McDonald's Corporation (MCD) Earnings Call Transcript & Summary

Okay. Good morning. I'm Dennis Geiger, restaurant analyst at UBS. I'm pleased to welcome and excited to have with us on stage Ian Borden, CFO of McDonald's; while Mike Cieplak, McDonald's Treasurer and Investor Relations; and Scott Meader from Treasury and Investor Relations are here with us also. McDonald's probably needs no introduction, but is the #1 restaurant chain in the world with more than 40,000 restaurants globally and with leading share and momentum in many of those markets, a 95% franchise model, an accelerating global unit growth support a leading growth and free cash flow story. And we're excited to hear about that today. Welcome, Ian and team. Thanks so much for joining us.

Great to be here. Thanks for having us. Appreciate it.

Before we start, a quick legal disclaimer from my end. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express a view at this event today. These are available at www.ubs.com/disclosures or I can provide them to you after the event. And with that, let's get started.

So Ian, maybe we could start by talking about McDonald's top line momentum over the last several years and highlight how you've so effectively been able to drive this kind of growth at scale. We get the question from investors a lot. So maybe you could kind of touch on how you've so successfully gained and maintained this level of momentum globally.

Yes. Sure. Well, good warm-up question. If I go back, I think, to 2020, when we put what we call our Accelerating the Arches strategic plan in place, and I think maybe the context that's important is -- I mean I've been in our business for 30 years. It's probably the first time, I think, that we've had a plan with the clarity and resonance that our Accelerating the Arches plan has had. And if you -- obviously, part of the power of our system is our size and scale. So getting a plan that resonated consistently across the business where every market was able to clearly understand the opportunities under that plan, and then it's about how do you bring that plan to life through what I'll call outstanding execution, which I think you've seen. If you look back from now to 2020, you see a pretty strong level of performance that, that plan really unlocked. I think if you go under that plan, well, what were the key things that we were trying to deliver from a growth framework standpoint, and we talk about our MCDs: so M was about how we could maximize our marketing muscle; C was about our core menu and how we brought our core menu to life; and D, at that point, we called our 3 Ds, which was delivery, drive-thru and digital. So if I just touched on a couple of things under each of those growth pillars, I would say M, what it's really been about is about how we've been able to elevate the creative execution that we're delivering as a brand. And that's been about, I would call it, going from apologetic stance to really unlocking the true power of our creative effectiveness and how we've elevated that creative effectiveness with our agency partners and our internal talent. And I think the other part of that is about how we've been able to deliver a significant improvement in the return on the marketing investments we're making. So we've got the scale advantage. We invest more marketing dollars than anyone else in our industry by far, but we didn't feel we were getting the return or the -- as much return on that spend as we could get. So that, I would say, are maybe a couple of the, I think, key progress points under the M. For C, core menu, 65% of our global system-wide sales are driven by our core menu. And what COVID reminded us about is core menu is what our customers want. They want those favorite menu items. They want us to kind of keep delivering those in new and creative ways. We've got $17 billion core equities globally. So think of any consumer goods company that would rival, I think, the P&Gs and any large consumer. So we've got incredible equities there. And this was really about under probably 3 categories: beef, chicken and coffee. How did we bring those core equities to life in a way that was kind of new and compelling? And we've done a really good job. The other thing I think that was really important with that is we understood by focusing on core, we were able to deliver a lot more improved execution because we simplified the operational execution for our restaurant teams. And so I think that's a bit of what we've been able to do with core. And then I would say under the 3 Ds, Drive-Thru, 27,000 Drive-Thru locations globally. So we've got a footprint that's greater than anyone else in our industry by far. It's not a footprint that's easily replicable. So -- and everybody obviously is driving Drive-Thru growth now because they understand through COVID how important that off-premise channel occasion is. Delivery was something that I think we understood the global opportunity fairly early on. So we had moved before we got into COVID. We are the #1 delivery player globally. And obviously, that scale advantage is really important because we have global partnerships. We're closer to the consumer than anyone else, which is really important with Delivery. And Delivery is certainly an opportunity that we believe is going to have a multiyear growth trajectory just because of the convenience factor. And then Digital, I think if you talked to us in 2020, we would have said we weren't happy with where we were. So we put a lot of focus in how do we bring Digital to life at scale with an enterprise mindset. And I think the fact that we're at 150 million loyalty members today across our top 50 markets, I think, is a pretty good indication of the progress that we've made in digital. And then I think what Chris, our CEO, has really brought in to his role is this kind of restless energy to keep challenging ourselves on where are areas of opportunity, how do we keep getting better. And so what we did in early '23 as we stepped back and said, "Well, is everything working the way we want to?" As we said, there are a couple of opportunities we think we aren't focused on as much as we need to be. The first was we added a fourth D, which was around accelerating our unit growth. And we've talked about getting to 50,000 restaurants by the end of 2027 as part of that ambition. So we're going to -- we're obviously going to unlock that opportunity over the next couple of years. And the other adjustment we made to the plan was we had an opportunity, which we call Accelerating the Organization, which was to move from working in vertical silos to working horizontally across the business with the goal of getting to more efficient, faster and more innovative at an enterprise level. So those were the two adjustments we made. And I think we're very, very confident with those adjustments, we've got strong growth drivers as we look forward over the next several years.

