December 9, 2015 4:58 am
Updated: December 9, 2015 6:36 pm

McDonald’s to launch standalone McCafe coffee shops in Canada

WATCH ABOVE: McDonald's Canada opened its first McCafe stand alone restaurant at Union Station in Toronto Wednesday. Absent is the Big Mac and other staples of the chain. As Sean O'Shea reports, experts say the company is battling for one of the biggest margin food items: coffee.

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McDonald’s is opening up its first standalone coffee shops in Canada under the McCafe banner as the hamburger giant looks to accelerate its coffee and breakfast business and target a new group of customers.

The country’s second-largest fast-food chain will open on Wednesday the first of two McCafe locations, both in busy commuter corridors in Toronto. But more shops in other cities appear to be in the works.

“Certainly we expect to not stop at two,” John Betts, president and CEO of McDonald’s Canada said in an interview.

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Coffee is the No.1-selling fast food item in the country, playing a central role in the growth of Canada’s largest fast-food chain — and McDonald’s chief rival here — Tim Hortons.

“We know this has legs for us,” the McDonald’s executive said.

The new McCafe shops, which will be smaller format stores ranging from kiosks to locations with seating for about 20, come with a new menu featuring cream cheese danishes alongside classics such as the Egg McMuffin (which will be served all day rather than just during breakfast).

“[The new menu] focuses on a new niche for us that I would call the ‘café customer,’” Betts said, noting other new offerings like an apple and brie croissant and assortment of “artisan” sandwiches.

‘We’re not putting that at McDonald’s. We’re going to have an offering that’s completely different’

“None of that exists at McDonald’s — and we’re not putting that at McDonald’s. We’re going to have an offering that’s completely different with the exception of some items.”

Accelerate sales

Experts say sales at McDonald’s locations in Canada are performing better than U.S. restaurants which have experienced falling traffic levels in recent years and have triggered aggressive turnaround efforts at the world’s biggest fast food chain.

But even in Canada, industry sales growth has fallen to about one per cent annually, a figure that’s expected to remain sluggish according to research from NPD Group. And within the segment, smaller, more nimble players are claiming the lion’s share of sales growth.

So-called “fast casual” chains like Five Guys and Hero Certified Burger are pulling customers away from traditional players, experts say. The launch of McCafe as a separate banner is one significant way McDonald’s is responding, by “making the brand a destination in its own right,” Betts said.

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Not McDonald’s

McCafe represents a much-needed growth platform for McDonald’s, Robert Carter, executive director at NPD Group said.

“It’s a more upscale offering focusing on specialty or Starbucks-style [food and beverages],” Carter said. “It puts them in a new space.”

Asked whether consumers could expect the McCafe concept to grow into a full-scale restaurant like McDonald’s one day, Betts said: “Right now for us it’s small footprint – I don’t want people to get confused. This is not a McDonald’s we’re building. This is a McCafe.”

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