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00:00This is my kitchen table and also my filing system over much of the past three decades. I've been an investor. The highest quality got me in fine. I've often thought as private equity. And then I started interviewing. I watch your interview interviews those I know how to do. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine I didn't negotiate with him. I did no due diligence. I have something I'd like to sell and how they stay there. You don't feel inadequate now because the only the second wealthiest man to rise out right. I'm in Chicago today at the headquarters of McDonald's and right now I'm standing in their toy hall which has the toys from the most popular Happy Meals I interviewed today. Chris Kaczynski who's the CEO of McDonald's. And I wanted to ask him why the French fries are so good why they're Coca-Cola tastes so good. And why McDonald's has been able to succeed over more than 60 years and become the largest restaurant chain in the world. McDonald's has more than 60 years old now. And many companies over the last 60 years have gotten in the fast food business. Some have done OK some going out of business. But McDonald's is by far the biggest. You have a market capitalization about one hundred and seventy five billion dollars. What is it that made McDonald's by far the biggest of the fast food companies. I think it starts with the brand. I mean we have a brand that is one of the most valuable brands in the world. And you know how did you get to that brand. It was a combination of things. I mean it started with Ray Kroc recognized the importance of ubiquity. And so that was part of the genius or genesis of doing a franchise model because for the franchise model he could get capital deployed get restaurants build more quickly than he could if he was trying to do this all on his own. So that was one idea. I think the second was the production system the speedy production system. It guaranteed the quality of the experience that people knew. No matter where you went you could get a consistent experience at McDonald's. And then it certainly came from you know are attachment in the local community. One of the things that also Ray Kroc was very focused on was building the brand at the local level. That's why he wanted the franchisees engaged in the restaurants. And so you saw getting involved in schools getting involved with know birthday parties all of those things. Those were all part of building the brand that ultimately now I get the benefit of protecting and hopefully further shining the arches. So you are the CEO of this company for the last couple of years. And as you've been doing this. Have you had to deal with a coded problem in particular Cove. It's been an issue that's impacted us and every country that we operated in 120 countries. And it's been kind of a unique experience because we've dealt with regional issues before. We've dealt with SaaS and mergers and swine flu and things like that. But we've never had an issue where it impacted literally every country all at about the same time. So huge issue for us. It varied around the world. Some places went into complete shutdown in the US. We were able to keep the restaurants open but drive through only. And that was I think part of where are the genius of our system came to light which is you were trying to manage this situation everything from Chicago. It never would work. The fact that we're a locally owned company with franchisees they're able to act much more nimbly than than we could from the center and somehow or another knock on wood a year later we are in a very strong spot and it's hard to believe really. So when cove it hit many people didn't go out anymore. They weren't buying McDonald's products other people's products as well. Did you have to lay off people furlough people. How did you deal with your employees or did franchisees have to do that. Yeah. We didn't lay anybody off certainly from the company's standpoint. And our franchisees went through quite a bit of effort to make sure that either through government programs or through things that they could do on their own that they kept attached to their staff that they kept the staff working and available to the restaurants. And so I think you know while we have 40000 restaurants I don't know every particular situation. By and large we were able to retain our workforce through all of that. What did you learn through Kogut about how to manage the company differently better or some other ways that you would have not probably learned if you had not gone through code. I certainly think one of the things that we saw was our ability to stay connected through technology. WebEx zoom on Amazon chime. I've learned all the different teleconferencing tools and they've all worked reasonably well for us. So I think you know we learned things there that we have the ability to stay connected. I think the other thing though that it highlighted for us is that we ultimately are an in-person business where in-person in the restaurant where in-person in the office. And so we you lose something from culture you lose something from a connectedness by by being so remote. And so you know while it worked well for the time we're committed to getting back into our offices getting back into the restaurants. And one of the problems I think some of the franchisees are having not just McDonald's but getting people to come back to work either they don't want to come back to work or they for health or other reasons or they want a higher compensation than they often would get to the kind of starting job you might have. How hard is it been to get people to come back to work. It has been very challenging in the US. We have not seen that issue as pronounced in Europe or elsewhere around the world but in the US at. Certainly has been a challenge. I think it's a lot of different factors in it. Certainly the stimulus support had some element. But you know if I asked the franchisees. OK so September is everything going to be good. Once the stimulus rolls off the we'll know there are other things going on. So I think you know there's a variety of things at play but it has certainly been a challenge