Arcos Dorados Holdings Inc. (ARCO) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining our investor webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer; and Mariano Tannenbaum, our Chief Financial Officer. Today's webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation also available in the investors section of our website, www.arcosdorados.com/ir. If you're not familiar with this webcast platform, then I have a couple of pointers to make sure you have a great experience. [Operator Instructions] Before turning the call over to Marcelo, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of this morning's press release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press releases and financial statements previously filed with the SEC on Form 6-K and 20-F. Our discussion today also excludes the results of the Venezuelan operation both at the consolidated level as well as the Caribbean division due to the country's ongoing macroeconomic volatility. So with that, please turn to Slide 3. And Marcelo, the floor is yours.

Thanks, Dan, and happy new year to everyone who has joined us today. I hope you and your families are doing well, and I wish you all the best for 2021. As we promised on our last earnings call, we organized today's webcast to provide an early update on fourth quarter performance. Additionally, we would like to share some recent developments as well as an early view on 2021 expectations, which we would normally only communicate on the fourth quarter earnings call in mid-March. Needless to say, 2020 was an extremely challenging year. Yet, it was also a year that served to unite us as a team at Arcos Dorados and to bring us closer to the areas and communities we serve. We quickly adapted to the changed operating environment and learned so many lessons last year, lessons that will serve us well for many years to come. We also proved one of Ray Kroc's most iconic sayings: "None of us is as good as all of us." I am immensely proud and thankful for the way the Arcos Dorados family came together during this difficult year to deliver the safest restaurant experience to our guests in Latin America and the Caribbean. There are countless inspiring stories of team members going above and beyond to help those in need and their invaluable contributions to the communities we serve cannot be measured with a simple tally of tons of food or combos donated. Looking ahead, we are ramping up our efforts to have a positive impact on society and the planet through our Receta del Futuro or Recipe for the Future ESG program. Later today, we will tell you about another important step we are taking in Brazil to introduce more environmentally-friendly materials in our restaurants. As I mentioned, we plan to release fourth quarter and full year 2020 financial results in mid-March. This morning, we issued a press release that included the preliminary fourth quarter comparable sales numbers on Slide 4. Each division delivered another sequential improvement versus the prior quarter, despite the most challenging comparison of the year, especially in December. Brazil came very close to 90% of the prior year's comparable sales level even though the fourth quarter of 2019 was boosted by the iconic Méqui campaign. The Caribbean generated high single-digit comparable sales growth driven by strong results in Colombia, Puerto Rico and the French West Indies. SLAD saw the greatest sequential improvement, thanks to reduced operating restrictions in Chile, which led to an impressive rebound in that business. Finally, NOLAD's comparable sales trajectory remained positive despite operating restrictions, especially in Panama and Costa Rica. Both drive-thru and delivery sales growth remained strong during the quarter, supported by our digital platform, which was responsible for more than 35% of total sales in the period. Freestanding restaurants were the best performers, and we saw improvements in the important Dine-in and Dessert Center segments during the quarter as well. Last year, we demonstrated our agility and decisiveness under unexpected circumstances, while proving the resilience of our long-term strategic approach to growth. We did it while successfully managing our cost structure and balance sheet. So as we begin this new calendar year, we do it with renewed optimism for our business and the McDonald's brand in Latin America. Arcos Dorados is the best positioned restaurant operator in Latin America and the Caribbean to manage the challenges ahead. While we have not reached yet the full revival phase of our plan and we still expect to face some short-term bumps in the road, we will be focused on what we do best, delivering the safest and best restaurant experience in the industry. Luis, why don't you tell us more about our plan for this year?

