2020 Annual Report 3 Franchisees Are Also Responsible for Reinvesting Capital in Their Businesses Over Time
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cover Annual Report 2020 Annual Letter to Shareholders Emerging from 2020 in a position of strength Dear Shareholders, While conditions were challenging in most markets, we still achieved nearly $20 billion in full year revenue and over $90 the Global McFamily billion in full year Systemwide sales. We were well-positioned to effectively navigate such challenging circumstances and our Customers, because of our operating model, our focus on running great restaurants and our many competitive strengths, including our formidable Drive Thru presence. We also were well- At McDonald’s, we are privileged to be active positioned due to the significant investments we’ve made in participants in the local communities where we live, recent years to develop our digital and delivery capabilities, work and serve. That means we reflect the values and which proved to be a boon throughout the pandemic. understand the needs of the customers and people we The US delivered its sixth consecutive year of positive strive to put first every day. This was especially prudent comparable sales, and average US franchisee restaurant as we navigated the COVID-19 pandemic and societal operating cash flow reached an all-time high in 2020, after challenges within this past year. Through it all, and with a previous all-time high in 2019. Elsewhere, Japan and the strength of our McFamily and a values-led mindset, Australia posted five and seven consecutive years of positive we did the right thing from the start. We prioritized comparable sales growth, respectively. Markets that had the safety of restaurant crew and customers; we took to significantly reduce operations or face closures due important steps to preserve our financial flexibility; we to government restrictions did so with remarkable agility leveraged the power of our supply chain; and we stood and care. Their ability to respond quickly to the external by and supported our local communities. environment was a further demonstration of our System’s I believe firmly that our Brand will be defined by how unmatched execution prowess. we respond to such challenges, both as the world’s largest restaurant company—and as good neighbors. While 2020 was a historically At the onset of the pandemic, I laid out five principles that McDonald’s used to guide our approach to this demanding year, it has helped historic challenge: McDonald’s to do everything better. “We’re all in this together” We engaged Mayo Clinic to provide ongoing expertise on “Think and act with a long-term mindset” emerging science in COVID-19 infection prevention, and we “ Be transparent with each other devised new ways to safely and reliably serve our customers. and our stakeholders” This, in turn, allowed us to continue gaining market share in most major markets. We also improved on our already “Lead by example” unrivaled Drive Thru capabilities and continued to see the “Stay true to our purpose” enormous benefits of contactless delivery, take-away, and curbside pick-up. Meanwhile, more customers used our app Supported by these principles and energized by the than ever before, as digital sales reached nearly 20 percent incredible courage and effort from people across our of Systemwide sales across our top six markets. three-legged stool, McDonald’s delivered a resilient performance in what was the most difficult year in At the outset of the pandemic, we committed to helping every our history. operator and partner survive the crisis. We took prudent, Annual Letter to Shareholders Annual Letter to Shareholders Emerging from 2020 in a position quick action designed to prevent not a of strength single Owner/Operator from failing due to the pandemic. We offered franchisees nearly While conditions were challenging in most markets, we still $1 billion in short-term financial liquidity achieved nearly $20 billion in full year revenue and over $90 support through rent and royalty deferrals, billion in full year Systemwide sales. We were well-positioned along with timely, targeted, and temporary to effectively navigate such challenging circumstances assistance to individual franchisees in because of our operating model, our focus on running great the most precarious situations. Thanks to restaurants and our many competitive strengths, including our quick decision-making and our robust our formidable Drive Thru presence. We also were well- balance sheet, the financial health of the positioned due to the significant investments we’ve made in McDonald’s System remains strong. recent years to develop our digital and delivery capabilities, which proved to be a boon throughout the pandemic. Just as important, we addressed our short- term challenges without sacrificing our The US delivered its sixth consecutive year of positive long-term priorities. We continued to invest comparable sales, and average US franchisee restaurant in our Brand, including an incremental $200 operating cash flow reached an all-time high in 2020, after million in marketing support to widen our a previous all-time high in 2019. Elsewhere, Japan and market share gains and accelerate our Australia posted five and seven consecutive years of positive recovery. We also opened nearly 1,000 new comparable sales growth, respectively. Markets that had restaurants globally, modernized another 900 to significantly reduce operations or face closures due restaurants in the US, and together with our to government restrictions did so with remarkable agility franchisees, we invested more than $1 billion and care. Their ability to respond quickly to the external in technology and digital initiatives. environment was a further demonstration of our System’s unmatched execution prowess. I said several times through the year that we were confident McDonald’s would be just as strong coming out of the pandemic as we While 2020 was a historically were going into it, and we are proving that in demanding year, it has helped so many ways. McDonald’s to do everything better. A new, holistic growth strategy We engaged Mayo Clinic to provide ongoing expertise on to reflect the changing emerging science in COVID-19 infection prevention, and we environment devised new ways to safely and reliably serve our customers. Motivated by our resilience in the face of This, in turn, allowed us to continue gaining market share unprecedented challenges, we began writing in most major markets. We also improved on our already the next chapter for McDonald’s as we shared unrivaled Drive Thru capabilities and continued to see the our new growth strategy, Accelerating the enormous benefits of contactless delivery, take-away, and Arches. Alongside bold business objectives, curbside pick-up. Meanwhile, more customers used our app the strategy articulates a clear vision of where than ever before, as digital sales reached nearly 20 percent and how we intend to make a difference in the of Systemwide sales across our top six markets. world, reflecting the changing expectations At the outset of the pandemic, we committed to helping every that today’s customers have of modern operator and partner survive the crisis. We took prudent, corporations like McDonald’s. Annual Letter to Shareholders We already knew customer habits and expectations were It is especially encouraging to see the environment. That’s especially true in an era when customers changing going into 2020. The pandemic accelerated some of power of the three pillars coming together and communities expect more of us. That is why one of those changes and brought other powerful truths into focus. already. The launch of Famous Orders in our priorities over the past year was to ensure our purpose, the US, for example, brought together the mission, and values reflect the role we play in society today— First, our customers’ needs are different than they were strength of our marketing, the popularity of while embracing the vital place these timeless ideals and prior to the pandemic, so the experience we offer must our core menu items and enormous digital principles occupy as an essential part of this special Brand adapt. A world with less dine-in and more takeout plays to engagement to drive significant sales in we all love. our significant advantage in Drive Thru and our growing the third and fourth quarters of 2020. The capabilities in delivery and curbside pick-up. More lunch and In speaking to franchisees, customers and crew around success of this initiative was just a glimpse dinner visits are well-suited to our core menu, with iconic the world, it became clear that McDonald’s purpose is to of what is possible and we are excited for favorites that people love. Greater dependence on technology feed and foster communities. It also became clear in those what is to come. bodes well for McDonald’s fast-growing digital experience conversations that our ability to deliver on our purpose is and our inherent scale advantages. rooted in a refreshed set of core values: Leading with our purpose and This understanding was essential as we identified three new refreshing our values to guide growth pillars to deliver our next phase of sustainable growth our strategy under Accelerating the Arches. They are easy to remember… just think M-C-D: The second truth is that people expect more from corporations today and are seeking brands that reflect their own values. M - Maximize our Marketing Customers want to see that the McDonald’s McDonald’s is one of the world’s most recognized brands, they visit locally matches how we act globally. and we invest about $4 billion per year in marketing. They want and expect us to be a force for Working with our agency partners, we will raise our good everywhere. creative ambition and capitalize on evolving digital behaviors to deepen the connection with our customers The strength of McDonald’s business to drive growth.