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>> Jeanan Yasiri: I'd like to thank our partners in supporting this course.
The UW Office of Corporate
Relations, the UW College of Engineering for their technical support, and financial support
which is provided by the Ewing
and entrepreneurship. Additionally, we'd like to thank which is committed to advancing academic education
University Place crew for taping our media partners, Wisconsin Public Television and their
today's lecture. I'm quite pleased to introduce
today. Jim Carras, our special guest
His responsibilities include Jim is McDonald's USA Senior Vice-President of US Restaurant Development.
leading the areas of construction, real estate,
and McDonald's training, special venues
Restaurant Design Group. Specifically, he's charged with setting long-term development
strategy and supporting execution of new restaurant development, rebuild, relocation
which involves reviewing and and remodel plans,
setting long-term development strategy, revising policies, capital allocation and
significant building design strategy. He has been with McDonald's for 22 years, starting at the
entry level real estate coordinator position
promoted to Vice-President, U.S. Restaurant Development. and advancing through a variety of departments, eventually being
holds a bachelor's degree in He is a graduate of Arizona State University where he
quantitative business analysis, or statistics. As we discuss mature
organizations in this course and
the need for them to embrace entrepreneurial values, I asked Jim to come and share with us
how that translates in the world
of location and redesign with McDonald's USA.
Jim Carras. [applause] Please join me in welcoming
time now to University of Wisconsin, this one is going to >end much happier than my first I told the last group, my second
Arizona State was playing the Wisconsin football team, time, was a year ago, when
and we lost 20-19. We missed an extra point.
We missed a field goal. We had a pass interference
in the end zone. But I don't hold a grudge.
Wisconsin had a great year. And, hey, maybe you'll be in the
national championship this year. We're hoping to get
to the Rose Bowl. Maybe we'll see you there.
And it's a great opportunity to share a little bit of the McDonald's story, and a little everything I've seen so far.
business and what kind of the daunting task we have in front of us to rebrand bit aour restaurant.doing
So I'm going to do
When I graduated from ASU with a degree in statistics, Jeanan went over a little bit of my background.
I knew pretty quickly that I I wasn't sure where I was going with that.
wasn't going to be an actuary in the insurance industry, which is where a lot of statistics
degrees go, just a little too behind the desk for me. I got into an entry level job with a real estate developer,
learned a lot.
Two years later, I was laid off. I applied and I got the entry level job McDonald's,
at the level we call
real estate coordinator. That is a position that takes the real estate deals and
kind of funnels them through to completion to where we actually open the restaurant.
a real estate rep where I was a deal maker, and then Moved up from there and became
the group of deal makers. I'm in Phoenix at this time. I became a real estate manager, where I actually managed
This is in the '90s. And a couple things
I would share with you. One is, my first big career decision really had to be in 1999, where I had
an opportunity to be promoted,
but to move to L.A. I'd be in Phoenix for 19 years at that point.
I grew up in Chicago. It's 1999, and it's L.A., and I'm thinking, cost of living, traffic, floods, riots,
you know, all of L.A.,
because I had never lived there. I had to make a big decision. I had a young daughter
at that time. But we made the move. It was not only a great career
family move. move, but it was also a great
So now at any given time, my family wants to get back to California, because now we're
living in Chicago.
When you work for a corporation, So, loved it. And then in 2004, my second big career move.
a retailer like McDonald's, we have every discipline you can think of, from marketing
to supply chain, to real estate,
I was always curious about the to operations, to construction. So I had a broad interest in the business.
restaurants. I had never worked in them. So I was allowed to be part of
an accelerated operations program, and I went into the
I did grill, I cleaned the stores and I actually started-- you know, I did french fries,
bathrooms, all on an accelerated basis so I could learn the
Then I actually managed a restaurant for three months in the summer, the scariest three months of my life.
Then I got pulled out, I got an opportunity to lead our restaurant development efforts
Part of the reason I tell you the story, is as you get into your careers, your willingness and come back to Chicago.
switch gears a little bit, and ability and passion to
move physically or move functionally is really, really important
to career growth. Not to say you have to do that. You might love what you do and
real happy. But within our organization, just do it for 40 years and be
the company had I not made that move into the operations field I would not have gotten the opportunity to be an officer of
So a little bit about my career path and how it's kind of played and learned about the restaurant.
out. With that, I think I'll get
right into where we're at with McDonald's.
I'm going to give you a little bit of an overview.
We've had a fantastic run since 2003. Going into 2003, we've kind of
We were still number one lost our way.
in the industry, but we had been struggling. Sales had been up and down.
We were opening a lot of restaurants. And as we say, we had taken our eyes off the fries,
and we weren't running
very well. We weren't reinvesting
We were trying to keep up with, on the corporate side, in our restaurants.
of the dot.coms and technology companies. we So all of a sudden, up we bought Boston Market.
We bought into Chipotle's.
We bought a pizza brand out of Ohio. Be bought Fazoli's Italian food,
and a couple others.
We said, okay, we're going to diversify, because yeah, McDonald's still has a lot of
growth, but we've got to do some
other things to really grow. Well, while those companies,
really took our eye off of things. we did some good things, it
So, slowly but surely, we have divested ourselves of those
partner brands, all of it for the right reasons or not. We look back at Chipotle's
on that one? and say, hmm, did we screw up
So what we did with Chipotle's is we made it an initial public offering, and they went public
on their own and we made a lot
of money one time by doing that. But Chipotle's as you know
As I asked my last group, how many people in the last month have been to Chipotle's rightby a show of hands.stic.
You can see.
the right decision. They're growing by leaps and as a company. And still it's probably still
restaurant volume from about bounds. They've got from an average
$1.2 million to $1.9 million in about five years.
opportunity, and they've They have phenomenal growth
developed a brand that is resonating with a lot of people. But for us we still have a whole
lot of internal growth. We have growth to do in China,
We have a lot of growth within India, Russia, Poland, Brazil and other countries.
the United States, both by building restaurants and by making our restaurants better.
