Jon Tower: Great. Thanks for taking the question. Just curious on the $100 million to $150 million in rental abatement that you’re offering to franchisees in Europe, how many of those franchisees have actually taken you up on the offer? And what you might be asking of them in return going forward? Are you maybe asking them to hold the line on pricing to the extent you can?
Ian Borden: Yes. Good morning, Jon. Thanks for the question. I think I just would reiterate how we’ve talked about that support previously, which is, I think it’s targeted, it’s temporary. And it’s designed to go to the owner operators that are most in need. As we’ve talked about, I think the more acute kind of headwinds that our system is dealing with are mainly concentrated in Europe. So that’s where the majority of the support that we’ve put in place is going. I mean, the support that we’re providing is nothing new. We provide support around our system when the conditions and context warranted. It’s obviously just a little bit more significant this year just because of the pace and I think the acuteness of some of those headwinds that are being worked through.
I think it’s one of those strategic advantages that you’ve heard me talk about before that we have as a system because we’ve got the financial capability to do that. And it’s, I think, designed to recognize the headwinds. And we always knew that, that kind of — the main pressure point would be in the first half of 2023, which is what we’re seeing. I think it’s designed to ensure that our system stays focused on executing our plan, stays aligned and proactive on investing in the strategic growth opportunities that we know we have, which I think will certainly be an advantage as we kind of get through these short-term pressures in the underlying momentum our business will have as we exit and take us forward as we get beyond ’23. And I think we’ve seen a good engagement from our franchisees in terms of the support we’re providing and how we’re working together to bring that to life.
Chris Kempczinski: I would just add, our message to franchisees in Europe, in this case, but it goes back with the same message that we delivered during COVID, which is so long as you’re doing the right things to drive the business in the long-term, if there are short-term pressures out of your control, we’ll work with you to help and support you through that. That’s very much an organization-by-organization, restaurant-by-restaurant decision. But what we want to do is we want to make sure that our system always remains focused on the long-term. And that’s about ensuring that we’re doing great service to our customers. We’re running great restaurants. We’re providing the necessary value. If you’re doing all of those things from a long-term that you’ve got the benefit of McDonald’s being able to help you if there are short-term pressures outside of your control.
Mike Cieplak: Next question is from Lauren Silberman with Credit Suisse.
Lauren Silberman: Thank you for the question. Congrats on the quarter. Can you expand on what you’re seeing across your low, middle income consumers in the U.S. and where you think you’re gaining share across cohorts? And then can you just break down the contribution to comp from guest count and average check? Thank you.
Chris Kempczinski: Sure. So we have the best data in the U.S. to be able to do the analysis that you’re talking about. And the headline is we’re getting share performance, share growth out of all income groups. So it’s not that we’re disproportionately benefiting from gaining share with low-income consumers, which I think was maybe the underlying question behind the question. We’re seeing share performance, share improvement across all income groups, which makes us feel good about kind of where we’re at from a value and a consistency standpoint. I don’t know if, Ian, if you want to add.
Ian Borden: Yes. Maybe just a bit of texture I would add. I think as Chris touched on, I think what we’re pleased about, particularly in the U.S., if we use that as the example, is just that balanced growth between check and guest count, probably two-thirds check, about a third guest count, I think if you look from a comp basis, on both sales and traffic, we know we are outperforming the competitive set. And I think it goes back to what we’ve talked about a fair bit today, which is just that really strong focus that we’ve got on value for money and affordability. Despite the pricing again that we’re having to take in the context we’re in, I think the discipline that both our owner/operators and our company restaurants are bringing to life and the pricing that we’re doing is ensuring that we’re kind of maintaining that healthy balance, kind of resonating with consumers despite their kind of individual circumstances and continuing to drive really healthy momentum as we go forward.
Mike Cieplak: Our next question is from Jeff Bernstein with Barclays.
Jeffrey Bernstein: Great. Thank you very much. First, I just wanted to clarify the comment you made earlier about a little bit of resistance from a consumer standpoint on pricing. I know you often refer to food at home versus food away from home. And it seems like maybe there are some limiting factors going forward where you might be encouraging more cautious price increases as we move through the year. So any color you could provide there as a clarification. Another one, I’m just wondering if there’s any common theme in your conversation with franchisees. I know you have 5,000 worldwide, but there’s always lots of chatter in the headlines. It seems like you said, significant returns, I mean, they’re far exceeding the cost of capital, relative benchmarks, positive cash flow. I’m just wondering if there is any common theme of pushback from the franchise community? Thank you.
