate that the economic environment will remain challenging in the near term, I'm confident that our Accelerating the Arches strategy is fit to drive guest count-led growth and market share gains, and maximize our MCD growth pillars for the long term. It's a strategy that's rooted in our customer insights and built on our inherent competitive advantages, and it's the playbook we need to regain form in 2025. Just a couple of weeks ago, we marked McDonald's 70th anniversary. In celebrating longevity, we're actually honoring leadership, 70 years of setting the standard for innovation, pioneering the drive-thru, advancing our menu, and embracing digital transformation to build the best restaurant experience. Time and again, we've proven that our foundation is strong, our commitment to customers unwavering, and our ambition to lead unparalleled. This business has demonstrated an innate ability to anticipate and respond to change. Our agility has always been a key strength now more than ever, and it gives us confidence in the future, even amid macroeconomic uncertainty. We'll stay true to what makes us uniquely McDonald's: great food, exceptional value, and an inclusive environment that welcomes all. Thanks to the strength of our system, McDonald's is well-positioned to seize the opportunities before us and keep shaping the future of our industry. With that, we'll take questions.

Thank you.

Our first question is from Dennis Geiger.

Thank you. Good morning, guys. I wanted to ask a bit more about the U.S. and what sounds like an encouraging response to the Minecraft marketing campaign and to your value platforms into the second quarter. Recognizing the consumer is pressured, but also that select 1Q headwinds have abated maybe a bit, could you talk a little more about how you're thinking about your recent U.S. sales trajectory, underlying momentum looking ahead over the coming quarters, given some of the exciting marketing and menu news and the overall execution that you touched on? Thank you.

Hi, Dennis. It's Chris. The year is progressing as we anticipated. In the first quarter, our focus was on establishing our McValue menu and raising consumer awareness. We planned to introduce new marketing in the second quarter along with menu updates. We always expected the first quarter to be the most challenging, with momentum building as the year continues. We were particularly pleased with the global response to our Minecraft promotion. In the U.S., this was intended to be a four-week campaign, but we sold out of the Minecraft collectibles in just 10 to 14 days, which exceeded our expectations. We’ve also initiated a soft launch of our McCrispy Chicken Strips. While advertising for this hasn't commenced yet, we're observing positive sales in locations offering the strips. Overall, the year is unfolding as we planned. Moving forward, the key focus is on execution. In a challenging consumer environment, it's vital to outperform competitors in value offerings, marketing, and menu innovation. We’ve seen that effective execution can drive growth, but without sharp execution in tough conditions, growth won't be achievable. Our priority now is to ensure we deliver world-class execution.

Our next question is from David Palmer from Evercore.

Thanks. I'm wondering if you can give us some color about some of your key IOM countries, and in what ways are the consumer economic dynamics and McDonald's value perception different today, and the challenges different than what we see in the U.S. It sounds like so far in this earnings season, like the global consumer companies, whether it's the informal eating out market or the instant consumable guys are doing a little bit better overseas than you would have thought. It seems to be fairly firm in terms of the consumer backdrop, but I don't know how you feel about that for your key markets. So, any sort of juxtaposition to the U.S. would be helpful. Thanks.

Yeah. I think, generally, David, that's a fair characterization. If I were to kind of just do a survey of the world, I think Europe, it's really country by country. As Ian mentioned, there's only two countries that we've actually seen industry growth. But I think, generally, we feel good about the value programs that we have in place in all our big five markets. And we're seeing that when you pair that with good menu and marketing execution, you can see great performance or very good performance. So, I think Europe is challenged, but, again, if you have the right value and marketing, you can get that. I think the issue in Europe, maybe a little bit different than the U.S. is just it's a very inflationary environment in Europe, particularly because of beef, and so you've got high-single-digit inflation running through the P&L because of what's going on in Europe that compares to the U.S., where food and paper inflation is low-single digits. So, it's a more inflationary environment in Europe, which means we just have to be really judicious about how and where we take pricing in that environment. I think, as Ian mentioned, in China, we've seen the business stabilize there. We're encouraged by what we're seeing from our China business. Latin America, I think, continues to perform okay. And then, if you go to places like Japan, the business is performing solidly there. So, I think relative to the U.S., the U.S. and the pressure on that lower-income consumers is probably the most noteworthy thing, seeing traffic declines of nearly 10% with that low-income consumer. I think is the defining feature of what we see in the U.S. relative to the rest of the world.