Sure, Marcelo. I will begin with the strategic foundation of delivering the region's best and safest restaurant experience on Slide 5. These days, being recognized as the safest place to eat out of home is key in our industry. This is why we quickly developed and deployed the McProtegidos program to all restaurants in the Arcos Dorados footprint. Throughout 2020, guest service consistently pointed to health and safety as top factors in choosing which restaurants to frequent. We believe this concern will endure in the medium term, even after the marketplace has normalized. So in 2021, we will remain committed to protecting our people and the millions of guests who visit us every day. Marcelo mentioned the sustained strong performance of the Drive-Thru and Delivery segments during the fourth quarter. Let's take a closer look, starting on Slide 6. Drive-thru generated about 22% of company-operated restaurant sales in 2019. In the second quarter of 2020, when most other sales segments were either closed or severely limited, drive-thru accounted for 60% of company-operated restaurant sales. Local currency growth in the segment versus the prior year was strong and steady through the end of 2020. We expect drive-thru's contribution to decline from its current levels, but we also believe that the pandemic has served as a catalyst to shift the sales mix to a permanently higher percentage versus 2019. As consumption in our markets begins to normalize, we can see drive-thru generating about 1/3 of our company-operated restaurant sales. We are already the most efficient drive-thru operator in the Latin American QSR industry, but we know we can do better with what you see on Slide 7. Marketing and operations are jointly developing an action plan based on a back-to-basics approach to ensuring we have the right people, equipment and products to maximize this segment. This will include communications aimed at increasing awareness and traffic, loyalty programs and digital capabilities developed to attract new users and increase frequency, and experiences designed to make drive-thru fun for guests. With these initiatives, we expect to operate existing freestanding restaurants more efficiently. A greater shift towards this segment will also influence expansion plans moving forward, as you'll hear about from Mariano. Turning now to Delivery on Slide 8. This is one of the key elements that has remained unchanged from the long-term plan we developed before the pandemic. In 2018, delivery represented less than 2% of company-operated restaurant sales. With the expansion of the service to 11 markets, this number grew to 5% of sales in 2019, and we had high hopes for the segment in 2020. Similar to drive-thru, the pandemic has accelerated the growth of the delivery segment by at least a couple of years. We start 2021 with delivery available now in 17 markets and more than 1,700 restaurants. Even with sales expected to normalize this year, we see delivery in the 10% to 15% range as a percentage of total sales. Turning to Slide 9, we have a dedicated multidisciplinary team devoted to making operational improvements, especially service time and accuracy to enhance the guest experience. They are also working on generating efficiencies in this long-term strategic segment by optimizing our delivery aggregator relationships; expanding our own delivery capabilities from both a technological and logistical perspective; and implementing strong marketing plans based on special dates, exclusive menu offers and other activation to sustain growth. We are also taking a back-to-basics approach to marketing initiatives for 2021, as you can see on Slide 10. Last year, in order to ensure an uninterrupted supply chain, simplify restaurant operations and maximize profitability, we reduced menu offerings by at least 30% across all markets. Consumer response was very positive, and we are now taking the approach that new products will have to earn their way on to the menu. This does not mean that we will no longer generate excitement or meet changing consumer preferences through innovation and limited-time offers, but we learned that we can successfully do both by leveraging our existing menu offerings. For example, in December, in Brazil, we introduced a limited-time offer that built on the popularity of the cheddar hamburger in that market. We gave guests the option to order a side of melted cheddar cheese to dip their burger and fries. It was so popular that we sold out in 10 days in a campaign that was meant to last the entire month. In addition to focusing on core products, we expect the family business to rebound in 2021. The growth in popularity of the Drive-Thru and Delivery segments has been accompanied by a higher average check in both segments as well. This is partly due to an increase in orders for the entire family, for whom we have developed targeted offers and packaging. And don't forget that 2020 saw very few movie releases from the major studios. This would change in 2021. In fact, the year already got off to a strong start with the release of Disney Pixar's animated movie, Soul. We expect the Happy Meal platform to benefit from the resumption of a robust marketing calendar over the course of the year including a few more Disney titles as well as other surprises. Marcelo, back to you for a discussion of advance and our road map to extend our lead in the industry's digital race.

