Starbucks watch out: McCafe is coming for you with cheaper coffee

Starbucks may be in for some stiff competition in India.

McDonalds has announced that it will finally launch itscoffee retail chain McCafe in the country, along with grand plans to set up 100-150 McCafe outlets within three to five years.

MCafe will be launched within existing McDonald’s restaurants and the first outlet will open on 14 October at at Sobo Central in Mumbai, said Hardcastle Restaurants, a franchisee for the south India operations of McDonald’s.

According to a Times of India report, McCafes will occupy around 500 sq feet space within a typical 4,000 sq ft McDonald’s store in India, as having McCafes within existing outlets gives a leg up to the burger chain over other rival coffee chains such as Starbucks and domestic players like Cafe Coffee Day.Opening one McDonald’s-and-McCafe restaurant costs between Rs 2.5 crore and Rs 3 crore.

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Globally, McCafe’s are housed within McDonad’s outlets buttypically the seating and menu are different from that of McDonald’s.

McDonald’s has been pushing McCafe’s as beverages offer better margins without additional real estate costs. McCafe first launched in 1993in Australia, and McDonald’s has said that locations offering specialty coffee generate 15 percent more revenue than those without.

A cappuccino at McCafe will start at Rs 90 while a frappe would cost Rs 110.The pricing is definitely lower than rival Starbucks, which charges upwards of Rs 110. And with inflation setting in, consumers are reigning in spending. Starbucks’ die-hard fans may just switch their loyalty.

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So far,Starbucks has launched 21 stores in malls, high-street locations, airports, metro stations and commercial complexes in three cities but since India has been adding around 200 cafes per annum for the last five years, McDonald’s can easily play catch up. According to Jatia, McDonald’s has the advantage as their ability to expand is better, considering that they have a larger footprint now.

“McCafes would serve as a beverage destination and apart from coffee there would be added beverages like juices and ice teas. We are positioning the McCaf as premium coffee with affordable pricing and are expecting incremental sales from this format,“Amit Jatia, Vice-Chairman and CEO, Hardcastle Restaurants was quoted as saying by the Business Line.

Coffee will be the third line extension for McDonald’s in India after it added breakfast and dessert items to its menu in the last two years. And like Starbucks, McDonald’s is planning to source its coffee locally -from Chikmagalur in Karnataka.

Coca-Cola will supply coffee beans to the company.