McDonald’s CEO Chris Kempczinski 9/2/25

0:00Bring in show music please. Today on Squawk Pod, President Trump's tariffs ruled illegal by an appeals court. More on where the case goes next. I think Supreme Court may strike it down. Yeah. McDonald's is launching extra value meals and lowering menu prices. We've got the McScoop with CEO Chris Kimchinski. The reality is that if you weren't using the app and you didn't buy McValue, where did you find value on the menu? And OpenAI rolling out new guardrails for ChatGPT after a tragic use case unfolded. There are other people who are using these services, and it's quite helpful to them. I'm CNBC producer Zach Valisi.

0:43It's Tuesday, September 2nd, 2025. SquawkPod begins right now. Stand Becky by in 3, 2, 1. Cue it, please. Good morning, everybody. Welcome to SquawkBox right here on CNBC. We're live from the Nasdaq market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. Summer's over, folks. You're here. Back to work. Spring is on. This is when it all begins. This is it. The mad rush takes us all the way into the holidays. We were both out. Yeah. I almost didn't come in this morning. Yeah, why? Airlines now have carte blanche to do whatever they want. Yes, I've experienced this recently, too.

1:25Air traffic controllers. it's a it's you know when companies report earnings and they say it's weather so i got in at one o 'clock last night did you really i did it on the way out we were delayed by four hours so i almost didn't come in this morning but you felt you missed us so no i figured if i didn't come in no no i figured if i didn't come in that people on twitter would say i was dead or even worse or even worse exaggerate right even worse that i was retired so neither of those things are true you're here you're just tired i am tired many of president trump's global tariffs now in doubt following a high profile court ruling megan casella joins us with the latest where are we guys good morning to catch everybody up this was a federal appeals court ruling late on Friday that the vast majority of President Trump's tariffs are now illegal.

2:21It doesn't change the status quo, though, for now, but it does set the stage for a showdown at the Supreme Court, potentially later this year or early next. So it was a 7-4 ruling from the appeals court, which upheld a May decision from the Court of International Trade. Both courts now have found that the International Emergency Economic Powers Act, or AIPA, as it's known, does not give the president the authority to impose such broad tariffs as we've seen him do. The court wrote, reading the phrase regulate importation from that statute to include imposing these tariffs is a wafer-thin read on which to rest such sweeping power.

2:57The president has argued that a loss in court would lead to severe economic downturn. On Sunday, he wrote that if a radical left court is allowed to terminate these tariffs, almost all of the investment we've seen committed this year and much more will immediately be canceled. In many ways, he wrote, we would become a third world nation. Now, the Justice Department has said it will appeal. That's what likely sends this to the Supreme Court. But all tariffs do remain in place for now. The appeals court delayed implementation of its decision until October 14th. So much more to come. Depending on where SCOTUS lands, all of the country-specific tariffs are the ones that could ultimately be in jeopardy.

3:34That's everything imposed this term against China, Canada and Mexico, many, many other countries, 70 or so as well. But those sector specific tariffs are the ones those are going to stay no matter what. Those are the ones in place on metals and cars already. They're the ones in the pipeline on things like semiconductors, furniture and other things. So a very big deal here for a huge portion of Trump's tariffs, but not all of them, guys. OK, can we just talk about the implications of this in terms of if, in fact, the Supreme Court actually would aside not with President Trump, but with with with those suing in this instance, then what happens?

4:12Because there's still other methods with which the White House, without using Congress, my understanding is, can still continue to keep these tariffs on or effectively implement new ones. They would have to implement new ones, but there are many ways that they could do it. They could, of course, go to Congress and ask them for help. But there are other statutes. The reason, though, that the president in this term decided to go this route is that this is much faster and much more powerful. He didn't do this in the first term, in part because advisors warned him they thought it was sort of on legally shaky ground.

