New restaurants, remodels part of $3 billion spending plan at McDonald’s

by Eric Schroeder
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OAK BROOK, ILL. — McDonald’s Corp. is setting aside approximately $2.9 billion to $3 billion next year for the development of 1,500 to 1,600 new restaurants and about 1,000 remodels, company executives announced Nov. 14 as part of the fast-food chain’s annual investor meeting.

“Our goal is to ensure that we are adapting to keep pace with the changing marketplace,” said Don Thompson, president and chief executive officer. “We are intent on strengthening our brand by running even better restaurants and delivering the best food and beverage options. We will accomplish this by accentuating our key brand attributes, modernizing our connection with the more than 69 million customers who visit McDonald’s each day, and optimizing our globally diversified restaurant portfolio.”

Also in 2014, the company said it expects commodity costs to increase 1% to 2% in the United States and 1.5% to 2.5% in Europe. General and administrative costs are projected to increase about $200 million, McDonald’s said, reflecting higher employee expenses and costs associated with the company’s owner/operator convention and sponsorship of the Winter Olympic Games in Sochi, Russia.

The company reaffirmed its long-term average annual constant currency growth targets of 3% to 5% for system-wide sales, 6% to 7% for operating income and return on incremental invested capital in the high teens.

“Given the resilience and stability of our business model, we believe that our average annual constant currency growth targets remain realistic and achievable and keep us focused on making the best decisions for the long term,” Mr. Thompson said. “These targets continue to align our system behind growing sales and profitability to generate strong returns. While the fundamentals of our business have not changed, when we look at the market dynamics for 2014 we do not see material changes versus 2013. As such, we are focused on those things within our control — evolving to meet changing consumer preferences, investing to build demand, and maintaining our focus on execution and operations excellence.”

Mr. Thompson also said during the conference that McDonald’s remains committed to growing its beverages business. Specifically, he said McDonald’s has less than its “fair share” of the fastest growing category: coffee.

In late October, Kraft Foods Group, Inc. said it has joined McDonald’s in testing a retail coffee launch featuring McCafe Premium Coffee.

“Kraft and McDonald’s are out selling a test market as part of a comprehensive coffee collaboration in the U.S.,” W. Anthony Vernon, c.e.o. of Kraft, said on Oct. 30. “We want to work with McDonald’s to help consumers enjoy McCafe Premium Coffee in the comfort and convenience of their own homes.

“This test will deliver McCafe in new formats. It will be a multiple test-market test, including roasted and ground bag coffees, and single cup offerings, in the coffee aisles of retail stores.”

The test is expected to take place next year, but potential markets were not disclosed.
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