Hey, David. It's Ian. I want to add a few comments to what Chris mentioned earlier, using our key five IOM markets as a reference point. There are certainly challenges in our industry, especially concerning lower-income consumers and families, which represent a significant portion of our international business. We are feeling some pressures in that area. However, we are focusing on what we can control, and I'm pleased to share that in those five markets, we have established the foundational elements of strong value through our EDAP programs and entry-level meal bundles. Even though three of these five markets are experiencing a decline in industry traffic, we are gaining market share in most of them because these value initiatives are taking effect. For example, in France, we've seen promising early results from the Big Arch launch that took place in early April, which gives consumers more reasons to visit. While the landscape is certainly challenging, we feel the business is well-positioned based on the progress we've made throughout '24 and at the start of this quarter.

Our next question is from David Tarantino from Baird.

Hi. Good morning. My question is on the U.S. McValue platform. And I was hoping maybe you can elaborate on how you think the current construct of that value is working in the current environment and whether you think adjustments are needed. And I guess the nature of my question is, when you think back to the last kind of major downturn in consumer spending, you had the dollar menu in place, and that worked quite well and allowed for significant share gains. So, I'm wondering if you need sharper entry-level price points on the value menu in today's environment?

Thank you for the question, David. As a background, the introduction of McValue was aimed at creating a branded platform that we intend to maintain over time. The purpose was to provide flexibility, allowing us to adjust the individual items based on competitive dynamics and consumer response. It’s designed to be adaptable. Regarding McValue, we are pleased with the performance of the $5 Meal Deal, and as Ian mentioned, there is alignment within the U.S. system that this deal will continue for the remainder of the year. We may introduce additional meals at different price points, but the $5 Meal Deal will be available through the end of the year. In terms of the Buy One, Add One for $1, we believe it is performing acceptably but is not generating the same level of incremental sales as the buy one or the $5 Meal Deal. The key measure of a value program’s performance is how well it drives incrementality, and the $5 Meal Deal is seeing 10 to 13 points more in incrementality compared to the Buy One, Add One for $1. While there is a solid uptake with the Buy One, Add One for $1, it isn't producing as much additional revenue. This poses a question for the U.S. team and franchisees since any value program requires an investment of margin dollars. We need to consider if the Buy One, Add One for $1 is the best use of those margin dollars. There may be potential for greater incremental growth, but that will be a discussion for the U.S. team, and only time will reveal any necessary adjustments.

Our next question is from Brian Harbour of Morgan Stanley.

Thank you. Good morning. Regarding menu pricing in the U.S., I understand that you don't have control over it, but as prices continue to rise, and you promote your value platform with more items, could the disparity between various menu sections become a concern? Do you foresee an ongoing negative shift as you emphasize value? Perhaps innovation might address this by introducing lower-priced items, such as strips. How do you view this situation in the medium to long term?

Sure. Well, it's certainly something that you need to be mindful of. We're always taking a look at it. I think part of what we've described here is, you've got to have strong value and affordability programs, but they have to be paired with great full margin marketing and menu innovation, and that when you do the two of those in combination, you get an outcome or result that is positive for the franchisee P&L, positive for our P&L, etc. I think what you're talking about there in terms of trade and how we think about food and paper inflation, you have to just be very disciplined on these things. And I think one of the things that we spend a lot of time with our franchisees on is looking at pass-through rates, making sure that we're being judicious about how and where we take pricing, and I think there's been a lot of good progress on that. And then, as you think about other incremental programs that you may need to do, certainly, we test those, we'll do different modeling on those to make sure that in total that the P&L works. I think you can't really decompose and take each individual item; you have to look at it in totality and say, does this program work for our franchisees for the company. But Ian, I don't know if you have anything else you want to add to that.

Good morning, Brian. I want to add a couple of points. You're correct that in the U.S., menu pricing has been decreasing as inflation falls. In the first quarter, we were just under mid-single-digit increases, most of which stemmed from prices set in 2024. If inflation continues to decline, I expect the impact of pricing to similarly decrease. As Chris mentioned, we've been adapting to consumer needs in the U.S. during this non-comparable period by enhancing value and affordability. Recall that we introduced the $5 Meal at the end of June 2024. Until we reach a more comparable phase, there will be some mix adjustments. These adjustments, as Chris pointed out, aim to create stronger momentum in our business. We want to focus on growth driven by guest counts. As we achieve this guest count growth, and complement it with items like Minecraft or Chicken Strips, we'll see increases in both check sizes and profits, which is the ultimate goal. However, I believe we'll continue to see some mix effects in check sizes and margins until we enter the third quarter this year.