4:45Not to get too deep into the details, but there's Section 301 of trade law. That's what he used to impose tariffs against China in the first term. Those are still in place, unchallenged. There's Section 122, as it's known, which does deal with balance of payments. It's much more about trade deficits, which is what the president is chiefly fighting here, he likes to say. But those have to be temporary. They can only be as high as 15 percent and can only last 150 days. So there are definitely other methods here. What we don't know, and I think one of the biggest questions before the next court, the Supreme Court, will be whether the administration will have to refund, repay all of the tariffs that have come in so far, or whether that at least will hold and then maybe they just have to stop collecting future ones.

5:27We don't know the answer to that yet. This was not a surprise to us. We've talked about this again and again. The rationale, it was, just as Megan said, it was the quickest way to do it, but it never really legally looked like it was anything that was going to stand up. Right, but the big issue has been... Well, no, there's many other ways to do it, but it's just going to take longer. Well, there's many other ways to do it, but you can't do it to the same degree necessarily. So part of the issue has always been, if you're a business leader, do you play chicken with the system, with the White House?

5:56Or if you're another country. Or if you're another country, Do you play chicken with the system and say, I'm going to wait this out and try to figure out what kind of craziness is going on? I don't think the Supreme Court is going to. I think the Supreme Court may strike it down. Yeah. Yeah. Because the people that are on there, we've we've seen already. As much as the left would like to say it's a stacked court, they have. I'm sure he's mad at three or four of them right now. Some of the ones he's appointed, I'm sure he could take it to Congress. You could sign off on it. He controls the Senate at this point, but it probably would be a tight vote.

6:26Well, until the gerrymandering gets done. But who knows how that's going to shake out this as well. Megan, I want to thank you. Meantime, breaking news. Kraft Heinz announcing it plans to separate into two companies. The names of the companies will be determined at a later date. But one, which it refers to as global taste elevation, will include brands like Heinz, Philadelphia Cream Cheese, Kraft Mac and Cheese. That's obviously the favorite. And other shelf-stable meals. And then the other company is going to be called, or at least temporarily, North American Grocery. Not nearly as exciting, which is going to include brands like Oscar Mayer, Kraft Singles and Lunchables.

7:05It expects the deal to close in the second half of next year. That stock moving not so much on the back of that news. It's only 609. We're uncomfortable with each other. I feel like we've got to get back. Get warmed up and talked over. Get warmed up. What are you talking about? Let's talk about everything. Where do you want to go? Let's do Lisa Cook. You want to do Lisa Cook now or later? No, I was going to tell you that I told you how much I like Park City, right? And unfortunately, I can't afford it. And I was wondering, how do you get one of them Lisa Cook mortgages? Then I think I could probably, Telluride's nice, too.

7:44And I can't afford either. But I think I could. If you turn one into a rental property, you'll be just fine. Did you and Leesman happen to talk about that last week? You'll be just fine. At all? We were holding down the forward and we had lots of conversations. Did you happen to bring that? Yes, we've discussed this at great length. Just wonder? At great length. Okay, good. We will talk about that. We got some other breaking news this morning. We can get maybe AI to speak for us right here. The company just out with a blog post detailing how it's going to work to try to improve the behavior of its AI models during what they're describing as sensitive interactions.

8:18This follows, and we talked about it on this broadcast, actually had the lawyer at the table with us last week with what was just really such a tragedy. That lawsuit filed against the company last week on behalf of a parent of a 16-year-old who committed suicide. They complained, accused ChatGPT of wrongful death, designed defects and failure to warn about risks. And you may recall the student actually was showing ChatGPT pictures of the noose and literally asking the ChatGPT whether it would hold him, how to do it. I mean, the whole thing. But I didn't get caught up on that today. How did AI try to get him to keep this away from his parents?

8:57There were all sorts of dialogues about whether you could tell your parents not to. I mean, it was wild, wild. And just in the most terrible, terrible way. I'm surprised that we haven't heard more from OpenAI about this. But this is their first shot across the ballot today. By the way, they're not trying to say, from what we understood as of last week, They weren't trying to settle the case or anything else. In the blog post, OpenAI is saying that over the next 120 days, it's going to prioritize expanding interventions to more people in crisis, making it easier to reach emergency services and expert health, enabling connections to trusted contacts and strengthening protections for teens.

