May 20, 2008

Deutsche Bank Accepts Mediocrity

If you ever ask yourself, how can McDonald's push for a
national roll-out of McCafe when the sales of specialty
coffee have bee so unimpressive?

The answer is that Oak Brook thinks on a chain-wide scale
with little regard for the individual store. This is the same
logic Deutsche Bank uses to place a conservative "Hold"
rating on Starbucks.

Deutsche calculates, based on test markets, that McDonald's
could sell 30-40 units/day. That's enough to hurt sales at
Starbucks on a national basis.

So it's not about profitability for the individual store - it's
about the brand - and attracting investors away from other
brands to buy McDonald's shares.

Deutsche Bank article is HERE



Richard Adams said...

Soon after posting this article I got a few E-mails from people claiming to be shareholders who were surprised that coffee drinks of any type at any UPT
level were not infinitely profitable. I tried to explain that the profit has to be measured after the Operator considers:

* The capital cost of equipment and remodeling

* The cost of the money for that capital spending

* Disruption caused by remodeling

* Divergence of Co-Op advertising and promotional dollars away from core menu to McCafe

* Cost of massive coffee giveaways (perversely
labeled sampling)

* Distraction of store management (and Operators)

* Operational complexities

* Increased labor

* High maintenance of McCafe equipment

Operators - Please add anything I missed.

Anonymous said...

How about the expense of slower service when we have to pull cars if a car orders more than one specility coffee?

Anonymous said...

do not forget that mccafe sales serio usly underperform in small towns and the aacm yet they need the same investment. that makes their per unit profits even less.

Anonymous said...

Having the machine down for 3 -5 days is not uncommon.