Thanks, Luis. ADvance is the name we have given to a team of professionals pooled from our existing talent or who brought their special expertise to Arcos Dorados. Their mission is to strengthen our leadership in the QSR industry's digital race, supported by sophisticated digital marketing, a best-in-class e-commerce platform and the most popular delivery service in the region. Based on the road map, on Slide 11, our digital transformation started in 2016 and '17, with the opening of the first Experience of the Future restaurant in Latin America and the launch of the locally developed mobile app for digital couponing. In 2018, all new restaurants were EOTF or EOTF-ready, and we introduced McDelivery by partnering with all relevant aggregators. By 2019, we set up the first agile squad to focus on McDelivery and develop a game plan to expand and enhance this service. That was followed by the digital marketing squad, tasked with developing the tools and strategies necessary to move from mass marketing to mass personalization. In 2020, their efforts helped us more than double the absolute level of sales from McDelivery, increased sales through our mobile app by 20% and roll out the first element of our e-commerce platform, mobile order and pay, to Brazil, Argentina and Colombia. Looking at where we stand in this journey on Slide 12, our mobile app has now been downloaded 46 million times, making us the #1 app in the QSR industry. We are also the #1 restaurant choice among the 3POs, with whom we are developing strategic relationships to guarantee a best-in-class experience for our guests. As we move from mass marketing to mass personalization, we are managing our users' life cycle. We generate downloads through digital advertising, using artificial intelligence to optimize conversion. Upon download, we demonstrate the benefits of the app and provide incentives to drive the first transaction and register the customer's data. Then we begin the work of segmenting the customer to provide compelling reasons to increase both the frequency and profitability of their visits. Finally, we provide exclusive deals and segmented advertising to target lapsed users and high-value customers to retain or win them back. As we went through our planning process for 2021, our market research demonstrated that the mobile apps with the most robust capabilities are usually the most popular with consumers. So our objective is clear, and the ADvance team has been given an aggressive moonshot objective for 2021. I am confident they will achieve this goal by enhancing existing features and rapidly introducing new ones throughout the year. Mariano, I will turn it over to you now so you can take us through 2021 guidance and a couple of other recent developments.

Thanks, Marcelo. The information is summarized on Slide 13. You heard on our November earnings call that we have a robust pipeline of locations already under development to support this year's restaurant opening and modernization plan which will focus on freestanding locations. Specifically, we expect to open between 40 and 50 new restaurants in 2021. As Luis alluded to earlier, we believe the COVID pandemic caused a permanent shift in consumer habits that will favor low-touch or touchless restaurant service models. For that reason, at least 80% of the new restaurant openings in 2021 will be freestanding units, which provide the greatest flexibility in terms of adapting the business to future consumer trends. We will also focus unit growth on our most profitable market, Brazil, with around 80% of new restaurant openings planned for that country. Brazil remains underpenetrated, and we expect to leverage the best restaurant portfolio in the industry to gain market share in a weakened competitive environment. Investments in our footprint will also include the continued modernization of existing restaurants and the opening of more Dessert Centers and McCafé locations. Total capital expenditures for the year are expected to be between $110 million and $130 million, which will be fully funded with cash generated from operations. This total will cover the cash needs for both, the development CapEx as well as expenditures related to our information technology initiatives and digital capabilities, among others. We have also reached an agreement with McDonald's to receive growth support related to the planned new restaurant openings and total capital expenditures that I just described. As a result of this growth support, we expect the effective royalty rate for 2021 to be about 5.3%, instead of the current 6% rate stipulated by the MFA. I should point out that we have previously received a waiver from McDonald's through the end of 2021 with respect to compliance with the MFA's leverage ratio requirements. In terms of leverage, on our last call, I mentioned that I expected to close 2020 with a net debt to adjusted EBITDA ratio in the high single digits. Based on preliminary results, which included strong year-end cash generation, I am very pleased to tell you that we will likely report a lower leverage ratio than I previously signaled. We also remain confident that mostly due to the projected recovery in adjusted EBITDA, we will approach the high end of our historical target range by the end of 2021. Our balance sheet remains strong with all short-term credit lines available if needed. This includes the committed $25 million revolving credit facility that we recently renewed for another year with our partner bank, JPMorgan. Lastly, as you heard today, short-term market dynamics are still volatile. But our business is ready to respond if we are faced with another round of government restrictions and to accelerate once we enter the full revival phase of the plan. Marcelo, I think you had one more thing you wanted to mention.

