McDonald's goes upscale with Starbucks flair

Goodbye, fiberglass tables and bright colors. Hello, faux leather and WiFi.

By InvestorPlace May 10, 2011 9:11AM
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Right now, the only reason most adults stop and sit awhile at their localMcDonald's (MCD) is to watch their kids hang out at the indoor playground. That or because they have no place to take the take-out, since they work out of their car or truck.


 

Well, the king of fast food hopes to change that with a massive makeover of its 14,000 U.S. restaurants. McDonalds plans to do away with its fiberglass tables and steel chairs to make the restaurant an inviting destination with padded recliners and warm painted interiors that help customers linger -- and maybe spend a few extra bucks.


 

McDonald's inspiration? None other than coffee king Starbucks (SBUX).

 

Post continues after video:

 

The plan includes wooden tables, Wi-Fi access, comfortable faux leather chairs and other cafe-style decor that Starbucks has long used to make its stores as much of a selling point as its trademark coffee.


 

It will be no small undertaking, considering McDonald's has long been known for its bright colors, fluorescent lights and cartoon mascots. Reports put the price for the move at more than $1 billion. 

 

In addition to stylish interiors, there will be a push to overhaul the iconic exterior of McDonald's restaurants -- replacing ketchup-red roofs and bright yellow accents with more earth tones and grassy landscapes.


 

McDonald's tried several designs before it decided on one used in Tampa, Fla., as the model. It hopes to have that design in about 800 restaurants by year's end. The chain and franchise owners hope the vast majority of restaurants will be completed by 2015.


 

So what gives? Surely such an expensive effort isn't just artistic.


 

Well, the renovations are the latest and largest effort to date by McDonald's to attract more high-end customers. The company already has revamped its menu, adding premium sandwiches, cappuccinos and smoothies. It also has added Free Wi-Fi service for laptop and iPad users.

Now the chain, which built its early success on serving customers quickly and getting them out the door with cheap food in hand, obviously believes the $1 billion-plus in renovations can take its operations to a new level.


 

That's where the Starbucks model comes in. McDonald's has already proved it can compete with the coffee crowd, with its highly successful McCafe business fueling a lot of the stock's success in the past few years. MCD shares are up a stunning 125% in the past five years, compared with just 10% gains for the Dow since May 2006.


 

Now McDonald's needs to maintain its dominance -- not just in casual dining but also on the coffee front. Restaurant chainsPanera Bread (PNRA) and Chipotle Mexican Grill (CMG) have seen explosive growth even across the financial crisis.  And after a dip in 2009 revenue, Starbucks is making a comeback and 2011 sales are on track to top pre-recession revenue by 20% to 25%. The Seattle coffee giant is clearly looking to make up ground lost to McDonald's and others in the past few years.


 

Of course, McDonald's is risking a lot with the renovations, with the $1 billion capital outlay only the tip of the iceberg. There are very few restaurants parents can take their kids to for a meal they know they will eat. And there are even fewer restaurants that allow youngsters to run around and burn off penned-up energy. If the newly remodeled stores become too popular with leisurely adults seeking a relaxing atmosphere, McDonald's could alienate a customer base that has been the cornerstone of its growth for decades. A January Ad Age report estimated Happy Meals account for about 10% of total McDonald's sales.


 

The Golden Arches had better be sure the push toward laptop-toting professionals doesn't alienate this important customer base, or else it will find its renovations not just costly but counterproductive.

 

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70Comments
May 10, 2011 12:58PM
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Kinda seems like putting a Rolls Royce emblem on a Yugo to me.
May 10, 2011 12:12PM
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Let's hope their prices don't follow starbucks!
May 10, 2011 1:07PM
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McDonalds is dreaming. I walk in to a Starbucks and I smell coffee. There are loungers and also some people studying. It's a great atmosphere. I walk in to McDonalds and I smell burgers and grease. A bunch of leather chairs are not going to change that. Also, the clientele willing to pay for overpriced coffee is different than that of McDonalds, which adds to the atmosphere.
May 10, 2011 2:44PM
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"oohh I feel so fancy eating at this faux-wood and pleather dinnette set in this newly remodeled McDonalds! If only my in-laws could see me now, they would know I've really made something of myself!" 
May 10, 2011 2:01PM
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Why oh why, do so many people need to knock McDonalds. It's the most successful franchise in history. All of the others that have come after, have essentially copied their model.  They serve what people want, if that changes they'll change their menu.  If you don't like what they serve, don't go there. Stop trying to be so superior. They probably serve better food than you have in your house,  AND  they are NOT responsible for all the obese people in the world. The real cause of weight gain is a lack of exercise, get off your ****.
May 10, 2011 1:49PM
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Really?  I would like to see how Mcdonalds will keep clean "comfy" chairs all while having millions of kids running around and jumping on furniture.  I can just see myself trying to enjoy a cup of coffee and reading a book around all the screaming kids.  Give me a break McDonald's.  Stick to what you do best.