Terrific. And I want to unpack some of those factors over the next 40 minutes or so. Want to shift to kind of this idea of normalization. And I think much focus on industry growth rates returning to normal or historical levels as pricing eases. And you guys have commented on this as well, as far as a return to more normalized levels for McDonald's. So two questions I want to touch on here. The first, near term. If you could talk about expectations for 3% to 4% same-store sales in the U.S. and IOM and how you're thinking sort of about effective pricing and guest counts within those targets for this year.

Yes. Well, I think on a near-term basis, a few things that are important. First, I'd start with context. I mean we've grown system-wide sales by over 30% since 2019, and we've done that very consistently across our business. Now, a lot of that growth, as everybody knows, over the last couple of years, has been driven by pricing because we've worked through obviously a really high period of inflation. And like everyone, we passed some of that inflation back to consumers through pricing. And as you know, Dennis, I think we've talked pretty consistently over the last several quarters about the fact that we anticipated that our business top line would start to normalize as we got into '24. Why? Well, obviously, inflation is coming down. We knew our pricing levels would start coming down in parallel to kind of that normalization of inflation. And I think we felt that it would be helpful, knowing it's been a long time since we've been through a normal or a more normal year, to kind of be a little bit more specific about what we thought normalization would look like. And so that's -- we spent some time going back, looking a little historically, what was -- what did our same-store sale growth look like in more normal periods. And that's where we came up with this range of the 3% to 4% from a comparable sales standpoint for 2024. I think there were a couple of important pieces of context that we talked about as part of that. One is we said we thought the back half of the year would be slightly stronger, and I use the word slightly again than the front half of the year. A couple of specific reasons for that. Firstly, we had 2 incredible quarters of growth in the start of 2023 that we're lapping up again. So that was the first reason. The second reason was we said we had had a slower start to 2024, partly because of that really strong '23 first 2 quarters, but also because we had a weather impact for sure in January, where we were really mild January 2023 and I would call it a more typical winter January '24, which I think you've seen in the industry and certainly had an impact to us as well. What I would add to what we've said previously is, I think that slow start has been particularly evident in our IOM segment for the reasons that I've already talked about. But I would also -- and as you know, our IOM segment is a very profitable segment for our business, which I think is important context. What I would add to what we've said previously is, I think what we're seeing in some of our large IOM markets is a pretty significant consumer macro headwind that we're navigating that's having an impact. The other thing we've talked about with IOM is we've said we're not happy with our performance in France. Despite, I think, a challenging macro environment, I think we have a good understanding of what's driving that opportunity in the business, and I think we've got a really good focus on kind of getting after that and getting that solved. So that's a bit more texture on IOM. I think the other thing I would talk about is our IDL segment, which I think we expect in quarter 1 in IDL, we'll see our IDL first quarter comp sales slightly lower than what we saw in quarter 4. I mean obviously, we continue to deal with the impacts of the war in the Middle East. But we're also seeing what I would call a sluggish start in China this year. I think you've heard lots of different companies talk about the, what I'll call the macro and consumer challenges in China. I think our business is doing okay, but I think the environment continues to be challenging. So that's probably a bit more texture on kind of '24 and the start to the year.

