tv The David Rubenstein Show Peer to Peer Conversations Bloomberg July 17, 2022 10:00am-10:30am EDT
and also my filing system. over much of the past three decades, i've been an investor. the highest calling of mankind, i've often thought, was private equity. [laughter] and then i started interviewing. i watched your interviews, so i know how to do some interviewing. [laughter] i've learned from doing my interviews how leaders make it to the top. >> i asked him how much he wanted. he said $250,000. i said fine. i did not negotiate with him and i did no due diligence. david: i have something i would like to sell. [laughter] and how they stay there. you don't feel inadequate now being only the second wealthiest man in the world, is that right? [laughter] 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 for the most popular happy meals. i interview today chris kempczinski, and i wanted to ask why the french fries are so good, whether coca-cola tastes -- why their coca-cola tastes so good and why mcdonald's has been able to become the largest restaurant chain in the world. mcdonald's is more than 60 years
old now. chris: yep. david: and many companies over the last 60 years have gotten into the fast food business, some have done ok, some have gone out of his nest, but mcdonald's is by far the biggest. what is it that made mcdonald's by far the biggest of the fast food companies? chris: i think it starts with a brand. we have a brand that is one of the most valuable brands in the world. how did you get to that brand? it was a combination of things. it started with ray kroc recognizing the importance of ubiquity. that was part of the genius for genesis of doing a franchise model. you can get capital deployed, get restaurants built more
quickly than he could if he was trying to do it on his own, so that was one idea. i think the second was the production system, the speedy production system. it guaranteed equality of the experience that people knew no matter where you went you could get a consistent experience at mcdonald's, and it certainly came from our attachment in the local community. one of the things that ray kroc was very focused on was building the brand at the local level. that's why he wanted franchisees invested at the local level, so that is why you saw them getting involved on schools and getting involved at the local level. david: you are the ceo for this company over the last couple of years. as you have been doing this, have you had to deal with the covid problems in particular? chris: covid has been an issue that has impacted us in every country we operate in. 120 countries. it has been kind of a unique experience because we have dealt with regional issues before. we have dealt with sars and mers and swine flu and things like that, but we've never had an issue where it has impacted literally every country all at about the same time.
huge issue for us. it varied around the world. some places went into complete shutdown in the u.s. we were able to keep the restaurants open but drive-through only, and that was part of where the genius of our system came to light which was if we were trying to manage the situation everything from chicago, it never would have worked. the fact we are a locally owned company with franchisees, they were able to act much more nimbly. somehow, knock on wood, a year later, we are in a strong spot. hard to believe really. david: when covid hit, many people did not go out anymore. they were not 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 the franchisees have to do that? chris: we did not lay anybody off, certainly from the company standpoint, and the franchisees went through an effort to make sure either through government programs or things they could do on their own, they kept attached to their staff, they kept the staff working and available to the restaurants.
and so, i think we have 40,000 restaurants, i do not know every particular situation by and large, but we were able to retain our workforce through all of that. david: what did you learn 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 covid? chris: i think one of the things we saw was our ability to stay connected through technology. webex, zoom, amazon chime -- i've learned all the different teleconferencing tools, and they have all worked reasonably well for us. we learned things that we have the ability to stay connected. i think the other thing, though, that highlighted for us is, we ultimately are an in-person business. we are in person in the restaurant, and the office. so, you lose something from culture and the connectedness by being so remote. and so, while it worked well for the time, we are committed to
getting back into our offices , getting back into the restaurants. david: one of the problems some franchises are having, not just mcdonald's, getting people to come back to work. either they don't want to come back to work or for other reasons, they want higher compensation. how hard is it to get people to come back to work? chris: it has been very challenging in the u.s. we have not seen that issue as pronounced in europe or elsewhere around the world, but in the u.s., it has certainly been a challenge. i think it is a lot of different factors. certainly the stimulus support had some element, but if i ask the franchisees, september, is everything going to be good once stimulus rolls off? they have let me know, no, there are other things going on. there's a variety of things at play, but it has certainly been a challenge for us, and it is
putting pressure on wages, which is what you see in any kind of capitalist system. employers like mcdonald's or are having to pay more on wages. we announced an across-the-board minimum 10% wage increase. that has been carried forward by many of our franchisees, and i think we are just having to get creative about how we get people to come and interview for a job at mcdonald's? you are seeing our franchisees do things like, hey, $50 for an interview or free iphone after 90 days. sort of all the things we are having to come up with right now to make sure we can staff the restaurants. david: most of the people who are young who work at mcdonald's, are they minimum-wage people? or are you above the legal minimum wage now? chris: we are above the legal minimum wage. it is $7.25. there are very few places these days where you can be competitive in the marketplace at the federal minimum wage. from our vantage point, what we announced in our company-owned
restaurants $11 is the starting wage. as you move up, you quickly progress. if you are a restaurant manager or someone who has been there for a couple of years, you are earning anywhere from $15 to $20 an hour, and i think largely you are seeing a similar type of thing with franchisees. while we don't collect information around what is the average wage paid by our franchisees, i would expect it is probably about $10 that we are paying right now just because, again, the marketplace is driving it. and i think that has always been one of the questions, you know, is this something you want to be legislated or want it to be in the marketplace? our view is we will do whatever we need to to be successful as a business, but we also do not oppose if the federal minimum wage is addressed either. david: during covid, there were some problems with some franchises where there were some strikes, i guess something were where employees were not happy.
