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McCafe to make India debut, will it attract consumers?

Farah Bookwala, Moneycontrol/CNBC TV18

Mumbai, October 11, 2013

McCafé is the coffee-house chain owned by McDonald’s Corporation. It has a worldwide presence. Hardcastle Restaurants, the master franchisee of Mcdonald’s in Western and Southern India, will open the first McCafé outlet in India in Mumbai on Monday at SOBO Central Mall.

Hardcastle Restaurants is a 100% subsidiary of Westlife Development Ltd, a company listed on the BSE. Hardcastle Restaurants plans to set up around 100-150 McCafé restaurants over the next 3-5 years in metro cities of west and south India.

For Hardcastle Restaurants, McCafé represents a host of opportunities. Incremental revenues, a chance to enter into premium segments such as coffee and confectionary, and that too, without extra rental costs, as McCafé outlets will be located within existing McDonald’s outlets.

Typically, a McCafé outlet will be spread over 500 square feet within a 4,000 square feet McDonald’s outlet. The McCafé outlet will have an ambience of a premium café, and the company will spend nearly 30-35 lakhs per outlet on interiors and refurbishments. For customers, McDonald’s India believes, it is an opportunity to get the best of both worlds at the same location. McCafé will offer a menu comprising of beverages such as cappuccinos, lattes and espressos along with a selection of cookies and muffins.

Amit Jatia, Managing Director, McDonald’s India (west & south), says, “It not only provides another beverage option to our customer, but with their meal, if they decide to have a frappe instead of another carbonated drink, I think that is one option.”

But experts are skeptical of this possibility. McDonald’s is largely seen as a value meal chain and McCafé’s menu starts at upwards of Rs90. While beverages will range from Rs90 for a latte or cappuccino, frappes will start at Rs110. Arvind Singhal, chairman, Technopak Advisors says, “If the customer’s average meal size in terms of spending is in the range of Rs40-60, would that customer also be tempted, or some of those customers be tempted, to move into a separate area and pay Rs90 for a cappuccino? I would be very, very skeptical about this possibility.” This price positioning pits it against recent entrant, Seattle-based Starbucks. And Singhal feels, this puts McCafé at a disadvantage. Singhal says, “McDonald’s is certainly not seen as aspirational in the context of a premium pricing product. The same customer, would he be willing to consider McDonald’s a cheaper alternative to Starbucks? I certainly find challenges accepting this.” So, with high prices and a shop-in-shop format, experts feel McDonald’s will find it hard to create a mark either as a premium coffee chain or capitalize on McDonald’s value priced customers.

But other experts feel the wide food and beverage menu McDonald’s can now offer, at one location, gives it a leg up over other players. According to Devangshu Dutta, chief executive, Third Eyesight, “If the operating framework is right, it will allow McDonald’s to add revenues organically and also by nibbling away customers who may be going to other outlets by offering them a combination of meals which a neighbouring outlet will not be able to offer.”

(Sourced from Moneycontrol.com.)

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