So it got us refocused, and we've had a great run since then. So I'll share a little bit with
you of what's caused it and what
we're doing going forward. So really most of it revolves around menu, and I'll speak to
that in a second. The people side, people both in the corporate office and at the restaurants, at the restaurants
it's about making sure people are valued, making sure they're getting healthcare plans
that they have promotional available to them, making sure
opportunities within the restaurants.
mostly at the restaurants as well. And then on the technology side,
The example I will give you is if you went to McDonald's
two years ago and you ordered,
and you maybe had, take the cheese off and give me a nonfat latte
and apple dippers instead of
pressing like crazy. french fries on the side, you'd watch that person on the screen, and they'd be
What they were doing is going from screen to screen, because we didn't have a platform
that was nimble enough for
So the big thing we've done tin the last two years is we've that the customer wants and that we want to provide.
might have moved them to changed to a new platform where that order that I just described
13 different screens at any given time.
now would be on two screens, That same order that I described
and in a much more user-friendly format, much easier for our folks to learn that are new.
So that's a big part of our technology platform.
The other part of it is having a platform that then can be
ready for the future. So when you think about things
and then come in, and flash and do the bar code, the ability to pay on a mobile device, all those things are part of getting
to the right technology platform
that we needed to get to, and we're just arriving there now. Then, restaurant development
or what we call place,
and not just growing new restaurants, but rebranding our existing base.
And I'll talk about that
It's the brand halo we have around our beverages. It started with the need to fix I hour existing coffee, whichth.
we did about five years ago.
We had to get coffee credibility with the coffee customer, so we improved it.
We had huge sales increases on coffee.
Then we went into the McCafe line, the lattes, cappuccinos,
mochas, knowing that that would be kind of a balanced strategy
in the winter. that that's kind of your winter drink, where it's very seasonal
Then in the summer, we started working on the whole smoothie and frappe lineup.
Those have far exceeded our expectations. Now we've got this balanced group of beverages on the menu
so that we're not just a place
for fountain drinks. And now beverages have become more than 20% of our business.
And when you think of the convenience that we offer,
you like one of our competitors' our locations, our drive-thrus, you can see that even if maybe
products a little better, if we're the person that's on the
you'll at least feel like, you way to where you're going,
know what, the McDonald's smoothies is good. I think it's better than the
others, but I'm prejudiced. You'll still go through and get a smoothie from us
So big on beverages. or a cappuccino or latte.
We did a lot with chicken. We now sell almost as much
We sell more chicken than anybody else in the U.S., including KFC. chicken as we sell burgers.
everything from chicken nuggets to grilled chicken on your So we've become big in chicken,
wraps, a lot of chicken variety on our menu. salad, to grilled chicken snack wraps, or crispy chicken snack
The reason we did that was the trends on chicken were going up
significantly versus the trends on beef and pork in the U.S.
So we knew we needed to play more in that arena.
It's worked very effectively
for us. That's a little bit about that menu.
I've talked about that, the beverages.
to elevate our drive-thru experience and make it better The oand better.s the cAnd I'll talk about that ing
the remodel program as well.
salads, and oatmeal, and things Athat we never had before,, but that play to a customer who wants more variety whend
they visit us, or maybe are not visiting us at all, and will
healthier side, more on the nutritional side. cSo we're continuing to balance that may be more on the
of our success going that, and it's been a big part
from where we were to where we've been.
with our competitors. On the bottom, you've got the average volumes So of us and our competitors. it
You can see that in 2002, we were the leader at $1.6 million per restaurant,
But the other guys were in the was our annual sales volume.
neighborhood. They were at $1.4 million, $1.3 million.
Again, we weren't doing as well back then as we're doing now. Fast forward to 2010, and this is what it looks like.
We are at $2.5 million. These other guys are still
range. down in the $1.2 million to $1.4 million per restaurant
The ability to then At that volume for our franchisees, because 85% of
our stores are franchisee-run,
to reinvest in the restaurant, to offer good value, and just run a better operation is much
stronger at higher volumes. So we feel really good
whether it relates to our facilities or continuing to evolve our menu. But we have a lot of work to do,
business. Certainly, we want to take any So that's a little bit about the
Real Estate 101, which is what questions in Q&A, but we wanted to do two things today,
I call it, and then a little bit on what we're doing to reinvest in our facilities going forward.
So we have a reputation for 50 years of 14,000 locations
with real estate. There are a lot of retailers in the U.S. Of doing a pretty good job
who say that wherever McDonald's goes, I want to follow them,
because of the research we've put into it.
We can certainly get better, but we've got a lot of tools
and a lot of history
in how we do things. I'm going to give you a little
we are now continuing to grow. flavor as to how we grow, and
I know it feels like McDonald's is everywhere, but we've got a lot of gaps in the market.
We have to follow growth
patterns around the country. So there's still a lot of growth
So it's interesting. This quote from the New York Times, to be done.
$23 billion worth of Big Macs, a guy named Michael Culp, "Although nearly
Whoppers, and other hamburgers were sold in fast food outlets
that Americans are suffering last year, there are signs
from burger fatigue. After two decades, the burger chains have finally begun to
reach their saturation point."
This was Michael Culp. This was 1982.
we had reached saturation, So in 1982 when he thought
we had 4600 restaurants. And today, we have 14,000 restaurants.
A lot of that goes to what I talked about with menu evolution, chicken, beverages,
a variety of products, and not salads, and the ability to serve
just be caught up in one line. But that shows kind of
over the last 30 years. And then here's what it looks like visually. our growth rate
So where you guys might see saturation, I see opportunity. Those are our McDonald's.