Yes, that's right, Mariano. Turning now to Slide 14. Our Recipe for the Future ESG platform is integral to the way we do business. Beginning in 2021, we will be following an integrated reporting process to ensure the alignment of our business strategies with our ESG goals. Among the pillars of the Recipe for the Future are climate change and packaging and recycling. In addition to reducing the business annual consumption of single-use plastic by 1,300 tons over the last few years, today I am pleased to announce that we have partnered with UBQ Materials to begin replacing the plastic serving trays currently used by guests with trays made from more sustainable materials. UBQ Materials is a clean tech company that has developed the world's first bio-based material made entirely of unsorted household waste originally destined for landfills. This climate-positive and cost competitive material is a sustainable substitute for oil-based plastics. In the first phase of the partnership, 7,000 serving trays made with UBQ will be introduced in some of our McDonald's restaurants across several Brazilian state capitals, replacing old plastic trays. Aside from the UBQ logo, McDonald's guests will see and feel no difference in the iconic serving tray. We look forward to the day when these trays, which will be produced locally from UBQ materials, are in all our restaurants. Dan, please help us start the Q&A session.

Sure, Marcelo. [Operator Instructions]. So our first question today is from Matias Galarce from Black Creek Investment. He asks who owns the intellectual property of our app, and if it's exclusive. And also if we have exclusive access to the data generated by our app, and what about the data generated by our distribution partners.

Okay. Thanks for the question. And yes, we developed the app; that was locally developed. So we have the rights on that. And on top of that, on the data that we capture through that tool. That's the answer for the question.

Perfect. The next question is from Mijail Canchari from Credicorp Capital. And he thanks us for the presentation, thank you Mijail, and asks for some color regarding EBITDA and EBITDA margin for the fourth quarter. Mariano, I guess that's for you.

Yes. Well, we are going to release the results of the fourth quarter in our March call. So we are in the closing process, and we're not going to give figures about the last quarter regarding EBITDA. We -- having said that, we provided the sales performance that you can see in the presentation that we showed during the opening remarks.

Great. And as a follow-up, Mariano, I'll take here, Ian Luketic's question from JPMorgan, in terms of what our expectations are for margins in 2021 and if we should expect market consolidation to be enough to elevate sales and offset potential cost of goods sold pressure.

Yes. Well, thanks, Ian, for the question. Well, regarding the EBITDA margin outlook for 2021, it's important to highlight that in 2019 we posted an EBITDA margin of 10%. This was the highest full year EBITDA margin for the company since we became a public company in April of 2011. For 2021, each division is dealing with its own reality regarding the pandemic evolution and the economies as well. Caribbean division is closest to normality now, and Brazil, SLAD and NOLAD are recovering but at a slower pace amid uncertain macroeconomic environments and also depressed consumption. So we do not expect to return to 2019 profitability. But having said that, unless there is a prolonged setback in the pandemic, we do expect to recover strongly from 2020. So that will be the summary for 2021. We expect a sharp recovery compared to 2020. And regarding market consolidation, of course, we are positive about that. And we are also very positive about how we will be managing all the cost pressures that for sure we will be facing. As we have done during 2020, we are expecting to be able to manage the costs in the same way we have done in 2020 for 2021.

Great. So we have two questions here from Ravi Jain of HSBC. I think Marcelo maybe you should start, right? One is, when we think about store layoffs in the post-COVID world, how different will they be from our traditional restaurants? And then kind of unrelated question, but if we could give an update also on our efforts related to deliveries, our own delivery services via the app and/or a loyalty program.