May 10, 2011 3:07PM
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SmileMcDonald's are filthy.  Now they are just going to be a fancy filthy.

May 10, 2011 1:05PM
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Seriously!  It's McDonalds.  Order, eat with the grandkids and get the heck out.  Now people are going to tell me to quiet the baby.
May 10, 2011 2:54PM
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A lot of our local MCD's have flat screens and free wi-fi.  We have some with play places and some without.  The play places are professionally cleaned in-btween the regular cleanings.  The inside of the playplaces are for parents to supervise their children while relaxing and eating or joining their kids.  MOST kids don't run around and jump all over the furniture in the restaurant area while others are sitting and eating.  McDonald's food is not all bad for you, they have a lot of good items on their menu.  You need to take some time and look up their food info.  Their salads are fabulous!  At any rate they are good in a pinch and I would sorely miss Mcdonald's if they weren't around and no...I'm not fat and unhealthy.  I just choose not to eat there every meal.

Why not change, their menu is always adding something new and fresh and their decor has changed a few times over the years....why not? and so what if they want to spend money and put some people to work to make that happen?

May 10, 2011 2:38PM
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So instead of giving their employees who have to deal with a bunch of rude crude drunk dopeheaded McFiends a raise, they're going to blow their proceeds on leather chairs and a new paint job for the building. That's disgusting. I like the post that said something about "You're an idiot if you expect quality from McD's." Worked there in high school,  had a dictator for a manager and general manager, left and never looked back.
May 10, 2011 2:07PM
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5 years ago, a share of McDonalds stock cost about 33 bucks.  Today its almost 80.   I have no idea whether their idea will work or not, but no matter how much you hate McDonalds, you can't argue with their earnings over the long haul, which, of course, chaps the **** of corporate haters to no end.  

 

I love people who will buy a computer....made by a corporation, pay a monthly fee to an ISP....set up by a corporation, and use a free blog like this.....provided by a corporation, so they can bitch about corporations.

May 10, 2011 12:19PM
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Mcdonalds lives on high customer turnover rates. Their fast food is consistently the "fastest'.

If someone wants to linger for an hour while only buying one coffee, let them go to St*rbucks.

This move will turn out to be a big mistake. What part of "Fast" food does Mcd Corp. management not get?

May 10, 2011 1:32PM
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You ever try to put lipstick on a pig?
May 10, 2011 3:15PM
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Take the $1 billion dollar investment and make better food and at the same time start making the franchise and corporate stores more accountable for keeping the place clean.  I know it is tough when you are serving that many people but a billion can go a long way.
May 10, 2011 1:07PM
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Hope they have a good way to clean the grease off the nice chairs.  That said, what adults go to McDonalds who don't have kids and will more people go now that they are upgrading the places?  I doubt it. 
May 10, 2011 2:09PM
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@grandad - Don't get me wrong, McDonalds does serve a purpose and I occasionally grab an eggmcmuffin on the way to an early morning event.  I think what people are saying here is it's stupid to change the model McDonalds was built on thinking you will get adults to casually go there like Starbucks. Bottomline is you know what you're getting in to when you go to McDonalds so anyone complaining about the food is an idiot. 
May 10, 2011 1:15PM
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Maybe start selling lumber and dish soap also? Stick with what you do best and let other businesses do what they do best. Many companies have failed by trying to do everything to get all the business. I wonder if St*rbucks is in the planning stages with a caffeine loaded happy meal?
May 10, 2011 1:11PM
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I guess now we know what they are doing with all the money they are making from the recent price increases.
May 10, 2011 12:39PM
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A more sensible approach would be to start small and with test sites.  Even better would be having completely separate stores, but instead with the McDonald restaurants built for the adult crowd, while still not disturbing the 'what works, don’t change it' phraseology.  Again, beginning a little slower and in smaller steps to test the model first.

 

Fox

 

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