Would you like
fries with that cappuccino?
McDonald's brews plans for
By Bruce Horovitz
Friday, September 22,2000
SYDNEY - After years of testing
the leisure coffee concept in Australia, McDonald's will begin
to open McCafe coffee shops in the USA next year, says Jack
Greenberg, McDonald's CEO.
This is the first time that
McDonald's has publicly commented on domestic plans for the
value-priced, gourmet coffee shops that operate as separate
units inside 50 McDonald's restaurants in Australia.
The fallout could be enormous.
Starbucks owns roughly half of the nation's 7,000 gourmet
coffeehouses. No one else comes close. But McDonald's has 13,500
locations in the USA, and it has another 13,500 abroad.
If even a quarter of those stores
eventually sell gourmet coffee, McDonald's will become a gourmet
brew behemoth. Specialty coffee sales are regarded as the only
growth segment in the $18 billion domestic coffee market.
"Other than Starbucks, no one really has a national
brand," Greenberg says.
Although Starbucks and McDonald's
generally attract very different customers, "We could be a
problem for them," Greenberg says.
Starbucks executives are keeping
mum on McCafe. "As a company, we don't comment on
competitors' concepts," a statement reads.
However, "it's going to be
difficult to convince anyone that McDonald's stands for premium
coffee," says Ron Paul, analyst at Technomic, a consulting
firm. Because of that, it will have to treat McCafe as a
That's what it does in Australia.
The typical McCafe is at the front of a McDonald's, has its own
counter, signs and coffeehouse-like furniture. Employees are
dressed in visibly more upscale outfits than those at the
McDonald's counter. Drinks such as cappuccino and caffe latte
are served in ceramic mugs; beans are 100% Arabica. And like any
gourmet coffee shop, the counter is stocked with all sorts of
sweets, from muffins to biscotti.
Cappuccino, which is the
top-selling drink at McCafe, sells for slightly less than $1
(American) here. Fresh-baked muffins are about $1 each, as well.
That's roughly half the price that Starbucks sells the same
products for in the USA.
But quality, not price, is the
big issue with most Starbucks customers, says Bonnie Kramer
Tonneson, analyst at Chase H&Q. "People go to Starbucks
for quality and justify the price as a small indulgence."
Greenberg won't say where the
chain will initially test domestic McCafes, but industry
analysts suggest it will likely be in the Chicago area, where
company executives can keep a close eye on it.
The McCafe concept was devised in
1993 at a McDonald's in Melbourne. By next year, McDonald's
plans to double to 100 its McCafes in Australia. Currently,
there are about 300 McCafes in 15 countries, including France,
Italy, Portugal and Brazil.