From fries to coffee: Why Starbucks and CCD are no threat to McCafe

After winning over fast-food lovers in India, McDonald’s is looking to capitalise on Indians’ love for coffee by starting its cafe chain, McCafe. Replicating its international model, which offers gourmet coffee through McCafe along with its staple burgers, fries and coke, the fast food giant recently opened its first cafe outlet in India in SoBo Central, Mumbai. McDonald’s, however, has no plans to position itself in the same league as market leader Cafe Coffee Day and others like Barista, Costa Coffee, Lavaza etc. STORY CONTINUES BELOW THIS AD McCafe offers a selection of coffees, desserts and smoothies and is being set up as a store within a store. Betting on existing consumer profile And so forMcCaf, the company is banking on its current customer profile. More from Business Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution “Our target buyers are our in-store consumer such as teens, youth, first jobbers, families, working adults and moms. We are not targeting any new consumers but rather want to offer the existing McDonald’s lover a better experience. A McCafe works best where there is mix of all consumers, rather than in just residential areas,” says Smita Jatia, Managing Director of Hardcastle Restaurants, the franchisee for McDonald’s in the west and south of India. McDonald’s aim is to cash in on its ability to cater to all demographic segments right from a 4-year-old, who can enjoy a kids meal, to college students, wanting a Big Mac, and an office goer, looking to have her breakfast on the go. Impact Shorts More Shorts CNN-News18 Indian of the Year is back to recognise India’s Invincible Icons India’s loving silver and it’s caused a shortage this Diwali season. Here’s how Already, McDonald’s is the leader in the quick service restaurant space in terms of sales, market cap and gross and net margins. Its success has been attributed to its quality standards which it maintains globally. It has consistently developed new menu items, helping attract new customers and at the same time retain existing ones. STORY CONTINUES BELOW THIS AD And with the McCafe launch, McDonald’s plan is to do just that in India too. Why Starbucks and CCD are no threat to McCafe Confident of McDonald’s strong consumer base, Jatia doesn’t see Cafe Cofffee Day or Starbucks as competition. “We are neither positioning ourselves like the domestic coffee chains that have over a 1,000 stores nor are we in the premium market. Our positioning is only for our existing consumers which is why we do not see a Starbucks or a CCD as a threat. It is just to provide a complete beverage option to the existing consumers at a value price,” Jatia said. STORY CONTINUES BELOW THIS AD [caption id=“attachment_1235771” align=“alignleft” width=“380”] ![o the prices may be higher than its own standard but definitely lower than a Starbucks. For instance, a cappuccino at McCafe starts at Rs 90 while at Starbucks the price is upwards of Rs 110.](https://images.firstpost.com/wp-content/uploads/2013/11/mccafe1.jpg) o the prices may be higher than its own standard but definitely lower than a Starbucks. For instance, a cappuccino at McCafe starts at Rs 90 while at Starbucks the price is upwards of Rs 110.[/caption] So the prices may be higher than its own standard but definitely lower than a Starbucks. For instance, a cappuccino at McCafe starts at Rs 90 while atStarbucks the price is upwards of Rs 110. The USP is ‘affordable luxury’, Jatia says. Experts skeptical of McCafe capitalising on McDonald’s customers However, experts have been skeptical about the viability of this model since McDonald’s is largely seen as a value meal chain and McCaf menu starts at Rs 90. STORY CONTINUES BELOW THIS AD Jatia does not see any problem with this. She says McDonald’s customers range from lower to upper middle class. A cost-conscious buyer will still be able to buy his value meal and get his McDonald’s coffee at Rs 35-40.The company’s tie-up with with Coca-Cola for this product will continue. McCafe is targeting the consumer who is willing to pay a premium. The company is betting on the growing consumer class and is unfazed by the current economic slowdown which has impacted discretionary spending in the country. “If you want to be profitable in the food and beverages business, you can’t think short-term. You have to think long and bet on the future trends, like McDonald’s did 17 years ago when it entered the Indian market,” says Jatia. STORY CONTINUES BELOW THIS AD Advantages of in-store concept… Unlike other CCD or Starbucks outlets, McCafe is not a stand-alone one. It exists within the McDonald’s outlet itself. The idea is to serve as an extension to the core McDonald’s offering, with consumers having the option to enjoy an assortment of food & beverages at one place. McCafe does not want an identity of its own. The biggest gain, however, is going to be on real estate.“It is just an in-house expansion. McCafe’s will be built into within the existing store itself and the real estate cost of these changes is anywhere between Rs 25-35 lakh,” says Jatia. Moreover, no additional large-scale marketing is being envisaged for the cafe as the company expects to nibble away the crowd dropping in the McDonald’s store. … And drawbacks Given the space constraints, a McCafe store will only be possible inside stores that are at least 3,000 to 4,000 square-feet in size. So it may be difficult for the company to set up one at Fort or Colaba, as the outlets there are not large enough to host both McDonald’s and McCafe. “In the next three to five years, we will open at least 75-100 stores in India. The current McCafe is a test case. Initially expansion would be slow, but once the identification of the stores is taken care of, McCafe will expand more aggressively,” said Jatia but added that not large-scale marketing but convenience, accessibility and word of mouth will drive traffic. Free-WiFi is a plus point at McDonald’s stores which have McCafe. However, you may not be able to buy a McDonald’s product at the McCafe counter. Moreover, since there is no segregation of seating between McDonald’s and McCafe, the coffee experience is not expectational and definitely does not give the ‘me-time’ vibe (which you get in a CCD or Starbucks) given the lack of peace and quiet in the outlet. McCafe to spice up McDonald’s revenue India’s quick service restaurant market is estimated to be Rs 3,400 crore in 2012-13 and has been struggling for the past one year as consumers have been cutting down on discretionary spending. Globally, even though McDonald’s continues to draw in customers with burgers and fries, the chain’s revenue increasingly depends on its higher-margin coffee and blended drinks. So while regular items such as Big Macs and Chicken McNuggets remain menu staples, McDonald’s is focusing more on highly profitable beverages to make up for declining sales elsewhere. And though Jatia did not disclose the break-up of revenue from McDonald’s line extensions in the South and West, it is expected coffee would become a significant vertical for the company. Incremental revenue is important for Hardcastle as same-store sales for McDonald’s (South and West) declined 16 percent through FY08-12 on an average. In FY13 the sales fell 6 percent and has remained flat in the first quarter of the current financial year. Hardcastle currently operates 174 McDonald’s outlets and is looking to double the count over the next three years.

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From fries to coffee: Why Starbucks and CCD are no threat to McCafe

After winning over fast-food lovers in India, McDonald’s is looking to capitalise on Indians’ love for coffee by starting its cafe chain, McCafe.

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