Brooke DiPalma·Senior Reporter Wed, December 6, 2023, 4:32 PM EST In this article:
McDonald’s (MCD) is serving up a sizzling growth plan for its investors as it looks to expand its customer base worldwide.
The Golden Arches chain announced during Investor Day its ambition to expand to 50,000 global locations by 2027 — the fastest pace of growth in its history — while also investing in technology, loyalty programs, and more.
“It’s about the consumer opportunity,” McDonald’s CEO Chris Kempczinski told Yahoo Finance over the phone about the fast food giant’s move to increase its brick-and-mortar footprint.
Now that the company has modernized its existing locations, it’s time to seize the day and build new restaurants, Kempczinski said. The chain plans to capitalize as consumers increasingly look for value in 2024.
Kempczinski, who took the helm in November of 2019, has been trying to fatten McDonald’s profits with its Accelerating the Arches initiatives.
This latest push includes 900 new restaurants in the US, 1,900 in international markets where it operates its own restaurants, and 7,000 in international markets where it operates via licensed partners.
Over half of the 7,000 additions will be in China, which Kempczinski said could eventually become McDonald’s largest market.
At the end of Q3, the chain had 41,198 worldwide locations, with more than 39,000 of those owned by franchisees.
The updated growth plan followed McDonald’s announcement earlier this year to add 1,900 new restaurants in 2023, including 400 in the US, marking the company’s first big push to up its US presence since 2014.
Kempczinski said the iconic brand has a lot of “gunpowder in our balance sheet to be able to go invest in driving growth.”
China has been a key battleground for US chains, including giants like Starbucks (SBUX) and KFC owner Yum Brands (YUM). Kempczinski said three factors contribute to his “very optimistic outlook on China”: the potential to add new restaurants, while growing same-store sales and improving margins.
By 2028, the company plans to stretch its footprint in China from 6,000 restaurants to 10,000 restaurants.
“We know that household incomes are closely correlated with our average unit volumes in our restaurants,” Kempczinski explained. “If you were to just take a look at China and and continue to assume they put up mid-single-digit growth in GDP, that directly translates to household incomes.”
Higher-income customers translate to higher order totals at each location, while there is potential for profit margins in China to improve to the level that McDonald’s sees in its developed markets.
McDonald’s has positioned itself to receive a bigger slice of the China pie. In late November, the chain announced an agreement to to buy back Carlyle’s minority ownership stake in its China business for a reported $1.8 billion.
The move will up McDonald’s stake from 20% to 48%, while partner CITIC continues to hold a 52% stake.
Generative AI is another area where McDonald’s is looking to invest. It announced a partnership with Google Cloud and is testing an AI platform known as RGM Boss in China.
During the presentation at Investor Day, Phyllis Cheung, McDonald’s China CEO, said the platform “improved restaurant efficiency with a 30 basis point margin improvement.”
The platform’s features include automating staff scheduling, forecasting guest count accuracy to 85%, and cutting inventory check times from an hour to 15 minutes, among others.
In a note prior to the conference, Jefferies analyst Andy Barish said its Buy rating and $325 price target is justified given “upside to unit growth, same-store sales, and margins will emerge vs current expectations.”
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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