9:35That's important. The company says it will be guided by a council on well-being and AI, which includes an expanding network of more than 90 physicians across 30 different countries. is it's going to roll out new parental controls as well this month. The biggest issue with all this stuff is the longer the conversation goes on, the more potential for the degradation of the controls to work. So if you were to ask it in the first 10 sort of conversations about something that it knows it can't really answer, it'll stop you. But if this conversation goes on, in this case for months, you can see how the system starts to, when I say degrade, meaning the guardrails of things that shouldn't talk to you about or would otherwise stop you on day one.

10:24If you had gone on and said, I need your help building a noose, it would stop you right now. But if you talked and talked and talked and talked and talked to it on the same thread for a very long time, that's when things go wrong and that's what they're going to try to fix. I don't understand. Because the way this whole system and algorithm seems to work is they can put certain guardrails on for certain types of conversation. And so when you're having this dialogue with it early on, if you ask things directly. But you normalize it by bringing it up again and again and again. I don't understand how it happens.

11:02My understanding is, and by the way, I've had this experience, not with terrible kinds of questions, But I've had this experience where after the 30th question, clearly the quality, even the quality of the answers degrade sometimes and things start to break. So that's sort of where I think this is like we need to figure this out. Because you can imagine I could think just off the top of my head, come up with 10 things that you wouldn't want people looking into, whether it's building a bomb. But you can find those things on the Internet. I know you can. I guess the difference is. But how do you.

11:38You don't want it to be where you're deciding what people can see and what people can't see. And you're back to the whole censorship. Back to the question. Well, but right. And that's that's the separate issue, which is which is what I think is being addressed this time in terms of parents are going to have certain controls over it. It will alert the parents if there's questions asked that are that are dangerous or other types of things. And that's going to be that gets into a whole other privacy question for a lot of people as well. So it's going to be interesting to see how how this all plays out.

12:09Some of these systems like anthropic is very cut and dry. They basically stop any kind of conversation about any certain types of things to the point where some people think it's not useful. And so this becomes this very interesting question of uses being useful versus dangerous and sort of where that line is, the context of the way you're asking the question. If you were asking a question about hopefully not building a bomb, but in some kind of context where you wanted to learn how to do something for a science project, that might be one instance. But if you're asking it and you're an adult, would it alert authorities?

12:43And so these are these I don't think it's going to alert authorities in the same way, unfortunately, or fortunately, depending on how you think about it. If you were to search on Google, you know, Google is not sending a note to the authorities. We've talked about, I know we've had debates about gun use, but, you know, a lot of times, almost every time there's been a mass shooting in America, the shooter who's gone and killed lots of people has taken to Google prior because it shows up in all of the evidence afterwards, asking all sorts of wild questions about whether credit card companies know about the guns.

13:16And I guess that's the question. What is the difference between a Google search and an AI large language? Well, the large language model can, in this case, and what we saw last week, and hopefully folks can go back and watch the video, because you can really learn about the whole case, and you can go online and learn about it as well. This was encouraging him to do this. I mean, this was a very different scenario. Well, that's a whole difference. And that's different than a direct search. That's horrible. But it's just another example of we really need to think about what we're doing here. Although we don't want to get behind.

13:50Well, and the other part is there are people, putting that aside, there are other people who are using these services, and it's quite helpful to them, right? It's cheaper than having a psychiatrist, and it's actually, they're finding it to be useful. And the truth is, 99.9 % of the people, it is hopefully helping, but then the question is, how do you prevent this kind of instance from happening? You wonder how much it's actually helping anyway. That's always a question. guidelines for therapists and counselors and psychoanalysts. Cheese will be next. Still to come on Squawk Pod, McDonald's rolling out extra value meals and lowering certain menu prices.

14:32CEO Chris Kamchinski joins us right after this. This is where, with our franchisees, that's part of why we wanted to step in and co-invest with them to do this extra value meal program to show that we're all in it together.

14:51welcome back to squawk pod from cnbc you're watching squawk box right here on cnbc i'm andrew sorkin along with joe kernan and becky quick we are all back and uh there's a lot of news taking place this morning uh some news that just broke earlier this morning kraft hines now playing to separate into two companies the names of the companies will be determined at a later date but one which is referred to as a global taste elevation that's going to focus on shelf stable brands like Heinz and Kraft mac and cheese the other is going to comprise the North American grocery business including brands like Oscar Mayer Kraft Singles and Lunchables expected that deal to close the second half of next year.