Very helpful. The second part of this, want to focus a bit more on the longer term and you made some comments just there. But as we think about what normalized comp growth could mean for McDonald's, I usually think 2% to 3% for large, mature successful brands, but we've seen long stretches for the brand, for McDonald's, exceeding those levels. So could we still be in one of these multiyear periods where the brand is taking share in key markets and drivers exist to support sort of a multiyear period of outsized growth?

Yes. Well, I think looking forward, I mean, here's the way I would think about it. Look back to 2019, I think we've pretty clearly demonstrated, I think, our ability to grow strong comparable sales growth. We feel really good, as I talked about earlier, in our strategic plan and the growth drivers and the sequencing of those growth drivers as we look forward. And so I think we have -- we feel very confident in our ability to continue to drive strong comp as we look beyond 2024 over the next several years. What I would add to that, I mean, if you go back a couple of years, we would be -- we would have been growing at a net unit growth rate of about 3%. That would have been about a 1.5% contribution to sales. Because a lot of that growth was coming in our IDL segment, which has lower average volume, so you get a lower conversion rate to sales. As you look forward and what we've talked about in terms of accelerating unit growth, a lot of that acceleration is going to come in our own markets that have much higher average volumes, where we get a lot more contribution to the McDonald's business because we have a different franchise model in those markets. And we've talked about the goal by '27 to get to about a 5% net unit growth rate and I would say a sales contribution rate of 2.5%-plus because of the mix of that growth. And so to me, the way I think about it is we are going to have a much more balanced and a much stronger top line algorithm because we're going to get the comp lever and the noncomp lever working, I think, more powerfully together as we look forward.

That's great. I'll definitely touch on restaurant development in a few. Want to shift over to the U.S. and talk about some of the biggest sales opportunities over the coming years. You've talked about several drivers for '24, which I think are exciting to drive comp growth in '24. Maybe we could briefly touch on those. And then just longer term, if there's any kind of additional opportunities for the U.S. worth touching on?

Yes. Well, let me start with what I think is incredibly important and I think often maybe just gets overlooked. The strength of our foundations in the U.S. business are incredibly strong. Why? Because we spent the last several years, I think, very attentively making sure every part of the foundation of our business was in rock-solid place. So one example of that, we invested $9 billion as a system to modernize our estate. Our estate in the U.S. is 98% modernized. And that may seem a greens fee, but there are lots of players in the industry that are nowhere near that. Higher interest rates, businesses under pressure, I think, from a cash flow or earnings perspective. So if you were trying to do that now, that would be incredibly harder to do in today's context than it was when we brought that to life. I think the U.S. business has done an incredible job at being very disciplined in the drivers of growth. So if you think of those M, C and Ds, I mean, our marketing engine and creativity in the U.S. has been system-leading over the last couple of years. If you think of some of the activities like the Famous Orders, which originated in the U.S., bringing back characters like Grimace and doing that in a way that resonates with Gen Z or consumers across the business, we've had some incredibly powerful campaigns, brand and business driving from a marketing standpoint. And then I think if you look at core and you think about the opportunity we've got in core menu, I would talk about chicken, the McCrispy platform that we've put in place in the U.S., the equity that we've built across that platform. And then what I would say are the abilities, we certainly believe to extend that equity over time into things like tenders and wraps, where we'll start to really develop the portfolio based on how that -- the strength of the equity that we've created behind that product. And then I -- obviously, you can't kind of not touch on something like digital. We've got 34 million -- over 34 million active loyalty members in the U.S. So you just start being able to bring our system and capability to life at scale. Obviously, we're doing a lot of work around how we are starting to activate those relationships on a much, much more personal level, which I think will create a lot of value for consumers and us as we look forward. So I think those are certainly some of the, I think, kind of key growth drivers. The other thing, which hasn't been necessarily easy over the last couple of years, just knowing the level of unemployment, the scarcity of labor is, our restaurants are better staffed than they have been in a long time. And we are delivering a significantly improved customer experience and operational execution, which is foundational, but incredibly important.

