This is my kitchen table and also my filing system.

David, voice-over: Over much of the past 3 decades, I've been an investor.

David: The highest calling of mankind, I've often thought, was private equity.

[Laughter] David, voice-over: And then I started interviewing.

I watch your interview because I know how to do some interviewing.

David, voice-over: 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.

David, voice-over: And how they stay there.

You don't feel inadequate now because 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 from the 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 over more than 60 years and become the largest restaurant chain in the world.

McDonald's is more than 60 years old now... Chris: Yup.

David: And many companies over the last 60 years have gotten in the fast-food business.

Some have done OK, some gone out of business, but McDonald's is by far the biggest.

You have a market capitalization of about $175 billion.

What is it that McDonald's has done that made it the biggest?

Was it the quality of the managers, was it the quality of the food, the healthiness of the food, the standardization around the country and around the world?

What is it that made McDonald's by far the biggest of the fast-food companies?

Chris: Yeah.

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 "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 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 a 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, our 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 birthday parties, all those things.

Those were all part of building the brand that ultimately now I get the benefit of, you know, protecting and hopefully further shining the arches.

David: So, you are the CEO of this company for the last couple years and as you've been doing this, have you had to deal with the COVID problems in particular?

Chris: COVID'S been an issue that's impacted us in 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 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, 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, I think, part of where our-- the genius of our system came to light, which is if you were trying to manage this situation, everything from Chicago, it never would've worked.

The fact that we're a locally owned company with franchisees, they're able to act much more nimbly 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.

David: So, when COVID 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 the franchisees had to do that?

Chris: 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, what, we have 40,000 restaurants.

I don't know every particular situation.

By and large, we were able to retain our workforce through all of that.

David: What did you learn through COVID about how to manage the company differently-- better or some other way that you would've not probably learned if you had not gone through COVID?

Chris: I'd certainly think one of the things that 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'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 we ultimately are an in-person business.

We're in-person in the restaurants, we're in-person in the office, and so, we--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're committed to getting back into 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, 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 higher compensation than they often would get at the kind of starting jobs you might have.

How hard has it been 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 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 gonna be good once the stimulus rolls off?"

"No, 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 in, you know, any kind of capitalist system, so, employers like McDonald's 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 McDonalds, 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's sort of all of the things that we're having to come up with right now to make sure we can staff the restaurants.

David: But most of the people who are young who do work at McDonald's, are they minimum-wage people and they go up from minimum wage or are you above the minimum wage, the legal minimum wage now?

Chris: Yeah, we're above the legal minimum wage, so, it's $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 would--you quickly progress through that.

If you are a restaurant manager, someone who's maybe been there for a couple years, you're earning anywhere from $15 to $20 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 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 gonna 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.

David: So, during COVID, there were some problems you had at some franchises, I guess, where there were some strikes or something.

Employees weren't happy.

What was that all about?

Chris: 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 in the restaurant, but 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 it.

David: So, when George Floyd, murder occurred, I assume you have a fair number of African-American employees who were no doubt particularly upset about that.

Did you feel a need to make a response about that or how does McDonald's deal with public issues?

Chris: In the case of George Floyd, we did speak out and condemn his murder.

We also spoke out in support of Black Lives Matter.

I think, you know, we have for a long time, our philosophy as an organization, as a company was don't say anything, basically.

I think what has changed is certainly the society that we all operate as corporations these days, where whether it's employees or customers, the expectation is "I want to know what you stand for."

You know, there is an art and a science to this, but I think by and large, I feel good about where we've spoken out and I also feel good about where we've chosen not to speak out.

David: And do you think companies should be more active in speaking out publicly on public policy issues or you think it's not appropriate... Chris: I really think the bar should be very high when you speak out.

I don't think, by and large, that it is appropriate for companies to be speaking out, but I think there are certain situations, George Floyd being one, the Capitol attacks on January 6 being another, where it was important for corporations to speak out and McDonald's certainly made its voice known.

David: Now, the Business Roundtable has said a couple years ago, don't worry only about shareholders.

You have responsibility to your community, your employees, customers, and so forth.

Do you share that view?

Chris: I do share that view.

I think part of it is because that's the expectation of our customers.

Our customers want to see that McDonald's is being a responsible corporation, and in many places, this becomes a license to operate.

The more that we are seen as doing the right things and clear about our values, it ultimately, we believe, benefits the brand, and that ultimately benefits the business.

David: 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 it a Big Mac or a 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 with just the one.

Can you tell us what's 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?

What is... Chris: Well, 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's 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's 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 don't know if you would say that.

What would you say about that?

Chris: I'd say, you know, what we try to do on our menu is to have choice, so, we have a variety of things on our menu, from more indulgent items to, you know, 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?"

"Why don't you have more of that?"

Or "Why did you get rid of this?"

It all comes 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.

