McDonald’s develops
At the National Air and Space Museum near Washington”s Dulles airport, a barista is serving cappuccino with a double shot of espresso. A display nearby stocks blueberry muffins, “luscious lemon squares” and bags of Guatemalan Antigua whole bean coffee.So far, so ordinary – for a coffee bar. Except this is a McCafe, one of only five experimental coffee outlets in the US owned by McDonald”s, the fast food chain.”Yeah, people are surprised,” says the barista. “They”re like, this is a McDonald”s?”As strange as the idea of a Starbucks-style coffee shop may seem for a company known for selling hamburgers and fries, the McCafe concept has being going since 1993, when it was introduced in Australia by Charlie Bell, former McDonald”s chief executive.It has grown steadily across Asia and the Middle East, where there are 300 outlets, Latin America (more than 110) to Europe (nearly 140) and has recently reached North America. The formula is simple: to serve “great, speciality coffee in a relaxing setting at an affordable price”, according to McDonald”s.McCafe interiors are starkly different from the often dowdy décor of a standard McDonald”s.At the outlet in the Air and Space Museum, spotlights shine from the ceiling on to designer tables with vases containing fresh carnations.In Australia, McDonald”s has found that a restaurant with a McCafe attached – the typical formula – generates 15 per cent more revenue than a standard outlet.More broadly, however, the McCafe concept is part of a campaign to reposition McDonald”s to appeal to a broader set of consumers – including higher-spending restaurant-goers than those traditionally associated with the chain”s cheap, core burger menu.It is a key part of McDonald”s plan, launched two years ago, to reverse a decline in same-store sales . The chain had over-reached itself with relentless store openings. At the same time, sales suffered amid a consumer backlash over obesity and food safety.McDonald”s has since 2003 focused instead on promoting its core menu, introducing new items – often at a premium to the core menu – and sprucing up its existing restaurants.The effort has paid off so far. In August, sales in stores open more than 13 months rose by 3.2 per cent in the US and 3.6 per cent in Europe, with global operating income in the first half up by 5 per cent to about $1bn.Next year, the company will make $1.8bn in capital investments – $100m more than this year – to open about 850 restaurants and “broaden our re-imaging efforts internationally”, says Matthew Paull, chief financial officer.With McCafe, the idea appears to be to combine McDonald”s already strong presence in coffee – it started selling the drink in 1955 – with the broader re-imaging campaign.”[McCafe] isn”t a new concept, but it”s being revitalised around the globe,” says Jeff Stratton, McDonald”s chief restaurant officer. “It plays beautifully to our revitalisation plan, it”s strategic and relevant to consumers.”He declines to say whether McCafe is independently profitable but says “we”re pleased with what we”re seeing financially”.Many restaurants, not necessarily ones with a McCafe attached, now feature soft overhead lights, designer sofas, WiFi zones and flat-screen TVs.By the end of this year, McDonald”s will have re-vamped about 4,500 of its restaurants since 2003 – or about 15 per cent of the total. Next year a further 2,000 around the world will receive the same treatment.Ralph Alvarez, president of McDonald”s North America, says: “We also have to think like a retailer. We are broadening the definition of the space that we operate in. You don”t want to be in a commodity business, it”s about brand definition.”In the US, such so-called “rebuilds” can add an average of $500,000 in annual sales to an existing restaurant.The initiative is especially important in Europe, where McDonald”s faces stiff competition from supermarkets and convenience stores. Re-imaging there is masterminded by a McDonald”s “European Design Studio”, headquartered in Paris.McDonald”s will not say whether it plans to expand the McCafe concept across the US. But it does plan to open 100 new McCafe outlets by the end of this year, mostly in Germany – where there are already 30 “pilot” McCafes – Russia and Italy, as well as in Australia, New Zealand, Brazil and Argentina.Glen Steeves, chief operating officer for McDonald”s in Europe, says McCafes tend to do well in downtown areas – there are six in Dublin and 14 in Moscow – but in Germany the company has also opened them in smaller residential areas
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. “It does well in drive-through, as well,” he says.
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