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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  July 15, 2022 9:00pm-9:31pm EDT

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david: this is my kitchen table, and also my filing system. 6over much of the past three decades, i have been an investor. the highest calling of mankind,
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i have often thought, is private equity. [laughter] and then, i started interviewing. i watched your interviews so i know how to do some interviews. [laughter] i learned from 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 and did no due diligence. david: i have something i want 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 am standing in their toy hall, which has the toys from their most popular happy meals. i interviewed today chris kempczinski, who is the ceo of mcdonald's, and i wanted to ask him why their french fries are so good, why their coca-cola tastes so good, and why mcdonald's has been able to succeed for over 60 years and become the largest restaurant chain in the world. mcdonald's is more than 60 years old now. chris: yeah. 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 business.
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mcdonald's is by far the biggest. you've a market cap of about $175 billion. what is it that made mcdonald's by far the biggest of the fast food companies? chris: i think it starts with the brand. we have a brand that is one of the most valuable brands in the world. and how did you get to that brand? it was a combination of things. it started with, ray croc recognized the importance of ubiquity. and so, that was part of the genius or genesis of doing a franchise model. because with a franchise model, he could get capital deployed, get restaurants built 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 that 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 our attachment in the local community. one of the things also that ray croc was very focused on was building the brand at the local
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level. that is why he wanted the franchisees engaged in the restaurants. and so, you saw getting involved in schools, getting involved with, you know, birthday parties, all 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. david: 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 the covid problems in particular? chris: covid has been an issue that has impacted us in every country that we operated in, 120 countries. and 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 impacted literally every country all at about the same time, so a 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
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drive-thru only. and that was, i think, part of where the genius of our system came to light. because if we were trying to manage the situation, everything, from chicago, it would never work. the fact that we are locally owned company with franchisees, they are able to act much more nimbly than we could from the center. and somehow or other, knock on wood, a year later, we are in a very strong spot. and it is hard to believe, really. david: so when covid hit, many people didn't 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 your franchisees have to do that? chris: we did not lay anybody off, certainly from the company standpoint. and our franchisees went through quite a bit of effort to make sure that either through government programs or through things they could do on their own that they kept attached to their staff, that they kept the staff working and available to the restaurants.
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and so, i think, you know, we have 40,000 restaurants. i do not know every situation but, by and large, we were able to retain our workforce through all that. david: what did you learn about through covid about how to manage the company differently? better or some other way that you would not have learned if you had not gone through covid? chris: certainly one of the things we saw was our ability to stay connected through technology, webex, zoom, you know, amazon chime. i've learned all the different teleconferencing tools. and they have all worked reasonably well for us. so, i think we learned things there that we have the ability to stay connected. i think the other thing though that it highlighted for us is, we ultimately are an in-person business. we are in-person in the restaurants, we are in person in the office. and so, you lose something from culture, you lose something from a connectedness by being so remote. and so, you know, while it worked well for the time, we are committed to getting back into
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our offices, getting back into the restaurants. david: and one of the problems, i think, some of the franchisees are having, not just mcdonald's, was getting people to come back to work. either they don't want to come back to work for health or other reasons, or they want higher compensation for one reason or another, so how hard has it been to get people to come back? chris: it has been very challenging in the u.s. we've not seen that issue as pronounced in europe or elsewhere around the world, but in the u.s., it certainly has been a challenge. i think it is 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? and they say, no, there are other things going on. so i think there is a variety of things at play, but it has been a challenge for us on staffing at the restaurants. and it is putting pressure on wages, which is what you see in any kind of capitalist system. so, employers like mcdonald's
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are having to pay more on wages. we announced in our company-owned restaurants sort of an across-the-board minimum 10% 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 for an interview, or free iphone after 90 days. i mean, that is sort of all the things we are having to come up with right now to make sure we can staff the restaurants. david: but most of the people who are young and work at mcdonald's, are they minimum wage people who go up from minimum wage, or you up above the legal minimum wage now? chris: yeah, we are above the legal minimum wage. so it is $7.25. 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 $11 is the starting wage. and then, you know, as you move up, you quickly progress through that.
