Buying a Franchise

Coffee Wars

mccafeMcDonald’s has been facing some struggles recently. Franchisees were upset about Dollar Menu offerings, McDonald’s has been hit by health-related public relations issues as have other fast food companies, and the CEO, facing disappointing fourth quarter numbers, suggested that McDonald’s may have lost “customer relevance.” While the fast food giant is not the only company facing challenges, they are responding with an aggressive new tactic. McDonald’s is trying to increase visits and the total amount spent per visit with premium coffee drinks meant to rival those of Starbucks.

McDonald’s franchisees have reportedly been asked to spend $13,000 per location on specialized coffee and espresso machines to produce the new line of McCafe drinks. There have also been remodeling costs as McDonald’s tries to up their game and make their restaurants more appealing to the changing tastes of their customers. The more modern McDonald’s décor looks more like a Panera or Starbucks than a typical fast burger restaurant.

However, McDonald’s new McCafe drinks are slowing down overall service times in the fast food chain, and experts worry that this change might be detrimental to the brand. Long, slow-moving lines are expected at some restaurants and not at others, so a slow-down could have consequences for a brand built on speed.

McDonald’s is also placing their new McCafe products in grocery stores—generally positioned right next to coffee from Starbucks and Dunkin Donuts. The idea is to raise brand awareness. McDonald’s CEO Don Thompson said, “By selling coffee in grocery stores and in other outlets, we’re marketing the brand so a person is reminded to come into a McDonald’s restaurant.” It also aims to put McDonald’s coffee on par with the quality of other brands found in the coffee aisle.

While McDonald’s is 90% franchise owned in the U.S., Starbucks doesn’t have franchise locations in the United States and is just starting to open up franchising abroad to grow their brand. They’ve been focusing more on bakery items and sandwiches and have been encroaching on McDonald’s territory with lunch and dinner options on top of bakery goods and coffee. If McDonald’s has been losing ground to Starbucks, they may simply be working to regain that ground. It remains to be seen whether they can do so without alienating their core customer — or their franchisees.

While anyone with entrepreneurial leanings might find this coffee war interesting, future franchisees can learn a bit from McDonald’s approach to defending their territory from an outside brand. McDonald’s sales have been declining since McCafe drinks were introduced, so this may not turn out to be a successful approach. However, franchisees will be affected, either way.

When you’re researching franchise business opportunities, it’s essential to look not only at the specific franchise you’re considering, but also at the industry as a whole. Will the franchise you’re considering be able to handle predictable changes? Does their history suggest that they will be able to deal with unpredictable ones?

McDonald’s has had unsuccessful launches in the past — remember McPizza, the Arch Deluxe, and the Hula Burger? Few people do. If the McCafe drinks aren’t a hit, they’ll probably go the way of these earlier innovations. Nobody hits it out of the park every time, but potential franchise business owners should take some time to research how a company has handled the challenges, as well as the successes.

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