for us on staffing at the restaurants. And it's putting pressure on wages which is what you see and you know any kind of capitalist system. So employers like McDonald's are now having to pay more on wages. We announced in our company owned restaurants sort of an across the board minimum 10 percent wage increase that has been carried forward by many of our franchisees. And I think we're just having to get creative about how do we get people to come and interview for a job at McDonald's. And you're seeing our franchisees do things like hey you know 50 dollars for an interview or free iPhone after 90 days. I mean that's sort of all the things that we're having to come up with right now to make sure we can staff the restaurant. But most of the people who are young who do work at McDonald's or they minimum wage people and they go up for minimum wage or are you above the minimum wage the legal minimum wage now. Yeah we're above the legal minimum wage. So it's seven and a quarter. And there are very few places these days that you can be competitive in the marketplace paying the federal minimum wage. I think from our vantage point what we announced in our company owned restaurants is eleven dollars is the starting wage. And then you know as you move up you would quickly progressed through that. If you are a restaurant manager someone who's baby has been there for a couple of years you're earning anywhere from 15 to 20 dollars an hour. And I think that's been largely you're seeing a similar type of thing with our franchisees. So while we don't collect information around what is you know the average wage paid by our franchisees I would expect it's probably about 10 dollars that we're paying right now. Just because again the marketplace is driving it. And I think that's always been one of the questions is you know is this something that you want to be legislated or want it to be in the marketplace. Our view is we're going to do whatever we need to to be successful as a business but we also don't oppose. If the federal minimum wage is addressed either. So during COBRA there were some problems you had as some franchisees I guess where there were some strikes or something. Employees weren't happy. What was that all about. We always have something going on at McDonald's around the world there certainly. I think what you're referencing there were some protests about either were we doing enough to protect essential workers which is you know how we were deemed as a business. We went to a lot of effort there to make sure that we provided PPE and did other things like social distancing the restaurant that we had protests on that we'll get protests around wage rates that will crop up. So the thing about McDonald's is no matter what is happening in society you can be certain it has some permutation that affects McDonald's. And it's both the challenge of the job. But also what's interesting about. Let's talk about the major things on your menu which I've sampled over the years of course. So the most popular thing that you have on your menu is that the Big Mac or a Quarter Pounder or the French fries. Well I mean from a volume standpoint the fries are by far the biggest within sandwiches is probably the Big Mac. It does vary a little bit around the world. But the Big Mac is probably up there where the fries are intoxicating. Lee difficult to avoid eating. You start one. Can you tell us what's the secret. What do you put in the in the batter or the cooking oil or whatever you do. That is the secret is with the potatoes. What is it. We have a room here that I haven't taken you to that has all the secrets on that. But I would just say there is there is a lot of things that go into it. It's starting with you know where we get the potatoes from and we have proprietary relationships with that how those potatoes are then processed what we will put on those potatoes and then ultimately how they're cooked in the restaurant the cooking oil that we use the amount of salt that we use. So there is a lot of things that go into the secret recipe. Some people might say the French fries might not be that healthy. Some people might say that. I don't know if you would say that. What would you say about that. I'd say you know what we try to do on our menu is to have a choice. So we have a variety of things on our menu from more indulgent items to healthier items. And you know it's no different than if you go to the grocery store you can go to the salad bar or you can go to the ice cream section. And that's how we approach our restaurant which is about choice. The other thing though you know I get asked a lot of times why don't you have more of this when you have more of that or why did you get rid of this. It all comes down to did it sell. So our restaurant and what goes on the menu is all based on what moves gets on the menu what doesn't move comes off the menu. And so ultimately we're letting the customer decide what we do or don't carry on the menu. Since McDonald's was started some 60 plus years ago or so there's been a greater interest the United States and maybe around the world and healthier eating. Yeah. Have you tried to reflect that in your menu. We've tried. And I would say you know it gets back to again what what sells gets on the menu and stays on the menu. What we have seen consistently is as we've tried to broaden more of what people might say are better for you items. There's just not as strong a demand for them as there are for some of our iconic classics. And so you know we're not in the business of telling people what they should or shouldn't eat. Our view is our obligation is to provide them with total transparency and nutritional information to make sure that we afford them choice. But ultimately what the consumer buys is up to them. Suppose I'm a vegetarian or a vegan and I want to go to McDonald's. Is there anything there for me there. So you could certainly have right now a salad in a restaurant depending on if you're a vegetarian or vegan vegetarian there are gonna be other offerings that you have if you're in India for example. We have quite a broad sample of vegetarian menu items less so if you're in Lubbock Texas for example. So again it depends on the customer