That's terrific. Appreciate that commentary. Just quick for many in the back that are standing, some seats on the front, if that'd be more comfortable. But I want to come back to International, and you gave some comments earlier on the International. Most of your key markets around the world, you continue generally to exhibit strong momentum. You're taking market share in most of those key markets. So can we maybe talk about some of those key markets, if there are some specific commonalities across those markets on why you continue to outperform? And then the flip side of that, maybe as you kind of alluded to earlier, some key markets where maybe there is a bit more pressure that you're seeing and sort of how you're addressing those challenges?

Yes. Well, I think on the markets where we're, I think, seeing particularly strong momentum, I think big markets would be Canada, Germany and the U.K. I think if you look in Europe, which is obviously the center point of where we own and operate markets, most of those midsized markets in Europe continue to perform really, really well. And I think more broadly, when you get into our IDL segment, Japan and parts of Latin America have been performing really well. So I think it's pretty broad based, but those would be some of the markets that I would call out. I think commonalities, well, look, I would talk about, again, I'd go back to the Accelerating the Arches plan and just how consistently those markets are kind of executing against the opportunities under that plan, which has been particularly powerful. I think in today's kind of consumer macro environment, I mean, value and affordability is foundational. So the characteristic in each of those markets would be we have a leading position on value and affordability. And I think what we've seen in the International business do particularly well is what I would call be agile. So to give you a specific example of what I mean, I mean, obviously, consumer needs evolve as the landscape and pressures around them shift. And if you go back to beginning of '23, we put a new value platform in place in Germany called McSmart. That was kind of an entry meal, affordable option. It did incredibly well. Our other 4 large international owned markets have all stolen that idea and put it in place in their own markets over the last 12 months. So just an example, I think, of how we're trying to make sure we continue to be consumer-led, how we continue to be agile to adapt to the environment and lean into that. I think on the opportunities, I mean, we talked about France. That's the most -- I mean, France, obviously, is one of our largest, most profitable markets. So it's important. I think when you see markets that are more challenged, the way you build confidence in the ability to address those challenges is do you have the right leaders in place? We've changed substantially all of the leadership team there over the last 12 to 18 months. Do you understand what the issues are? I think we feel really good that we've identified the right opportunity areas. Are you aligned with your franchisees to bring those opportunities to life? I think we have really strong alignment, and we have the same sense of urgency to get those addressed. So that's going to take a moment, but I feel really good about the plans that we've got in place.

That's great. Want to go over to core menu. And you just talked about some of the opportunities at chicken, I think, in particular. As we think about beef, chicken and coffee and some of the biggest opportunities to kind of further your advantages on core menu, anything else to kind of highlight there across those key equities?