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if you are a restaurant manager or someone who has maybe been there for a couple years, you're earning anywhere from $15 to $20 an hour. and i think that has been largely -- you are seeing a similar type of thing with our franchisees. so, while we do not collect information on 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 is, you know, is this something you want to be legislated, or want it to be in the marketplace? our view is, we are going to 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: so, during covid, there were problems you had at some franchises, i guess, where there were some strikes, employees were not happy. what was that all about? chris: we always have something going on at mcdonald's around the world. there were certainly -- i think what you are referencing --
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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 to make sure we provided ppe and did other things like social distancing in the restaurants. but we had protests on that. what we will get protests around, we will get protests on 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 is both the challenge of the job, but also what is interesting about it. ♪
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david: let's talk about the
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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 it the big mac or the quarter pounder or the french fries? chris: well, i mean, 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: well, the fries are intoxicatingly difficult to avoid eating. chris: i agree. david: can you tell us, what is the secret? what do you put in the batter or the cooking oil or whatever you do? that is the secret or is it the potatoes? chris: well, we have a room here i have not taken you to that has all the secrets on that. but i will just say, there are a lot of things that go into it, starting with, you know, where we get the potatoes. we have proprietary relationships with that. how those potatoes are then processed, what we will put on those potatoes, and ultimately how they are cooked in the restaurant.
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the cooking oil we use, the amount of salt we use. so, there is a lot of things that go into the secret recipe. david: some people might say, the french fries might not be that healthy. some people might say that, i do not know if you would say that. what would you say about that? chris: i would say, 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, you know, healthier items. you know, 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. and that is how we approach our restaurant, which is about choice. the other thing though, i get asked a lot of times, why don't you have more of this, why don't you have more of that, or why did you get rid of this? it all comes down to, did it sell? our restaurants and what goes on the menu is all based on, what moves goes on the menu. what does not move comes off the menu. so ultimately, we are letting the customer decide what we do or do not carry on the menu. david: since mcdonald's was started some 60 plus years ago or so, there has been a greater interest in the united states, and maybe around the world, on
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healthier eating. chris: yep. david: have you tried to reflect that in your menu? chris: we have tried. and i would say 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, you know, 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. so, we are 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 on nutritional information, to make sure we afford 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 there? chris: certainly you can have a salad right now, in a restaurant. depending on whether you are a vegetarian or vegan -- vegetarian, there will be other offerings for you. if you are in india for example, we have a broad sample of
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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've also talked about launching mcplant. and mcplant for us is a plant-based burger. that is available in some countries already. it is something that we are going to be testing later in the u.s. so, maybe we'll get you a mcplant. david: another product i don't want to overlook is your famous coca-cola. now, you used to work at pepsi. do pepsi people ever remind you that you have coke? chris: we've had a few dialogues over the years. and, you know, 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 are going to sell whatever the customer wants. so yes, my pepsi friends periodically check in. david: but some people say your coca-cola is made in certain ways that is better than what you buy the bottle. so what is it that you do that
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is different with your coca-cola? chris: so, i would agree. i think it is better. one of the things that we have as an advantage is, because of the volumes we do in our restaurants, our volumes tend to be higher than anybody else out there. it allows us to buy equipment that is able to be titrated or calibrated more precisely than maybe some of our competitors. and so, 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: so i should disclose that i am an investor in mcdonald's. in fact, my firm bought a piece of the china business with a chinese partner and with mcdonald's. chris: yep. david: 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?
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chris: you know, 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. the u.s. is about 50-50 between chicken and beef. so, you know, 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 as i understand it. each begin with a "d." so let's go through that. one is a drive-thru. is that a big business? chris: drive-thru is a huge business for us, 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 being a much bigger part of the business in europe. but during the pandemic, we did see drive-thru become a significant part of the business. david: another "d" is delivery. you have the ability to deliver. do you do it yourself or do you use one of the services to
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deliver products to homes? 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. then in other parts of the world, like in the u.s., we have partnered with third-party operators like uber eats or doordash. so 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. i think, for us, it has 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 are seeing, particularly with gen z and millennials, is it is moving to a much more digital relationship
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through the app. so yes, today, in almost every single one of our countries, the u.s. 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, we are rolling out loyalties, so when you buy with the app, you also get loyalty points you can redeem later for food and other benefits. david: it's your frequent flyer version. chris: you got it. david: the last "d" is dine in. that used to be a thing that people did, but now, is it a smaller part of your business? and do you need all the space in all of those restaurants? chris: i think it is still an important part of our business because a lot of the interaction and the memories people form from mcdonald's come 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. i mean, our view is it is going to come back. i think dining and eating is such a social experience, there is always going to be an element
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of it that is in person. now, how much of it comes back, time will tell. and if at some point maybe we need to reduce the space for dine in seating that we have in our restaurants, we can always calibrate and do that. but for now, we are on a watch and see mode. david: i assume you see people saying that food is not as healthy as they might want it to be. is that the biggest challenge? or just growing the company? chris: ray croc had a famous line that gets quoted around here fairly often, even today, which is, "if you are not green and growing, you are red and rotten." ♪
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david: let's talk about your background. where did you grow up? chris: i grew up in boston, on the east coast. went to high school in cincinnati, and ultimately went to college in north carolina. david: well, you can say the name. chris: i went to duke. yes, we shared that. david: that's right. and after you graduated, what did you do? chris: i went to proctor & gamble. i went into their brand management program at their headquarters in cincinnati.
