And so our franchisees are in a strong position. As you know, they control pricing. We don’t step in and subsidized pricing. But I think the opportunity here is what I mentioned earlier, we have a lot of great value out there in the market. We’re just doing it in a very fragmented way. And so the opportunity for us is how do you maybe pull back a little bit on all the local value that we’re offering, which, frankly, we don’t have very high awareness on and how do you coalesce and drive awareness around a national value proposition. So I think there’s a smart way to do this that can end up being net neutral to a franchisee P&L. But just using the size and scale of our marketing engine and the amount of media that we spent I think that’s going to be the opportunity for us going forward.
And certainly, we’re in a good position from a system financial health standpoint to go do that.
Mike Cieplak: Our next question is from Lauren Silberman with Deutsche Bank.
Lauren Silberman: Thank you. I had a follow-up on the value question. You mentioned you’re offering value 50 different ways. Can you just talk about what a future national value platform could look like given how different the cost environment looks like across the U.S., I imagine price point value could be difficult? And then when you look at what type of value consumers are most looking for, is it price point, lower entry points, bundled deals, are you seeing an uptick in the value mix? Thanks.
Chris Kempczinski: Yes. I’ll maybe start, and then I’ll hand off to Ian. But I think Ian outlined in general, a construct that we see as sort of being our successful playbook, which is you need to have good entry level price points, you need to have a meal deal. And then there needs to be something that if you have a big breakfast business, you need to be offering value that’s specific to breakfast. And in a number of markets around the world, we’re doing that very successfully. Certainly, in the U.S., we see that there is different cost environment. But then again, our competitors have those same differences between high-cost markets, low-cost markets, etcetera. And so — and that exists in other markets as well. If you were to go to France, it’s much different if you were to go to Paris than what it would be somewhere outside of Paris.
So those differences exist in many markets around the world. I think what our system has historically shown an ability to do is working with our franchisees, how do you think about it from a portfolio standpoint and ultimately, in this business, if you’re driving transactions, if you’re driving guest counts, that ends up being a good thing for everybody. So we have a history of being able to do this. We’ve done this as I mentioned in our opening — we’ve been doing this for 70 some-odd years. So I think we understand what it takes, but it happens through a conversation with our franchisees to get aligned around what that national value proposition looks like.
Mike Cieplak: Our next question is from Brian Bittner with Oppenheimer.
Brian Bittner: Thanks, good morning. As it relates to the operating margin guidance, mid to high 40s range is still a very wide range Ian and I fully understand there’s a lot of moving pieces in the financial model. But I’m curious, with a quarter in the books, if there’s an opportunity to perhaps tighten the expectations around that range, as we look towards last year’s 47% is that kind of a good base case target for operating margins this year or should we anticipate declines to more like what we saw in the first quarter?
Chris Kempczinski: Yeah, good morning Brian, thanks for the question. Look, I mean, you hit on it. It’s obviously in the context we’re working through in 2024. There are a lot of variables at play. And I think the macro context means it’s difficult for us to kind of predict the forward look in terms of what’s the duration of the macro headwinds we’re seeing and the depth. So I think that obviously is impacting performance. And as always, our op margin leverage is going to be dependent on our strength and level of sales growth. Look, I think I remain really confident in our ability to drive leverage in op margin over time as we’re able to kind of continue to drive strong top line growth. And I think we’re confident as we work to kind of address the affordability opportunities we’ve got, that’s going to be helpful in getting sales growth back to the direction we want. And over time, that will certainly be helpful in continuing to drive leverage and op margin.
Mike Cieplak: Our next question is from Andrew Charles with Cowen.
Andrew Charles: Great, thank you. Chris, looking to learn more about how this national value platform will be different from years past. So I think historically, back in 2018, for instance, the $1, $2, $3 was launched look like it was a negative traffic year for the U.S. business, just that a regional approach to value has been more successful to brand, despite what you said about competitors that are pursuing more national value. So I’m curious what you think is going to make this time different that will lead national value to be more successful, you think about the constructs of what that will look like going forward?
Chris Kempczinski: Sure. Well, to state the obvious it’s up to the U.S. team in partnership with our owner-operators to define what does a national value proposition look like in the U.S. As you know, with $1, $2, $3 it took a minute for that program to gain traction, but it then drove very strong results. I think certainly, if you look at the U.S. performance, over the last many years under $1, $2, $3, I think we’re now — we were year six or seven of $1, $2, $3. That was a very successful platform for us in driving performance across the U.S. business. The point about how quickly does it actually impact transactions and turn that around. It goes back to how quickly you can drive awareness with the consumer on that. And the fashion that you can drive awareness, the faster you start to see that driving incrementality on the business.
So I think, first, it’s getting the platform defined, making sure that it’s compelling with customers, and then making sure that you support it properly to drive the awareness that you need to ultimately impact transactions on the business.
Mike Cieplak: Our next question is from Greg Francfort with Guggenheim.
Gregory Francfort: Hey, thanks for the question. My question is just on the international business and I’m curious what you’re seeing, I don’t know if it’s maybe from a protest standpoint or if the business has continued to weaken there, into the second quarter in the same way that it’s done in the U.S. business and what you might be doing from a support perspective through the ideal royalty rate or anything like that? Thanks.
Chris Kempczinski: Sure. I think if you look at the impact of some of the boycott in a few of our markets, I wouldn’t say things are getting any worse there. And then I think in some cases, you might be able to look and say perhaps it’s getting slightly better in some places. So no big change on that. I think it’s also just worth — it’s interesting to note that in many of those markets, our delivery business is holding up quite well, which is kind of an interesting dynamic there. So maybe marginally better in some markets but as I referenced on an earlier call, we’re not expecting to see any meaningful improvement in the impacts on that until the war is over, and we continue to have that outlook on what the Middle East conflict is going to do to our trends. Ian, I’ll pass it over to you.
