Monday, October 8, 2012

'McDonald's on aisle 9'? Really?

The business world caught a caffeine buzz last week when fellow blogger Scott Hume broke the story that McDonald’s had trademarked the use of its name for ground and whole-bean coffee. Did that mean we’d soon see McDonald’s-brand coffee on store shelves, next to the brew-at-home options of Starbucks, Dunkin’ Donuts and Peet’s?

There wouldn’t have been such an outpouring of coverage if market watchers weren’t leaning strongly toward a yes. If they’re right, we’re witnessing an historic departure for McDonald’s, a company that learned the pratfalls of entering new businesses just a few years ago.

Remember Hearth Express, McDonald’s answer to Boston Market? How about McDonald’s with a Diner Inside, the chain’s foray into full service? Don’t forget Aroma, the British coffee chain that was briefly a part of its portfolio—along with controlling interests in Chipotle Mexican Grill, Boston Market, Pret A Manger and Fazoli’s.

Today the company laments that period of experimentation as the time its focus shifted from being the best to being merely bigger. Investors know the price that was paid in sales and profits.

Entering the grocery business, even though a third-party licensing deal, is more of a departure than any of those alternate restaurant plays. Yes, McDonald’s has licensed its name before, but for use on toys, clothes and merchandise, not food.

This time, the name would not only go on a consumable, but something that customers consume in McDonald’s-brand restaurants. And that could sour what insiders agree is really the fast-food giant’s secret sauce: Its franchisees.

Carvel learned the risk several decades ago when the franchisor started selling frozen cakes through supermarkets. Franchisees grabbed a noose and started looking for a stout branch outside the chain’s headquarters at the time (the brand was subsequently sold.) They felt the home office was raiding their protected turf. Wouldn’t consumers feel less of a need to visit units if shoppers could buy the brand’s products along with their cornflakes, bread and lettuce?

The same thing happened when chains of all stripes started shoehorning corporate stores into non-traditional sites like sports arenas, colleges and airports. As franchisees explained to their lawyers, they supposedly had the exclusive rights to sell the brand’s food in their area. What was this “captive site” malarkey?

I have trouble believing that McDonald’s would risk a similar outcry and revolt from its franchisees, truly the backbone of the chain.

Maybe it’s developed a new licensing model where franchisees would get a significant share of grocery proceeds. But a more likely explanation is that the chain wants to hold open the possibility of selling bagged coffee through its own stores, not a Kroger or a Piggly Wiggly.

McDonald’s, after all, is a global-scale toy retailer. Those transactions take place in the chain’s units, not in a Toys “R” Us.

It’s also an avid student of Starbucks. Witness the McCafe coffee program, or new designs that encourage customers to hang out for awhile and enjoy a beverage as they surf the internet. Why not follow the coffee giant’s lead in merchandising and selling products for home-use, too?

All in all, I’ll put my money on in-store sales, not a McDonald’s section of your local supermarket.

No comments: