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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  July 16, 2022 12:00pm-12:30pm EDT

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david: this is my kitchen table all and also my filing system. over much of the past three decades, i've been an investor.
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the highest calling of mankind, i've often thought, was private equity. [laughter] 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. chris: i asked how much he wanted, he said $250k, 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 because you are 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 ward kempczinski, and i wanted to ask why their coca-cola taste so good, why their fries are 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
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old now and many companies over the last 60 years have gotten into 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 common the most valuable brands in the world. how did you get to that was a combination of things. it started with recognizing the importance of ubiquity. that was part of the genius for genesis of doing a franchise novel model. you can get capital deployed, get restaurants built more quickly, that he could if he were 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 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 croc was very focused on was building the brand at the local level. that's why he wanted franchisees invested at the local level, so
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that's why gusoff thing that -- that's 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. have you had to deal with covert problems in particular? chris: covid has been an issue that has impacted us in every -- have you had to deal with covid problems in particular? chris: covid has been an issue that has impacted us in every country we operate in. 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 virus 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
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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 franchises were able to act much more nimbly. david: when covid hit, many people did not go out anymore. -- one year later, we are in a very strong spot. 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? chris: we did not lay anybody off, certainly from the company standpoint, and anti-disease when through quite a bit of effort to make sure that either through government programs or things they could do on their own, that they kept attached to their staff. i don't know every particular
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-- they kept their staff working. i don't know every particular situation, but by and large, 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 it? 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. the other thing, though, that highlighted for us, we ultimately are an in-person business in restaurants and the office, so you lose something from culture. you lose something from a connectedness by being so remote.
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while it worked well for the time, we are committed to getting back into our offices and 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 for other reasons or they want higher -- don't want to come back to work for health or other reasons or 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 is 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 franchisees, is everything going to be good once stimulus rolls off, they have let me know 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. we announced minimum 10% wage increase.
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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 with mcdonald's. you are seeing our franchisees do things like $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 seven dollars 25 cents, and there are very few places you can be competitive in the marketplace at the federal minimum wage. in our restaurants, we have announced $11 as the starting wage. as you move up, you quickly progress.
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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. i think that has always been one of the questions, is this something you want to be legislated or want it to be something in the marketplace? our view is we are going to do whatever we need to to be successful in the business, but we also do not oppose if the federal minimum wage is addressed either. david: there were some strikes, -- during covid there were some problems. at some franchises there were ,
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some strikes, i guess something were employees were not happy. what was that about? chris: we always have something at mcdonald's going on around the world. 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 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. ♪
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david: let's talk about the major things on your menu, which i've sampled over the years, of
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course. the most popular thing you have on your menu is a big mac or 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 intoxicating we difficult to replicate. 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
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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. 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 you can go to the grocery store, you can go to the salad bar or the ice cream section. that's how we approach our restaurant, about choice. i get questions like why don't you have more of this or why don't you have more of that or why did you get rid of this? 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 put on the menu. david: there has been a greater
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interest in the united states and around the world on healthier eating since mcdonald's started 60 years or so ago. 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, 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. is there anything i can get at mcdonald's? chris: certainly, you can have a salad. in india, we have a broad sample of vegetarian items, but if you are in lubbock, texas, for example -- again, it depends on the customer and what the
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customer wants, but we have also talked about launching mcplant, a plant-based burger we have lunch in some countries already and we will be testing in the u.s. soon. david: the other thing i don't want to overlook is your famous coca-cola. 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 we are going to sell whatever the cost of room -- the customer wants. yes, my pepsi friends periodically check in. david: some say your coca-cola is made in a certain way that is
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better than what you buy in the bottle. what do you do? chris: i would agree. one of the things we have asked and advantages 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 someone who maybe has inferior equipment. david: i should disclose that i am an investor in mcdonald's in effect because my firm. a piece of the china business with my chinese partner and with mcdonald's, and in china, as i understand it, chicken is very popular, maybe more so than beef. chris: china is largely a
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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 vague beef market. u.s. is about 50-50. we do see the trend 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. the drive through -- 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, dinan and much larger part of the business in europe. but in europe, we did see drive-through also become a pretty significant part of the
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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, and 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: everything is moving to the app. it has been an interesting evolution to see where, you know, for years and years, the center of the relationship we had with the customer was in the physical restaurant and what we are seeing with gen z and millennials is it is moving to a much more digital relationship through the app. today in almost every single one
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of our countries, the u.s. being the prime example, you could download the mcdonald's app. you could order your products through the app, but an exciting thing we are right now this month is rolling out loyalty, so when you buy with a app, you got loyalty points you can redeem later for food and other benefits. david: your frequent flyer version. chris: you got it. david: the last 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 from 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. 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. how much of it comes back?
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time will tell. maybe we need to reduce the space for dine-in eating that we have at our restaurants. 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. chris: ray kroc had a famous -- is that the biggest challenge, or, just growing the company? line that gets quoted around here pretty often, 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. chris: i was born in boston. i grew up on the east coast and still we started moving around. 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.
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i went to harvard business school and got my mba, and after that, i went into consulting for a few years. david: you spent a lot of time in the food world. before pepsi, you are at kraft. chris: what i would say is i love being in consumer industries. when i love is having a tangible product that i can see, touch, feel, etc., and also one that people can relate to. when i say i work at kraft or i work at mcdonald's, immediately, you can have a conversation with people. 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: euros up and quickly
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-- you rose up and quickly became the head of americas. 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: some of your predecessors did not have that long for health and other reasons. -- did not last that long for health and other reasons. 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 as long as i keep delivering for the company, so long as we keep performing, i certainly feel really to be in the role that i'm in. 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
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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 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
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what's on the mind of franchisees and what's on the mind of our people. that's the biggest thing. the second thing is making sure the strategies we are talking about at a corporate level -- are they cascading down? are we seeing those at restaurants. a lot of times, you think you've got 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.
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when i go into the restaurant, as you would imagine, 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 say let's go somewhere else? chris: 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. 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 a new food item. occasionally, i might say i would be interested in trying that. the team will usually humor me on those types of things. david: if you don't like it, what happens? chris: nothing ordinarily. other than it is interesting that you did not like it. where i will exercise authority is around our core menu. you cannot touch the big mac. you cannot touch the quarter pounder. pounder. you canno -hi, i'm smokey bear and i made an assistant to help you out.
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because only you can prevent wildfires. -hey assistant smokey bear, call me papa bear because i'm "grrr-illing" up dinner. haha, do you get it? -yes. good job. -so, what should i do with all of these coals? -don't just toss them out. put them in a metal container because those embers can start a wildfire. -i understand, the stakes are high. assistant smokey vo: ha-ha, ha-ha. -see, smokey think's im funny!
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>> deflation is a terrible thing. inflation you can tolerate. >> you can trade anything as a trend follower. >> you think about bitcoin, it is not a currency, it is a commodity. >> today, we are in an


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