by Cynthia Wilson | May 10, 2011 9:34 am
Right now, the only reason most adults stop and sit awhile at their local McDonalds (NYSE:MCD) is to watch their kid hang out at the indoor playground. That or because they have no place to take the take-out to, since they work out of their car or truck.
Well, the king of fast food hopes to change that by a massive makeover of its 14,000 U.S. restaurants. McDonalds plans to do away with its fiberglass tables and steel chairs to make the restaurant an inviting destination with padded recliners and warm painted interiors that help customers linger — and maybe spend a few extra bucks.
McDonald’s inspiration? None other than coffee king Starbucks (NASDAQ:SBUX).
The plan includes wooden tables, Wi-Fi access, comfortable faux leather chairs and other cafe-style decor that Starbucks has long used to make its stores as much of a selling point as its trademark coffee.
It will be no small undertaking, considering McDonald’s has long been known for its bright colors, fluorescent lights and cartoon mascots. Reports put the price tag for the move at over $1 billion.
In addition to stylish interiors, there will also be a push to overhaul the iconic exterior of McDonald’s restaurants — replacing ketchup red roofs and bright yellow accents with more earth-tones and grassy landscapes.
McDonald’s tried several designs before it decided on one used in Tampa, Fla., as the model for this endeavor. It hopes to have that design in about 800 restaurants by year’s end. The chain and franchise owners hope the vast majority of restaurants will be completed by 2015.
So what gives? Surely such an expensive effort isn’t just artistic.
Well, the renovations are the latest and largest effort to date by McDonald’s to attract more high-end customers. The company already has revamped its menu, adding premium sandwiches, cappuccinos and smoothies. It also has added Free Wi-Fi service for laptop and iPad users.
Now the chain, which built its early success on serving customers quickly and getting them out the door with cheap food in hand, obviously believes the $1 billion plus renovations can take its operations to a new level.
That’s where the Starbucks model comes in. McDonald’s has already proven it can compete with the coffee crowd, with its highly successful McCafe business fueling a lot of the stock’s success in the last few years. MCD shares are up a stunning +125% in the last five years, compared to just +10% gains for the Dow since May 2006.
Now McDonald’s needs to maintain its dominance — not just in casual dining, but also on the coffee front. Restaurant chains Panera Bread (NASDAQ:PNRA) and Chipotle Mexican Grill (NYSE:CMG) have seen explosive growth even across the Financial Crisis. And after a dip in 2009 revenue, Starbucks is making a comeback and 2011 sales are on track to top pre-recession revenue by 20% to 25%.The Seattle coffee giant is clearly looking to make up ground lost to McDonald’s and others in the last few years.
Of course, McDonald’s is risking a lot with the renovations, with the $1 billion capital outlay only the tip of the iceberg. There are very few restaurants parents can take their kids to for a meal they know they will eat. And there are even fewer restaurants that allow youngsters to run around and burn off pinned up energy. If the newly remodeled McDonalds become too popular with leisurely adults seeking a relaxing atmosphere, McDonalds could alienate a customer base that has been the cornerstone of their growth for decades. A January Ad Age report estimated Happy Meals account for about 10% of total McDonald’s sales.
The Golden Arches better be sure the push towards laptop-toting professionals doesn’t alienate this important customer base, or else it will find its renovations not just costly but counterproductive.
As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.
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