what the customer wants. But we've also talked about launching that plant. And plant for us is a plant based burger that is available in some countries already. It's something that we're going to be testing later in the US. So maybe we'll get you a mic plant another product. I don't want to overlook as you're famous Coca-Cola. Now you used to work at Pepsi. I know. So to Pepsi people ever call you and to remind you that you have Coke and maybe you should be linked to Pepsi. Had a few dialog over that over the years. And you know my my short answer is the way to get Pepsi into McDonald's is get people to prefer Pepsi over Coke back to the point of we're going to sell whatever the customer wants. So yes my my Pepsi friends periodically check it. But some people say that you're Coca-Cola is made in a certain way that's better than the Coca-Cola goodbye in the bottle. So what is it that you do that's different when you're Coca-Cola. So I would agree. I think it's better. One of the things that we have as an advantage is because of the volumes that we do in our restaurant. Our volumes tend to be higher than than anybody else out there. It allows us to buy equipment that is able to be tight traded or calibrated more precisely than maybe some of our competitors. And so what we're able to do because of the equipment that we're able to buy which is more expensive equipment is we're able to deliver what Coke would describe as their gold standard product on a more consistent basis than somebody who maybe has inferior equipment in their restaurant. So I should disclose that I am an investor in McDonald's in effect because my firm bought a piece of the China business with a Chinese partner and with McDonald's. Yep. And in China as I understand that chicken is very popular maybe more so than beef. Is that unusual where chicken is more popular than beef in a given market. You know China is largely a chicken market. I think this is one of those things. It does vary depending on which part of the world you're in. Brazil tends to be more of a beef market. U.S. is about 50/50 between chicken and beef. So you know we do see the trends evolving but chicken globally is growing faster than beef. And certainly our expectation over the next five years is that chicken more so than beef will be the dominant protein in our restaurants. So there are four ways you can buy things at McDonald's as I understand each begin with a D. So let's go go through that one is a drive through. Yep. Is that a big business these days. Drive through. Drive through. It's a huge business for us particularly in the US. It's about 70 percent of the business in the US in Europe. You would see it the inverse. You would see dining and being a much bigger part of the business in Europe. But through the pandemic we did see drive through also become a pretty significant part of the business. All right. Another deal is delivery. You have the ability to deliver. Do you deliver it yourself. You use one of the services that deliver people's wallets at home. We do both. It started for us in Asia where we were doing our own delivery particularly in China in the Middle East. We also have a pretty sizable delivery business where we do the delivery ourselves. And then in other parts of the world like in the US we have partnered with third party operators like Newbury to reduce Dash. So right now we do about six billion dollars of sales a year through delivery which is growing you know high teens globally. It's been pretty remarkable. Another D is digital. You can buy things digitally. How do you do that. So the app for us everything is moving to the app. I think for us it's been it's been an interesting evolution to see where you know for years and years the center of the relationship that we had with the customer was in the physical restaurant. And what we're seeing particularly with Gen Z and millennials as it's moving to a much more of a digital relationship through the app. So yes today in almost every single one of our countries the US being a prime example of that you can download the McDonald's app you can order your products through the app. And an exciting thing we're doing right now this month is we're rolling out loyalty. So when you buy with the app you also get loyalty points you can redeem later for food and other benefit this year frequent flyer version. You got it. And the last day is dying in which used to be the thing that people did but now is at a smaller and smaller part of your business. And you need all those spaces anymore in your restaurants. It's I think still a really important part of our business because a lot of the interaction and the memories that people form about McDonald's comes from the dining experience. But I think you're right in recognizing that it is certainly through the pandemic a less prevalent part of the business. I mean our view is that it is going to come back. I think dining and eating is such a social experience. There's always going to be an element of it that is in person. Now how much of it comes back. Time will tell. And if at some point you know maybe we need to reduce the space for dining seating that we have in our restaurants we can always calibrate and do that. But for now we're kind of on a watch and see mode. I assume you have a lot of people saying the food isn't as healthy as they might want it to be. Is that the biggest challenge for just growing the company. Ray Kroc had a famous line that gets quoted around here fairly often even today which is if you're not green and growing you're red and rotten. Let's talk about your background where did you grow up. So I was born in Boston grew up on the East Coast until we started moving around. Went to high school in Cincinnati and then ultimately went to college down in North Carolina. Well you can say the name. I went to Duke. Yes. We shared that right. Yep. And if you graduated what did you do. I went to Procter and Gamble. I went into their band brain management program at the headquarters in Cincinnati. And after that. So after that I went to Harvard Business School and got my MBA. And after that I went into consulting for a few years. But you spent a lot of time in the food world because you were before