Overview


The Company franchises and operates McDonald's restaurants, which serve a
locally-relevant menu of quality food and beverages in 119 countries. Of the
39,096 restaurants at September 30, 2020, 36,438 were franchised, which is 93%
of McDonald's restaurants.
The Company's reporting segments are aligned with its strategic priorities and
reflect how management reviews and evaluates operating performance. Significant
reportable segments include the United States ("U.S.") and International
Operated Markets. In addition, throughout this report we present the
International Developmental Licensed Markets & Corporate segment, which includes
markets in over 80 countries, as well as Corporate activities.
McDonald's franchised restaurants are owned and operated under one of the
following structures - conventional franchise, developmental license or
affiliate. The optimal ownership structure for an individual restaurant, trading
area or market (country) is based on a variety of factors, including the
availability of individuals with entrepreneurial experience and financial
resources, as well as the local, legal and regulatory environment in critical
areas such as property ownership and franchising. The business relationship
between McDonald's and its independent franchisees is supported by adhering to
standards and policies and is of fundamental importance to overall performance
and to protecting the McDonald's brand.
The Company is primarily a franchisor and believes franchising is paramount to
delivering great-tasting food, locally relevant customer experiences and driving
profitability. Franchising enables an individual to be their own employer and
maintain control over all employment related matters, marketing and pricing
decisions, while also benefiting from the strength of McDonald's global brand,
operating system and financial resources.
Directly operating McDonald's restaurants contributes significantly to our
ability to act as a credible franchisor. One of the strengths of the franchising
model is that the expertise from operating Company-owned restaurants allows
McDonald's to improve the operations and success of all restaurants while
innovations from franchisees can be tested and, when viable, efficiently
implemented across relevant restaurants. Company-owned and operated restaurants
provide Company personnel with a venue for restaurant operations training
experience. In addition, in our Company-owned and operated restaurants, and in
collaboration with franchisees, we are able to further develop and refine
operating standards, marketing concepts and product and pricing strategies that
will ultimately benefit McDonald's restaurants.
The Company's revenues consist of sales by Company-operated restaurants and fees
from restaurants operated by franchisees. Fees vary by type of site, amount of
Company investment, if any, and local business conditions. These fees, along
with occupancy and operating rights, are stipulated in franchise/license
agreements that generally have 20-year terms. The Company's Other revenues are
comprised of technology fees paid by franchisees, revenues from brand licensing
arrangements, and third party revenues for the Dynamic Yield business.
Conventional Franchise
Under a conventional franchise arrangement, the Company generally owns or
secures a long-term lease on the land and building for the restaurant location
and the franchisee pays for equipment, signs, seating and décor. The Company
believes that ownership of real estate, combined with the co-investment by
franchisees, enables us to achieve restaurant performance levels that are among
the highest in the industry.
Franchisees are responsible for reinvesting capital in their businesses over
time. In addition, to accelerate implementation of certain initiatives, the
Company may co-invest with franchisees to fund improvements to their restaurants
or their operating systems. These investments, developed in collaboration with
franchisees, are designed to cater to consumer preferences, improve local
business performance, and increase the value of our brand through the
development of modernized, more attractive and higher revenue generating
restaurants.
The Company requires franchisees to meet rigorous standards and generally does
not work with passive investors. The business relationship with franchisees is
designed to facilitate consistency and high quality at all McDonald's
restaurants. Conventional franchisees contribute to the Company's revenue,
primarily through the payment of rent and royalties based upon a percent of
sales, with specified minimum rent payments, along with initial fees paid upon
the opening of a new restaurant or grant of a new franchise. The Company's
heavily franchised business model is designed to generate stable and predictable
revenue, which is largely a function of franchisee sales, and resulting cash
flow streams. As most revenues are based on a percent of sales, the Company
expects that consumer sentiment and government regulations as a result of
COVID-19 will continue to have a negative impact on revenue.
Developmental License or Affiliate
Under a developmental license or affiliate arrangement, licensees are
responsible for operating and managing the business, providing capital
(including the real estate interest) and developing and opening new restaurants.
The Company generally does not invest any capital under a developmental license
or affiliate arrangement, and it receives a royalty based on a percent of sales,
and generally receives initial fees upon the opening of a new restaurant or
grant of a new license.

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While developmental license and affiliate arrangements are largely the same, affiliate arrangements are used in a limited number of foreign markets (primarily China and Japan) where the Company also has an equity investment and records its share of net results in Equity in earnings of unconsolidated affiliates. As both royalty revenues and the Company's share of net results in equity investments are based on sales results, the Company expects to continue to have a negative impact to revenues and Equity in earnings of unconsolidated affiliates as a result of COVID-19.

Strategic Direction The Company recently announced a new growth strategy, Accelerating the Arches (the "Strategy"). The Strategy encompasses all aspects of McDonald's business as the leading global omni-channel restaurant brand, and includes a refreshed purpose, updated values, and new growth pillars that build on the Company's competitive advantages.