Our next question is from Andrew Charles from TD Cowen.

Great. Thank you. Ian, last quarter, you talked about moderate U.S. same-store sales embedded within your 2025 U.S. McOpCo outlook. And I'm curious just following 1Q's challenged performance and your cautious view on the consumer, but couple that with the sharp improvement in April sales, if moderate U.S. same-store sales growth still holds for 2025, or has your embedded assumption changed? And maybe just quickly, if you could also touch on your expectations for 2025 U.S. McOpCo margins, that would also be helpful.

Good morning, Andrew. Regarding margins, we continue to believe that McOpCo margins in the U.S. will show a slight increase in percentage terms compared to 2024 for the entire year. As we've discussed this morning, there's significant uncertainty in the external environment. However, we are concentrating on aspects we can manage. We feel confident about the upcoming activities in the U.S. business, including launches like Minecraft and Chicken Strips in the next few days. Nevertheless, the surrounding environment remains unpredictable. As I've mentioned previously, margin growth will ultimately depend on strong top-line growth, which we are diligently working to achieve for the rest of the year.

Our next question is from Sara Senatore from Bank of America.

Thank you. I have a clarification and a question. First, regarding the UK, which has historically been a strong market for you, I'm curious if you are gaining market share there or if new competition is impacting your position. Secondly, concerning the US, do you believe the decline in QSR traffic is due to customers moving to other segments? I ask this because it seems the price difference between QSR and other segments like fast casual or full service may have decreased, suggesting a potential shift in market share within the industry. Thank you.

Yeah. Hi, Sara. To the UK, the UK is not yet gaining share. So, there's still work for us to do in the UK. I'd say, the share losses are to the people that we should be beating. So, I don't think that new competitors are the issue that we need to focus on in the UK. It's about our execution and just doing a better job in that market. So, that's the UK. As it relates to the U.S., just the relative size of the QSR industry versus fast casual, for example, or casual dine, the math just doesn't work. I mean, the gains that you might see with a couple of the players in casual dine are dwarfed relative to the size of the QSR industry. So, I don't think it's really accurate to say that this is just a shift amongst the different components. I think we are seeing that people are just being more judicious about cutting back on visits. And so, what you're seeing is you're seeing a decline in frequency where perhaps morning, which is usually, I think, a bellwether daypart occasion, morning now is a place that you're seeing people are choosing either to skip breakfast or they're choosing to eat at home for breakfast. And I think that's more to explain what's going on in the U.S. versus any kind of segment shift.

Hey, Sara. It's Ian. I just want to add a few points to what Chris mentioned. In the UK, we believe there are opportunities we can control through better execution, and we have work to do there. Looking at France, while the UK has fewer opportunities to address, the challenges we've faced in France and the progress we've made boost our confidence in applying our learnings to improve our UK business. In the U.S., as Chris highlighted, people are visiting less, which reflects consumer pressure and sentiment. We've been discussing inflationary and interest rate pressures that are particularly affecting lower-income consumers and are now impacting middle-income consumers as well. We know that when we get value and affordability right, like with the $5 Meal, it encourages consumers to return and visit us more frequently. Therefore, if we can successfully deliver on value and affordability, we can succeed in the current market environment.

Our next question is from Jon Tower of Citi.

Good morning. Thank you for the question. Chris, you mentioned earlier about expanding a beverage test, and I would like to hear more about that opportunity. What are your expectations for it over time? Are there investments you anticipate franchisees will need to make regarding equipment? Also, how do you envision positioning this platform for the company in the long run? Do you see this as a full margin product, or will it also focus on value? I’m interested in your perspective on the opportunity and how you plan to communicate it to consumers over time.