There's still a lot of opportunity to grow.
But that's kind of what it looks
pretty big. In the rest of the world, still buhave a lot of opportunity inn around a while, and we've gotten
and Brazil, and some of those other countries, so we still areas like China, and Russia,
have great opportunity there as well.
So the objectives on kind of
this Real Estate 101 I'm talking about, understand our philosophy and how we look
for real estate, how we develop our trade areas and where we expect our customer base to come from.
We rate our locations and we've got have a system for doing that
for a long time. that is not rocket science, but is something that we've used
Understanding distance to K, and distance to K means basically the amount of visits
we get from the person
a mile away and how that-- who lives a block away, versus the amount of visits we get from the person who lives
And then comparable restaurant how that plays and how that's radically different from one to the other.
analysis, I would need about four hours to do this, but
ultimately we do our sales that's basically how we
volume forecast when we're going to open a new restaurant, so all of this plays into that.
So from a philosophical standpoint what we've learned from studying thousands of
is we know we're a restaurants over the years,
convenience-driven business. 50% of our customers make their decision to eat at McDonald's
while they're on the road.
where should I stop? So it's not, you know-- It's not the I'm going to work, I've got to stop somewhere,
I've got to pick up dinner, what am I going to have? maybe something else. It's the, I'm going home,
whatever it might be. If 50% of their decisions are made while they're on the road, we have to be even that much
more sensitive to how we choose our real estate and build our locations.
you're probably not making that decision on the road. You probably made that decision, If you're going to Walmart,
to Walmart on Saturday, because I've got to pick up a couple things. you know what, I got to go
decision-making is a little different, and they're what we So their location and their
call a destination, so they have to choose good real estate as
well, but they don't have to be as detailed about it as we do.
and shopping. So what does that mean? ThSo we interview thousandsrs of customers in the stores.
Where did you come from?
We put a dot on the map. Where you going to? I came from home. Okay, where do you live?
We do that hundreds of times Where are you going to? I'm going shopping. We put that dot on the map.
about where to locate, over, and it gives us the analytical detail we need to make really good decisions
and what that volume projection might be, because the patterns tend to repeat themselves.
And then basically easy to find,
easy to use, because we could be easy to find, but if we're not
in and out of that property easily, or if you can't make easy to use, if you can't get
come back, because, again, a left out, or if you can't make a right out, you may not
convenience-driven business. You may like us, but you may not
You might want to go to the next like us that much.
competitor that's easier to get in, easier to get out. It's the kind of stuff you guys
recognize from how you travel every day.
demographics like, what's the growth rate in the area, The larger factors, market conditions, what are the
where are homes being built, what's going on with shopping,
all that type of stuff that you think would be intuitive. The quality of the real estate
And then for us, because we have itself that I'll talk about.
so many locations, where our existing locations are
We can't say look at that shopping center, that's cool, let's build a store. is a key factor.
a half mile away, we probably can't do it. If we've got another one
a start-up, or a young company We have to be a little bit more careful, whereas if you take
like Chipotle's or Panera Bread, they can be a lot more
spots than we can, because they don't have as big a store base. Over time, they're going to have aggressive in going to those hot
open that restaurant, you're cannibalizing sales the same issue, because when you
at that restaurant, and that may be a different franchisee.
There's a lot of ramifications
that come into play when you build too close to another
Store density. restaurant.
Basically the way we measure it is number of restaurants per 100,000 people.
So today, we have four
okay, that's the high level. restaurants per 100,000 people. Or one for every 25,000 people. So then we look at that and say,
mini market, Then we break it down by region of the country, then by market, and then by what we call
very small mini markets. So we look at it and say, okay, so are we reaching saturation
in any given mini market? For those in hear who have any
statistics background, this is a regression analysis.
I can't put the numbers on
because they're proprietary, but on the bottom is the number of restaurants that we have
in a given mini market. We have 2300 mini markets around the country. So low end is on your left
and high end is on your right.
If we were reaching a saturation point, that regression line, the
middle of it, would be dropping off. line that's going through the
counts per person. And the reason that is, is on your left-hand side is customer
If we're building too many restaurants, there is a drop-off
per person and then we know we've built too much. I don't want to have you try and in the customer counts
understanding some of the backup understand this without really
behind it, but the point is that we know that even as we build more restaurants, if we build
them correctly, and in the right
location, we can continue to grow effectively. The dots below the line
are where we have issues. So, if you're below the regression line significantly,
and say, wait a second, why are we not getting the same number we have to go into that market
of customer counts for the same number of restaurants?
If we have four restaurants per 100,000 people and one market is
getting 60 customer visits per year per person, and another
market is getting 100, why? Is it the locations?
What is it? And then we go in and we study Is it the facilities? Is it the operations?
what we need to do in that marketplace, especially before
we build new restaurants. So investigating the site,
We do drive times. getting down to the detail of the site itself.
So a lot of retailers do one mile, two mile, three mile
plug it into a computer. radius is very easy,
We're so convenience driven that we are at five minutes. It used to be three minutes,
it's now five minutes.
down the road there's a new Walmart and we're going to get in that five-minute window. So we can't count on three miles
significant frequency. business from it. We're not, not of any
So that five minutes is critical.
located within the five minutes is also critical, and I'll talk about that. So then you look at the quality
of the trade area.
So here's a full trade area. You can see kind of the arches
You've got residential backup. in the middle.
To the left of us what you see there, that parking lot is a shopping center,
a large shopping center.
Behind that down here is industrial and workers. Here you've got the nice mix
of home, work and shopping, and we're in the heart of it. So you know as long as you've got a good piece of real estate,
you've got a very dynamic trade area here and you should do very well.
So you've got everything on the right, but you're pretty limited Here's a half moon trade area.
on the left. You see that green area.
So now you start asking questions.
