McDonald’s is planning to offer lattes, cappuccinos and other specialty drinks in all 14,000 by 2009. Internal projections estimate a $1 billion boost in sales.
What is the cost to franchisees to upgrade?
Costs will vary, depending on the size and configuration of each restaurant. Franchisees must buy equipment to make specialty coffees, and, eventually, smoothies, as well as wall-mounted refrigerators for bottled sodas and energy drinks, and would have to remodel the counter and drive-thru service areas to make room for the equipment.
A franchisee who installed the new beverage equipment as part of a company test pegged the cost at $100,000 per restaurant, according to notes from a meeting of restaurant owners in August.
McDonald’s hopes to equip 1,500 restaurants to sell the new drinks by the yearend, with the rest on board by late 2008, the planning documents indicate. It’s the biggest change for McDonald’s since it overhauled its cooking procedures in the late 1990s to make sandwiches to order, says Dennis Lombardi, a restaurant consultant with WD Partners in Ohio.
As it rolled out that plan — the Made for You campaign — McDonald’s agreed to pay half of the estimated $25,000 per restaurant in equipment expenses for franchisees. But when the costs for the program exceeded the estimates in some restaurants, it caused hard feelings among some franchisees.
The test market numbers looked good:
In test markets including California, Georgia, Michigan and Texas, specialty coffee has increased customer traffic by 44% a week, an August memo from a franchisee group shows. The initial tests show the new plan doesn’t require more employees or slow down service.
Specialty beverages such as lattes have much higher profit margins than sandwiches. Sales in this new beverage category could rise by 90% in the next five years, generating $125,000 in annual revenue per store, according to company documents. McDonald’s estimates that those sales could mean additional annual profit of between $15,000 and $60,000 per restaurant, the documents show.