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McCafe


McDonald’s Corp. (NYSE:MCDD) knows it has a “growth” problem. Finally, in the eyes of some, it is doing something about it – expanding its chain of McCafé coffee shops.

Not many people know McDonald’s even has a chain of coffee shops. In fact, the McCafé coffee shop concept began in Australia in 1993 and since then expanded to other countries with the first one in the U.S. opening in Chicago in 2001.

To date there are 1,300 McCafé locations worldwide. If McDonald’s has its way, soon there will be many more.

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The Competition

Including McCafé and it’s 1,300 locations, the five largest coffee shop chains on the planet are Costa Coffee with 1,700 locations, Restaurant Brands International (NASDAQ:DNKNC) Dunkin’ Donuts with 10,000 locations and Starbucks Corp. (NASDAQ:SBUXC) with 20,000 stores.

The granddaddy of them all, of course is Starbucks. That’s the one McDonald’s has in its sights now. This is because McDonald’s believes beverages in general and coffee in particular is an area where the company can grow revenue in a big way.

A $30 Billion Opportunity

To McDonald’s, coffee is a $30 billion annual opportunity. Behind that number are some other impressive numbers. For example, although restaurant traffic has continued to decline, coffee chains average 2.2% same store growth in Q4.

Starbucks has a third fewer customers than McDonald’s on a per day basis but higher annual revenues. McDonald’s represents a real threat to Starbucks because with its worldwide presence, the company has both infrastructure and know-how to set up shop just about anywhere it wants.

Inside McCafé

A typical McCafé coffee shop, like one that opened in Paris recently, looks nothing like a McDonald’s fast food restaurant. Instead it looks like the trendy upscale coffee shop that it is. Instead of burgers and fries, McCafé offers up "macaroons, cupcakes, tiramisu, flan, muffins, marshmallow bars and brownies.”

In addition, of course, there are a variety of plain and flavored coffee drinks including espressos, macchiatos and lattes. In Paris you can also get pastrami and bagels toasted with salmon.

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New McCafé Drinks On Tap

In conjunction with the planned expansion, McDonald’s is testing 3 new McCafé drinks in California. The new drinks include hot and iced Caramel Macchiato, French Vanilla Cappuccino and Americano.

The company wants to increase sales of beverages and is already selling coffee and fountain beverages for $1. Beginning in April it will add small $2 McCafé items to the menu ranging from smoothies to espresso and frappe drinks. The promotion will run for a limited time but there has been no word on when it will end.



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