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Thursday, Aug. 30, 2007

McCafe aims for slice of coffee shop pie


Staff writer

McDonald's fans thronged Wednesday to be the first to taste cappuccinos, croissants and vegetable soups at McCafe, the fast-food giant's new chain of cafe-style eateries.

News photo
Customers wait at a glass counter filled with pastries Wednesday at McCafe's Ebisu branch in Shibuya Ward, Tokyo. The latest entrant in the coffee shop market debuted with 14 stores in the Kanto region and one in Kobe. SATOKO KAWASAKI PHOTO

McCafe is McDonald's attempt to boost sales with healthier soup and sandwich offerings while reaching out to older customers. The 15 outlets — some within McDonald's own restaurants — offer breads, desserts and nine kinds of coffee.

In Tokyo's trendy Shibuya Ward, about 1,190 people lined up at a McCafe in Yebisu Garden Place for its noon opening. Some waited more than two hours.

"I can eat lunch at the cafes," said Hiromi Matsuzawa, a 29-year-old company worker from Itabashi. "It's good because the menu is more nutritious and vegetable-oriented."

The 15 McCafes that opened Wednesday are located in the Kanto region and in Kobe. It is not yet clear how many will be built.

In contrast with McDonald's, McCafe's coffee includes espressos, lattes and cappuccinos ranging in price from ¥170 to ¥430. Its top recommendation is the brown cappuccino, topped with brown foam.

The food menu is heavy on light meals, including croissants filled with egg, shrimp and broccoli, which cost ¥290 to ¥330, depending on location. Under McDonald's new pricing policy, prices are cheaper in rural areas.

McCafe also offers 15 kinds of pastry priced at ¥100 and heats the bread up for those eating in.

Eiko Harada, CEO of McDonald's Holding Co. (Japan), Ltd., said the goal of McCafe is to increase the number of customers eating at the hamburger chain's 3,800 outlets in Japan.

"By installing a McCafe next to a McDonald's, it will increase the sales" of the hamburger stores, Harada said at a news conference. Some McCafes are in the same complex as a McDonald's.

Although McCafes will also be targeting kids, families and younger customers, Harada said he hopes the new stores succeed in reaching out to the older generation.

"We found out that many customers no longer eat at McDonald's when they grow older," he said. "We want our customers to stay with us."

The McCafe chain will have higher materials costs than McDonald's, but personnel costs will be lower because its offerings do not require frying and baking, he said.

"In total, the margin of profit will increase," Harada said.

The new shops are likely to pose a great challenge to McDonald's, but it is not the first time it has opened a cafe. In the late 1990s, McDonald's opened about four coffee shops and ran them for several years. McDonald's said it was a test case for a new business model, noting Wednesday's opening is its fruit.

"McDonald's has sought new business models in the past and studied whether they match the trend of the times," said a company spokesman who only identified himself as Kaniya. "It's not that the last time was a failure."

The impact of McCafe will be significant because McDonald's is the leader in the Japanese food-service industry, said Munenori Hotta, senior researcher at Food Service Industry Research Center, a quasi-governmental think tank.

"McDonald's must have done extensive marketing beforehand," Hotta said.

A cafe-style offering will provide a good opportunity for McDonald's to lure the customers it hasn't snared with the hamburger chain.

Rival coffee shops didn't know what to expect.

Kazuhiro Sekine, spokesman for Doutor Coffee Co., said the company would not comment because there are only 15 McCafes right now. Doutor runs about 1,500 coffee shops nationwide.

"It may be our rival, but we don't intend to take any measures" just for McCafe, he said. "There are rivals other than McCafe (that we need to think about)."

Kunio Hirose, a spokesman for Starbucks Coffee Japan, which has about 680 stores, echoed Sekine's comments but said the company was watching McCafe's marketing strategy.

"But we are interested in what kind of customers McCafe will target and how it will differentiate itself from other competitors," Hirose said.



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