what was that about? chris: we always have something at mcdonald's going on around the world. i think what you are referencing, there were protests about, 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 to make sure we provided ppe and do things like social distancing at restaurants. we had protests on that. we get protests around wage rates. that will crop up. 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. it is both a challenge as a job but also what is interesting about it. ♪
david: let's talk about the major things on your menu, which i've sampled over the years, of course. the most popular thing you have on your menu is a big mac or a quarter pounder or french fries? chris: from a volume standpoint, the fries are by far the biggest. within sandwiches, probably the big mac. it does vary a little bit around the world, but the big mac is probably up there. david: the fries are intoxicatingly difficult to stop eating. chris: i agree. david: can you tell us what is the secret? what do you put in the batter or cooking oil or whatever you do that is the secret -- or is it the potatoes? chris: well, we have a room here that i have not taken you to that has all the secrets on that. there's a lot of things that go into it, 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 put on those potatoes and ultimately how they are cooked in the restaurant, the cooking oil we use, the amount of salt we use, so there's a lot of things that go into the secret recipe. david: some people say the french fries might not be that healthy. some people might not say that. i don't know if you would say that. what would you say about that? chris: what we try to do on our menu is to have choice. we have a variety of things on our menu from more indulgent items to healthier items. it is 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. that's how we approach our restaurant, which is about choice. i get asked a lot of times, why don't you have more of this or that, or why did you get rid of this? it all comes down to, did it sell? our restaurant and what goes on the menu is based on what moves gets on the menu. what doesn't move comes off the menu. ultimately, we are letting the customer decide what we do or don't carry on the menu. david: since mcdonald's was
started 60-plus years ago or so, there has been a greater interest in the united states and around the world on healthier eating. chris: yep. david: have you tried to reflect that? chris: we have tried, and it gets back to again what sells gets on the menu and stays on the menu. what we have seen consistently is we have tried to broaden more of what people might say are better for you items, there is just not as strong a demand for them as there are for some of our iconic classics. and so, we are not in the business of telling people what they should or should not eat. our view is our obligation is to provide them with total transparency on nutritional information to make sure we are for them choice, but ultimately what the consumer buys is up to them. david: suppose i'm a vegetarian or vegan and i want to go to mcdonald's. is there anything for me? chris: certainly, you can have a salad. depending on if you are a vegetarian or vegan, vegetarian,
there will be other options. in india, we have a broad sample of vegetarian menu items, less so if you are in lubbock, texas, for example. so again, it depends on the customer and what the customer wants, but we have also talked about launching mcplant. mcplant is a plant-based burger we have in some countries already and we will be testing in the u.s. soon. maybe will get you a mcplant. david: another product i do not want to overlook is your famous coca-cola. chris: mm-hmm. david: you used to work at pepsi. did pepsi people ever call you and remind you that you have -- chris: we have had a few dialogues over the years. 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 will sell whatever the customer wants. yes, my pepsi friends periodically check in. david: some say your coca-cola is made in a certain way that is
better than what you buy in the bottle. so, what is it you do that is better? chris: i would agree. i think it is better. one thing we have is an advantage is because of the volumes we do in our restaurant, our volumes tend to be higher than anyone else out there. it allows us to buy equipment that is able to be calibrated more precisely than maybe some of our competitors. what we are able to do because of the equipment we are able to buy, which is more expensive equipment, is we are 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. david: i should disclose that i am an investor in mcdonald's in fact because my firm bought a piece of the chinese business with my business partner and with mcdonald's, and in china, as i understand it, chicken is very popular, maybe more so than beef. is that unusual where chicken is
more popular than beef in a given market? chris: china is largely a chicken market. i think this is one of those things that does vary depending on which part of the world you are in. brazil tends to be more of a beef market. u.s. is about 50-50. we do see 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. david: there are four ways you can buy things at mcdonald's, and each begin with a d. let's go through that. one is a drive-thru. is that a big business these days? chris: drive-through is a huge business, particularly in the u.s. it is about 70% of the business in the u.s. in europe, you would see the
inverse, you would see dine-in as much more of the business in europe. but in europe, we did see drive-thru also become a pretty significant part of the business. david: another d is delivery. do you deliver yourself or use one of the services? chris: 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. in other parts of the world like in the u.s., we have partnered with third-party operators like uber eats or doordash. right now, we do about $6 billion of sales a year through delivery, which is growing high teens globally. it has been pretty remarkable. david: another d is digital. you can buy things digitally. how do you do that? chris: so, the app for us. everything is moving to the app. it has been an interesting evolution to see where, for years and years, the center of the relationship we had with the customer was in the physical restaurant. and what we are seeing, particularly with gen z and
millennials, is it is moving to a much more digital relationship through the app. today, in almost every single one of our countries, the u.s. being the prime example, you can download the mcdonald's app. you can order your products through the app. an exciting thing we are right now doing this month is rolling out loyalties. so, when you buy with a app, you got loyalty points you can redeem later for food and other benefits. david: it is your frequent flyer version. chris: you got it. david: the last d is dine-in, which used to be the thing people did, but now it is a smaller and smaller part of your business. do you need all that space anymore in your restaurants? chris: it is i think still a really important part of our business because a lot of the interaction and memories people form about mcdonald's comes from the dine-in experience, but i think you are right in recognizing that it is, certainly through the pandemic, a less prevalent part of the business. you know, 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. if it some point maybe we need to reduce the space for dine-in seating in our restaurants, we can do that. we can always calibrate and do that, but for now, we are on a watch and see mode. david: i assume you have people saying the food is not as healthy as they want it to be. is that the biggest challenge or just growing the company? chris: ray kroc had a famous line that gets quoted around here pretty often, which is if you are not green and growing, you are red and rotten. ♪
david: let's talk about your background. where did you grow up? chris: so, i was born in boston. i grew up on the east coast moving around. the east coast until we started went to high school in cincinnati and ultimately college in carolina. david: you can say the name. chris: i went to duke. we share that.