Yes. Sure. Well, look, I talked about core is critically important. 65% of our global system-wide sales, $17 billion-dollar brands across that core categories, and I think a few headlines under each of those 3. Beef, obviously, we're by far the largest player in beef globally. We've gained share since 2019 pretty consistently across our markets. I think a couple of the key things from an opportunity standpoint in beef. Best Burger, which is just a series of what I'll call small changes in how we cook and prepare our core beef products, that's been rolled out to about 70 markets. It's going to be in the rest of the system by end of '26, and it's driving significant improvements in taste and quality. Taste and quality are the 2 biggest drivers of consumer visits to our restaurants, so that's impactful. The second thing on beef that I think is worth highlighting is the opportunity we see around large burger. And it's a good example of how I think we are more precisely understanding consumer need and then getting after that consumer need, and I'll call it a one-way approach. So I think we've tried to get after this opportunity for a number of years because we thought the opportunity was about premium burger, which was wrong. And so we didn't -- we weren't successful. We now understand what the opportunity is, is for a large, more satiating-type burger. That opportunity is significant. It's consistent across many of our large markets. And we have innovated a couple of products that we're in the process of piloting. We're going to pilot those products in 2 or 3, what we call market zeroes. We're then going to -- if those products work, we're then going to scale one solution to that opportunity globally, where in the past, you would have seen us probably try and get after that opportunity in 20 different markets in 20 different ways, and then you don't have the ability to build a global equity that you can drive at scale. So that's a little bit about beef. Chicken. I mean I think the headline on chicken and why we think it's such an important category. Globally, it's twice the size of beef as a category. So it's much larger. It's growing faster than beef, and we believe we are under-indexed in our share of the market. So we put what I'll call a 5-area of focus plan in place a couple of years. We've driven significant share growth consistently across chicken over the last several years, and we're very focused. We have 4 -- of those $17 billion brands, 4 of those are in chicken. We know we need more, I think, to be known for chicken as we believe we can be. Two of those 4 equities are newer, McCrispy and McSpicy, and we are in the process of scaling those. So it just goes back to significant opportunity if we work in one way, identify the right solutions and then scale those solutions so that we're getting the most out of those opportunities. Coffee. I would say we're not happy with our progress in coffee. I mean we are the #2 coffee player globally. So we have a significant share in coffee, but we haven't made the progress as consistently as we believe we can. And we believe the biggest opportunity is we're not delivering consistent taste and quality execution. Again, taste and quality are those top 2 drivers of customer visits. Maybe a micro example of why, we have 100 different coffee machines across our business today. So how can you possibly deliver a consistent experience if you aren't even putting the product together in a consistent way? So we're going to just get a lot more focus. We're going to bring that consistency to life at scale. And we believe by doing that, we can deliver a significant impact on taste and quality for customers and deliver a better experience.

That's great. I want to come back to your comments on digital and technology. And obviously, it's been a significant focus for the brand for several years. So maybe just where you're positioned on digital right now? What some of the biggest opportunities are as we look ahead? And I want to wrap loyalty into the discussion and just how you're thinking about loyalty, where things stand right now, and again, what that opportunity looks like for the brand globally?

Sure. Well, look, I would start with something that we talked about at our Investor Day in December, which was we talked about what we're going to do is build 3 tech-enabled platforms in our business. We talked about a consumer platform, and we want to have, by the end of 2027, one of the largest consumer platforms in any industry globally. We have 150 million active loyalty members today. We're going to get to 250 million active loyalty members by the end of '27. And we're going to have loyalty sales of about $45 billion in '27. So that's the consumer platform. We talked about our restaurant platform. We want to have the easiest and most efficient restaurant operating platform in our industry that brings all of the modern capabilities and technologies to our people and our restaurants and allows them to do their jobs more easily and efficiently and focus on delivering a better customer experience. We're going to extend the cloud to our 40,000 restaurants globally as part of that restaurant platform. And then we talked about the company platform, which will be enabled by our Global Business Services organization that we stood up earlier in 2023. And we want to have a company platform that starts unlocking speed, efficiency, innovation, as I talked about earlier, and brings our data and analytic capabilities to the scale of the enterprise that we have. So when you think about those 3 platforms, that means we're going to invest significantly over the next several years behind technology and digital. And we strongly believe that technology and digital are a scale game, meaning you are advantaged by scale. Why? Because we can invest more than anyone in our industry because of our size and level of resource that we have. And it takes a lot of resource to do those well. And I think you can see that by a lot of people who talk about it, I think, have struggled in those areas. So I think that's what I'll call the broad. On loyalty specifically, as I said earlier, we've made a lot of progress. We've got 150 million active loyalty members in our top 50 markets. And I would say, why is loyalty important? Loyalty is important because loyalty customers visit more frequently and they spend more over time. And I would say we're seeing that already very compellingly, but what I would say is pretty basic capability today. So where are we going to go with loyalty? Well, we're going to get to the point where we've got capability to interact with consumers in a very intuitive way based on their individual data to provide them what they want, when they want it, where they want it, how they want it. And that will be powerful because it will continue to unlock more value for the consumer, and it will continue to unlock more value for the organization. And I think scale starts to unlock capabilities. I mean think of things like partnerships with other brands and how that can become part of a loyalty program and the advantage that we have through the scale and the value of our brand. I think, think of things like gamification, where you can start to unlock a lot of value for consumers by having such a large platform where you can start to bring capabilities to scale. So there's a lot of work to do. That's going to take time to get all of that capability in place. But I think we've got a clear line of sight to where we want to get to and kind of the road map on how we're going to start bringing those capabilities to life.

