New beverage platform among McDonald's initiatives

by Eric Schroeder
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NEW YORK — Emphasizing McDonald’s Corp.’s "Plan to Win" strategy "continues to work because it is not static," Pete Bensen, the company’s chief financial officer, on Wednesday outlined a series of strategies geared toward making the world’s largest restaurant chain more of a destination, including adding a chicken biscuit sandwich to the breakfast menu and expanding its beverage options.

Mr. Bensen told participants at the Cowen and Company Consumer Conference held Jan. 16 in New York that McDonald’s has allotted $2 billion in capital spending during 2008, divided evenly between reinvestment and new restaurant openings. McDonald’s, which added 800 restaurants last year, plans to open approximately 1,000 new restaurants in 2008 while reimaging about 1,500.

Mr. Bensen identified China, Russia and India as "high potential markets" for McDonald’s. He said the company plans to open 35 to 40 restaurants in Russia in 2008 and at least 125 in China, increasing by a minimum of 25 each year after that.

While raising its spending budget to $2 billion from $1.9 billion in 2007, Mr. Bensen said McDonald’s will cut back its spending in the United States to about $770 million from $775 million in 2007. Even so, the company has several initiatives that are expected to play a significant role in driving business.

Currently, McDonald’s "Plan to Win" for the United States is centered on four strategies: chicken, breakfast, beverages and convenience. As part of that multi-pronged effort, Mr. Bensen said McDonald’s will roll out a Southern-style chicken biscuit breakfast sandwich across the United States this spring. By adding chicken — a $38 billion category — to breakfast — a $51 billion category — McDonald’s is building on its goal to become a more consumer-centric company, Mr. Bensen said.

"It is probably fair to say, in the past, we would come up with menu items and produce things that we felt McDonald’s could produce well and maybe hope that the customers would like them," he said. "Whereas now we have more focus groups and more targeted research to really get behind what products customers will love and come to McDonald’s for. And I think that has really made an impact on our menu innovation."

That menu innovation also has extended to beverages, where the company hopes to build off the strong foundation established through its Premium Roast Coffee and iced coffee products. To that end, Mr. Bensen said McDonald’s plans to introduce a new lineup of beverages over the next two years, including sweet tea, espresso-based specialty coffee, smoothies, frappes, and a greater variety of fountain offering and bottled beverages.

For the past two years, the company has been testing specialty coffee in more than 800 restaurants, with plans to fully roll out the platform by mid-2009. Mr. Bensen said the quality of these offerings "will rival best in class with the added benefit of the speed, convenience and value pricing of McDonald’s."

"When rolling out the beverage strategy, we must balance speed to market with the discipline and processes to consistently deliver a great experience," he said. "This will require the introduction of a new product platform and delivery system in our restaurants."

Once all product offerings have been launched, Mr. Bensen said the beverage venture could add as much as $125,000 a year in sales per restaurant.

McDonald’s fourth strategy, convenience, will continue to receive a makeover as the company looks to provide extended hours. Currently, 95% of McDonald’s restaurants offer some form of extended hours, with 35% open 24 hours a day. McDonald's convenience push calls for opening more of its U.S. restaurants as early as 5 a.m.

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