What's going to happen with that You say, okay, we might still be able to do the location.
open space? Is it going to be homes? Is it never going to be
anything? Is it a cemetery? They won't come to you. So what is it going to be?
Cemeteries and golf courses are bad.
Golf courses eat up a lot of land, don't have customers.
So we have to make sure we understand what's happening
in that area and make the right decision.
We still may build here.
There may be enough dynamics in the half moon to make it work, but you've got to be
a lot more careful. Quarter moon, this is even
worse, but we built a restaurant here and there's a reason.
So the key for this one would be
so you've got this quarter moon. You don't have a full trade area.
You've got all that backup on the upper right quadrant. If those people are funneling out toward you every day,
if that's the direction of where
they're going to home, work and shop, you might be okay. You might be able to open
a restaurant here and be okay,
depending on what's going to happen with the other quadrants.
If they're going the other Will they be built out.
direction, you've got a restaurant you're going to close in a couple years.
You've got to be in their way.
You've got to be convenient, and easy to find, easy to use.
again, knowing what's going on Three-quarter, another one,
with the other part of the trade area, making sure you've got
three-quarters of a trade area enough going on within that
important. to get after it, get enough volume. Then barriers are really
you don't have boats coming over While the trade area here might be pretty good on the right side, if you will, obviously
important to your decision, because you know you've limited your trade area at that point and do you have enough volumey
to drive the business.
So then when you get to that trade area, you've made the decision you're going to be in
the trade area, you've got
enough people, enough homes, work, shops, now you get to the quality of the real estate.
And we rate them 1,000 ABC, 1,000% of course being the best,
can't be oppositioned, great location.
Then A being one step below,
B and C. So 1,000%, so here's an example of what it might look like.
We're on the corner.
It's two high-traffic intersections. We're on the corner.
We've got access through the
They can't get a better spot shopping center and our own access, and we can't be oppositioned by a competitor.
than we can. We call that 1,000%.
an A location. Now here's what we might call
the apartments or condos are, whatever that is, because if but the better corner is likely that one to the left, where
high traffic count, you want to be on the far corner as they're coming through the intersection. other street, if that's your
corner? When I say far corner, Why do you want to be on the far
you come into the restaurant. If you're on the near corner, Iand there's high traffic,e inwhat happens?hen
You get backed up, and you're waiting for red lights
to change. Now, while you're waiting, you
can't get into the restaurant.
to get back out. You're saying, you know what, I don't want to wait to get in, and I don't want to wait
So then, when you're in the far corner, you've crossed the light and now that light serves
as your blocker, if you will. So now you've finished your visit, first of all, you got in,
you got in. Now you want to leave. you made the right-hand turn,
Light goes red, you've got an open window to get out.
So near corner, far corner, kind of confusing.
it easy for the customer But far corner is what we aim for, because we want to make
to get in and out. And then B location, so now your
on the right, 16th Avenue and 48th, look how far in we are. We're probably 1,000 feet interseoff the corner.er there
So, we've completely lost any visibility to 16th Avenue,
We're hidden behind this and we're just picking up traffic off of 48th.
Yeah, but rarely. Have we built a lot of them So thain the past?tion. Again, do we build them?
And then, you know, likely Yes.
we'll will look to relocate this restaurant and get to a better
in the future. position at some point
But clearly, we can be oppositioned by our competitors in many locations here.
Then, C location, it's kind of
hard to tell from this visual, but, again, buried down,
In this instance, if you know the Chicago area, York Road is the lower traffic count, so we're on the wrong street,
and we're buried in the middle
again try and relocate if we can of a block. So two negatives, C location, a location that we'll typically
to get to a better area. So I thought I'd illustrate it
Let me see if I can get this just a little bit further.
right. It takes a second.
interactive. So this part will be a little
Again, I went through it in about two minutes, so
the answers, but I've got an intersection here. Those of you who have been in defensive driving class lately,
kind of what I remember.
So on kind of the north/south, that street carries 15,000 cars.
carries 30,000 cars. On the east/west, that street
The arrows, these arrows here, represent going westbound,
a right-hand turn in and you would make
and a right-hand turn out. Then the arrows obviously are the opposite
going the other direction.
So if I've given a good enough explanation, remembering
remembering high traffic count, which of those properties would be the 1,000% location? far cQ. Excellent!rner,
Good. Q is the answer, because your higher traffic count is what you
to maximize it with right in want to maximize, and you want
and right out traffic, and you want to do it on the far corner.
Now, would you not do X?
real estate position. NIt would affect your volumew tprojection for the restaurantt takbecause you did Xtter
instead of Q. I'll change it a little bit.
got another access point here, Let's just say a Target got built here, and we've
another access point here, another access point here.
So you got the benefit of the business that Target brings, So now you've got this Target.
Do we now think that maybe X and you've got these multiple access points.
is the 1,000% location? Anybody? Take that risk?
Nobody, huh?
I would argue, and it's art, not science, by the way.
I would rather have X, because There's no set rule.
and the benefit of being on top of Target and not across allowing customers to get in and out how they want to,
a better property. the street from Target, would all of a sudden make that
It's kind of a toss-up, but I would go with X. So those are the type of things
that are part of
the consideration. Now, we have another
and that is if we have a consideration at McDonald's,
restaurant down the block, say to the east of X, that's on that same side of the street,
and already picking up traffic
that's maybe a mile or two down the road, now our focus
and go for T or for V. may be to go to the south side,
Because if we've already got a traffic pattern that's picking
on one side, up the right in, right out
what we call shoelace. It's, let's shoelace it on the other side, and pick up
a different traffic pattern.
because generally, if you're going to a quick service
a left turn unless you have to. So we've got to make sure our right turns are critically restaurant, you're not making
good visibility, important, good access,
easy to get in and out. That makes a decision as well. Breakfast side and dinner side
is another factor.
