Late Nights and Coffee in McD’s Future

Discussion
May 24, 2005
George Anderson

By George Anderson


CEO Jim Skinner of McDonald’s told investors the fast food chain is looking to take another shot at getting the company’s McCafés store-within-a-store concept right here in the U.S.


The coffee and pastry shop concept has been well received in Australia and other international markets but didn’t take hold when initially tested in the U.S. McDonald’s closed a McCafé in Chicago four years ago after a short trial, reports Crain’s Chicago Business.


McCafés could be a boon to U.S. restaurants if they are able to achieve similar success.


Prudential analyst Larry Miller wrote in a research report, “McCafés boosted sales in New Zealand by $300,000 per unit on an investment of $150,000.”


Another approach McDonald’s is taking to generate greater revenue at existing locations is encouraging franchisees to open for business 24 hours a day (good coffee being a must).


According to another report from Crain’s, 20 percent of McDonald’s in the U.S. are now operating round-the-clock and the company feels it can leverage a move by more restaurants in key markets to advertise this point of difference.


The upside for McDonald’s corporate headquarters is clear according to Crain’s: “If restaurants can generate just $150 between 11 p.m. and 6 a.m. — selling 30 Big Mac combo meals would do it — that translates to an extra $55,000 a year per restaurant. If half the McDonald’s in the U.S. can do that, that’s $374 million more in sales a year. And since McDonald’s U.S. stores average $1.7 million in annual sales, the company can post revenues equivalent to that of 220 more restaurants — without having to build them.”


Not everyone is sold on the idea. Dale Gibson, a former McDonald’s franchisee near Salt Lake City, said, “The corporation will get its money, but the operator is the one sucking down the costs… to get people to work the graveyard shift, you have to pay more and you’re more susceptible to theft.”


Moderator’s Comment: Do steps such as McDonald’s re-testing its McCafé concept and encouraging its franchisees to operate restaurants 24/7 provide
the fast food chain with a point of difference in the marketplace? What does McDonald’s need to do to further differentiate itself from its broad list of competitors?


George Anderson – Moderator

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6 Comments on "Late Nights and Coffee in McD’s Future"


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Al McClain
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Al McClain
15 years 9 months ago

As Warren mentioned, the name “McCafé” could be improved. Maybe it’s time to give up the notion that everything new they do has to have “Mc” attached to it, and give the cafes more of an adult sounding name. 24/7 seems overkill to me, and the risks of robberies and worse at that hour would appear to outweigh the small amount of extra business they could do. But then again, I’m not the “Big Mac combo” at 4 AM type of guy.

Ben Ball
Guest
15 years 9 months ago

There are a lot of places that offer gourmet coffee and pastries. And there are a lot of places that are open 24 hours. But there aren’t that many that do both. So this COULD be a point of difference for McD’s. And there is a way to make 24-hour operation profitable and safe, which is to only operate the Drive Thru window from 11 to 7. The conflict will be in trying to do both. “McCafé at midnight” could have great appeal — but not if I can’t go inside, sit down and surf while I slurp.

Bernice Hurst
Guest
15 years 9 months ago

Dale Gibson’s response is important. It may not cost McDonald’s more but it will surely cost the franchisees more. Although the hypothetical figures given are pretty small in the overall scale of things, you also have to wonder about who the customer would be in the middle of the night and how much value there is to the individual store in remaining open for them.

The more obvious answer to your question – both parts – is that it depends who is already in the area. Hard to say whether this is a point of differentiation if a particular marketplace is already well covered. It is also a matter of quality. If they’re going to do coffee and pastries, they really need to ensure that what is on offer looks and tastes better than whatever anyone else is featuring.

Warren Thayer
Guest
15 years 9 months ago
I just don’t equate the concept of McDonald’s with good pastries. Maybe a name other than McCafe? There are so many good coffee and pastry alternatives available now, it’s going to be hard to play catch-up no matter how good you are. Having said that, it’s obviously a large, robust market for coffee and pastries, so there might be some incremental gains. It may be a differentiation of sorts for McDonald’s, but I’m not sure it is a differentiation/alternative in the minds of consumers. I know that C-stores are constantly prowling fast feeders for ideas, and it might be worthwhile for some fast feeders to prowl around C-stores and come up with some ideas for high-margin convenience items they could easily sell to build sales. As for 24/7, it’s going to depend a lot on the market. But I agree that getting folk to work the graveyard shift is hard, and risky. You’re more likely to be so glad to get someone to work those hours that you overlook that nagging feeling in your gut… Read more »
Tom Zatina
Guest
Tom Zatina
15 years 9 months ago

It can and likely will be a point of difference…for a while. But then, what will matter is the quality and consistency of the offering. This will not be a McD’s for kids and will need great items and a setting of a more sophisticated nature to win the battle for the late night crowd.

David Livingston
Guest
15 years 9 months ago

I doubt the individual unit owners will go for expanding to 24 hours. With numbers quoted such as $150 in sales for a 7-hour grave-yard shift, obviously the expenses involved would be a lot more than $150. Why should the owners take a loss just so McDonald’s can show more sales?

McDonald’s does not need to differentiate itself from the competitors. Since they are #1, the competitors need to differentiate themselves from McDonald’s. McDonald’s should keep focusing on what they do best and not try to mess with success every time some cry baby on Wall Street thinks they haven’t met his expectations. I haven’t seen a McCafé. I heard they were offering WiFi, but wanted customers to pay for it. Big mistake. That is about as insulting as charging a quarter to use the bathroom.

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