Certainly. As we evaluate the broader market opportunity, we see significant growth potential in the beverage sector, which offers attractive profitability. We anticipate that beverages will play a crucial role in the industry's profit growth, and we believe there is more we can do to capture our fair share. Currently, we hold about 10% of the coffee market, but we believe we can improve upon that. Additionally, there are emerging segments like energy drinks where we currently have no presence, indicating further opportunities for us. To seize this potential, we are exploring various strategies, such as the decision to develop CosMc's. We felt that integrating this complexity into existing restaurants might hinder service speed and create challenges. Therefore, we considered isolating this complexity in a standalone concept like CosMc's. From our experience with CosMc's, we've learned two major lessons. Firstly, while there is some level of customization available, 80% of consumer orders are based on established recipes, which reduces the perceived complexity we initially expected. Secondly, we found that when McDonald's branding is involved, consumers often expect food options alongside beverages, reinforcing the importance of food in our beverage offerings due to customer expectations of the brand. All these insights guide us as we think about how to expand our beverage lineup in McDonald's restaurants. We aim to understand how this could drive additional traffic and enhance food pairings. Regarding the necessary investments, we currently lack concrete figures but will continue to experiment and learn. What's clear is our commitment to pursuing beverage opportunities, which is why we've included beverages as one of our main focus areas.

Our next question is from John Ivankoe from J.P. Morgan.

Hi. Thank you. I have a two-part question. First, it's clear that there are significant differences in core menu pricing across the country, and while I understand the various economic and competitive factors influencing this, there doesn't seem to be much price certainty for the core menu. Do you view this as an opportunity or a risk? Would it make sense to adjust menus in certain regions? Secondly, the boneless chicken market has changed quite a bit since you last offered Chicken Selects. Can you share your expectations for the success of this new version of McCrispy compared to what you experienced before, given the different competitive landscape? Thank you.

Sure. Well, at the end of the day, pricing is an inherently local decision, and it's informed by the trading area that exists around each of our individual restaurants. And our commitment and the focus is, we need to make sure that relative to the trading area that we're competing in that we're offering strong value, and that's what shows up on both the menu board and that also shows up with the promotions and digital offers that we're running. So, I think about it less as around having predictability across the country around a common menu, and it's more about we need to be competitive within the trading areas that we're competing. I think if you look at what's been going on with menu prices right now, because the inflation has come down and we're not nearly seeing as inflationary environment as we saw certainly last year and into 2023, you're not seeing the big moves on core menu that you saw previously. And I would expect that that's going to continue. As I mentioned, food and paper inflation is low-single digits. So, there's not a lot of pressure on that. And I think our franchisees also recognize how important it is for us to stay disciplined on this, and we look at pass-through rates, as I described earlier, to make sure that we understand the consumers' willingness to accept any pricing. So, that would be my comment on that. As to how the markets changed, certainly, there's been a ton of growth in that space. And it's an area that we're hearing from our customers that they're looking for us to have a great offering there, and they're thinking about other ways that we can participate in that market. And so, we've talked about chicken strips as going to be our first sort of reentry in that. We feel excited about doing it under the McCrispy platform. We think we can get a halo benefit that's associated with that. And then, we've also set up that, once you have the strips in, strips are going to allow for us to reintroduce snack wraps, which is going to be coming later in the year as well. So, I think for us, it's just the market continues to show the consumer is interested in this product. We want to make sure that we're meeting our customers' needs on that. And I think what we've got with both strips and then later with snack wraps is going to be a great addition to the menu.

Our next question is from Lauren Silberman from Deutsche Bank.

Thank you very much. I wanted to unpack U.S. comps a bit more. Can you talk about what you're seeing across the low, middle and high income consumer? I know you mentioned industry traffic, but trying to get a better sense of what's going on with market share across cohorts. Are you seeing any increase in value mix as a result of McValue? And then, any color on what you're seeing across regions and dayparts would be helpful. Thank you.

Good morning, Lauren. It's Ian. I want to reiterate some points we've discussed. There is pressure on both low and middle-income consumers in the U.S. As Chris mentioned, low-income consumer spending was down nearly double digits, and middle-income consumer spending was down similarly from an industry standpoint. In contrast, high-income consumers are still spending consistently and robustly. We have a higher concentration of low-income consumers compared to the industry average and, to a lesser extent, middle-income consumers as well. Therefore, when these groups are facing challenges, it puts pressure on us. This highlights the importance of our strong value and affordability offerings. In Q1, our comparable guest count outperformed most of our nearby competitors, indicating we’re attracting traffic better than the broader industry. Our goal is to ensure we continue to deliver a compelling proposition despite consumers' conditions. We have a solid value and affordability lineup, and we expect momentum to improve with offerings like Minecraft. We are confident about our upcoming product launches and believe we can appeal to all consumer groups as we progress through the year.