So if we're not on the breakfast side, customers who are coming
only have a little time. to us for breakfast
So we want to be breakfast side in our business. Oil companies, gas stations,
want to be dinner side, because people typically buy their gas
So there's different nuances not in the morning, but in the evening.
that come into play and different things that we look at in making that final decision.
Now, the tricky part of it is all those little Q, X, T, V,
so you don't always have those properties are not just sitting there available for you,
that choice. But when you do, those are
I talked about easy to find, the decisions you make.
easy to use, location, visibility. Where does the building sit
on the property,
where's the signage, what kind of signage are you getting? Nowadays, cities are tougher
and tougher on how much signage you can have, and where you can place it. Access, getting in, getting out,
where is it, how is it located, is it convenient, how does it get into the drive-thru?
on our business. Little things have a big effect
continue to do so going forward, And then the drive-thru layout, we've done a lot of work with drive-thru layout, and will
including the double lane side-by-side drive-thru. So, now a little bit on distance
decay, and hopefully this will
make sense, too. We've got kind of this
The McDonald's is in the middle of this board. battleship board here.
This is an eight by eight square mile grid, and I'm going The peto be adding to it.visits wSo now, the height of the bar.
represents the trip pattern visits, so the percent of people
who said I came from "here," when we interviewed them, and
this is hundreds of restaurants into a sample.
So more than 10% of the visits are coming from right there,
right on top of the restaurant, not a big surprise. Now take it a step further. So there's that bar and there's
all the other bars around it. This is actually a specific location, I misspoke earlier. It's a specific location.
You can see,
here's the obvious thing. So you've got a river, no customers coming from
the other side of the river,
so that makes sense. You can see though, the height
of business we're getting from of the bar represents the amount
those customers. And you can see how the bars
I've been on rides with real taper off, later on.
estate folks that are presenting a new location and they talk
trade area is, and we'll be driving, and in that first about how wonderful the
quarter-mile or half-mile, there's no people.
It's farmland, it's golf course,
it's whatever. And everybody's on the outskirts
That's where you say timeout, do we have enough, are we going to get enough frequency from of the trade area.
the outskirts versus the people we would have had right on top the people that are on
of the restaurant? That's where we study it
in great detail.
Here is a very typical frequency of visits.
customers, 5.7 visits per month. So within a quarter mile, those
You go out to one mile, just a mile, one visit per month.
They're visiting you five times more within a quarter mile
than they are at a mile. At two miles, you're getting
them, you know, ten times more
versus a quarter-mile, quarter-mile versus two miles.
the drop-off in our customers' So distance to K, or
number of restaurants we have. willingness to come to us depending where they're at, some of this has to do with the
If there's another restaurant two miles away, and it's closer, there's no reason to backtrack.
But it really is a unique aspect of our real estate decision-making that doesn't
a Target, or Kohls. It does, but not to this necessarily apply to a Walmart,
Then, here's what it looks like in all of our restaurants. extreme, very important to our decision making.
One mile, 60% of our customers are coming within a mile.
80% are coming within two miles.
Then if you look at it from, if you break it down, so
small towns. urban sites, suburban sites,
In an urban area, it stands to reason you're going to get even more visits within two miles
than you are in a small town. So 90% of our visits within two miles, 55% in small town. Only game in town, you're going
to go a little further. You're used to driving a little bit further to get to wherever
the dynamic a little bit. But I think, what I hope it helps illustrate is this is why we still believe we have a lot
of growth opportunity, because
we are not where everybody is. We're not on every high-traffic corridor.
We have people traveling
to be bullish on how we grow. A little bit about the volume, for a lot of our locations. So it allows us to continue
volume estimating. So if any of you have ever seen
an appraisal, or reviewed an appraisal on a house,
what they'll do, is they'll take all the characteristics
of the house and compare it to three other houses that have sold recently.
it's an extra ten grand, So if you have a swimming pool,
if you have a fireplace, it's five grand,
add 20, versus three, so that kind of stuff. if you have four bedrooms,
in projecting our volume. So we take a new location, So they adjust up and down. We do the same thing
and we take all the information, and we find three similar
locations, or four, or five,
whatever the number is, and we compare all that stuff. So we compare number of people
in the trade area.
have, do you have a Target We compare their distance to K, how close they are. We compare shopping, what do you
and a Jewel, or do you have nothing? We compare work, so we compare
do you have 2,000 employees,
do you have 1,000 employees? And ultimately that breakdown,
come to a volume projection that those pluses and minuses
we use to make the financial decision whether to move forward
Here's some of the or not.
characteristics we look at in making the decision. Demographics are a big part
of it.
in a poverty area, obviously So if you've got a trade area that has a median income of $20,000 or less, you're kind of
they can't visit you as much. If you've got a trade area that has 80% Hispanic
or 80% African-American,
we have different frequency that we get from a Hispanic customer
versus African-American,
in addition to what we're going to do, how we're going to build the location, how big is the All of that is data we put in,
looks like, and we put factors building, what the signage
Yeah, let me go to the next one so we can move through So I'll leave the "Real Estate 101" piece.
and then do Q&A. So, long-term reinvestment
strategy, I talked about
We've got a long way to go, but owe want to get to the new look through relocations, rebuilds and remodels of our restaurants.
of McDonald's as quickly as we can.
It's probably going to be,
new and different, as I'm going to show you in a second. five years to have 85% of our restaurants look
So in our remodel program, I'm going to jump over this one and go to the next one.
we're going to remodel probably 1,000 restaurants a year, we had to make decisions on what is
the scope of work going to look like that we're going to require
we've got to make sure it's running right, so you get to upon our franchisees. Before we remodel a restaurant,
units, what does the restroom look like. things like electrical, water line, sewer lines, HVAC
They've got to do the greens fees if they're going to do the
remodel.
from $1.6 million So we to $2.5 million.sion. Then we look at capacity. Remember, our sales have gone
Many of our stores are busting at the seams, both in the back
of the house, in the drive-thru and in the lobby. So what do we need to do
capacity to serve the customer to make sure we've got the right
So, drive-thru being a key part base of this.have in those areas? Let me go back.