david: after you graduated, what did you do? chris: i went to procter & gamble. david: after that? chris: i went to harvard business school and got my mba, and after that, i went into consulting for a few years. david: but you spent a lot of time in the food world. before pepsi, you were at kraft. chris: right. david: is there something about food that really appealed to you? chris: what i would say is i love being in consumer industries. what i find 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 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 the fun thing for me at my current job, no matter where i am in the world, people have an opinion about mcdonald's and want to talk to you about mcdonald's. it makes the job fun. david: you came here in what year? chris: i was here in 2015.
david: ok, and then you rose up pretty quickly and became the head of americas. chris: that's right. david: in 2019, you became the ceo and the stock and market cap are up 20% since then, so i assume the board is happy. chris: so far, so good. david: but some of your predecessors had problems, they did not last that long for health or other reasons. is there bad karma? or do you hope you can outlive the bad karma? chris: i try not to think about it too much, actually. i think when you are in these jobs, you are just very grateful for the time that you are in the role, and i don't spend a lot of time thinking about, you know, sort of, you know, the future and all that stuff. it is 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. david: it is a global company. it is, now that covid is not
behind us but certainly receding a little bit, are you traveling the world or do you expect to travel the world more? chris: 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. david: when you travel internationally, are you trying to tell local franchisees to work more, do a better job -- what are you trying to do? are you recruiting franchisees? are you telling why your new food products are going to be good? chris: there's a variety of things i'm trying to get done. when i'm out there, the biggest thing is listening. hearing what's on the mind of franchisees and what's on the mind of our people. that is one thing i'm looking at. the second thing is making sure the strategies we are talking about at a corporate level -- are they cascading down? are we seeing those in the restaurants? a lot of times, you think you have clarity around what the strategy is and it does not end up getting executed, so i'm looking at the connection between our strategy and is it showing up in the execution in the restaurant.
i also will spend time being a little bit of a cheerleader. when i go into the restaurant, as you would imagine in the role, it is about creating excitement and appreciation for the crew working in that restaurant, so, i tried to do some of that, and i also make time when i'm traveling to meet our young, up-and-coming employees, so there's a variety of things i'm doing. david: when you meet with local franchisees anywhere in the world, do you have lunch at mcdonald's or do you say let's go somewhere else? chris: we will always eat in the restaurant. dinner, typically we eat at the restaurant and dinner we go somewhere else, but breakfast and lunch we typically eat at a mcdonald's. david: do you go to competitor'' stores to get new information? chris: we do. we do. usually don't stay there too long. usually the service is not as good and the food is not as good either, but we checked. david: mcdonald's is coming up with new products. everybody is coming up with new products in every line of business. do you taste them all yourself and do you have to approve a new
product, or do you just say you've got people to do the testing? chris: we have a great menu team. it is their job to work typically with franchisees and ultimately with customers to develop the new food items. occasionally, i might say i would be interested in trying that. the team will usually humor me on those types of things. david: but if you don't like it, what happens? chris: nothing ordinarily. [laughter] other than it is interesting that you did not like it. where i do exercise ceo authority is around our core menu. so, you cannot touch the big mac. you cannot touch the quarter pounder. you cannot touch the fries. you cannot touch hamburger, cheeseburger, or make any changes to those without my approval. but outside of the core menu, you have a lot of latitude. david: what do you think is the biggest challenge of being ceo of mcdonald's? to just keep growing the company? or i assume you have a lot of people saying the food is not as healthy as they might want it to be. is that the biggest challenge or
just growing the company? chris: i think it is about, as a business, we have to be growing. ray kroc had a famous line that gets quoted around here pretty often, even today, which is if you are not green and growing, you are red and rotten. and i think that philosophy is part of our business, which is we are a growth business. how do we grow is a big part of it, but where it will come up is in things that you were talking about. for example, the menu items. if we are perceived as not meeting the needs of customers, we are not going to grow. so, if customers are seeking healthier food options and we are slow on delivering those, it is going to impact our growth, so that is what i view my job is all about. ♪
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