Okay. And thanks, Ravi, for your question. I would say that we are still learning in terms of layouts and new formats for our restaurants. Particularly for this year, for 2021, we are currently working through our pre-pandemic pipeline, which is completely focused in freestanding restaurant openings. We mentioned during the call that we are planning to open at least 80% of restaurants under the freestanding format. And why we do this, because we have historically dedicated a significant portion of our portfolio at this format. And even during the pandemic, we learned that this format gives us the best flexibility and adaptability to any change in consumer trends, to new service models and sales segments. For example, we were able to leverage drive-thru, obviously, and delivery in this kind of restaurants. And we know that we could shift the focus of our operations to this business segments, Delivery and Drive-Thru, in a very easy way in this kind of restaurants. And in that way, we could align our operation to the consumer behavior with the pandemic -- that the pandemic changed. Last year, we deployed new technology, particularly in drive-thru, in order to increase capacity and that's why we can capture additional market share through this business segment. And at the same time, we are trying to leverage all the learnings from McDonald's, the McDonald's system. Particularly in recent months, McDonald's has presented a couple of alternatives that they are piloting. For example, a format which is called Express Pickup, with parking spaces in front of the restaurants for curbside pickup, and those orders can be placed through the mobile app. On top of that, they are trying new experiences through the drive-thru with Express Drive-Thru. Again, for orders placed through the app. The customers can skip the lane, the typical lane of the drive-thru and pick up the product in a different point of the parking lot. And finally, McDonald's is planning to introduce the On-The-Go restaurant with small or no dining rooms, focused on operating delivery and drive-thru. So for the medium term, I would say, for the next 18, 24 months, we will work in developing this new kind of designs, which will be more flexible, of course. And at the same time, we are expecting that they will require a smaller investment to open. So that's where we are. And again, we are still learning and taking advantage of all the information produced within the McDonald's system around the world.

Perfect. Our next question is from Michael Wasserman of Moors & Cabot, who asks, how do we expect potential currency movements in the next few years to affect our plans and results. So I think that's for you, Mariano.

Yes, perfect. I'll take that one. Well, actually, we look at exposure in 3 different ways. We have the exposure regarding translation results, where we don't -- actually don't do anything there in terms of hedging. The companies usually don't hedge the translation and FX movements will affect directly results regarding -- that we generate in local currencies. Then we have the P&L exposure mainly in food and paper, where we have a hedging policy where we hedge 50% of all the imported goods in the majority of our countries. We do that in Brazil, we do that in Mexico, in Colombia, in Peru, in Chile, in Uruguay, and that is the hedging policy that we have in place and we will continue doing that to minimize FX movements in our P&L. And on top of that, we hedge our balance sheet exposure through derivatives or issuing directly debt in local currency. So far, about the existing and outstanding debt the company has, around 50% of that debt has been [indiscernible] through currency swaps. And that has been extremely helpful, for example, in 2020, where -- when the BRL depreciated sharply. The same movement happened with our debt, it was reduced in value. Regarding our outlook for the next years, well, it's very difficult to predict FX movements. And that's why we have all our hedging policies in place. It's important to say that in the last 5 years, our most important currency, the real, underperformed emerging market FX movements and currencies. And that, of course, affected our results since 2015. We expect and we hope that in the coming -- with all the structural reforms that Brazil is introducing, this situation will change and the real will appreciate and perform a bit better than it has been doing in the past.

Okay. We have two related questions. One is from Jeronimo de Guzman from INCA, and another one is from Marcella Recchia from Credit Suisse. And they relate to recent sales trends, talking about end of 2020, beginning of '21, so the first 3 weeks of January. And also, what are some of the drivers that we expect to benefit from in terms of gaining market share this year. So I don't know between Marcelo and Luis, if you guys want to take that question -- or those questions?