Great. I want to go to the consumer, and you touched on some of it earlier. But as we think about what you're seeing with your customer in the U.S., if you could kind of talk to any notable behavior changes, spending pattern changes that you had identified broadly across the U.S. or even sort of by income cohort. Just what's the latest there that you see?

Sure. Well, look, I think we've talked pretty consistently. I mean it's a challenging consumer environment. Consumers are working through dealing with all the inflation that's kind of hitting their pocketbook across all the areas of spend, and that's obviously been significant as we talked about earlier. Higher interest rates are having an impact. I think in particular, for lower-income consumers, you've got a couple of additional dynamics. Eroded COVID savings that people were drawing on and spending from, I think, that are largely gone. And that lower-income consumer, I think, is also -- you're starting to see food-at-home inflation versus food-away-from-home getting back to its more, I think, historical dynamic, which means I think some of those consumers are just choosing to eat at home more often. So I think the broader -- if you think of the informal eating-out sector, it's certainly likely this year that we're going to see negative traffic from a broad standpoint, from an industry standpoint because of those dynamics on a comparable basis. So I think that's the broad dynamic. We feel really confident about the positioning of our brand because value and affordability is core to who we are and is something that I think we're known for, and we have a leading value for money, a leading affordability positioning in the U.S. business. But as we talked about earlier, what's important, I think, as the landscape is more difficult as it's shifting is that you're listening to the consumer and leaning in to kind of what the consumer is expecting. And I think consumers, particularly that lower-income consumer, is expecting more affordable option, that they're expecting greater value for money than they have been previously. And so if you look at our U.S. business today, we've got 90% of our restaurants in the U.S. are offering bundles at either breakfast or during the rest of the day at under a $4 price point. So we've got really compelling affordability, but we haven't been talking about it as actively as we're going to in 2024. We want to make sure the consumer knows what's available and obviously is thinking of us when they're making their choices. You've also got that digital lever of 34 million active loyalty members. And the beauty of digital is you can lean into it instantaneously. And we're going to be a lot more active in how we're bringing digital to life and the offers that we're putting in front of consumers to make sure that we're compelling. I mean I think the headline is we're going to work really hard to make sure we continue to earn the right and even those consumers who I think are making more discerning choices, that we are working hard to earn those visits, and then when those consumers are coming in to make sure we're delivering them a great experience, so they're going to want to come back the next time that they can.

It makes sense. And I want to just touch a little more on that point around leaning in a little bit more on value. You've talked about that, emphasizing it more on a national basis, maybe emphasizing lower absolute price points to some extent. If there's anything more there as you think about that strategy, what it means for '24? And just in general, as we've looked at McDonald's historically, generally during tougher periods for the consumer, the brand does seem to outperform. Curious if that -- if we could kind of expect that same outperformance if this is the way that we're continuing to head as it relates to the consumer in the U.S.?

Well, I think certainly, if you look back over history, we have tended to benefit in any difficult kind of headwind environment because you get the trade-down effect of people moving down the ladder from, let's call it, fast casual or more informal eating out into the more value segment. And we're certainly one of the most prominent choices when you get down to value and affordability. So I think that's certainly something as we look through '24 that could play out as a dynamic as we look forward. But I think that -- I think consumers in 2024 are going to be much more focused on affordability. And that's where just making sure you've got great visibility, you've got compelling offers at the right price points that are going to attract consumers in as they're being more thoughtful about choices. And that's certainly what we're going to kind of focus on and emphasize as we work through '24.

