Saturday, February 28, 2009

McDonald's Beverage Business a Fountain of Profits

Source Article: McDonald’s Ends Pepsi Test in Victory for Coca-Cola | (view article)


1) Bottled Drinks would make McDonalds Beverage Business More Complicated, less Profitable.

2) Bottled Drinks would need to be Priced at Premium in order to maintain margins - Away from "Value" Image

3) McDonalds and Coca-Cola Linked in Consumer's minds - Iconic American Consumer Brands.


McDonald's testing Branded Bottled Drinks in Stores is an unnecessary complication to a vital high profit product line.

Being rooted in Convenience Retailing, any store owner will tell you the profit picture and inventory turns between Fountain products and individually packaged beverage portions is night and day. If we could only sell fountain, we would. McDonald's can, and that's what they should do.

An increased selection for the customer means decreased inventory turns for you. The availability of packaged beverages isn't going increase visits to McDonald's in any significant way, but it will reduce the margins in their drink business. To sell a unit of packaged drinks at a competitive price, they will be in the 35% to 40% GM area, versus an 80% plus margin on fountain drinks, even with free refills. Fountain drinks that are received at the drive through are even better. No refills there.

No Inventory to stock and reorder, no additional refrigeration equipment and energy consumed... Fountain is the way to go in McDonald's.

In terms of a Pepsi-Coke fountain competition, which wasn't in play, Coke has a large and dominant presence in the field. To switch to Pepsi doesn't seem to make any sense. What competitive advantage would it give McDonald's?

McDonald's should stick with fountain drinks and keep the profit formula they have used to achieve great operating results over the years.

The free, low-cost, self-service refills fit into the value image very well, and makes for a good complement to the packaged meals with sandwich, fries, and the fountain drink.

Friday, February 27, 2009

Dollar Stores have the Blueprint for Profits in Current Economy

Source Article: Discounter Dollar General lifted by downturn in US | (view article)


1) Value oriented retailers like dollar stores will experience growth vs Competitors

2) "Cash is King" for the Middle and Lower Middle Income Households

3) "Value" pricing and Large Store Count Means convenience for consumers

4) Other sectors should benefit from downturn, Auto Parts, Rent-to-Own among big potential winners.


The news that Dollar General's results are good is a direct reflection of the prevailing retail climate in the US. "Value" is winning the battle for the hearts and minds of consumers as economic uncertainty continues to be the headline.

The "Dollar Store" category is interesting in that it offers a bare bones consumer experience, private label and lesser known CPG brands, and no frills for the consumer. Exactly what families worried about current finances and future job security and shaky signals from business and the government want.

The shampoo still gets your hair clean, the kids still drink the carbonated soft drinks you can buy in 2 Liter bottles "2 for a buck".

It will be interesting to see Pepsi and Coca-Cola's volume figures, as they have tried to make a price increase stick in the face of the economic downturn. Coke went with a straight price hike, Pepsi went from 12 paks to 8 paks for 12 OZ cans. The dollar stores can give a good alternative to that.

Dollar General is a retailer that fills an urgent need right now, and the news of continued store count growth makes sense. The ubiquity of well-known Dollar Brands in suburban and working-class communities has eliminated any stigma consumers may have felt about patronizing the stores. They are convenient and provide value. Big Lots is a good bet to prosper, too.

That should lead to thinking about other retailers who may benefit from consumer sentiment and the economic climate right now. Auto Parts retailers come to mind. Cars aren't being purchased, new OR used, but people are still driving. Somethings gotta give, and I think Autozone and Advanced Auto parts could be beneficiaries of this trend; Pep Boys and other repair service chains should benefit, too.

Rent-to-own retailers Rent-a-Center and Aaron's Rents should benefit as consumer credit stays tight and consumer confidence remains low.

Retail this coming year will have some bright spots, but they will be in value-oriented main brands (Wal-Mart, McDonald's), and retailers like Dollar General and Rent-A-Center, whose offerings appeal to families who are struggling to maintain their lifestyle, when it's becoming very tough to do that.