A lot of stores are 70%-75%. So, our drive-thru business is 65%.
as you might imagine, Tlike you would at a bank.t a tYou get one person at thatme a big success for us,
takes three or four minutes, window, and maybe that order
they've backed up a whole line, especially if it's 12:00-1:00, or 7:00-8:00 in the morning.
The ability to have two lines go through allows us to get more
We're making it a key part orders into the kitchen and get more people through quicker.
of our future. New restaurants and our remodels
lane whenever we can. Then, branding, so the look and feel of our interior and we're adding a second drive-thru
is really kind of a linchpin exterior of our restaurants
of what we're doing. As we try and continue to evolve
we can't sell a $4 sandwich in a $2 lobby. our menu, we always say
in the area yesterday, We've got work to do. I visited a couple restaurants
and they're not there yet. They haven't been remodeled.
it's a big transformation that the customers appreciate. But when we get there,
So here's a view of one. This used to be,
I don't have a before picture,
but this is an example of where we have a large indoor play place.
It used to be just a cube,
you can see kind of what we call and all you could see was the play place. But you can see, on the left,
our brand wall, with the stacked stone and the arch. You can see the yellow facade
band across the middle, which breaks up the mass of the building. And then the louvers, as well,
above the facade. The louvers break up the mass of the building,
Then we've matched the facade on the entry door there, on the right, so we've matched that help with energy efficiency.
to the restaurant. yellow facade as the welcome
There's one example of it. I'll show you a couple others.
It's snowing. That's what it looked like, and here's what it looks like today. Here's Butte, Montana.
bit of the more typical restaurant, without the indoor Now you get a look at a little
again, the stacked stone, what playland. The awning across the front,
we call hardy plank material on the side, which is very
architecture. But what you'll see in all the indigenous to Montana and their
a flying french fry or a swoosh, restaurants is what we call our roof cap element at the top, or
We have customers that we researched who say that's going Ito be your next golden arch, our architecture now.
across the top. So we have that on the front, we have it on the sides as well in most locations, but it's all
part of kind of rebranding
our look and getting away from the past. Here's another one.
I think there's a restaurant
we're getting away from. behind that playland, but I'm not sure. But this is the kind of thing
If you didn't have kids that wanted to play in that play area
McDonald's, are you thinking and you're driving by this
represents the old McDonald's. about stopping? Probably not. It just doesn't, it
And here's what it looks like today. So we changed the look.
We've got the roof cap element
there, the awnings, the outdoor seating that's comfortable and inviting to people.
So another example of how it
very typical-looking McDonald's, changes dramatically. Here's another one, Independence, Missouri,
with what we call the double mansard roof, that probably doesn't help you,
but the roof and the roof up
there, the two roof lines that kind of flank each other. We're getting away from that.
It served us well for a long
time, but now we've moved to the new architecture. And again and here's what
this one looks like with
the brand wall in front, the trellises on the side, again, a different look and feel.
And Gallup, New Mexico, what do you know, it's snowing
again. But that's the old McDonald's.
We're excited, we're even changing weather patterns with the remodel program! It got sunny all of a sudden.
But look at the different look. We're going to have different colors on the building itself to
or maybe to match a shopping represent maybe the geography,
and the front of the building. center, so we have flexibility. As long as there's contrast between the side of the building
So you see the contrast on the side. You have kind of that lighter
brown in the front. You've got that brown tile
that looks really sharp. Then on the top there's also,
on the top there's a corrugated metal wrap on the top of the building that also kind
So these are the examples of how we're changing. of frames it in a modern way.
But what you will see is kind of And they're not all going to look exactly the same.
the roof cap gone, the yellow branding and a modern
So now we go to the interiors. feel to the exterior.
Here's a restaurant. We still have too many of these out there.
They're going away slowly,
the pictures from Costco, the artificial plants, But the core drilled seating, very fast food of the '90s,
a cafeteria. the floor tile looks cafeteria. The ceiling looks like
We've got to get away from this. This is what we used to look
to improve upon. like, and what we're trying
So here's an example of what we do look like in some of the new restaurants
in some of the remodels.
So you get a little a different feel, different types of seating, comfortable seating,
different lighting, the drum
stool to pull up to a table. In the middle there, is an
small town Missouri. acrylic feature, this is
the local nature of the town, Yso those are actual pictures and some buildings. That's a modern way to represent
from the town, but instead of putting up pictures, we're
doing it in more of a modern
that we all know we live in. design type of way, so it's not in your face, well, here's a picture of the town
We're not just going to put up framed pictures of jerseys
Can we do it in a more modern and exciting way, where it's a of football players.
little bit more this century and not the way people
do things in the past.
Here's another version of that. So the flat screen, you'll see that in most of our restaurants
already, but even going forward.
restaurant and sit at barstool The ability to sit down and watch CNN or ESPN, or whatever, might be going on in that
type seating, but also be able to sit at a booth if you want,
of the equation. so varied seating is a big part
Note the ceiling treatment, the acoustical ceiling has a more modern look to it.
It's not just a simple flat ceiling.
There's break-up in the ceiling, as well.
If you look at the back,
you've got our McCafe area where we make the smoothies,
and note the merchandising espressos and cappuccinos,
of the coffee beans, merchandising our quality,
other designs that reference merchandising that we've got
and show apples and grapes, and some of the things that we do in our restaurants, just
representing our brand, and not just what our individual
That's another big part of it. franchisee decided to put in a restaurant.