And just the same question, just as we think about your customer globally and maybe in Europe is a bit more digestible and manageable to speak to. You talked to some of the softness there. Does that look any softer than the U.S.? Are the trends somewhat similar? And the same idea, do you lean in -- are you leaning in on value more within Europe, let's say, in '24 to kind of focus on that consumer?

Yes. Well, I think the broad trends -- and maybe I'll focus on Europe because obviously, the globe is a big place and most of our own business, as you know, is in Europe. I think Europe is challenging. I mean I think you would hear any company that's global talk about Europe from a context standpoint as being challenged, a challenging broader kind of macro consumer context. So I think the general headwinds are pretty consistent. I think the advantage that we have in markets outside of the U.S. is agility and speed. When a system is as large as we are in the U.S., sometimes it takes us a little bit longer to kind of get the whole system aligned and organized on where we want to go. And I think my example of that, that I talked about earlier would be if you think of those large 5 international markets, the fact that they've been able within 12 months to kind of all learn and kind of implement from learning to implementation of a very common opportunity and solution, I think, speaks to that. So I think we're always going to be -- continue to be led by the consumer and make sure we're making good choices that are addressing the needs of consumers. The other maybe differentiator internationally is generally, with the exception of maybe a U.K. or a Canada, we have a much more dominant share because it's a less competitive marketplace. And so as consumers are switching down, which is part of that, let's call it, trade-down, they're going to go to us more often because we are, by far, the larger player. And so I think we have a greater advantage probably in markets like Germany and France because we are so dominant from a market share and position standpoint.

Great. Makes perfect sense. I want to shift over to global restaurant growth. And I think this is a big deal as we think about the next couple of years. And you recently guided, as you touched on, to about 4% global growth in '24, going to 4% to 5%, '25 through '27. Notable acceleration, as you mentioned, from what we've seen in past years. So can you talk about some of the drivers of that upside, where that incremental growth is coming from? At the end of the day, what that signifies as it relates to the health of the overall system already having 42,000-plus restaurants globally?

Yes. Well, I'll start, I think, with maybe a bit of foundation, which I think is really important. I mean growth, you can accelerate at any point. And I often think lots of organizations accelerate growth as a compensation for an underperforming core business. I think what we've been really disciplined around the U.S., the investment we've done to modernize the estate is a good example of that, is we wanted to make sure our foundation was rock-solid. And it wasn't about core or growth, it was about getting those to work in tandem, which we feel really good about. I think the other important part of the work that's happened over the last couple of years is the effort we put into strengthening the value of our brand. Our brand last year by Kantar was rated the fifth most valuable brand in the world. The other 4 companies ahead of us were all tech, digital organizations. So I think that speaks to. And I think by increasing the value of the brand, you've also increased the appetite or the opportunity in terms of the accessibility of the brand to consumers. So those foundational elements were really important to do first. The example I would use of the opportunity, which I think is surprising when you hear it, is the U.S., the population over the last 10 years has grown 11%, and our net units have grown 4%. So we haven't even kept up with population growth, not even considering, I think, that our brand can penetrate in different ways, in more expansive ways in some of the communities that we're in. So I think that's what gets us excited about the opportunity. And if you remember how we talked about it last year, we talked about adding the fourth D at the beginning of 2023. We didn't talk specifically about the opportunity until Investor Day in December. Why? Because we spent all of '23 getting into what I'll call the dirty data to make sure we had a market-by-market understanding of the opportunity, community-by-community understanding of where we felt the opportunities were for growth, laddering up that to a plan over the next several years that we had a lot of confidence in our ability to deliver against. And I think maybe 2 other things that are important. One is the data and analytical capability that we have today to get to precision is much different than, I think, the last time we went through a period of acceleration. So we feel really good about the quality of the data and information we have. We feel really good about the returns and the consistency of those returns that we've been generating over the last several years with our openings as a proof point, and we're working differently. So the last time we went through a growth acceleration phase, every market would have brought that to life differently. We are bringing the opportunity to life in a completely consistent way, which means we're going to be able to execute against the opportunity, I think, with a lot more confidence.

