McDonald's sees a lot more happening over burger & coffee

Like Starbucks, McDonald’s would source its coffee locally -- from Chikmagalur in Karnataka. Coca-Cola would supply coffee beans to the company, notes Viveat Susan Pinto.

To capitalise on the growth in India’s cafe market, McDonald’s, the world’s second-largest fast-food chain, will launch its McCafe brand in Mumbai on Monday.

Hardcastle Restaurants, the company’s franchisee for the South and West, will launch the first store in south Mumbai within its existing McDonald’s outlet there.

Worldwide, McCafe outlets operate within McDonald’s stores, albeit as a separate section; typically, seating arrangements and menus are different from those at McDonald’s outlets.

Cappuccino prices at McCafes would start at Rs 90, while a frappe would cost Rs 110. While higher than customary McDonald’s fares, the price for a cappuccino would be lower than rival Starbucks, which charges upwards of Rs 110.

“McCafe is about affordable luxury, where we offer a premium product at a reasonable price,” said Amit Jatia, vice-chairman, Hardcastle Restaurants.

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“It will act as an extension to the core McDonald’s offering, with consumers now having the option to enjoy an assortment of food & beverages at an outlet.

"Our plan is to have McCafes in 75-150 McDonald’s stores in the next three to five years,” he added.

Like Starbucks, McDonald’s would source its coffee locally -- from Chikmagalur in Karnataka. Coca-Cola would supply coffee beans to the company.

Globally, McDonald’s has 10,000 McCafes, and this business accounts for significant revenue.

Coffee would be the third line extension for McDonald’s in India.

In the last two years, it had added breakfast and dessert items.

Jatia declined to share the break-up of revenues from McDonald’s line extensions in the South and West.

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However, it is expected coffee would become a significant vertical for the company.

So far, McDonald’s outlets had only carbonated soft drinks such as Coke.

While Coca-Cola’s Georgia Coffee was available, its pick-up wasn’t very high, experts said.

It is likely McCafes at McDonald’s stores in the North and East of India would be launched later, as the company is entangled in a legal battle with Vikram Bakshi, its joint venture partner for the two regions, at the Company Law Board.

Bakshi had accused McDonald’s of colluding with Jatia to force him to exit the joint venture -- Connaught Plaza Restaurants -- at a cheap price.

“I can only speak for the western and southern regions.

"But I would imagine McDonald’s would take the McCafe brand across the country,” he said.

At Rs 1,000 crore (Rs 10 billion), the coffee chain market in India is growing at about 30 per cent a year.

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Saloni Nangia, president at Gurgaon-based retail consultancy Technopak Advisors, said the top 40 cities in India had about 1,700 outlets.

During the last five years, India had been adding about 200 cafes a year, she said, adding, “If this pace of growth is maintained, 2,000 more cafes will see the light of day.”

And, considering all players had plans to expand operations, there was no reason why this couldn’t be a reality, she said.

Bengaluru-headquartered Cafe Coffee Day, the largest coffee chain in India, has 1,200 outlets and proposes to add 1,000 by 2014.

Lavazza, owners of Barista, with 154 outlets in India, plans to focus on its flagship format Expression.

Dunkin’ Donuts has already set up 10 stores in the National Capital Region, recently opening an outlet in Chandigarh.

Meanwhile, Starbucks has launched 21 stores in malls, high-street locations, airports, metro stations and commercial complexes in three cities.

It is also considering new retail formats such as hospitals, educational institutions and corporate campuses.