In the chess match between Starbucks Corp. and its coffee archrival, McDonald’s Corp., Seattle-based Starbucks’ move to test booze on menus in Chicago has all but checkmated the burger giant, at least in the evening, when McDonald’s struggles to attract more diners—and now drinkers—from competitors.
Starbucks said it would convert and remodel up to seven of its roughly 200 coffee outlets in the Chicago area to sell beer and wine beginning in 2012, as the chain aims to turn its locations into more inviting places to linger throughout the day and, more important, into and beyond the dinner hour.
It is the evening that has become the next battleground for customers in the quick-service restaurant business, which has tried for years to win back diners from a bevy of higher-end options.
While McDonald’s has copied Starbucks with gourmet coffee, espresso drinks and smoothies to become a “beverage destination,” the me-too’s will stop at beer and wine. Oak Brook-based McDonald’s sells beer in 17 European markets but not at home. It has no plans to, a spokeswoman says.
Nor can it, easily.
After spending billions of dollars to build an image of Big Macs and Happy Meals, taking a hard turn would be risky. The McDonald’s brand “is so well-recognized, I don’t think you can un-think what it is,” says Marie Lena Tupot, research director at New York-based cultural insights firm ScenarioDNA. “Starbucks is fundamentally more adult. Starbucks created coffee as a social glue. That’s not what McDonald’s is, which is, ‘I’m going in there, get my food and get out fast.’ “
Besides the potential image problem, operational challenges make beer and wine sales less feasible for McDonald’s, which thrives on consistency across its chain.
“I don’t see how they could really police this. Most of the servers are under age. Most of the operators are franchisees. There are issues with obtaining liquor licenses,” says Bonnie Riggs, a Chicago-based restaurant industry analyst at NPD Group Inc. “I could see it working for Starbucks, I could see it working in fast casual, but in fast food in general I think it’s too great of a challenge and too great of a risk.”
Even if McDonald’s were to overcome those challenges, the upside would be minimal.
“When you look at licensing requirements, staffing requirements, you get into operational issues, storage issues and training for something that’s going to give you maybe 1% to 3% for sales of alcohol; it’s hard to justify for a lot of places,” says David Henkes, vice-president at Chicago food consultant Technomic Inc.
While casual dining chains like Chili’s and Red Lobster book upward of 15% of sales from alcohol, higher-end fast-food outfits such as Chipotle and Noodles & Co. get less than 3% from booze, according to Technomic. (Individual units can get a bigger pop, of course.)
In Seattle and Portland, where Starbucks is testing beer and wine, its six stores are seeing double-digit sales gains after 4 p.m. from a year ago, says a Starbucks company spokesman, who declines to provide sales figures. But that’s six locations out of some 11,000, notes Mr. Henkes, who doubts many quick chains could sell alcohol across their systems. Technomic, which tracks customer restaurant visits, estimates Starbucks’ dinner visits at a miniscule 2% of its overall daily traffic, compared with 23% for McDonald’s.
Other industry executives say McDonald’s has bigger challenges in the near term. Despite spending more than $1 billion to remodel its stores and add its own TV station to encourage people to hang out, McDonald’s still has to improve its food before it can consider tackling adult beverages.
“Offering beer or wine is unlikely to be ahead of new menu options that create more relevance for dinner diners vs. their standard lunch-oriented menu,” says Tim Nelson, president of Chicago-based ad agency Tris3ct LLC, who has worked with McDonald’s.
“The fact that they targeted late night before dinner is telling. I think they are still more worried about new or increased competition in chicken and breakfast.”