Our next question is from Greg Francfort from Guggenheim.

Hey, thanks for the question. My question is maybe before this value launch, my understanding was a lot of the value that the customer is using was going through the mobile app and that part of the value launch was maybe to diversify that message a little bit. I'm curious how that's evolved since the value launch, and if the mix of value that's going through the mobile platform is where you want it to be, above, below? Any thoughts on that?

It’s hard to generalize about that because within the app, there’s local value being offered alongside national value. As we've mentioned in previous calls, until app usage becomes the majority of your traffic, relying on it as the main source of value does not work because you won't be reaching most of your consumers. Therefore, having a broad platform like McValue accessible to everyone is crucial. This is why we've invested time and effort into ensuring it is launched properly. The digital offers will continue, although they may have decreased slightly. It’s hard to determine whether this decline is due to reducing digital offers or if a stronger McValue proposition is now encouraging customers to prefer McValue over digital offers. There’s nothing specific to infer from any changes in the mix we are doing. There is no deliberate reduction in digital offers to focus more on McValue, but you can definitely see consumer preferences shifting as our offers evolve.

Our next question is from Danilo Gargiulo from Bernstein.

Great. Thank you. There are some rising concerns on international boycotts, generally speaking, as U.S. brands. So, I'm wondering, if you have seen any signs of weakness attributable to that and how you're expecting that to be evolving? And to the extent that you did, which markets are you seeing under most pressure and what proactive measures are you contemplating to continue to protect the brand as you have so far? Thank you.

Sure. We've spent some time researching this and conducted three global surveys in our top markets to assess the consumer's perspective. We focused on three areas: how consumers feel about America, their feelings towards American brands, and specifically, their views on McDonald's. The positive takeaway is that there has been no change in global consumer sentiment towards the McDonald's brand. We haven't seen any American sentiment impacting our business. However, our surveys indicate that more people in various markets are saying they will reduce their purchases of American brands, showing an increase in anti-American sentiment by about 8 to 10 points, particularly in Northern Europe and Canada. This is not a significant issue in Latin America, and we aren't noticing any changes in Asia. The important point is that, despite the general rise in anti-American sentiment, it hasn't affected our business, and consumer sentiment towards McDonald's remains strong.

I would like to add that one of the strengths of our business model is that the majority of our restaurants are operated by franchisees who live and work in the communities they serve. We operate in over 100 countries and have been very successful across all of them. Our brand has been able to adapt well to the various cultures and communities where we operate, and as a result, most consumers recognize and appreciate that.

Our next question is from Eric Gonzalez from KeyBanc.

Thanks. It's clear that McDonald's is at its best when it offers compelling value to draw in guests and has something differentiated or credible for the customer to trade into. We saw this prior to the public health incident with the Collector's cups and the Chicken Big Mac. Is it fair to say, it's the first quarter lack to the second half of that equation? And as we moved into the second quarter, you had a winner with the Minecraft Meal, but that sort of boost isn't something that's going to last more than a few weeks. So, I'm just wondering, do you have enough in the marketing and innovation pipeline on the premium side that's going to drive a more sustainable lift in sales?

Well, I think as I touched on, we're excited about in the U.S. and in our other markets, the balance of your plans that we have, and it's not just relying on one thing. I think as we look at our marketing plans, there's a steady flow of menu innovation that goes from now through the end of the year in a number of our markets. And then, there's also marketing programs that we have on top of this. And I think part of when you get strong menu news paired with strong marketing, beyond just the benefit that you get in the window, you start to see improvement in baseline. And so, that would be our expectation is, as we continue to have more menu innovation, as we continue to have strong marketing programs, it has a positive impact on baseline, which is sort of the gift that keeps on giving.

And Eric, maybe just to build, I mean, I think you touched on it. But as you remember, we had really strong momentum in our U.S. business pre-kind of the food safety incident. Obviously, that was a disruption. As we said in our last call, expected in Q1 this year that the impacts of the food safety incident would be fully behind us. They are; we fully recovered. But if you just think of the sequence of activities that we've had in the U.S. business, obviously, the disruption of the food safety incident, full focus on an effort on recovery, then we've spent Q1 really getting the McValue brand, equity, and platform embedded and emphasized. So, we really haven't until Minecraft in April had a big kind of consumer resonating menu or marketing focused activity. And I think you're right, those things are obviously moments in time. But as you do those, and as you do those consecutively, you kind of continue to add to the momentum that you're building in the business. So, you start that momentum, obviously, with the strong value and affordability and then you build on that with each of these activities. And as we talked about earlier, we certainly feel really confident about the lineup of activities that our U.S. business has, starting with Minecraft and over the remaining course of the year.