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david: and after that? chris: after that i went to harvard business school and got my mba and after that, went into consulting for a few years. david: but you spent a lot of time in the food world. you were, before pepsi -- or after pepsi, you were at kraft. is that right? chris: that's right. david: so was there something about food that really appealed to you? chris: i would say i love being in consumer industries. for me, what i really 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, 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. the fun thing for me in 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
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pretty quickly to became the head of americas. chris: that's right. david: then in 2019, you became ceo. chris: that's right. david: the stock is up and the market cap is up 20% so i assume the board is happy. chris: so far, so good. yep. david: but some of your predecessors had problems, they did not last that long. health and other reasons. is there bad karma in being ceo or do you think you can outlive the bad karma? chris: i try not to think about it too much, honestly. but i think, when you're in these jobs, you are very grateful for the time that you are in the role and i do not spend a whole lot of time thinking about, you know, sort of, you know, the future and all that stuff. it is about, so long as i keep delivering for the company, so long as we keep performing, i certainly, you know, feel really fortunate to be in the role i am in. david: it is a global company. now that covid is not behind us, but certainly receding a bit, are you traveling the world? or do you expect to travel more? chris: i do expect to travel
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starting next month, and, you know, between now and the end of the year, i have got five international trips lined up. david: when you travel internationally, are you trying to tell local franchisees to work more or do better jobs or what are you trying to do? are you recruiting franchisees or telling them why new food products are going to be good? chris: there's a variety of things i am trying to get done. when i am out there, the biggest thing is listening. so, you know, hearing what is on the mind of our franchisees, hearing what is on the minds of our people, that is one thing i am looking at. the second is making sure that the strategies we are talking about at a corporate level, are they cascading down? are we seeing those in the restaurant level? a lot of time, what can happen is you think you have clarity around what the strategy is but it does not end up being executed. so i am looking at the connection between our strategy and is it showing up in the execution of 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
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role, it is about creating excitement and appreciation for the crew working in that restaurant. so, i try to do some of that. and i also make time when i'm traveling to meet our young, up and coming employees. kind of our high potentials. so, there is a variety of things i'm doing. david: 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? chris: 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. david: do you ever go to your competitor's stores to get some new information? chris: we do. we do. we usually do not stay there too long. usually the service and food is not as good and the service isn't as good either, but we will go in there to check. david: mcdonald's is always coming up with new products. everybody is coming up with new products in every line of business, but you are always coming up with new food products that people will presumably like. but you taste them all yourself, and do you have to approve a new product? or do you just say, i have other people that do the food tasting? chris: yeah, we've a great menu
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team. it is their job to work typically with franchisees and customers to develop new food products. occasionally, i might just say, hey, i'm 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. [laughs] other than, it's interesting that you didn't like it. where i will -- where i do exercise my ceo authority is around the 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 hamburger, cheeseburger and make changes to those without my approval. but outside of the core menu, you have a lot of latitude. certainly on new items. david: 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 is not as healthy as they might want it to be. is that the biggest challenge or just growing the company? chris: i mean, i think it is
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about, as a business, we have to be growing. and ray croc had a famous line that gets quoted around here fairly 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. so, how do we grow is a big part of it. but where it will come up is in things, like 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 in delivering those, it is going to impact growth. that is what i view my job as all about. ♪
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