15:31I mean they did a bang up job when they got together coming up with a new name I think. You know putting that together you mean Kraft and Heinz Kraft and Heinz I don't know what they paid for that. The ketchup business is the business. Brilliant. By the way, of all the businesses, the ketchup business is the business. You would think that ketchup would be like a generic thing, but somehow Heinz ketchup is the game. The way you combine ketchup and catsup is what I'm always struck with. Right? Because it sounds like you're saying ketchup with something. But it is ketchup. That's stock, as you saw, Dan.

16:11Ketchup. Ketchup. Ketchup or ketchup? McDonald's launching a new value menu with options, including a$5 sausage McMuffin meal and an$8 Big Mac meal. And joining us right now to talk about it and much more is Chris Koczynski. He is McDonald's CEO. And, Chris, thank you for coming in this morning. This has been pretty widely telegraphed. You talked about on the conference call about how you really need to grab the value to bring customers back in. What happened? What was the evolution of this? Yeah, well, Extra Value Meals are back. It's, I think, a great day at McDonald's. And for us, we've been on sort of a value journey over the last year.

16:51We last year launched in the summer the$5 meal deal, which was a great success. Later, then we launched a buy one, add one for a dollar. All of that was under McValue. We also continue to have a lot of activity on our app. So if you're using the McDonald's app, there's great offers there. But the reality is that if you weren't using the app and you didn't buy McValue, where did you find value on the menu? And that was about 50 percent of the transactions were consumers who weren't using the app and weren't buying McValue. And so credit to our franchisees for recognizing we had a gap there where we needed to really come in with a strong message.

17:28And that's what we're doing here with this extra value meal. It's going to be all your McDonald's favorites and it's going to be predictable. So you're going to know every single day when you come in that you can get McDonald's extra value meals at a great deal. It's something to try and coordinate with all the franchisees, though, because you're splitting the costs on this between marketing and who who ends up getting you're paying for some of the franchise. Yeah. Yeah. You know, I'd say our franchisees actually were very much in favor of this. It didn't take as much as as maybe what you're suggesting.

18:00When this went to vote for our franchisees, which is how it works in our system, this was as close to unanimous as we get in our system for people to get behind this. Because they recognize the extra value meal is one of those things that's kind of in the McDonald's DNA. I mean, when you drive into a McDonald's, you say, I want the number one or I want the number four. And people have an expectation to see there to be a discount there. And so, you know, we had to provide, I'd say, some support, particularly around the marketing side, because our calendars was already pretty full with other activities.

18:34But this wasn't something that required a lot of arm twisting with franchisees because they recognize extra value meals and the predictability that the customer expects when they come into our restaurants. It's something we've been doing for a long time. We got away from it with all the inflation during COVID, but we're back to it now. And you're moving fast. The stock's right off at all time high. You can get a dollar more at Chili's. I guess that's a higher. It's not a McDonald's. It's thought of as a casual dining or something. So if it's only a dollar difference, you might go to Chili's. So you recognize that and move quickly, right?

19:08Yeah. And part of what we also saw was that particularly with middle and lower income consumers, they're feeling under a lot of pressure. I think there's a lot of commentary about what's the state of the economy, how's it doing? And what we see is it's really kind of a two tier economy. If you're upper income earning over one hundred thousand dollars, things are good. Stock markets are near all time highs. You're feeling quite confident about things. You're seeing international travel. All those barometers of upper income consumers are doing quite well. What we see with middle and lower income consumers is actually a different story.

19:45It's that consumers under a lot of pressure in our industry, traffic for lower income consumers is down double digits. And it's because people are either choosing to skip a meal. So we're seeing breakfast. People are actually skipping breakfast or they're choosing to just eat at home. And so for our business, which has a significant group of consumers which are in that middle and lower income, we needed to step in with something like what we're doing here. Do you find yourself, sorry, tiering different products, though? Meaning, stating to yourself, OK, there's going to be a lower income consumer.

