McDonalds 2014 Annual Report Download - page 21

McDonald’s Corporation 2014 Annual Report 15
additional ways to serve customers, such as self-order kiosks and
table service, and in-store pick up or in-car delivery in certain
markets. Our digital strategy is built around improving the
customer experience and customer engagement.
Collectively, these customer-focused initiatives represent the
Restaurant Experience of the Future and build upon investments
we have already made in reimaging and technology.
The Company is investing in these significant initiatives in a
disciplined manner, by partly redirecting G&A dollars from the U.S.
business and Corporate toward these long-term growth initiatives.
We will continue to invest in geographically diversified new
restaurant development and reimaging of our existing restaurants’
interiors and exteriors. Our 2015 capital expenditure plan of
approximately $2.0 billion - our lowest capital budget in more than
5 years - demonstrates financial discipline as we strategically
target fewer openings in our most challenged markets. We believe
this lower level of capital spending is prudent while we work to
regain our business momentum.
McDonald’s remains committed to growing our business
sustainably and making a positive difference in society by serving
good food through good people, and being a good neighbor in the
communities in which we operate.
U.S.
The U.S. begins 2015 with new leadership focused on a strategic
roadmap including a revamped marketing approach, greater
customization, localization and menu simplification. Our revamped
marketing approach includes a new national brand campaign
complemented by local advertising that is more responsive to
individual market preferences. We plan to execute initiatives that
are designed to address customer insights and the competitive
dynamics that are unique to each market. We are focused on
strengthening our menu pipeline by providing more choice and
customization, with plans to begin expanding the Create Your
Taste platform in 2015. Our menu initiatives also include plans to
enhance core products, particularly in the chicken and beef
categories. We are also refining our value proposition to offer the
right balance of value and choice and to create more logical
relationships across menu price tiers. We plan to open about 125
new restaurants and reimage approximately 100 existing
restaurants in 2015.
Europe
The segment's prolonged economic slowdown is expected to
continue to impact business performance in 2015. In addition, the
IEO landscape remains sluggish and highly competitive. Despite
these challenges, we are focusing on those areas within our
control to grow sales and traffic. Menu plans include balancing a
strong track record of successful promotions with an ongoing
focus on our iconic core favorites. We are pursuing opportunities
to grow the breakfast, overnight and family businesses. As value
remains paramount to customers in the current environment, we
are evolving value offerings and messaging, particularly in key
markets like Germany and France. We plan to leverage
investments in reimaging, integrated kitchen platforms and other
technology-enabled solutions to support the Restaurant
Experience of the Future. We are also pursuing refranchising
opportunities, new restaurant growth and expanded drive-thru
capabilities. We plan to open about 250 new restaurants and
reimage approximately 350 existing restaurants in 2015.
APMEA
In APMEA, our 2015 initiatives focus on menu variety, value
evolution and enhanced convenience. In addition, we are
aggressively executing multi-faceted brand recovery efforts in
China, Japan and certain other markets. Menu strategies include
leveraging core favorites, introducing new flavors particularly in
beverages and pursuing opportunities to accelerate the breakfast
daypart. Further, customization and personalization is a priority as
Australia will be a lead market to roll-out Create Your Taste across
the majority of its restaurants in 2015. We will focus on providing
customers unparalleled convenience by offering consistent and
relevant value options across the menu and expansion of brand
extensions, including kiosks, delivery and drive-thrus. Our efforts
around reimaging will continue as we expect to modernize
approximately 400 existing restaurants. Our plan is to open
around 550 new restaurants, with over 200 expected in China. In
addition, we will refranchise restaurants to both conventional
franchisees and developmental licensees.
Consolidated Outlook
In making capital allocation decisions, our goal is to prioritize our
spending on initiatives that elevate the McDonald's experience
and drive sustainable long-term growth in sales and market share.
We focus on markets that generate strong returns or have
opportunities for long-term growth.
While the Company does not provide specific guidance on
diluted earnings per share, the following information is provided to
assist in forecasting the Company's future results:
Changes in Systemwide sales are driven by comparable
sales and net restaurant unit expansion. The Company
expects net restaurant additions to add approximately 2
percentage points to 2015 Systemwide sales growth (in
constant currencies), most of which will be due to the 829 net
restaurants (981 net traditional openings less 152 net
satellite closings) added in 2014.
The Company does not generally provide specific guidance
on changes in comparable sales. However, as a perspective,
assuming no change in cost structure, a 1 percentage point
change in comparable sales for either the U.S. or Europe
would change annual diluted earnings per share by about 4
cents.
With about 75% of McDonald's grocery bill comprised of 10
different commodities, a basket of goods approach is the
most comprehensive way to look at the Company's
commodity costs. For the full year 2015, the total basket of
goods cost is expected to increase 1.5-2.5% in the U.S. and
Europe.
The Company expects full-year 2015 selling, general and
administrative expenses to increase approximately 7%-8% in
constant currencies, primarily due to higher incentive-based
compensation reflecting the impact of below target
performance in 2014. Excluding the incremental incentive-
based compensation, selling, general and administrative
expenses would increase approximately 1%-2%, due to
costs associated with expansion of the Restaurant
Experience of the Future global initiatives, including our
digital strategy. Fluctuations between quarters may occur.