WHEN: Today, Wednesday, July 31, 2024
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with McDonald’s President & CEO Chris Kempczinski on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Wednesday, July 31 from Paris. Video of the interview will be available on CNBC.com.
All references must be sourced to CNBC.
BECKY QUICK: Our next guest has one of the best reads in the world when it comes to the state of the consumer and inflation, we want to welcome Chris Kempczinski. He is McDonald’s President and CEO, and Chris, thank you very much for being with us. We’ve been talking about McDonald’s a lot since we’ve been in Paris, both on air and off, because you’re right across the street from our hotel too, we’ve been by it several times. Before we get into really what’s happening here in Paris, and you guys are just out with your earnings this week, and you did give a really good feel for what’s going on around the globe. Maybe talk a little bit about that, big issues and big questions about what’s happening with the consumer everywhere in the globe. You see luxury spending that’s coming down, but also at the other end of the spectrum, some people kind of pulling back and not spending as much either. Where do you really see what’s happening? What would you say about the state of consumer?
CHRIS KEMPCZINSKI: We started warning on it really last year, and what we were seeing was the low-income consumer, that that consumer was being much more price discriminating. And as this year has unfolded, it’s just it’s deepened and it’s broad, so you’re seeing it started in the U.S. We’re seeing it in more markets, almost every one of our major markets. You’re seeing the category slow down as a consequence of that. I think you’ve seen a lot of other consumer companies also caution on what’s happening with the consumer right now. So I think there is sort of this broad based slowdown. It probably is more pronounced with lower income consumers, but I think even on upper income you’re seeing, for example, things like frequency to restaurants decreasing.
QUICK: You rolled out this value member menu, this $5 value menu this summer, and it’s been pretty successful. In fact, your stock was up over the last couple of sessions, even though earnings were below expectations. I think, because you talked about extending that, what are you doing with that? And how long will you extend it?
KEMPCZINSKI: Sure. Well, I would consider the $5 menu sort of chapter one of a multi chapter value playbook that we’re going to be writing, and that is continued through the end of August. We’re working with the franchisees in the U.S. to get a broader value construct in place. If you think about what’s happened for us, and you go back to where we were in 2019, our costs in the U.S. have gone up 40% in our restaurants since 2019. Costs are up 40%, and pricing is up correspondingly. And so what you now have is, you have to have a value reset where you know what we had before was a dollar 1, 2, 3, menu. Well, a dollar 1, 2, 3 menu is a little less compelling when your prices have had to go up 40% and so what we’re working on right now with the franchisees is what’s next? I consider the $5 meal a bridge value program, and then what we’ll be doing is putting in place a more permanent value program, much like we had previously.
QUICK: That’s a really tough thing to tackle, especially when you look at California, where minimum wage was up like 25% earlier this year starting in March. How do you combat that? I mean, how do you offer value when you’ve got prices up like that?
KEMPCZINSKI: Yeah. Well, I think what happened in California, I hope, is a unique situation. It was a piece of, you know, very lopsided legislation that was targeting one industry, our industry, and actually targeting only one segment of the industry, which was large companies, smaller restaurants were exempted from all of that. And so you did see there was a big move on minimum wage. We’ve had to do everything in the playbook, basically in California, from finding productivity opportunities in the restaurants, looking at staffing, looking at hours, and then, yes you do have to look at pricing. So when you’re a franchisee, these businesses are all locally owned. I mean, I think that’s one of the things that often gets forgotten. These are locally owned businesses, and pricing had to be part of the equation in California. And you’re seeing in California, the business there is falling off to a greater degree than what you’re seeing in other markets around the U.S.
QUICK: You’ve had another head wind you’ve been battling, though, and that’s a boycott, a Muslim boycott, in lots of places because of what an Israeli franchisee did after October 7. Where do things stand with that? It’s been an issue here in France you were just saying this week on the earnings call.
KEMPCZINSKI: Yeah, well, I wouldn’t characterize it as something that was related to that, an act of a single franchisee. I think you are seeing broadly Western brands have been a target for some of what’s happened after the outbreak of the war in the Middle East. You know, this is a terrible situation that’s going on over there, and it is impacting our business in some markets. Again, I’d say the thing to remember is in these markets where we’re having some of those boycotts, these are businesses that are owned by local franchisees. We typically are the largest employer in that market and most of our supply chain is sourced from in that market. So here in France, for example, three quarters of our supply chain is sourced from within the country. We have 28,000 farmers in France who supply our restaurants. So I think we, like a lot of Western brands, are sort of working our way through this. And the important point is, McDonald’s is not taking a side on this, and I think you know for us, we’re about supporting communities and that’s what we’re going to continue to do.
ANDREW ROSS SORKIN: Is there another restaurant chain you look at do you think that’s done it better? By the way, Starbucks has been struggling with the same, similar issues in certain ways.
KEMPCZINSKI: You know, I, honestly, I don’t spend a lot of time sort of comparing, you know, what others are doing. I think for us, it’s always going back to kind of the foundation for us, which is to go back into the community and to lean on our local franchisees, to lean on those local connections, and make sure that we’re telling our story. Because again I think sometimes there’s this idea that McDonald’s is this big global behemoth, but at the end of the day, we’re really a local business run by local franchisees. And I think once people understand that, they have a different view on some of these issues.
QUICK: Very quickly, you are no longer a sponsor of the Olympics. You were up until about 2018. You’re here anyway. What’s the I guess the reason to sponsor or to not sponsor. It’s
pretty expensive I guess.
KEMPCZINSKI: When you’re McDonald’s, we don’t have an awareness problem. So everybody knows McDonald’s, and these big properties like the Olympics are great at driving awareness, but our business is about driving frequency. It’s about how do we get people to come into the restaurant one more time and so a property like the Olympics is more of a reach, it’s more of an awareness driving mechanism. It doesn’t work as well for us on frequency, and so it’s for us just a business decision.
SORKIN: Can I ask you a question? So we had Quincey on from Coca-Cola who’s your partner—
KEMPCZINSKI: Yeah, yeah.
SORKIN: They’ve been with the Olympics forever. They don’t have an awareness problem either in that regard.
KEMPCZINSKI: Yeah.
SORKIN: But I think he would tell you this is one of the great branding moments for a company like that in the world, and there’s a feel good thing that happens as a result of. Would you actually tell other companies that are sponsoring the Olympics, that it, that they’re in your awareness camp, that this is actually not a valuable franchise?
KEMPCZINSKI: Well, I, you—
SORKIN: No, but I know, I ask it seriously because clearly you’ve had a lesson in this.
KEMPCZINSKI: Yeah.
SORKIN: You’ve done it. Yeah, I don’t know if you think it’s had any impact on your business at all.
KEMPCZINSKI: So we start with, we are a sponsor of the World Cup, so we are one of three global sponsors for the World Cup.
SORKIN: So why do you do that?
KEMPCZINSKI: Well because I think to your exact point, that is a global opportunity to come together. These teams are very attached to their local communities, to their countries, and we’re able to activate that. And that one, from our vantage point, is something that gets our franchisees excited about, we can get our customers excited about it. We had a great relationship with the Olympics. I think for us, it just made more sense to go in a different direction. I’m glad James is thrilled with the Olympics partnership and I know I’ll see him later. I think every company has to make decisions about how they’re going to go spend their dollars.
QUICK: Hey, Chris, it’s really been a pleasure. Thank you so much for joining us here and we really appreciate it.
KEMPCZINSKI: Alright. Thanks, guys.
QUICK: Thank you.
KEMPCZINSKI: Good to see you.
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