Yes. Okay, Dan, thank you. And thank you, Jeronimo and Marcella for the question. I will give you the full outlook for the year first, okay? I would like to start with 2019 because it was a very good year for us, and we saw the same trend in January and in February of 2020. After the outbreak of the pandemic, the worst month was April. And since May, we have consistently been improving our company sales. Specifically, the fourth quarter faced a tough comparison due to December, that is December is a month that is seasonally strong, and it was very strong in 2019. And we had the implementation of new restrictions in some markets due to COVID second waves. At a divisional level, the Caribbean remained the strongest performer, followed by SLAD, mainly for Chile's results. Brazil and NOLAD maintained a similar pace of improvement to the prior quarter, and we were able to operate at least 1 sales segment in nearly all restaurants. And here you can see the impact of the restrictions. These were in 2020, the main aggressor of our sales. The best-performing divisions were those where consumers had the highest flexibility to circulate. And the conclusion is that -- talking about market share first, is that our focus on the 3 Ds kept working very well, Drive-Thru and Delivery sales trends were similar to the prior quarter in local currency and Digital, like you saw on the presentation, contributed 35% of our systemwide sales. This is full year. If we look closer at the restaurant format, I can tell you that in-stores and mall stores locations underperformed in 2020 because this type of restaurants are more dependent on foot traffic. But like we already said, 50% of our sales -- of our stores are freestanding, and these units are driving comparable sales performance. They were key during the crisis and it will be very relevant in the months and years to come. In the months, we will talk about restrictions this first Q. Starting in September of 2020, freestanding restaurants delivered positive comp sales and that performance continued in the fourth quarter. I remind you that we have the largest freestanding footprint by a factor of 3x when we compare with our nearest competitor in Brazil, and by a factor of 2.2x in our 3 largest markets. And another important thing regarding market share is that we have a robust plan that operations and marketing have developed together, based on a back-to-basics approach to ensuring the correct profile and training of our people, that would be the first pillar; the right equipment and technology, the second one; and the needed product offers to strengthen our segments, Delivery, the channel -- the Digital Channel and Drive-Thru. All these actions will be aimed to increase awareness, loyalty, and the sense, I would say, of fun of using our features and, of course, increasing our market share. Marcelo, I don't know if you want to add anything to the answer?

Yes. I think...

Well, maybe before I give to Marcelo, I can just -- I can add just kind of a follow-on question, and it will take -- because Luis talked about freestanding restaurants and what happened maybe through January, Richard Cathcart from Bradesco asks about sales trends actually in mall stores in December and January related to the COVID trends and also maybe what our expectations are for February and March given, again, some of the short-term COVID trends.

Okay. Well, as Luis mentioned, obviously our freestanding units are the ones that are performing very well. They are positive since September last year in terms of comparable sales. And that's based on the 3 Ds and all that Luis mentioned before. The other formats, and particularly those restaurants within shopping malls suffered, particularly in December. As a consequence of the seasonality of that month, those units in terms of comparable sales suffered more. But obviously, I would say that the main driver in order to see some changes in that trend will be the restrictions that different governments can implement in the different markets. 2021 began in most of our markets with the spike in COVID cases, and some governments are reimplementing restrictions, although so far those restrictions are not as severe as they were last year. So for example, I could tell you that as of today, we are able to operate at least 1 business segment in 97% of our restaurants. So in 97% of our restaurants, we are able to sell at least through 1 of our business channels. In the peak of the pandemic last year, in April, 50% of the restaurants were totally closed. So that's a huge difference. And I would like to add to everything that Luis mentioned that good news for us is that we are managing this very challenging environment with reinforced trust in our brand. And this came up in every research we did during these recent months, and this is thanks to our McProtegidos program. That's a huge advantage, competitive advantage, and guests recognize us as the safest restaurant experience in Latin America and the Caribbean, which is key because that's one of the main drivers where customers decide where to work -- to eat out of home. So that's the additional color maybe to the question that Luis answered previously.

Great. And now we have a question that I think is for Mariano. This is from Pierre at AV Securities. He asked us if we can give an idea on how we expect to manage cost pressures in terms of rising prices, food cost, particularly proteins and also imports. I think you might have already touched on the import piece with the hedging answer, Mariano, but maybe the protein piece makes sense to address.

