If you can't beat 'em, join 'em.
At least that seems to be the mantra for McDonald Corporation's (MCD) new restaurant in Manhattan in New York City. It is unlike other locations owned by the chain. With an interior designed by a prolific French architect, the restaurant eschews the strictly functional aesthetic seen at the majority of other McDonald's locations. Instead, the remodeled space has elevated seating and comfortable booths done up in muted colors, open spaces to move around, touch-screen kiosks that streamline the ordering process and servers buzzing around with loaded trays. (See also: McDonald's: Perception vs. Reality.)
There is also another major difference. Along with a counter that serves typical McDonald’s fare, such as burgers and Egg McMuffins, the restaurant features a bakery of sorts – a counter that serves high-end coffee and espresso along with a tastefully decorated showcase of goods, ranging from cinnamon pastries to chocolate croissants.
The restaurant is part of McDonald’s efforts to reinvent its McCafe brand. According to a Bloomberg report last year, the company has made serious investments to upgrade equipment and service at such restaurants. For example, it has revamped its menu and invested in equipment worth $12,000 a piece to make coffee and espresso. The ostensible intention here is to compete with the likes of Starbucks Corporation (SBUX) and Dunkin' Brands Group, Inc. (DNKN). (See also: McDonald's Hits Refresh on McCafe.)
However, it may be a long haul for the Oakbrook, Ill.-based company to draw customers to its new restaurant. It was mostly empty when I went there last weekend. "The traffic generally goes down on weekends at McDonald's," the server at the coffee station told me. As time went by, however, a moderate crowd filled up the restaurant. But a majority of the clientele that walked in opted for standard McDonald's fare instead of new offerings.
The fast-food giant will have to step up its efforts to convince customers to migrate to McDonald's from their preferred coffee chain. The restaurant's ambience is evocative of a place to hang out and grab quality coffee and products. But the pricing on its products (including the bakery) skews toward the lower end of the spectrum and seems to be geared toward its regular clientele. (See also: McDonald's Tests Coffee Shots in Dunkin's Backyard.)
The intention here is to have customers spend on new offerings. Given that they may have limited income at their disposal, regular customers would probably opt for the tried-and-tested fare rather than splurge on new things. One could argue that automated kiosks could lead to reduction in labor and still guarantee a higher average ticket per customer. However, as I mentioned earlier, the new location has additional labor costs in the form of servers for table service. (See also: Boston Invaded by Automated Burger Machine.)
When Starbucks introduced wine service at its restaurants in Seattle, it had a reasonable expectation that its customers would try the service. This is because its customers are people with relatively high disposable income who are likely to spend extended time in Starbucks shops to try out the service. To be successful with its McCafe reinvention, McDonald's will need to attract such customers to its locations. Its current avatar, which incorporates low pricing with a chic ambience, tries to be all things to all customers. That is never a good strategy. (See also: Starbucks: The Newest Innovation.)