Arcos Dorados Holdings Stock

Arcos Dorados Holdings Inc. operates and franchises McDonald’s restaurants in the food service industry worldwide. The company conducts its business through its indirect, wholly owned Dutch subsidiary, Arcos Dorados B.V.

The company has the right to own, operate and grant franchises of McDonald’s restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela, which the company refers to collectively as the Territories.

The company operates or franchises McDonald’s-branded restaurants. The company operates in the quick-service restaurant (QSR) sub-segment of the fast food segment of the Latin American and the Caribbean food service industry.

The company operates McDonald’s-branded restaurants under two different operating formats, company-operated restaurants and franchised restaurants.

The company generates revenues primarily from two sources: sales by company-operated restaurants and revenues from franchised restaurants. Revenues from franchised restaurants primarily consist of rental income, which is generally based on the greater of a flat fee or a percentage of sales reported by franchised restaurants. The company owns the land for 489 of its restaurants (totaling approximately 1.1 million square meters) and the buildings for all but 11 of its restaurants.

The company divides its operations into four geographical divisions, such as Brazil; the Caribbean division, consisting of Aruba, Colombia, Curaçao, French Guiana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela; North Latin American division (NOLAD), consisting of Costa Rica, Mexico and Panama; and South Latin American division (SLAD), consisting of Argentina, Chile, Ecuador, Peru and Uruguay.

Operations

Company-Operated and Franchised Restaurants

The company operates its McDonald’s-branded restaurants under two basic structures: company-operated restaurants operated by it and franchised restaurants operated by sub-franchisees. Under both operating alternatives, the real estate location may either be owned or leased by the company.

The company owns, fully manage and operate company-operated restaurants and retain any operating profits generated by such restaurants, after paying operating expenses and the franchise and other fees owed to McDonald’s under the MFAs.

In contrast to company-operated restaurants, franchised restaurants are operated and managed by the sub-franchisee with technical and operational support from the company as master franchisee, including training programs, operations manuals, access to its supply and distribution network and marketing assistance. Under its conventional franchise arrangements, sub-franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and decor of their restaurants, and by reinvesting in the business over time. The company is required by the MFAs to own the real estate or to secure long-term leases for franchised restaurant sites. The company subsequently leases or subleases the property to sub-franchisees. This arrangement allows for long-term occupancy of the property and assists in the alignment of its sub-franchisees’ interests with its own.

In addition, the company is the majority stakeholder in two joint ventures that collectively own restaurants in Argentina and Chile. The company considers these restaurants to be company-operated restaurants. The company has also granted developmental licenses to 7 restaurants. Pursuant to the developmental licenses, the developmental licensees own or lease the land and building in which the restaurant is located and pay a franchise fee to the company, in addition to the continuing franchise fee due to McDonald’s. The company considers these restaurants to be franchised restaurants.

Additionally, in November 2021, a joint venture was formed with a Mexican sub-franchisee in which the company is a minority stakeholder and owns restaurants. The company considers these restaurants to be franchised restaurants. The company’s joint ventures in Argentina, Chile and Mexico operate as a joint venture under the traditional definition used within the McDonald’s system for such business arrangements. Restaurants operated by entities in which the company has a majority stake are considered to be company-operated; whereas, entities in which the company holds a minority stake are considered to be franchised.

Restaurant Categories

The company classifies its restaurants into one of four categories: freestanding, food court, in-store and mall stores. Freestanding restaurants are the largest type of restaurant, have ample indoor seating and include a drive-thru area and parking lot. Food court restaurants are located in malls and consist primarily of a front counter and kitchen and do not have their own seating area. In-store restaurants are part of a larger building, but they do not have a drive-thru area or a parking lot. Mall stores are located in malls like food court restaurants, but have their own seating areas.

Product Offerings

The company’s menus feature three tiers of products, such as affordable entry-level options, such as the its McTrio 3x3 in Mexico and Appetecibles in Chile and Colombia, core menu options made with beef and chicken, such as the Big Mac, Quarter Pounder, McNuggets, McChicken, the new McCrispy Chicken and Happy Meal, and premium options, such as the Signature Collection, Grand Tasty Turbo Bacon in Argentina and salads for those guests that want lower calorie options. These platforms can be based on the type of products, such as beef, chicken, salads or desserts, or on the type of customer targeted, such as the children’s menu. The company has offered a new menu with fewer calories and less sugar and sodium in the majority of its Territories since 2011. Since 2013, the company had offered dairy products, fruits or vegetables with its Happy Meals in all of the Territories except Venezuela. In November 2019, the company joined McDonald’s Corporation in its mission to serve foods that are a win-win for families, providing delicious and nutritious food that appeal to both kids and parents. In the markets in which the company operates, it offers a Happy Meal menu that complies with the following criteria: less than 600 calories, less than 30% of calories from total fat, less than 10% of calories from saturated fat, less than 650 mg sodium, less than 10% of calories from added sugar, no artificial flavors and no added colors from artificial sources and balanced fruit and vegetable content. Arcos Dorados’ new nutritional policy was publicly endorsed by major health and nutrition bodies of various countries, such as Inter-American Society of Cardiology, the Brazilian Association of Nutrition (ABRAN), the Argentine Cardiology Foundation, the Peruvian Nutrition Society (SOPENUT), and the Uruguayan Association of Dietitians and Nutritionists.

The company’s core menu is the most important element of its menu strategy because it includes most of its product offerings, includes well-recognized food choices that have global customer acceptance and are what customers repeatedly order at McDonald’s-branded restaurants worldwide. The company expanded its core products with new options, such as the Spicy McNuggets, Big Mac Bacon and Quarter Pounder with Bacon in many countries, which are being offered for a limited time only. The company has also introduced different sauces for the McNuggets with McNuggetear in many countries.

Seasonality

The company’s sales and revenues are generally greater in the second half of the year (year ended December 31, 2022) than in the first half. Although the impact on the company’s results of operations is relatively small, this impact is due to increased consumption of its products during the winter and summer holiday seasons, affecting July and December, respectively.

Suppliers

Among the company’s main suppliers are Marfrig Global Foods SA; McCain Foods Limited; Coca Cola Company; HAVI Group L.P.; Bimbo S.A. de C.V.; Axionlog B.V.; Reyes Holdings L.L.C.; Savencia Fromage & Dairy; American Beef S.A.; Tyson Foods; BRF S.A., Schreiber Foods Inc.; Frima S.A.; Kerry Group plc.; J.R. Simplot Company; Golden State Foods; J F C & Natural Salads Distribuidora de Produtos Hortifrutigranjeiros Ltda; Lactalis Group; Bunge Limited; BO Packaging S.A.; Panifresh S.A.; Griffith Foods Worldwide Inc; Lacteos de Poblet S.A; Brasilgrafica S.A.; IBD Foods, LLC.; Fortunato Mangravita S.A; 2 F Alimentos LTDA; Interbake Chile S.A; AB Brasil Industria e Comercio de Alimentos Ltda.; Granja Tres Arroyos S.A.; Terbium Industrial S.A; Bemis Company Inc.; Impresora Delta S.A.; Central de Empaques S.A.; Interpack S.A.; Frigorifico del Oriente S.A; Coopemontecillos R.L.; and Empresas Carozzi S.A.

History

Arcos Dorados Holdings Inc. was founded in 2007. The company was incorporated under the laws of the British Virgin Islands in 2010.