David: Since McDonald's was started some 60+ years ago or so, there's been a greater interest in the United States and maybe around the world in healthier eating.

Have you tried to reflect that in your menu?

Chris: We've tried, and I would say, you know, it gets back to, again, 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, you know, 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 on nutritional information to make sure that we afford them choice, but ultimately, what the consumer buys is up to them.

David: Suppose I'm a vegetarian or a vegan and I want to go to McDonald's.

Is there anything there for me there?

Chris: 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 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's something that we're gonna 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, I know, so, do Pepsi people ever call you and remind you that you have Coke and maybe you should go to Pepsi?

Chris: We've had a few dialogue 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're gonna sell whatever the customer wants.

So, yes, my Pepsi friends periodically check in.

David: But some people say that your Coca-Cola is made in a certain way that's better than the Coca-Cola you buy in the bottle.

So, what is it that you do that's different with your Coca-Cola?

Chris: 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 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'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.

David: 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.

Chris: Yup.

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?

Chris: 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 5 years is that chicken more so than beef will be the dominant protein in our restaurants.

David: So, there are 4 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.

Chris: Yup.

David: Is that a big business these days, drive thru?

Chris: Drive thru is a huge business for us, particularly in the U.S.

It's about 70% of the business in the U.S.

In Europe, you would see it the inverse.

You would see dine-in being a much bigger part of the business in Europe, but through the pandemic, we did see drive thru also become a pretty significant part of the business.

David: Another D is delivery.

You have ability to deliver.

Do you deliver it yourself or do you use one of the services, deliver people's products at home?

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.

And then in other parts of the world, like in the U.S., we have partnered with third-party operators like an Uber Eats or a DoorDash.

So, right now, we do about $6 billion of sales a year through delivery, which is growing, you know, high teens globally.

It's 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'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 is it's moving to much more of a digital relationship 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 is we're rolling out loyalty, so, when you buy with the app, you also get loyalty points that you can redeem later for food and other benefits.

David: It's your frequent flyer version.

Chris: You got it.

David: And the last D is dine-in, which used to be the thing that people did, but now is that a smaller and smaller part of your business and do you need all those spaces anymore in your restaurants?

Chris: 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 dine-in 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 dine-in 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.

David: Let's talk about your background.

Where did you grow up?

Chris: 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.

David: Well, you can say the name.

It's-- Chris: I went to Duke.

Yes, we shared that.

Yup.

David: And after you graduated, what did you do?

Chris: I went to Procter & Gamble.

I went into their brand management program at the headquarters in Cincinnati.

David: And after that?

Chris: So, after that, I went to Harvard Business School and got my MBA, and after that, I went into consulting for a few years.

David: But you've spent a lot of time in the food world because you were--before Pepsi, you were--or after Pepsi, you were at Kraft... Chris: That's right.

David: So, is it something about food that really appealed to you?

Chris: 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 the 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.

David: So, you came here in what year at McDonald's?

Chris: I was here in 2015.

David: OK, and then you rose up pretty quickly to become the head of Americas.

Chris: That's right.

David: And then in 2019 you became the CEO.

Chris: That's right.

David: And the stock is up and the market cap is up about 20% since then, so, I assume your board is happy?

Chris: So far, so good, yup.

David: But some of your predecessors had problems.

They didn't last that long and for health or other reasons, so, is there bad karma, you feel, to being CEO or you think you can outlive the bad karma?

Chris: 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'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 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 that I'm in.

David: So, it's a global company.

Now that COVID is not behind us but certainly receding a bit, are you traveling the world or you expect to travel the world more?

Chris: I do expect to travel starting next month and, you know, between now and the end of the year, I've got 5 international trips lined up.

David: When you travel internationally, you're trying to tell the local franchisees to work more or do better job or what are you trying to do when you travel?

Are you recruiting franchisees or are you telling them why your new food products are gonna be good or what?

Chris: Yeah, there's a variety of things I'm trying to get done when I'm out there.

The biggest thing is listening, so, you know, hearing 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?

Are we 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 in 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 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.

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: And do you ever go to your competitors' stores and kind of see what they're doing to get some new information?

Chris: 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 to just check.

David: So, McDonald's is always coming up with new products.

You know, everybody's coming up with new products in 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 other people that do the food tasting"?

Chris: 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.

David: But if you don't like it, what happens?

Chris: Nothing, ordinarily, ha, other than just "It's interesting that you didn't like it."

Where I will--where I do exercise as CEO authority is 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 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 on new items.

David: So, what do you think is the biggest challenge of being the CEO of McDonald's?

To 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?

Chris: 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 in things like you were talking about, you know, for example, in the menu items, if we're perceived as not meeting the needs of customers, we're not gonna grow, so, if customers are seeking healthier food options and we're slow on delivering those, it's gonna impact our growth, so, that's what I view my job is all about.

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