Chris Kempczinski: On price resistance, I think there is just — it’s a reminder about how we have to be very disciplined on where we take pricing. And we’ve built a very good capability over the last several years working with some external partners to know exactly by item, by restaurant, the ability for us to take pricing. And what we see is that when we follow that and we’re mindful of the elasticities that we’re able to get the pricing that we need through, and we’ve seen really no deterioration in that. But what we are seeing is when you go off script, when you go and you start to try to take pricing in areas that would not be suggested by all of our modeling that we are starting to encounter some more resistance there.
And so just as a reminder that we need to stay very disciplined on pricing. The customer is certainly feeling, I think, some of the stress and pressures on that. We remain a great outlet for value and affordability. But we have to do it in a very strategic and a very targeted way, and we’ve got the tools to do that. As you said, we’ve got thousands of franchisees, roughly 5,000 franchisees globally. So it’s incredibly difficult, I think to get it down to a sound bite of what we’re hearing from any one franchisee or from any one particular country. But broadly, there certainly is a lot of concern around the inflationary pressure and an inquiry about when we expect that to flip and be more benign. It certainly is going to improve. Our expectation is it’s going to improve through the balance of this year, but it’s still going to remain elevated versus what we’ve historically been accustomed to.
We’ve historically been accustomed to very low single-digit inflation. And I think our outlook for the full-year is it’s probably going to be more like mid- to high single-digit inflation in the full-year but nonetheless, improving. So inflation, I think is an area of concern with franchisees that we’re having a lot of conversations on. We’re also having conversations around digital and just how do they think about what the restaurant experience is in a more digital environment. We have been having a lot of conversations around labor around the world. Fortunately, we’re seeing the labor situations improving. In fact, in the U.S., they’ve made a lot of progress on staffing in the restaurants, which is partly what’s driving some of the operations improvement, but labor was something that there was a commentary on around the world.
And then as we’ve phased in our PACE program, as I mentioned, we put it in place in all of our major markets last year with the exception of the U.S., which started this year. But after three years of no grading in the restaurant and then you start grading, there inevitably is questions and in some cases, areas of feedback that we get. And we work our way through that. We did that last year in all of our international markets that implemented PACE, and we’re seeing the benefit of that. Joe in the U.S. has been very consistent with the franchisees there that if after the first 90 days of rollout, if there are areas that we need to make adjustments, we’ll do that. But overall, we’re seeing great performance from a restaurant execution standpoint, and that’s a credit to the franchisees, how they’ve gotten after labor, but also how they’re just engaging with their teams at the local level.
Ian Borden: Maybe just a small build on that. I think as Chris said, obviously, when you’re in a period of higher inflation and cost pressure, that’s always going to be a topic to discuss. I mean, I think our job as a system and as McDonald’s is to make sure that we’ve got a set of strategies and plans in place that’s going to deliver that strong top line momentum. And I don’t think you’re hearing any lack of confidence from any part of our system about the strategies and plans that we’ve got in place. And I think as Chris touched on earlier, the proof point, if that’s obviously the best way to work through any significant cost pressure environment, if you look — the U.S. is a great example, obviously, not only in the results they’re delivering, but in that first quarter proof point that Chris talked about where our owner/operator cash flow is actually up.
That’s what’s going to get our system through these short-term pressures and ensure that as we come out of those pressures, we’re going to be on the path to recovering margin as we go forward with that strong momentum behind us. And I think that’s certainly what we’re all focused on delivering against.
Mike Cieplak: Our next question is from John Ivankoe with JPMorgan.
John Ivankoe: Hi, great. Thank you. The question is on your pricing relative to the informal eating out market. I think you’re always very clear that you want to stay competitive with that. But there typically is more inflation at food at home and more deflation at food at home. It’s actually a lot more volatile than food away from home pricing, at least looking at the U.S. So do you think there is anything that’s changed in the environment that maybe makes the McDonald’s brand specifically less at risk to kind of lose any traffic, lose any transaction count to food at home, would presumably it becomes deflationary at some point in the near-term as kind of the first part of the question. And secondly, in terms of the customer promotion within the McDonald’s app, the customized promotion within the McDonald’s app, how effective do you think that is?
Where are we in that overall journey in terms of customized promotion that is going to drive an incremental purchase, incremental profit versus still being done in some fairly general terms with some opportunity to maybe refine that over time? Thank you.
