McDonald's has a traffic problem and its executives know it. Now they have a plan they think will turn it around.
The company lost more than 500 million customers to close competitors since 2012, Chris Kempczinski, McDonald's USA President told investors gathered in Chicago Wednesday.
To win them back, the company plans to make $1.7 billion of capital expenditures this year, as it continues some efforts already underway and takes some new steps.
The burger giant has been working hard to revamp its menu and improve its customer experience and those efforts will not be slowing down, according to CEO Steve Easterbrook.
"Through enhanced technology to elevate and modernize the customer experience, a focus on the quality and value of our food and redefined convenience through delivery, we have a bold vision for the future and the urgency to act on it," said Easterbrook. "We are moving with velocity to drive profitable growth and becoming an even better McDonald's serving more customers delicious food each day around the world."
McDonald's said it is on track to refranchise 4,000 restaurants by the end of this year — a full year ahead of schedule. That will bring its global franchised percentage to about 93 percent.
The company also said it squeezed out more than $200 million in savings by the end of last year, making progress towards its goal of reducing net general and administrative costs by $500 million by the end of 2018. McDonald's expects to trim another 5 percent to 10 percent from its remaining cost base by the end of 2019.
The company is slated to return between $22 billion and $24 billion to shareholders in the three-year period up until 2019. That is higher than analysts' expectations of $18 billion to $22 billion.
Other expectations for 2019 and beyond include:
- Systemwide sales growth of 3 percent to 5 percent;
- Grow operating margin from the high-20 percent range to the mid-40 percent range;
- Earnings per share growth in the high-single digits; and
- Raise the return on incremental invested capital target from the high-teens to the mid-20 percent range.
In the near term, McDonald's focus is on four pillars: menu innovation, store renovations, digital ordering and delivery.
Kempczinski disclosed that McDonald's test of its "Signature Sandwiches" — customizable and more upscale burgers and chicken sandwiches — will roll out later this year and investors can expect the company to step up its menu innovations in the U.S.
The chain's stores will also be getting an update. McDonald's is committed to becoming a "modern and progressive burger company," and will be adding self-service ordering kiosks and table service to some of its stores.
McDonald's "experience of the future" is coming to about 650 restaurants this year, bringing the chain's number of these stores to nearly 2,500.
In addition, the Golden Arches will continue to expand its mobile order and pay platform. While late to the game, the company is expected to launch the product in 20,000 restaurants by the end of 2017.
Delivery is also an avenue that McDonald's is exploring. The company, which has a large delivery presence in Asia, is hoping to capitalize on the growing industry demand by offering delivery in America. It is currently testing out several models, both in-house and via third-party providers.
The company noted that 75 percent of the population in its top five markets — America, France, the U.K., Germany and Canada — are within 3 miles of a McDonalds and 85 percent are within 5 miles of a chain.
"To deliver sustained growth, we have to attract more customers, more often," Easterbrook said.
Chief Marketing Officer Silvia Lagnado said 4 percent of McDonald's sales were used on marketing initiatives last year, a figure north of $3 billion dollars.
Still, despite this investment, comparable sales declines in the U.S. in the fourth quarter — although smaller than expected — and left some worried about how McDonald's will perform in the coming year when it faces tougher comparisons.
McDonald's shares were halted ahead of the news. Once trading resumed, McDonald's stock rose 1.5 percent. Over the past year, McDonald's shares have risen 7.8 percent.
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