Mike Cieplak: Our next question is from Brian Harbour with Morgan Stanley.
Brian Harbour: Yes. Thank you. Good morning. Maybe I’ll just ask about the U.S. Are you willing to say kind of where pricing was in the fourth quarter and also into the first quarter? And also any color you can provide by daypart, I think we’ve heard some other companies talking more about late night or if you perhaps have any comments on breakfast recently?
Chris Kempczinski: Sure. Well, I’ll kind of just give some macro comments. Again, have Ian pick any details. But certainly, we’ve continued to work through pricing in the U.S. as we were looking to offset inflation. We saw what I would describe as mid to high single-digit price increases last year. It depends a little bit on where you were in the country, but mid to high single-digit pricing. We are seeing, as I’ve talked about on prior calls, that particularly among the low-income consumer, there’s some transaction size reduction that we’re seeing. We’re also seeing some trade down there. So that offset a little bit of the pricing — the absolute pricing that we took. But I think as you think about 2024, certainly, inflation is going to be less, probably in the low single-digit inflation in 2024, and that will be consistent with where we end up on pricing.
From a daypart standpoint, I’d say pretty balanced there. But breakfast continues to be a competitive area, a lot of activity going on in breakfast. Our business, as you know, is dominated around particularly lunch. That’s our single biggest daypart and that daypart continues to do well. So nothing particularly noteworthy that I would say on dayparts, but Ian, maybe you have any other insights to share there.
Ian Borden: Yes. You, I think, covered all the bases, Chris, but maybe just a couple of builds. I mean, I think we did see overall pricing for the year just around 10%. But as Chris noted, in the fourth quarter that level of pricing came down, obviously, in line with inflation and was in that high single-digit range. I mean, I think we’re continuing to see pretty consistent flow through with pricing, which I think is really important because it goes back to what I’ve spoken about before with just the tools and capabilities that we’ve put in place to make sure that when we are taking pricing, we’re doing that in the most effective way possible. Obviously, as we head into 2024, knowing inflation has come down a fair bit from its peak.
I think, as I said earlier, I think our pricing we certainly expect will come down roughly in line with that as we work through the year. We certainly know consumers are more weary or weary of pricing, and we’re going to continue to be consumer led in our pricing decisions as we kind of look forward to 2024 and knowing that the environment will continue to be competitive. We’ll be thoughtful together with our franchisees, obviously, who make those decisions in their own restaurants as we look forward.
Mike Cieplak: Our next question is from Dennis Geiger with UBS.
Dennis Geiger: Great. Thanks you. Chris, wanted to just follow up on some of the color you just gave on the U.S. consumer and then some of that lower-income consumer, I think, managing the check a little bit. Just curious if you could elaborate anything more there on the consumer in the U.S. And is that check management largely been consistent with what you’ve seen in recent quarters? Or are you seeing any of the incidents or intensity there, pick up some? And ultimately, what does that mean as you kind of think about promotions and the evolving value options that you talk about in the U.S. this year. Thank you.
Chris Kempczinski: Sure. I think consistent with what we talked about on the prior call, where you see the pressure with the U.S. consumer is that low-income consumer. So call it, $45,000 and under. That consumer is pressured. From an industry standpoint, we actually saw that cohort decrease in the most recent quarter, particularly I think as eating at home has become more affordable. There’s been much less pricing that’s been taken more recently on packaged food. So you’re seeing that eating at home is becoming more affordable, that I think is putting some pressure from a IEO standpoint on that low-income consumer. If you think about middle income, high income, we’re not seeing any real change in behavior with those. We continue to gain share with those groups.
But the battleground is certainly with that low-income consumer. And I think what you’re going to see as you head into 2024 is probably more attention to what I would describe as affordability. So think about that as being absolute price point being probably more important for that consumer in a lower absolute price point to get them into the restaurants than maybe a value message, which is a two for six or something like that. Those probably are going to resonate a little bit less in 2024, particularly we think in the front half with the consumer there may be something that’s lower absolute price points. So that’s — we are set up well to be able to go after that. We have our D123 platform, as you know, and I think you’re going to see probably some activity there in the U.S. at the local level to make sure we continue to provide good value for that low-income consumer.
Mike Cieplak: Our next question is from Sara Senatore with Bank of America.
Sara Senatore: Thank you. I wanted to ask about G&A and it came in actually just below the 2.2% of system-wide sales you guided to, which is true despite the fact that I suspect that the system-wide sales were lower than you might have expected in the fourth quarter, given the implications in the Middle East. And so I was just curious to what extent are you able to flex your G&A? I know you usually guide to percentage of system-wide sales, but trying to understand whether sort of internally you actually forecast more along the time — along lines of dollar spend? And are you seeing any of the — any improvements perhaps because of Accelerating the Arches? I’m curious to what extent you have flex there.
Ian Borden: Sara, it’s Ian. Let me take that one. Well, look, I think you’ve heard me talk about this before. But the way we think about G&A is kind of in two broad buckets. I mean, firstly, we want to continue to work to run our business as efficiently as we can. We know we’ve got some opportunities in that area. It’s why I talked about in our upfront remarks that we’re going to continue to invest in the areas where we think we have strategic opportunities to drive greater efficiency. A lot of that work is going to be led by the Global Business Services organization that we stood up and is driving these transformation efforts in area like HR, finance, tech and getting after spend opportunities in areas like indirect sourcing.
So part of what we’re focused on is continuing to make those strategic investments so that we can continue to drive greater efficiency in how we operate, which, if you go back to the principles of kind of accelerating the organization, which was really what that whole initiative was designed around was how do we get faster, how do we get more innovative and how do we get more efficient in how we’re running the business. The second kind of broad area of G&A spend is obviously investing in the areas that we feel like we’ve got opportunity to drive growth and strong returns for the business. And part of running the business more efficiently is to make sure we have the resources available to invest behind the opportunities that we believe exist, and we continue to believe we’ve got significant opportunities.
I think we’ve talked previously to the examples of kind of our tech platforms and digital capabilities where we continue to make significant investment. Those, I think, are really strong examples of the type of growth when you look at the growth mix that are coming from those investments and obviously continuing to drive strong returns for us, and we’re going to continue, obviously, to invest behind those growth opportunity areas that we have. And so I think that’s — over time, as you kind of look forward, I do believe we’ll continue to be able to gain leverage in G&A as a percentage of sales. But I think certainly in the short term, our focus is going to be in those areas that I highlighted.
Mike Cieplak: Our next question is from Chris Carril with RBC.
Christopher Carril: Thanks. Good morning. So, just on McOpCo margins, I believe you mentioned you expect them to be relatively in line this year versus 2023. So can you expand maybe on some of the puts and takes around this outlook? Maybe any detail on U.S. versus IOM, your cost inflation outlook? And maybe finally, if and where you see opportunity for company margin upside? Thanks.
Ian Borden: Good morning, Chris. Let me take that. Yes, you’re right. I think as you said, in our opening comments we talked about the fact that we think our 2024 company-operated margin percent will be roughly in line with where we ended for 2023. I mean, I think there are a few things that are going on, so I’ll kind of talk about it, U.S. and then International. I mean I think in the U.S., if you look at kind of commodity inflation for 2024, we think that will be in the low single-digit range. I think wage inflation probably in the mid to higher single-digit range. Part of that is because of the impact of what we’re going to have to work through in California, which I know you’ll be aware of and the significant wage increases that come into effect there at the beginning of April.
