OAK BROOK, Ill. -- As Wal-Mart and Starbucks continue to stretch their product offers in an effort to draw new customers, McDonald's is finding that strategy more difficult that it hoped with it coffee offer. Camille's Sidewalk Cafe has signed an agreement with Wal-Mart Stores to place its franchises in supercenter stores around the nation. And Starbucks is rolling out energy shots that can be added to any beverage. Over at McDonald's, early sales figures for its new specialty coffees have been "tepid."
The first Supercenter Camille's is expected to open within the year in Austin, Texas, [image-nocss] David Rutkauskas, founder of the chain, told The Tulsa World. The next will be in Scottsdale, Ariz. He said he anticipates about 200 to open in the next five to 10 years.Bentonville, Ark.-based Wal-Mart was looking for a new restaurant for its upcoming stores, something more upscale than its longtime relationship with McDonald's, Rutkauskas said. Wal-Mart wanted a convenient and appetizing menu offering healthier foods and a casual feel, he added.The Camille's locations in Wal-Mart will either be owned by current franchisees who already have at least one restaurant in that particular city, Rutkauskas said, or new owners will be recruited. Franchisees pay the standard fees: $25,000 up front and 6% of weekly sales. They must also contribute to a national fund that supports product rollouts and promotional campaigns.
In the late 1990s, Camille's pioneered a formula that combined the cleanliness and appeal of a casual dining experience with the speed of a fast-food restaurant, said the Associated Press. The menu includes paninis, flatbread pizzas with names like "Zorba the Greek" and "Bangkok Thai," sandwiches, hot wraps and smoothies from "Blueberries Cozumel" to "Banana Split Swirl."Seattle-based Starbucks Corp. unveiled its +Energy products in its U.S. stores today, reported The Seattle Post-Intelligencer. A customer can have the new ingredients added to any existing Starbucks beverage by saying "plus energy" at the end of the order. Baristas have been trained in how to mix in +Energy, which contains B-vitamins, guarana and ginseng.
The energy line is one of three new beverage lines that Starbucks is pursuing in hopes of giving its stores a revenue boost. In recent months, Starbucks has seen profit decline and falling foot traffic into stores. The company attributes most of its problems to rising gas prices and a general slump in the national economy, said the report.
Next month, the company will begin selling ready-to-drink Starbucks Doubleshot Energy + Coffee in its coffee shops, as well as in grocery and convenience stores and places where its bottled Frappuccino is sold. The new drinks are distributed by the North American Coffee Partnership, Starbucks' venture with Pepsi-Cola. The ready-to-drink beverage is made of Starbucks coffee, B-vitamins, guarana and ginseng, the report said.
Meanwhile, early sales figures for McDonald's Corp.'s new specialty coffees underscore the challenge the burger chain faces as it tries to compete with Starbucks, said Crain's Chicago Business. Sales remain tepid in two initial test markets—Michigan and Kansas City—even after months of aggressive advertising and marketing, company documents obtained by the magazine show.
Weekly sales of specialty coffee in those markets averaged about 300 drinks per store during the four weeks ended March 6, according to an internal company report that provides the first look at hard sales figures from McDonald's biggest menu expansion in 30 years. The report does not disclose the dollar value of specialty coffee sales, but the unit sales appear to be well below the number needed to reach McDonald's goal of adding $125,000 in annual revenue per restaurant, or about $1.5 billion companywide, said the publication.
McDonald's said the revenue goal includes sales of other drinks, including teas, smoothies and bottled beverages. But specialty coffees—lattes, mochas and cappuccinos—are at the center of the new strategy. Selling drinks similar to Starbucks' is key.
McDonald's officials declined to comment to Crain's on specialty coffee sales. If each coffee sells for about $3, a restaurant owner selling 300 drinks a week would add less than $50,000 in new revenue, which is less than half of the sales goal McDonald's executives project the company will reach in the next few years.
"If they don't grow specialty coffee beyond these numbers, that means they will have to sell lots of smoothies, frappes and bottled beverages to achieve their goals," John Owens, an analyst with Morningstar Inc. told the publication, adding he has heard similar numbers from several franchisees. "There is still a lot of work to do with specialty coffee."
McDonald's plans by early next year to have the specialty coffees in all 14,000 U.S. restaurants and will begin adding smoothies and bottled beverages later in 2009. About 1,200 restaurants were reporting specialty coffee sales by the beginning of April.
The company has been promoting specialty coffee in Michigan and Kansas City the longest. Advertising began in Michigan in November 2006 and in Kansas City last October. Early results have been similar to those in markets where sales of the drinks started more recently. Sales are running at about 300 per week in Seattle-area restaurants, with no advertising. Raleigh, N.C., restaurants are selling 370 a week and Bakersfield, Calif., stores 315."Those numbers don't justify the investment" that McDonald's wants franchisees to make in specialty coffees, Dick Adams, a former franchisee who advises McDonald's restaurant owners, told Crain's.
McDonald's officials expect the specialty beverages to do better in markets with high numbers of Starbucks locations, documents showed. Michigan and Kansas City have fewer Starbucks stores than cities in the next wave of testing.
Larry Miller, an analyst in Atlanta with RBC Capital Markets, said he thinks McDonald's can steal customers from Starbucks. His firm conducted a survey of regular Starbucks drinkers in which 45% said they would switch to McDonald's if its coffee tasted similar and was cheaper."McDonald's has a very good shot at taking their business," he told Crain's.
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