McDonalds 2013 Annual Report Download - page 19

McDonald’s Corporation 2013 Annual Report | 11
enables McDonald's to consistently deliver locally-relevant
restaurant experiences to customers and be an integral part of the
communities we serve.
McDonald's customer-focused Plan to Win ("Plan") provides a
common framework that aligns our global business and allows for
local adaptation. We continue to focus on our three global growth
priorities of optimizing our menu, modernizing the customer
experience, and broadening accessibility to Brand McDonald's
within the framework of our Plan. Our initiatives support these
priorities, and are executed with a focus on the Plan's five pillars -
People, Products, Place, Price and Promotion - to enhance our
customers' experience and build shareholder value over the long
term. We believe these priorities align with our customers' evolving
needs, and - combined with our competitive advantages of
convenience, menu variety, geographic diversification and System
alignment - will drive long-term sustainable growth.
To measure our performance as we strive to build the
business, we have the following long-term, average annual
constant currency financial targets:
Systemwide sales growth of 3% to 5%;
Operating income growth of 6% to 7%;
ROIIC in the high teens.
In 2013, Systemwide sales growth was 1% (3% in constant
currencies), operating income growth was 2% (3% in constant
currencies), one-year ROIIC was 11.4% and three-year ROIIC was
20.2% (see reconciliation on page 23). Our operating income
growth and returns fell below our long-term financial targets,
reflecting the impact of soft comparable sales performance. In our
heavily franchised business model, growing comparable sales is
important to increasing operating income and returns.
In 2013, our comparable sales increased 0.2%, reflecting
higher average check and negative comparable guest counts of
1.9%. Challenging conditions, including a flat or contracting
informal eating out (“IEO”) segment in most major markets,
heightened competitive activity and consumer price sensitivity,
continued to pressure performance. Furthermore, McDonald’s
customer-facing initiatives did not generate the comparable sales
lift or customer visits necessary to overcome these headwinds.
In 2014, we do not expect significant changes in market
dynamics given modest growth projections for the IEO segment.
However, we continue to believe that our targets remain
achievable over the long term.
The following is a summary of our 2013 sales performance
and our initiatives within the three global growth priorities by major
segment.
U.S.
In the U.S., comparable sales declined 0.2% and comparable
guest counts declined 1.6%. Guest visits were down as initiatives
did not resonate as strongly as expected with customers amid a
sluggish IEO segment and heightened competitive activity.
The U.S. introduced a number of significant new products
(such as Premium McWraps, Egg White Delight McMuffins and an
extended line-up of Quarter Pounder Burgers) and featured new
limited-time food and beverage options to enhance the relevance
of its product offerings.
Modernizing the customer experience continued through our
reimaging program. During 2013, we completed about 700
restaurant reimages, of which the majority added drive-thru
capacity. Currently, 45% of our restaurant interiors and exteriors
reflect our contemporary restaurant design.
We broadened accessibility by opening 225 new restaurants,
extending hours in more restaurants, and improving the efficiency
of our drive-thru service with side-by-side or tandem ordering, and
hand-held order taking. More than half of our restaurants now use
one of these multiple order points to maximize drive-thru capacity.
In addition, the U.S. evolved its value proposition with the recent
introduction of Dollar Menu & More, which is intended to offer
value and variety to our customers at various price points.
Europe
In Europe, comparable sales were flat, while comparable guest
counts declined 1.5%, as persistently low consumer confidence
continued to negatively affect the IEO segment. Comparable sales
results reflected positive performance in the U.K. and Russia,
which were mostly offset by weak performance in Germany, where
we are working on rebuilding brand relevance to address the
current negative guest count trend.
In 2013, we remained focused on growing the business by
emphasizing value menu enhancements, premium menu
additions, limited-time offers and expansion of the breakfast
daypart. We also successfully launched blended ice beverages in
the U.K., which positively contributed to results.
In order to continue providing a relevant, contemporary
customer experience, Europe completed about 470 restaurant
reimages during the year. By the end of 2013, nearly 100% of
restaurant interiors and 80% of exteriors were modernized.
We increased our accessibility and convenience by opening
312 new restaurants, extending operating hours and optimizing
our drive-thrus. We enhanced our value offerings in certain
markets with multiple pricing tiers across our menu to appeal to a
broad range of customers. For example, in France we launched
the Casse-Croûte, a two-item meal for 4.50 Euro, which positively
contributed to recent results in that market.
APMEA
In APMEA, comparable sales declined 1.9% and comparable
guest counts declined 3.8%. Our three largest markets
experienced negative comparable sales, with Japan having the
most significant impact. Though the challenges differ across the
segment, overall performance was pressured amid slower
economic growth, a highly competitive environment focused
primarily on value, and issues such as Avian influenza in a few
markets. In addition, softer than expected performance of new
products and promotions did not overcome negative guest count
trends.
Throughout the segment, we focused on accelerating growth
across all dayparts, with particular emphasis on dinner and the
expansion of breakfast. APMEA held a National Breakfast Day,
during which five thousand restaurants gave away five million Egg
McMuffins to promote breakfast in the segment. We were also
committed to enhancing local relevance with consumers, by
balancing our global core menu with locally-relevant food and
beverage choices, which included new flavor profiles designed to
match local tastes.
We continued to make progress in our reimaging program,
completing about 240 restaurant reimages during the year. By the
end of 2013, over 65% of restaurant interiors and over 55% of
exteriors were modernized.
We opened 731 new restaurants, including 275 in China. We
deployed our convenience initiatives to more restaurants,
including dessert kiosks, delivery service, drive-thrus and
extended hours. In addition, we continued to evolve our everyday
value platform by including more affordable menu options and
promotional offers across dayparts and price points.