McDonald's (MCD, Financial), the largest burger chain in the world, has decided to double down on the coffee business.
McDonald's is going through a huge transformation process, moving toward a franchise-heavy model as it faced a huge slowdown in its growth trajectory. Things have picked up in the last 12 months, though, as same-store sales stayed positive.
Due to its sheer size, increasing the company's store footprint is going to be a hard task, and same-store sales have to stay positive if it wants to keep its top line moving. McDonald’s decision to shift toward a franchise-heavy model was likely prompted by the fact that it will help stabilize its top line. Meanwhile, global same-store sales increased by 3.5% in the last quarter but only grew by 1.3% in the U.S.
Now, McDonald's has decided to get aggressive with its coffee brand, McCafe. It is an important part of McDonald’s business as it generates $4 billion annually in the U.S. McDonald’s will be reintroducing the McCafe concept next year, and it plans to go in with price cuts to take on rivals Starbucks (SBUX, Financial) and Dunkin’ Donuts (DNKN, Financial).
McDonald’s still plans to emphasize its price advantage over Starbucks as it retools the McCafe brand. The company is planning a $1 drip coffee and $2 small specialty-beverage deal for the first quarter of next year, U.S. Senior Vice President of Strategy and Insights Kristy Cunningham told Bloomberg.
Coffee is indeed a huge global market and, considering the fast food chain’s footprint of more than 36,000 stores around the world, coffee could well turn out to be a big revenue spinner for the company.
The effort will take time to percolate through to the top line, but a big push can help effectively re-brand the unit. Also under way is a major overhaul of the entire chain with a focus on more personalized service.
“The Golden Arches' cafe brand isn't the only aspect of the company getting an upgrade. The burger chain revealed last month that its restaurants will be getting revamped as part of an effort to become a 'modern and progressive burger company.'
“McDonald's will be adding self-service ordering kiosks, craft burgers and table service to its stores.” –Â CNBC
Starbucks has changed the narrative around coffee and is the best premium coffeehouse chain in the world. McDonald’s can certainly use some of that goodwill surrounding coffee that Starbucks has built in order to improve its own image with respect to the coming generations.
The move may not help keep its sales numbers ticking, but it can definitely help the company change the way its brand is perceived.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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