A caffeine high for McDonald’s?

‘Very much an experiment and a learning opportunity,’ a McDonald’s spokesman said of the company’s 10m purchase two weeks ago of the 23-strong Aroma coffee shop chain.

The acquisition followed McDonald’s purchase of a stake in the Chipotle food chain in Denver, Colorado, last year.

That McDonald’s needs to experiment, learn and explore new avenues of growth is certain. After all, how many hamburgers, fries and soft drinks can one company sell? McDonald’s has demonstrated that it can sell plenty, but there must come a time when the worldwide burger culture it has created will begin to wane.

In the US, that time may already have come. The chain has suffered flat sales at its outlets, and has concluded this was due to its rapid expansion programme. It has now backed away from this strategy and will open fewer restaurants. McDonald’s has also had problems finding a US marketing chief as marketers shy away from the challenge of maintaining the brand and fighting off intense US competition.

McDonald’s will keep up the pressure overseas, opening five outlets a day. It is still on target to open its 1,000th UK restaurant – 25 years after the first. But long-term trends in the food sector are not going McDonald’s way. Futurologists say the next century will see burgers replaced by healthier take-away alternatives such as pizzas.

Indeed, for any company that offers just one product, diversification will come sooner or later. As Marketing Week revealed (MW January 27), Coca-Cola is moving into the clothes market with the imminent launch of a fashion range.

So why has McDonald’s bought Aroma? According to fast-food whizzkid Luke Johnson, founder of Pizza Express, it ‘must be under pressure from the likes of Starbucks. It smacks of desperation’.

Starbucks’ expansion across Europe with the purchase of the Seattle Coffee Company seems an unlikely source of competition for McDonald’s, with its family appeal. But coffee bars offer margins of up to 80 per cent and are a growth area. Some observers estimate there could be room for 1,500 cafés in the UK.

The McMarketers insist the Aroma brand will be kept intact. With its experience of acquiring high-street sites and its ability to impose unitary standards across its outlets, McDonald’s has the muscle to expand Aroma significantly. It may have started diversifying in good time for what many believe will be the burger’s last stand – some time in the first half of the next century. As analyst Stuart Price of Credit Suisse First Boston says: ‘It is good that McDonald’s is doing this sooner rather than later.’v

Cover Story, page 28

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