Here's another one with clean lines in Lake City, Florida. You've got that communal table,
where people can sit at, but
then you can go to the booths, a different look and feel.
the lighting. This is a little brighter. Then again, the communal table,
The acrylic treatments on both the wall and on the window.
So I think that gives you a little flavor of how things are changing. We're continuing to evolve these
designs and get consumer
research on them. But that's where we're headed. It's going to take a few years
to get to all the restaurants,
but in the end, we feel like that gets us into a better place
to evolve our menu and our to match up to what we're doing,
customers expect. brand, anSo with that,essaging. The rwe can do questions.atch the experience that our
The students know that they just >> Thank you, Jim, very much.
wave me down, and I hand the mic over to them. I'm looking over the group
to see who wants to ask a question first. >> My name is Cora. I'm a marketing major.
I just have a quick question. I'm definitely in favor of the
in regard to some of your consumers who may be of lower reincome, or maybe not asor gcomfortable with the modernng
designs, do you see that
I don't know that lower income, per se, but I think what we're come into this new setting? >> That's a great question.
trying to do is make sure that every demographic we serve
gets the benefit of the highest quality interior that we can
provide, and doesn't get discriminated against.
So we are promoting these designs.
questions is-- Where we are potentially, and where we are already having
So the group of seniors that come in for a cup of coffee and have been coming in
for years, and saving the world inside the restaurant,
This is our booth. and they don't want you to change anything.
backlash from older clientele that maybe don't like the color schemes we're bringing in, So we have had a little bit of
how they can sit don't like that we changed
a variety of choice within the and where they can sit. But as long as we provide comfortable seating and
restaurant, we feel like we're on the right track. But that's a great question,
because there are people
that don't want us to change. And we look at those restaurants and we say, you've got to be
kidding me. We got to change these
restaurants. There's no way we can't.
We have the same question mark
Some of them are a little withesitant to spend money.s. Now, our franchisees have a couple different motivations.
If they don't see the return on investment and the potential
sales increase, or they don't believe in it, they're going to fight us, and they're going to
what I have. say, well, my customer likes
And it might be a smoke screen for, well, I'm not sure I want
Or it's they legitimately feel to invest with you right now.
like, and they know what their customers tell them, that I don't need to change it,
or I don't need to change it
that much. So, we're studying it very
want to make sure that any closely right now, because we
designs that we promote and we scale throughout the system do
A lot of research is being done on all the designs. >> Hi, I'm Terry. not have a ba>> Hi. against us.
You've been talking a lot about your restaurants, but do
and do you, you know you work with the Ronald McDonald's house at all,
what I'm talking about, right? >> Of course, of course!
open those locations as well, or is it just strictly >> Do you work on where you
restaurants? >> Yeah, good question.
We have 300 Ronald McDonald Houses around the world.
We expand them And we add them from time to time.
It's kind of the linchpin of our charity,
Ronald McDonald's charities.
So, no, I do not work on them other than providing donations when they're coming up in my
area. But if there's something
specific or there's an area that you know of, or somebody knows
of that they're wondering is there a plan for a Ronald McDonald House,
will get to the right person by all means let me know and I
For those of that don't know, at a Ronald McDonald House, if somebody has a major illness, year to year and expand them.
have cancer, and the family's got to be with them, they go to a nearby hospital, and they got to be with them for a month,
and they can't afford a hotel or they can't get an apartment, or whatever.
located near hospitals, especially children's hospitals, Ronald McDonald Houses are
we won't charge you. and for $10 a night, if you have it, even if don't have it,
For $10 a night, they can stay at the Ronald McDonald House. Meals are cooked by volunteers.
So, literally, for $10 a night
or even less, you can be near your child while they're going through treatment.
That's the essence of the Ronald
healthcare environment, is we're McDonald House. The other thing I really like that we're doing in today's
expanding our Ronald McDonald Care Mobile program. These are actual big mobile
units of doctors and nurses that come to communities, and provide basic check-ups,
and there's a notification done. flu shots, whatever it is,
and get to the clinic, It's usually in communities that's don't have the ability to get to the healthcare
or whatever more lower-income communities. So that's something we do more
and more of every day, too. >> Hi, my name's Natalie. You were talking about
for a little bit, and you said international business
sides to include rice and tegg drop soup in China.s And I wonder if you did any I knaltering of your menu.eir
Yeah, every one of our menus
in international markets has some alteration to it for the area.
I was just in China for five days.
So yeah, we do that. They've got some unique items that you might expect.
Now, the interesting thing is in virtually every international market we operate in, it's still
about the Big Mac, the fries, the Quarter Pounder, the drinks.
But we do tailor the menu. You have to.
The interesting thing with KFC--
I don't know if I mentioned this earlier, in China, they doubled our number of units,
so China has always been very-- Chicken consumption has always been very high.
and moved quicker. KFC started before us,
They have about 3500 units today, and we have about 1700.
or better in the core markets, We do as well as they do
Shanghai, Beijing, and some of the bigger markets. They do better than us
in more of the rural markets. It's become a huge part of KFC's
growth strategy, because they're not doing very well
in the United States. So it's an interesting dynamic. But when I was out there, I saw some great stuff
that we're doing, and it does include unique menu.
We've got beer in Germany, you know.
So every place we go, there's a unique menu.
that people eat there regularly. We've got Spam in Hawaii, you know, it's something
Hi. >> Okay, just to clarify, so McDonald's pays the cost of renovations,.
not the franchisee? >> Let me clarify, we split it. There's a formula,
We partner with them. So the franchisee pays and it's kind of complicated.
for certain things, and we pay for certain things.
It ends up being, we constantly monitor it, but it ends up being
a fair return for the franchisee and a fair return for us.