20:20We're going to have this product for them. But then we have a luxury consumer that's walking in and we're going to charge them a premium price for some kind of premium product. We have, we call it value ladders. So there would be something that would be an entry price point for someone who's looking for something that maybe they only have a few dollars in their pocket. So what can I buy for a few dollars in my pocket? And then we try to offer more premium items as well for somebody who's, you know, maybe able to spend more money. But because it's a two-tier economy, do you not get the benefit of wealthier people trading down that you might in a generalized economy or economic downturn?

20:57We don't see as much, again, because that wealthier consumer right now isn't feeling under a lot of pressure. This isn't like what we saw in the Great Recession, where everybody was trading down. Right now, again, if you're up for income, you're feeling pretty good about things. And so we're not seeing as pronounced a trade-down effect this time around. And the chickens, it's back. The snack wraps are back. The snack wraps are back permanently. Permanently. $2.99. Spicy. Ranch. Have you tried it? yesterday but my the women in my family want those it's not and they like they said did you ask him if he fired the person that got rid of the snap cracks and you said we probably did probably did but it was it was it was a while ago can i i want to just ask one thing about maga versus maha because i i i would have thought that i mean there was a stigma an anti-mcdonald's sort of a stigma among i don't know what you would call it for about lack of better term woke yeah So I see that reversing a little bit.

21:55But at the same time, I see Robert F. Kennedy Jr. like looking at the president when he's eating a big Mac and like rolling his eyes. It's almost like two competing narratives coming from the same administration. I've never wavered on McDonald's, as you know. Anything in moderation? I think for us, part of this is a lot of the things that have fallen sort of under this Maha umbrella are all about artificial. They're about artificial preservatives, artificial flavors. artificial colors. Because the food that we're preparing in our kitchen is fresh, we actually don't use artificial colors, flavors, preservatives.

22:32Where you see it will be in things that some of our soft drinks that we serve will have it. Some of the toppings on a McFlurry, if you think about it. Super-sized me. People think about that movie. Yeah, so that was, yeah, certainly, certainly a long time ago, we had that as well. But I think this is where on our menu, we try to just make sure people have choice. So if you want to have, you know, a lower calorie option, if you want to have a more indulgent option, how do we just make sure you don't sell yogurt and apple slices anymore? They do sell yogurt. Yeah, we do. Well, that's where I was going to go, which is you keep talking about the health of the consumer.

23:04I want to know about the health of the franchisees themselves. Yeah. And sort of regionally, what where it's where they're super healthy, where they maybe they're less healthy. How you think about that? Yeah. There's no doubt that in the last call it four or five years the franchisees have been under a lot of cost pressure they've been under cost pressure because food and packaging costs are up north of 40 percent and you also have seen labor costs go up pretty significantly across the country there's close to 30 states that have had significant increases in the state minimum wage California notoriously introduced the$20 minimum wage just for restaurants that are 60 restaurants or more.

23:47So there's been a lot of cost pressure that's been on the franchisees, which in part has led to some of the price increases that you're seeing as well. I think through all of it, our franchisees are still doing well. We're certainly doing better than our competitors. If you think about where we were, all-time cash flows, we're probably off maybe 10 % from where our franchisees had all-time cash flows. That said, there are definitely pockets of the market, like in California, where there is much more pressure on that. And I think this is where, you know, with our franchisees, that's part of why we wanted to step in and co-invest with them to do this extra value meal program to show that we're all in it together and that the cost pressures that they have, we're also not asking them to do everything on pricing.

24:33We're willing to step in in this particular case and help them as well. I think one of your predecessors, I just remember that instead of doing a lot of innovation, it was going to be fast, it was going to be fresh, it was going to be consistent from franchisee to franchisee. And I haven't, I go to a lot of different ones if you travel. I haven't had a bad one, I don't think, recently. How does the corporate parent make sure that everyone's on the same page, the franchisees? It all starts with our strategy, and one of our strategies called Accelerating the Arches, And one of the things that we've said with the strategy is commit to the core menu.