Purpose, Mission, & Values
The Company is embracing and prioritizing its role and commitments to the
communities in which it operates through our:
• Purpose to feed and foster communities,

• Mission to create delicious feel-good moments for everyone, and

• Core values that define who we are and how we run our business.





Growth Pillars
The new growth pillars, rooted in the Company's identity, MCD, build on historic
strengths and articulate areas of further opportunity. Under the new Strategy,
the Company will:
•   Maximize our Marketing by investing in new, culturally relevant approaches to
    effectively communicate the story of our brand, food and purpose. This will
    focus on enhanced digital capabilities that provide a more personal
    connection with customers. The Company is also committed to a marketing
    strategy that highlights value at every tier of the menu, as affordability
    remains a cornerstone of the McDonald's brand.

• Commit to the Core by tapping into customer demand for the familiar and


    focusing on serving delicious burgers, chicken and coffee. The Company will
    prioritize chicken and beef offerings as we expect they represent the largest
    growth opportunities. The Company expects there is significant opportunity to
    expand its chicken offerings by leveraging line extensions of customer
    favorites. In addition, the Company plans to introduce a new Crispy Chicken
    Sandwich in the U.S. in early 2021. The Company will also implement a series
    of operational and formulation changes designed to improve upon the great
    taste of our burgers. We also see a significant opportunity with coffee, and
    markets will leverage the McCafe brand, experience, value and quality to
    drive long-term growth.

• Double Down on the 3D's: Digital, Delivery and Drive Thru by leveraging


    competitive strengths and building a powerful digital experience growth
    engine that provides a fast, easy experience for our customers. To unlock
    further growth, the Company will accelerate technology innovation so that
    when customers interact with McDonald's, they can enjoy a fast, easy
    experience that meets their needs.


•         Digital: The Company's new digital experience growth engine,
          "MyMcDonald's" will transform its digital offerings across drive thru,
          takeaway, delivery, curbside pick-up and dine-in. Through the digital
          tools across this platform, customers will receive tailored offers, be
          able to participate in a new loyalty program and order and receive
          McDonald's food through the channel of their choice. The Company
          expects to launch "MyMcDonald's" across its top six markets by the end
          of 2021.


•         Delivery: Over the past three years, the Company has expanded the
          number of McDonald's restaurants offering delivery to about 28,000
          restaurants, and delivery sales have grown significantly. The Company
          will build on this progress and enhance the delivery experience for
          customers by adding the ability to order on the McDonald's app, which
          is already available in several markets around the world, and
          optimizing operations with a focus on speed and accuracy.



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•         Drive Thru:. The Company has drive thru locations in 65% of restaurants
          globally, including nearly 95% of the approximately 14,000 locations in
          the U.S. During the COVID-19 pandemic, this channel has heightened
          importance and we expect that it will become even more critical to meet
          customers' demand for flexibility and choice. The Company will build on
          its drive thru advantage as the vast majority of new restaurant
          openings in the U.S. and International Operated Markets will include a
          drive thru. The Company will test new concepts and technology to
          enhance the customer experience, including automated order taking; a
          new drive thru express pick-up lane for customers with a digital order;
          and a restaurant concept that offers drive thru, delivery and takeaway
          only to provide a faster, more convenient experience.

The Company's new Strategy is underpinned by a relentless focus on running great restaurants, including improving speed of service to enhance the customer experience. The Company believes this Strategy will build on our inherent strengths by harnessing our competitive advantages and investing in innovations that will enhance the customer experience and deliver long-term growth.



Third Quarter and Nine Months 2020 Financial Performance
Global monthly comparable sales results improved from the second quarter and
throughout the third quarter, including month over month improvement across all
segments throughout the third quarter of 2020. Global comparable sales decreased
2.2% for the quarter and 9.9% for the nine months.
•        U.S. comparable sales increased 4.6% for the quarter and decreased 1.4%
         for the nine months. Comparable sales results for the third quarter of
         2020 continued to benefit from strong average check growth from larger
         group orders as well as strong performance at the dinner daypart. The
         Company's strategic marketing investments and resulting promotional
         activity drove low double-digit comparable sales for the month of
         September, including positive comparable sales across all dayparts.
         Comparable guest counts remained negative for the quarter.


•        International Operated Markets segment comparable sales decreased 4.4%
         for the quarter and 17.6% for the nine months. The third quarter
         comparable sales were a significant improvement over the second quarter
         comparable sales of negative 41.4%. While nearly all restaurants were
         open, performance was impacted by customer sentiment and instances of
         government restrictions on operating hours, limited dine-in capacity and
         in some cases, forced dining room closures. While performance was mixed,
         the pace of recovery in each market is also impacted by drive thru
         penetration. For both periods, comparable sales varied across markets
         with negative comparable sales in France, Spain, Germany and the U.K.,
         partly offset by positive comparable sales in Australia.


•        International Developmental Licensed Markets segment comparable sales
         decreased 10.1% for the quarter and 12.9% for the nine months. Results
         for both periods were primarily impacted by negative comparable sales in
         Latin America and China, partly offset by strong positive comparable
         sales in Japan.

In addition to the comparable sales results, the Company had the following financial results for the quarter and nine months 2020:

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