Our next question is from Jeffrey Bernstein from Barclays.

Great. Thank you very much. Actually, perfect follow-up to my question. I feel like you do have a lot of new news coming. Again, you mentioned Minecraft in April, Crispy Chicken in May, Snack Wrap to follow. I know in the past there was maybe some caution on too much new news at McDonald's in terms of the impact on speed of service and operations at the restaurant level. So, just wondering how you feel the teams are able to handle that when obviously speed is so important? And it kind of ties into, I think you mentioned that you're competing so much more against specialists now, which I assume are peers focused on one specific line of product. I'm just wondering how your new team can be more effective and better competing against some of those players? Any early learnings you have or expectations you have in terms of being able to better compete against those single-line competitors? Thank you.

Yeah. Sure. I'll address the specialist question, then I'll let Ian pick up the first part of your question. But one of the things that I think is we're seeing is, as I mentioned, there are more people that are going after specific product verticals, whether that's chicken, whether that's beverages, you're seeing that in salads and some other places. And our menu and part of what I think is the appeal of McDonald's is that we have a broad menu, and it's a menu that can attract the whole family because there's something for everybody on our menu. The challenge with that if you're a managing director running a country is at the end of the day, you're just focused on, in total, hitting your comp sales target, hitting your profit target, etc. And while you pay attention or you're looking at your share within those individual verticals, you're not waking up every single day thinking about am I gaining share in chicken? Am I gaining share in beef? Am I gaining share in beverage? You're thinking about, am I gaining market share in total? And so, the opportunity for us is to have teams that have that degree of focus, who are waking up every single day looking at our performance across the globe and making sure that we absolutely are winning in chicken, that we're winning in beverages, that we're winning in beef or continue to win in beef. And I think part of what we wanted to do with that as well is to win in these categories, it's not just coming up with a marketing idea or coming up with a brand name. It goes to supply chain and sourcing. So, what's the type of product that we're sourcing? It goes to the equipment that we're using. It goes to the processes that we're doing in the restaurant. It goes to certainly the menu offering and the menu innovation that goes along with that, and then how we activate that with consumers. Now, with these category teams, we have all of those groups working in combination underneath a category leader who again is charged with waking up every single day and focused on winning in their specific verticals. So that I think is going to be the power for us. Ultimately, how it gets executed is going to be at the country level. But I think we have sort of a good one-two punch between a focus at the country level, but also keeping an eye towards making sure that we're winning globally in these important categories.

Good morning, Jeffrey. Maybe just let me touch on the other part of your question. And I think the U.S. is the perfect example to kind of lean into what you've been asking. But if you think of what our U.S. business did, it was obviously through the learnings we had in COVID and just the need during that period to get much clearer and simpler in the menu. And the U.S. has done, I think, a phenomenal job as a system on getting really focused on a strong core menu and then building on that core menu over the last several years. So, they greatly reduced the complexity from an execution. And I think the evidence of that is, as we talked about, we hit an all-time high from a customer satisfaction metric result in Q1 this year, which I think speaks to how the U.S. has continued to improve execution and how customers have kind of responded to that. I think if you think about what we're doing with strips and then later in the year with wraps building on that, it goes back to what Chris has talked about a lot previously, which is we're focused on platforms, right? McCrispy is a platform. So, the McCrispy Sandwich was the first element of that. We're now building on that with strips and then later in the year with wraps, which means we keep investing to build and strengthen the equity behind the product and then we're just addressing the needs from consumers that when we do things like menu architecture research, we can really see what are the opportunity areas in chicken and how do we address those behind the equity that we're putting in place and continue to build on that. So, we feel really good about where we are, the capacity we have to kind of add the items that are in our plan and not have that have an impact on execution, which as you know, is always critically important.

Thanks, everyone, for joining the call today. If you have any follow-up questions or would like a call, please contact us and we could set something up. Again, have a good day. Thank you.

This concludes McDonald's Corporation investor call. You may now disconnect and have a great day.