MCD – Coffee could be the tipping point!

Yesterday, at the Bank of America investor conference, MCD’s Chief Operating Officer Ralph Alvarez said MCD is working to renovate it’s drive-thus in the U.S. to accommodate making the new drinks. He went on to say that all of McDonald's Corp.'s U.S. locations should be able to offer espresso drinks by the middle of next year, with a new line of smoothies and frappes on all menus by 2010.

How is this possible!

To reiterate what I posted last month, here are is what we know so far:

4Q07 – No comment from the company when asked on the conference call about the number of stores selling specialty coffee, but they did not expect to see critical mass until later in 2009.

1Q08 – “We are currently in about 1300 restaurants and expect the rollout to accelerate and pick up pace later in the year.”

2Q08 – “Specialty coffees is just one element of the combined beverage business and it’s currently in more than 1600 restaurants.”

3Q08E - ???

If we assume the company accelerates the conversion process in 2H08 and converts 1,200 stores, the total number of McDonald’s stores with the ability to sell specialty coffee in the US would be 2,800. This represents only 25% of the McDonald’s system! McDonald’s senior management has set expectations for a national launch for the specialty coffee program in mid-2009. If it has not started already, the 2009 budgeting process needs to incorporate the national launch of the specialty coffee program. If only 25% of the store base has the ability to sell specialty coffee, how can the company justify spending the marketing dollars in 2009? More importantly, will the franchise system embrace the move?

I believe they need to reset expectations.


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