Coffee Gets Hotter at McDonald’s

McDonald’s is riding high, enjoying a resurgence fueled by new snacks and longer restaurant hours. But is it about to put the whole thing at risk by trying to take on Starbucks?

The burger chain plans to install specialty coffee stations in all its restaurants over the next 18 months. The stations, which are a scaled-down version of the format Starbucks uses, could deliver another $1 billion in sales to McDonald’s $23.3 billion in annual systemwide sales, the company says. But restaurant experts say the change also could slow down operations and add to wait times. That conjures up memories of the troubled rollout of McDonald’s "Made for You" cooking system in 1999, which was designed to let restaurants prepare burgers to order but initially slowed delivery times during the crucial lunch-hour crunch, according to an Associated Press report.

The move seemingly is aimed at taking business not just from Starbucks, but convenience stores and rival Dunkin’ Donuts.

Drive-Through Luxury
"You’re adding operating complexity in a system that’s designed for simplicity," says Neil Stern, senior partner at retail consulting firm McMillan Doolittle in Chicago. Experts note that customers expect their order to be completed in 60 to 90 seconds and get cranky when service breaks down.

The key to fitting the new system into McDonald’s highly regimented operation is that it will be simpler to operate than a Starbucks setup, the company said. Still, McDonald’s plans to hire Starbucks-style baristas for the first time. Those baristas will man stations separate from the main counter to make sure concocting a latte doesn’t slow down a Big Mac order. If coffee orders are slow, the baristas can always swing back to help bag burgers.

The chain already has some experience with specialty coffee service. It offers espresso-based drinks at 800 of its restaurants in Kansas City, Michigan, and the Pacific Northwest, using the same format that it plans to roll out nationally. Its goal will be a maximum wait time of 90 seconds. The tradeoff is that McDonald’s won’t be able to offer as many choices as Starbucks. About 60% of McDonald’s new coffee drinks will be delivered through drive-through windows, the company expects, or about the same percentage as for the main menu offerings, the report said.

Even while charging an average of 60 cents less per drink than Starbucks, McDonald’s is expected to make 30%-plus margins on the specialty coffees. Still, some McDonald’s franchisees are apprehensive about the expected $50,000 per-store cost of the equipment and store retrofitting, which is about what Made for You cost, even though the parent company will help defray expenses. Also, the return on the special coffee drinks will depend on local competition.

Coffee isn’t the only stretch that McDonald’s has planned. Eventually, it plans to offer smoothies at its beverage stations, which will require still another class of blending equipment. "We’re still working on that," says Huebner.

McDonald’s points out that it has 18 months to iron out the kinks as it expands specialty coffee to all 14,000 U.S. locations. "We’ll make sure we’ve done the training properly and that we’re fully staffed," spokesman Bill Whitman said.

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