That's terrific. I want to skip around, maybe just shift over to margins. You have best-in-class operating margins, basically the best in the industry, slightly over 47% last year, which is up a really impressive several hundred basis points from just 2019 levels. As we think about '24 and the target for the mid- to high 40s target, why the reasonably wide range? Maybe some of the key considerations for investors to be thinking about for '24? And perhaps more importantly, as we think about the plans for expansion of those margins over the coming years, how should investors maybe think about the potential for gains there?

Yes. Well, I think the look-back is really important because it's easy to talk about the future prediction. But I think the fact is probably the best guide to confidence in the future. I think as you said, we know because of the adjustments we've made to the business model over the last several years. So think about we've gone from 80% to 95% franchise. So we have a lot of certainty and a lot of durability and resilience in the business model. I think that's foundational. So we know as we look forward, as we're able to drive strong top line growth, we'll be able to continue to unlock efficiency and continue to, I think, drive leverage in our op margin as we look forward. I think on the efficiency point, I'd come back to those 3 platforms. I mean bringing those platforms to life at scale is going to unlock efficiency. And obviously, what we're focused on doing is how do we continue getting more efficient at the running of the business, freeing up more resource by nature than to invest behind growth, and we feel like we've got a long kind of list of growth opportunities. So I think as we look forward, we feel really confident in our ability to continue to drive leverage over time as we're continuing to drive strong top line growth, and that's certainly what we're focused on.

Terrific. I want to shift to CapEx and thinking about the strong free cash flow that the business generates, and CapEx guidance includes a step-up of about $300 million to $500 million over the next few years, hitting at run rate by 2027. But encouragingly, free cash flow conversion is still really solid at about 90% or so. Maybe if you could talk about some of the investments that you're making, the returns and that kind of allow you to maintain that still elevated free cash flow conversion and the strong free cash flow generation there?

Yes. Well, I think the starting point is I'd just re-hit what I was saying a couple of minutes ago. The resiliency of our business model and the efficiency because we're highly franchised, we're very profitable, I think, is the underpin to our free cash flow and our ability to convert a significant percentage of that free cash flow. As we accelerate openings, we're really confident in the ability to drive strong profitability, strong starting points as those restaurants open because of our track record over the last several years, because of the data, I think, that we feel really confident around. And certainly, as we look forward from a free cash flow dollar perspective, we certainly are very confident that we're going to kind of see a sequential improvement of the dollars and consistency in our ability to deliver in that 90% range from a free cash flow conversion standpoint.

And then as we think about that strong free cash flow, when we think about the priorities there, perhaps how you're thinking about those priorities over the coming years and maybe touching a little bit on balance sheet and leverage going forward?

Sure. Well, our -- kind of our capital allocation philosophy is pretty consistent. I mean our first priority is to reinvest in the business where we see strong opportunities to drive growth and strong returns. So accelerating our openings is obviously one example of that. Digital and technology, there'll be significant investment in over the next couple of years. So that's kind of priority one. I think with any kind of remaining free cash flow after reinvesting in the business, we're going to return that to shareholders over time, firstly, through our dividend. We've got a pretty strong track record from a dividend perspective, 47 consecutive years of increasing our dividend. We increased the dividend by 10% in each of the last 2 years. And I think the way to think about that over time is we're going to increase our dividend over time in line with our earnings growth. I think that's certainly our philosophy. And then any remaining free cash after that, we'll put towards share buyback. So that's what I would think of from a capital allocation standpoint. I think from a balance sheet, we certainly believe that our current investment-grade credit rating is the right rating for our business. It provides the right level of access and liquidity, not only for us, but for our franchisees, which is really important. And so we're going to certainly seek to maintain that. I think we ended last year with about $39 billion of debt. I think that will come down a little bit this year, probably in the $37 billion range, and I would think that's a level that we'll roughly be at over the next year or 2.

Terrific. With that, we are out of time. This has been great. Ian, Mike, Scott, really want to thank you guys for your time today. Appreciate it very much.

Pleasure to be here. Thanks for having us.

Thank you.