Ian Borden: Yes. Maybe just one kind of build on the headwinds. I mean, I think what I said upfront was that the macro headwinds that we were seeing were more significant across a number of our large international markets, and that’s continued into the start of quarter two. I think on support for kind of the IDL, look, I mean, you’ve heard me talk about this before. I mean I think when there are external factors that are kind of beyond the control of our franchisees that are impacting the business and those franchisees are doing everything right and continue to do everything right for the McDonald’s business providing support in situations that warrant it is kind of part of what I’ll call our fundamental business model. I mean if and when we make decisions to provide support, it’s always targeted and temporary.
It’s always designed to go to our franchisees who are most in need. I think we’ve talked previously that we have provided some support for some markets that have been impacted in the region. Obviously, we’re continuing to look at the facts and circumstances and continue to work incredibly closely with our DL partners. I would just say that the level of support that’s been provided so far has not gotten to what I’ll call a significant level. But obviously, we’re continuing to stay close and work very close with our DL partners in the region.
Mike Cieplak: Our next question is from Brian Mullan with Piper Sandler.
Brian Mullan: Thank you. Just a question on CosMc’s. I wonder if you could just talk about what some of the early learnings are in your tests in both Illinois and Texas and then related to that, can you just talk about how you might plan to approach it from here in terms of how you evaluate the stores, what that decision process looks like if you ever want to ultimately build more of them next year or beyond, any color would be great?
Chris Kempczinski: Sure, well I’m going to disappoint you, Brian, in telling that there’s not a lot to report. I think what we’re still seeing is there’s a lot of interest in CosMc’s that’s sort of curiosity driven. And as a result of that, it’s tough to get a sense of sort of what are the true kind of underlying performance expectations. As we’ve referenced in our Investor Day, what we’re looking at for the ultimate success on this business is we’ve got to have a business that’s driving comparable or stronger ROIC to a traditional McDonald’s. There’d be no reason to be putting any capital against CosMc’S unless it was neutral to accretive to building a traditional McDonald’s. That’s going to then be a function of what we see around both the absolute unit volumes in that concept, the margins associated with that, and our ability to build these smaller footprint restaurants at a lower cost than what we’re expecting.
So all of those things are things that we’re going to be assessing in our test market. As I’ve referenced previously, we have — we plan on opening 10 restaurants, and it will be a function of unit volumes. It will be a function of margins, and it will be a function of what’s the capital that we need to spend to get these things built. All of that will drive our overall assessment of what the ROIC potential is.
Mike Cieplak: We have time for one more question from Jeff Bernstein with Barclays.
Jeffrey Bernstein: Great, thank you very much. Just following up on the U.S. comps. I know you guys have mentioned the lower income households and the weakness seen there and maybe some trading into food at home. Just wondering if you can maybe compare that to past slowdowns. I feel like the message has always been the benefit of the quick service segment. Maybe you lose some on the low end, but importantly, you inherit some who trade down from above, like you said if everyone is looking for value. And with that as a context, I think you mentioned that the system franchisees like the buy-in is there for the incremental value push, I just want to make sure I heard that right, whether there’s any sentiment from the biannual in terms of franchisee sentiment, especially with the most recent fundamental easing? Thanks very much.
Chris Kempczinski: Sure. Well, so I think it’s tough to go back and compare the data today versus our last time that there was an economic slowdown. I think the dynamic that you described is what we do typically see in the business. I think as you also know, Jeff, that our business over-indexes with lower income consumer. So there’s that consideration. But I would just go back to we recognize that we’re in an environment where the consumer is being price discriminating. And again, that’s not just something that’s low income. I think all consumers are looking for good value for good affordability. And so we’re focused on that action. In terms of franchisee buy-in, that’s a process that we work through in every single market to get alignment with our franchisees on what a national value program would look like or if it’s about launching a new menu item, what that timing of that would look like.
So that’s work that the U.S. team is doing in a system that has 2,000 franchisees in the U.S. I think it’s — there are going to be different people in different places on that. And that getting to alignment ultimately comes through conversation. And we — like I said, we’ve been doing this for 70 years. We know how to get it done. But it just — it comes through a lot of conversations with U.S. franchisees as it would in any other market.
Ian Borden: Jeff, maybe just two quick looks to what Chris said. I think across markets, I think what our leadership teams are spending time on talking to the business, talking to our franchisees about us what I’ll call making sure we’ve got a street-fighting mentality in the current context. I mean clearly, the macro is more difficult. Clearly, everybody is fighting for fewer consumers or consumers that are certainly visiting less frequently, and we’ve got to make sure we’ve got that street fighting mentality to win irregardless [ph] of the context around us. And as I think we’ve talked a lot today about our position — our system is positioned with the strength and capability. There’s no reason why we shouldn’t have the most compelling, value and affordability positioning from the focus of a consumer.
Ultimately, we’re going to measure our progress through are we taking share. And I think we are — Chris, Mike, and I and certainly the leadership teams are laser-focused on that, and that’s the opportunity ahead, and we’re very focused on that.
Mike Cieplak: Okay. That concludes our call today. Thank you, Chris. Thanks, Ian. Thank you, everyone, for joining. Have a great day.
Operator: This concludes McDonald’s Corporation Investor Conference Call. You may now disconnect.