Yes, perfect. Thanks for the question. So far during 2020, we have been able to manage the food and paper line, that's the gross margin line, very efficiently despite food inflation above CPI in many of our markets, mainly in Brazil. In 2021, we will work very hard to manage it effectively through a combination of pricing, product mix, inventory management, and importantly, supplier negotiations. The protein cost pressures, as we see it, are a reality that the entire food industry is dealing with, not just the QSR or the restaurants but also grocery stores. This is -- the rise in commodity prices due to the growth in China is affecting not only restaurants and QSR but also the grocery stores as well. It's important to note that we are the biggest buyers of beef in our market by a factor of around 3x, with very long-standing supplier relationship, giving us, in that way, the ability to negotiate best prices. So from the cost side I think we are in a very good position to minimize that pressure. In terms of gross margin specifically, we'll continue working on the 3 key levers that we can pull, that cost controls that I just explained, pricing power that we have, but we always need to look at the economy and the situation of the consumers and also on the product mix. And that's a very important factor, and I would like to link the product mix part with the opening remarks that Marcelo explained at the beginning of the call. All the effort that we are doing in advance, trying to move from mass marketing to personalization, mass personalization, will allow us to increase or to improve our product mix without necessarily increasing prices. So a mix of simplifying our menu, cost controls and negotiating with suppliers, the pricing power and improving our product mix is the way that we think we will be in a much better position than any of our competitors to minimize the pressure that, as you mentioned, exists in the protein field.

Our next question comes from Matías Cremaschi. I think this one's for you, Marcelo. Matías from Delta Asset Management. He asks if we have a view on the healthier food plant-based burgers. And if we have anything in our pipeline to address that.

Yes. Thanks for the question. Well, this is coming up in many different channels of communication within the McDonald's system. In fact, a couple of months ago, McDonald's was asked about the McPlant Burger during their investor update event. And they mentioned, and we believe that is completely correct that the consumer habits are trending in that direction and that the plant-based burger is not a matter of if, but when, for us, for McDonald's. Having said that, we see this, from a geographically standpoint, happening more in the developed markets, particularly Europe, North America. So those regions of the world are further ahead in terms of consumer habits and demand for these kind of products, and that will give us, Arcos Dorados, an opportunity to learn from the experiences that the McDonald's system will have in those areas of the world. And obviously, when the time is right and the time when we believe we can generate sufficient demand for these kind of products, you can expect that you will see these kind of products in our menu boards. That's for sure.

Perfect. The next question will be from Bob Ford from Bank of America. And he asks if we can touch on occupancy costs in Brazil, particularly with respect to contracts that use the IGPM Inflation index as a reference. And if we have the ability to renegotiate those contracts, especially with the stronger mall operators.

Okay. I'll take that one. Thanks, Bob, for the question. As I mentioned in other questions that the investors have been asking today regarding costs, we are looking -- we think that all the work that we have been doing through 2020 is definitely not over and continues through 2021. In every single cost line that we are facing, we are [ looking for ] improvements and efficiency. We already mentioned during the call the pressure in the gross margin and what we are going to do. We mentioned in my opening remarks the growth support that will allow us to reduce the costs in royalties. And we are doing the same with payroll efficiencies and rent is not an exception in this case. Rental agreements are an ongoing negotiation, even how dynamic the market has been, especially in shopping malls, as you mentioned, Bob, where sale levels remained materially lower compared with freestanding restaurants. So we are continuously negotiating with shopping mall operators in order to gain and obtain efficiencies and cost reductions. We are very satisfied with the savings that we were able to realize in 2020 in this particular line, and we'll be looking to capture efficiencies in 2021 in the same way that we have been doing in 2020.

Very good. The next question comes from Alvaro at BTG. And he asked us to comment on how permanent some of the various SG&A cuts will be moving forward. So the steps that we're taking to reduce SG&A during the crisis, how much of that is permanent on a move-forward basis. I think that's probably for you, Marcelo.

