A coffee shop in the hamburger kingdom

A year ago I read a lot about controversies about McDonalds’ decision to introduce coffee shops within their existing restaurants. At the time one of the many skeptics wrote that he couldn’t imagine a truck driver entering a McDonalds restaurant, taking a cheap lunch and ordering a fancy cup of coffee. There where many opinions that McDonald’s intrusion into Starbuck’s playground will turn into failure. There where many believing the opposite though.

Mc’Donalds decided for two approaches to introducing coffee line in its existing business:

1. In US the coffee line of business is integrated into the existing front counters

2. Separate counter and cafe’ – style furnishing within existing restaurants, started in Australia in 1993. This model started to extend to Europe in 2009.

In Zagreb the first McCafe’ was introduced in autumn 2009. I was really curious about what will be the success. These days I had the opportunity to “taste” the business model, through customer goggles. Here is my experience and annotations.

Me and my laptop walked through the McCafe’ door due to a reason different than usual choice of a cafe’. After the temporary suspension of the anti-smoking law in Croatia, McCafe’ remained one of the very rare places in Zagreb where one can enjoy a coffee without having to take the role of a secondary smoker.

Nice cakes, but where is the WiFi?

From customer perspective it was a decent experience (as I didn’t poor the coffee on my keyboard this time, my laptop will not be asked about his opinion :-)). The McCafe’ (at Zagreb at least) is smoothly integrated into the standard fast food area. As my idea was “work-and-coffee“, too many children running around after 3 PM where disturbing eventual phone calls. As some customers claimed to the Business Week’s reporter (http://www.businessweek.com/magazine/content/09_40/b4149070703260.htm?chan=globalbiz_europe+index+page_management+%2Bamp%3B+learning) in her article about McCafe’ penetration in Europe, the smell of French frites and hamburgers does spoil the coffee shop atmosphere. Indeed. During my stay at McCafe’ I really missed a WiFi link and a coffee sized less than a mid cup. What about a “small macchiato”?

When trying to have a look from the back door, my estimation is that the business model is placed on healthy basis. Here is why.

My only concern is that the McCafe’ bar seems often too empty, but the rest of business case seems to be built around productivity and up sell.

First, it is pretty hard to resist some of excellent, yet pretty expensive cakes, when you jump in for a cup of coffee.

Additional argument on up selling that keeps the business running, are many parents that approach the McCafe’ counter after having ordered food for their children at the fast food counters.

Productivity + up-sell is the name of the game

From productivity perspective, McCafe’ shares existing resources (such as cleaning personnel) with the rest of the restaurant and employs fewer personnel than an average coffee shop. Actually only one lady is taking care of the whole McCafe’ experience, including coffee making, cakes decorations, billing and the inevitable “enjoy” phrase.

Comparing with a traditional coffee shop that engages a “running waiter”, in McCafe’ the productivity is additionally enhanced by the fact that customers serve them selves at the bar and clean their desks afterwards by bringing their trays back to the McCafe’ counter. It is worth mentioning that the price of a small cup of coffee is among the highest in Zagreb area (10Kn = 1,3€, cca 2$). More expensive coffee can be found at a few very fancy places and 4+ star hotels.

In terms of cross selling and reusing existing resources, McCafe’ has thought about the possibility to sell cakes “to go”, extending their presence to home parties and celebrations. McDonald’s has extended its business model to coffee line of business, without actually having to innovate, or spend too much. They got all of it already – food “to go”, restaurant management, location, experience management, standards,…

The Business Week’s article cited above, brought an estimation of Jeffrey Young, managing director of London management consultancy Allegra Strategies that the investment for a new stand alone Starbucks in Europe is at least tripple the amount of that for a McCafe’ within the existing McDonald’s facitilites. I’d add that it is the same ratio, if not higher, when talking about the daily business expences (personnel, energy and the like).

All in all it seems that there was no place for skeptics when talking about McDonalds introduction of McCafe’. The new line of business is all about up sell and reusing the existing resources. This was a simple business idea, and simply hard to miss. And here is a simple thought for the end: If these are results of a marriage between hamburgers and cappuccinos, think about the consequences of the merge between mobile (T-Mobile) and land line (T-Com) telecom operators.