Saturday, February 21, 2009

Starbucks: Soluble or Instant - This New Coffee is a Revenue, Not Brand, Driver

Source Article: Starbucks Takes Plunge Into Instant Coffee |
(View Article)

1) Instant Coffee has downscale Connotation in US
2) Does it "Cheapen" experience of Barista-Brewed beverages
3) Is the "Starbucks(NAS:SBUX)" Coin-op machine next?

The news that Starbuck's is introducing "Soluble" coffee seems to come from left field for a firm as tied to it's Brand Image as Starbucks.

It's as though they are saying "we can't fix the retail experience for our customers any further, so brand extension is the next step."

The news that Starbucks was adding breakfast sandwiches to the store lineup makes sense, It's a competition driver and complements the core premium site-prepared coffee product.

This one doesn't make much sense at all. No matter how good it is, it's still instant coffee. AND, it isn't price competitive at all with current instant coffee products. Perhaps they've researched and found an underserved "Premium Instant Coffee Drinker" niche no one else is aware of.

Instead of brand extension, improving quality of product and retail experience, along with providing some sort of value offering in a "Combo" promotion with brewed coffee and one of the new sandwiches will do more for the business in the long run.

If "Via" is to become the "Value" coffee offering for Starbucks, which is what they seem to be positioning it to be, then they don't truly grasp the competitive challenges that lay ahead for premium consumer brands right now.

If getting Starbuck's coffee for under "A buck a cup" means eliminating the water, then that seems like a strategy gone backwards.

Thursday, February 5, 2009

What's Wrong with this Picture ?

Some Operators and Jobbers still don’t “Get it”

What is wrong with the picture to the above?

I took this with my celphone camera on Sunday, February 1st, while on the way to the Super Bowl get together Darcee and I were attending. We got off I-95 and needed some gas for the car, so I pulled into a prominent local jobber’s self-branded site. As I pulled up to the pumps, this sign, times eight, was looking out from each dispenser fueling point as I got out of the car. It says, in case it’s hard to read “If you don’t know your pump #, don’t expect us to Guess. Thank You.” Well, at least they thanked the customer at the end.

Where can we start on what message this sends to the customer pulling in to fuel up at this location?

Fiirstly, if there’s a real problem with people knowing what pump they are fueling on, how about switching the dark red numbers on a black background to a contrasting color? Remember, this unit isn’t subject to national branding appearance guidelines, it’s a local brand.

Secondly, you could computer print a sign and laminate it, perhaps worded with a more businesslike “Please note your pump # before approaching cashier” or something more customer friendly or appropriate. With the proliferation of computers and printers, almost any manager or employee has the capacity to get something printed with friendly wording.
And since I paid at the pump and wanted a receipt, you know what the next part of the story is... The dispenser flashed the “ Printing receipt” message, followed by the ever infuriating “See Cashier for receipt”! No paper in the dispenser’s receipt printers!

So, I headed inside to put an end to this quality customer experience at the cashier’s booth. Of course, the cashier never put down her celphone, and seemed disturbed and dismissive that I had disturbed her conversation with the “Receipt for pump 6, please” request. As I got back in the car, I told Darcee, “This is why customers love to buy gas!” Even if I had wanted to purchase something inside the store, I was pretty steamed by now. Remember, this was Super Bowl Sunday, 2 1/2 hours before the game. Prime C-Store time, if there ever was. Beer, Sodas, Chips, Dip, Candy, and people in a hurry, isn’t that what “Convenience” is all about?

Well, enough of my rant on this little incident. We all know business is getting tougher as consumers feel anxiety and concern of the state of the economy. Let’s not “Shoot ourselves in the foot” by not looking at our businesses through the customer’s eyes.

Condevco has created and rejuvenated brands and operations for many different clients in many different fields, retailing/distribution/services, so let us help you make it through. Contact Ron with your consulting inquiry. (Click Here)

Tuesday, February 3, 2009

McDonald’s is a chain for the times

Source Article: McDonald’s Profit Falls as U.S. Dollar Hurts Sales | (See article)


1) McDonald’s Global reach and Marketing muscle will allow increased share

2) Both operating profits and Revenues will continue to grow.