Pepsi. You were at your after after Pepsi were cramped. That's right. So do something about food that you really appealed to you. I'd say what I love is being in consumer industries. For me what I really find sort of energizing is having a tangible product that I can see touch feel etc. And also one that you know people can relate to. When I say you know I work at Pepsi or I work at Kraft or I work at McDonald's immediately you can always have a conversation with people and kind of a fun thing for me in my current job you know no matter where I am in the world. People have an opinion about McDonald's and want to talk to you about McDonald's and it just it makes the job fun. So you came here in what year. I was here in 2015. And then you rose up pretty quickly becoming the head of America's. That's right. And then in 2019 you became the CEO. That's right. And the stock is up and the market cap is up about 20 percent since then. Sighs from your board is happy. So far so good. Yeah but some of your predecessors had problems. They didn't last that long. And for health or other reasons. So is your bad karma you feel to being CEO or you think you can outlive the bad karma. Yeah I hope not. I try not to think about it too much actually. But you know I think when you're in these jobs you know your you're just very grateful for the time that you're in the role. And I don't spend a whole lot of time thinking about you know sort of. You know the future and all that stuff. It's about you know so long as I keep delivering for the company so long as we keep performing. I certainly feel really fortunate to be in the role that I'm in. So it's a global company. Now that cove it is not behind us but certainly receding a bit. Are you traveling the world or you expect to travel the world more. I do expect to travel starting next month and between now and the end of the year I've got five international trips lined up. When you travel international you're trying to tell the local franchisees to do more do a better job or what are you trying to do when you travel or are you recruiting franchisees or are you telling them why your new food products are going to be good or why out there. There's a variety of things I'm trying to get done when when I'm out there. The biggest thing is listening. So you know hearing what it what's on the mind of our franchisees hearing what's on the mind of our people that's one thing I'm looking at. The second is making sure that the strategies that we're talking about at a corporate level are they cascading down and we're seeing those in the restaurants a lot of times. What can happen is you think you've got clarity around what the strategy is and then it doesn't actually end up getting executed. So I'm looking at the connection between our strategy and is it showing up in the execution the restaurant. I also will just spend time being a little bit of a cheerleader when I go into the restaurant as you would imagine in the role. It's it's about creating excitement and appreciation for the crew working in that restaurant. So I try to do some of that. And then I also make time when I'm traveling to meet our young up and coming employees kind of our high potential. So there's a variety of things I'm doing. So when you meet with your local franchisees anywhere in the world do you have lunch at McDonald's or do you say let's go somewhere else. We will always eat in the restaurant. Dinner. We typically will go somewhere other than McDonald's but breakfast and lunch will always be in a McDonald's. And do you ever go to your competitors stores and kind of see what they're doing to get some new information. We do. We do usually don't stay there too long. Usually the service isn't as good and the food isn't as good either. But we will go in there just check. And so McDonald's is always coming up with new products here. Everybody's coming up with new products and every line of business. But you're always coming up with new food products that people will presumably like. But do you taste them all yourself. And do you have to approve a new product or you just say I've got to let people that do the food tasting. Yeah we have a great menu team. It's their job to work typically with franchisees and ultimately customers to develop the new food items. Occasionally I might just say hey I'd be interested in trying that. The team will usually humor me on those types of things. But if you don't like it what happens. Nothing. Ordinarily other than just it's interesting that you didn't like it. Where I will where I do exercise as CEO. Authorities around our core menu. So you can't touch the Big Mac. You can't touch the Quarter Pounder. You can't touch the fries. You can't touch a hamburger cheeseburger and make any changes to those without my approval. But outside of the core menu you have a lot of latitude and certainly new items. So what do you think is the biggest challenge of being the CEO of McDonald's. Just keep growing the company. Or I assume you have a lot of people saying the food isn't as healthy as they might want it to be. Is that the biggest challenge or just growing the company. I mean I think it's about as a business we have to be growing. And Ray Kroc had a famous line that gets quoted around here fairly often even today which is if you're not green and growing you're red and rotten. And I think that philosophy is part of our business which is we are a growth business. So how do we grow is a big part of it. But where it'll come up is and things like you were talking about for example the menu items if we're perceived as not meeting the needs of customers we're not going to grow. So if customers are seeking healthier food options and we're slow on delivering those it's going to impact our growth. So that's what I view my job is all about.

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The David Rubenstein Show: McDonald’s CEO Chris Kempczinski

McDonald's Corp. CEO Chris Kempczinski discusses the pandemic, wages, getting back to work and what makes their fries taste so good. He appears on "The David Rubenstein Show: Peer-to-Peer Conversations." This was recorded July 14. (Source: Bloomberg)

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