Yes. Yes. Yes, we are very pleased with the way that we managed our G&A last year, 2020. We were able to aggressively address the opportunities we have. And as we mentioned before, our guidance for the full year is that our total G&A will decline around 20% against 2019 G&A, which was historically very low. In fact, in terms of sales -- as a percentage of sales it was the lowest in our history. So we reaffirm this guidance of declining at about 20% our G&A in 2020. And those results, those savings, didn't include material structural changes in terms of size of the company as we did not want to be reactive. What we did during the last year was moving muscle, moving people, resources, from different areas of the company to the ones that we needed the most in order to leverage things like digital, like delivery. That's the reason why we already have 3 different squads working in digital marketing, e-commerce, delivery. We didn't have that structure in the previous year, but we moved resources from other areas of the company and we brought some specific profiles and expertise to the company in order to leverage those opportunities. Important changes or structural changes to the G&A will be dictated by what we believe is the best for the business in the long term. And we will do this analysis thoughtfully and strategically. So if anything changed, it will be a result of this kind of deep dive and very well analysis on the situation and what we could expect in the long term. We are prepared to make difficult decisions moving forward. But again, we will do everything thoughtfully and strategically.

Great. And I have a couple of questions here, Marcelo, related to the real estate portfolio and whether or not we have an appraised value for it and/or any plans to monetize real estate in the short term. Both Ian Luketic of JPMorgan and Patrick Brennan of Brennan Asset Management asked questions related to real estate. So maybe we can put those two together and you can kind of provide an overview of our -- of the real estate assets.

Okay. Yes, we have a significant real estate portfolio of almost 500 restaurants, several of which are iconic and difficult to replicate locations, and we see this as a huge competitive advantage in the market. Most of our competitors' portfolios do not include that kind of properties. And we believe that maybe we could leverage even more this advantage. The portfolio also includes a number of nonoperating assets such as offices and distribution centers. And the complete portfolio was last appraised in 2009 for about $930 million. We believe the value of the portfolio remains very attractive despite the more than 10 years that passed from that time. And we have leveraged in the past the value of our real estate portfolio in the need of reducing debt in 2016 and 2017 through our redevelopment process, mainly in Mexico. While we do not expect to use our real estate to generate funds in the short term, everything is on the table. So again, we think that this is our competitive advantage. This is -- these are very important assets for the company, and we are taking a very strategic look at that.

Perfect. And I think we probably have time for one or two more, that I already have here on the screen. One is from Jeronimo de Guzman, again, from INCA who asks us about our delivery expansion plan. And specifically, we mentioned that we were talking about delivery capabilities from a both technological and logistical perspective. And if we could give more detail on what that entails. And I think this is not just expansion with delivery with partners but also some of our own delivery. And I guess I'll start with Luis.

Yes. Okay, Dan. Yes, this means that we're going to give Delivery, this segment, the priority for our investments. And I'll remind you that delivery was very important for us way before the outbreak of the 2020's crisis. That's why we are aiming to invest in technology in the channel. In 2018, represented 2% of sales; in 2019, 5% operating in 11 markets; and in 2020, 14% of total sales. And we have this segment present in 17 markets and more than 1,700 restaurants. Obviously, the pandemic has accelerated the growth of delivery, and we are in a solid position today and we're going to keep improving because we have a dedicated multidisciplinary team that is focusing on 4 main aspects. And that's why we're talking about this priority, the technological and logistical matter. Those 4 aspects are: first, operations, mainly service time and accuracy, because those are very important drivers of satisfaction for our customers; the second one, optimizing our 3POs relationship, benefiting from regional negotiations; the third one is expanding our own delivery; and the fourth one, implementing strong marketing plans based on special dates and exclusive menu offers. The investment in technology, and this plan is focused to work to try to maintain in 2021 our sales between 10% to 15% as a percentage of total sales, even though that we think that the other segments are going to recover. I don't know, Marcelo, if you want to complement that or to add anything else?

No, no. I think that you covered perfectly the answer.

Very good. Well, it looks like we've reached time. And so this is the end of the Q&A session. We want to thank everyone once again for your interest and for taking time to join us today. We know you have very busy schedules. We hope today's webcast was helpful and helped you better understand the business, and we look forward to speaking to you again on our March earnings call. Until then, please stay safe, and have a great day.