3) The “Wal-Mart” of Fast feeders – low-cost and well-run


While McDonalds profit may have fallen vs. last year’s quarter, they were up in terms of income from operations. Revenue was up, and the future looks bright. McDonalds, much like Wal-Mart has itself positioned to ride through the current economic climate and emerge stronger financially and holding even greater market share.

The “Dollar menu” has forced all the other players to feature dollar and value items, and upped the ante on efficiency and volume. The Wednesday and Sunday .49 Hamburger and .59 Cheeseburger promotions shows the muscle the McDonalds system can deliver. Even as they feature value, they are grabbing share and driving traffic into the restaurants.

The whole “Strength of the dollar” decreasing profits, while true, is a macro situation that McDonalds cannot control. As long as they continue to operate in the manner they are now, they are going to be a consistent and dependable earner who can continue to grow their business.

Consumers are looking for relief from the daily drumbeat of economic downturn news; unemployment and layoffs soaring, auto firms on the ropes, Wall Street bailout questions… here’s the antidote for middle America, and McDonald’s has it.

You can still easily feed a family of four at McDonalds for under $20.00, even if no one is taking advantage of the value items. If you’re watching your money closely, it can be done for $10.00/$12.00. The kids might not get those Happy Meal toys at that expenditure level, but you’re still having dinner out.

The time of reckoning is here for most families in the working class; they may not be facing economic disaster, but there is very little comfort in what the future holds at the moment. Most people have little confidence that things are going to rapidly improve with the nation’s economy.

That’s where an iconic brand and offering like McDonalds can make a big market share move through operational efficiency and value instead of fighting a marketing war with advertising dollars and giveaways.

Burger King, Wendy’s and the Yum brands are all offering value. Wendy’s 99 cent menu was really the first of these regular value offerings way, way back, but the store count and ability to deliver food at a low cost that McDonalds can offer will mean the others can’t be the driver in this competitive sector.

Denny’s Grand Slam giveaway was just completed an hour or so ago; while it’s tough to beat a “Free” offer, it’s not a sustainable competitive position, just a promotional gimmick. McDonalds can sit at the value menu prices as along as it needs to, and continue to earn just fine.

Monday, February 2, 2009

How Much Should a Good Cup of Coffee Cost?

Source Article: Starbucks cuts jobs and stores (view article)


1) Starbucks overexpanded store count

2) Product quality became spotty as chain grew; service level stayed high

3) Other players "Upped Their Game" in the coffee sector


Starbucks retrenchment is no surprise given the slowdown in consumer spending, but the seeds were sown for a turn in their fortunes, regardless.

Starbucks started as a "boutique" coffee store, nicely appointed with good quality product and well-trained, polite employees.

As the store count grew, the employees stayed remarkably friendly and customer oriented, but the barista's skill level dropped. Sometimes, you didn't get a perfect cup of coffee. That was a break with the "Brand Cache" they have with their base consumer.

Starbucks has that core following that will always give them "X" amount of business out a certain area, but as stores began to be placed more closely together, they needed to reach out to the "casual" coffee drinker, one with whom price and convenience were keys to repeat business, in order to maintain revenue as stores got more tightly packed.

They never really addressed that market successfully.

The rise of the premium coffee programs at McDonalds and Dunkin Donuts addressed the mainstream coffee drinker in a faster turnover model, and the Convenience retailing sector has made an effort to deliver a very good coffee product as time has gone by. ExxonMobil and BP put lots of time and effort into the coffee offerings in their retail operations, and large convenience store operators like WaWa and Sheetz run great coffee programs.

Everyone "Upped their game" to work at getting some of Starbucks revenue. They worked at being more convenient, faster, and more price friendly, even if the product isn't quite to Starbucks level, although many times, it is.

The current slowdown in consumer spending sped up Starbucks store cutback, but it would have happened sooner or later anyhow.