Our franchise agreement technically says
on investment wouldn't work. the franchisee pays for it. If we did that, the return
So we do partner with them to renovate the restaurants.
created the McCafe beverage sell inside the restaurant, because there was a big We partinvestment, too.when we
So it's both of us. >> Okay, I could be wrong,
but it does seem to me like certain renovations
and expansions will increase
the cost of franchising. Is there anything you guys are
the franchisee? >> So, protecting the franchisees. doing to specifically protect
did, I showed the fact that our credit rating and debt rating is In the previous presentation I
so strong, because of who we are, and the fact that we have a
history of stepping in to help
than anybody in the industry. The first part is, the strength alloof the system allows aget interest rates that are lower
all, and then when they do franchisee either to borrow at
borrow, borrow at low interest rates.
is the strength of our system, Then, anything we do, and this
if a franchisee is struggling, either because something didn't work, the remodel didn't work,
road construction in front of the restaurant, and they need help, we have a history of
So part of the success that we stepping in.
continue to have, and that we've had over the eight years, is
every menu addition is done in every program we come up with,
collaboration with our franchisees.
with some of our competitors, and I'll leave it at that. That's not necessarily the case
So we're very proud of that. Just last week, we had a
combined meeting with all of our
leadership franchisees, all of the leadership of McDonald's
If you were in that room, and you walked up to somebody and had a discussion, you wouldn't USA.
a franchisee or whether you were know whether you were talking to
talking to somebody in the corporation, because we're in lockstep with what we're doing.
We challenge each other and we
disagree at times, but they're very excited about the remodel
Part of it is, it's a great opportunity for them. Construction costs are low. Interest rates are super low.
We're contributing. They've had a great run in their
favorable, which is important to business. Depreciation laws are very
small business owners. So we're kind of in what we think is a perfect storm.
That's why we really want to
take advantage and get our restaurants to where we should
You know, our competitors will be.
try and do some of the same, too.
have to be ahead of it. >> Hi, my name's Martha. But all the more reason why we
job in terms of like, with food products, like entering into the I was wondering, I think that you guys are doing a really good
But do you guys think you'll do anything with vegetarian chicken realm, and the drinks are really great.
options? >> We have.
Every time we test, and you know, we've done it mainly with veggie burgers. Every time we test it, what
happens is we promote it for a
it, people don't buy it. while, we get a little bit of take great from the given area, and then once we stop promoting
So we end up, and we've tried, and we'll probably try again. You know, every few years we
try.
Then when people don't buy it, we can't keep it on the menu. So, part of it is, vegetarians,
generally, I don't want to
generalize too much, they're not thinking about McDonald's as
But that's why we go to salads. We go to parfaits. their choice.
We got to oatmeal. And we go to other nutritional
items, because when we do something purely vegetarian,
like a veggie burger, people don't come to us for veggie
burgers, when we've tried it. And we've tried it many times.
but I don't know when. In the future, I'll suspect we'll probably go there again,
That's not my area of expertise. >> Hi, my name's Lisa.
trying to do all the renovations I was wondering, I know you're
period of time? quickl>> Yeah, [sighs],ike to puyou're looking at my life.l the renovations in a short
Because we're doing the renovations, and we're It's been, it's been--
So we have 22 offices around the actually accelerating our new store growth at the same time.
country. They all have real estate and construction teams.
We provide them the number of people they need to meet their
So we've been adding to that. But we also have to be workload, or their expected workload.
disciplined about how many people we add to the
organization. One thing is making sure the
companies to support us. teams are large enough. And two, is we then hire outside
There are companies that do remodels and renovations all day long, it's all they do.
So we hire them.
We don't hire their people on staff. But we hire their company to
help support our folks, to help.
So the architects, the consultants, the planning folks that go in front of design
review boards.
They support our folks who are typically shoulder to shoulder
decisions. with the franchisees making
significantly and it had a But it's tough. This year has been very difficult, because we ramped up
fall-off effect of not getting done as quickly as we would've
So, part of my job is making liked.
sure that we've got the capital and the resources in the right place, and working with our
teams to determine, okay, how do
we help you get what we all want to get done without running yourself into the ground, and
having too many delays, losing
the quality of the construction and what needs to be done. I'll report back in a year and
see how we did, because next
year is going to be better than this year. I'll leave it at that.
I'm going to close with just
one last question. One of the students asked about menu options internationally
that might be different,
especially add-ons, and such. But I'm curious, is your experience as you're doing this
redesign here in the US, is it
different internationally? What would you say are a couple of the bigger points from the
redesign standpoint?
>> Good question. Some of the architectural, and I don't have any pictures, but
some of the look and feel of the
buildings, like in Australia versus France are a little bit
They've got their own different architectural style. different than what we're doing.
The interiors have similar features.
But again, just slightly
different designs. What we learned from Australia, we used Australia as kind of a
benchmark.
Australian McDonald's were struggling in the early 2000s.
They were able to remodel all of They had 800 McDonald's.
their restaurants in about a four year period, and they all
What we learned then was, when have a new look and feel.
they completed their remodels in 2007, every menu addition they
they get a better sales lift do, everything they promote,
than the rest of the world does. What we've determined, both in
looking at the analytics of it doing the research and just
is, the customers give us a lot more credit for everything we're trying to do in a market where
we've changed the brand perception. They give it to us on the sales line.
They give it to us in their,
kind of brand attributes when we survey people, how do you feel
doing, that kind of thing. about McDonald's and how they're
So we're all learning from Australia.
I wish I could do 12,000 stores as quickly as they did 800 We're following their lead.
As we get there, customers give us credit for giving back to the stores. But we'll get there.
brand, offering a better brand community, investing in the community, providing a better
everything we do. >> Change is always a Yofascinating thing to study.ot Jim Carras, I know the students
join me in thanking you for helping us understand the change
with McDonald's. [applause]
Thank you.