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In what could be seen as an inevitable marriage of two of America’s favourite pastimes, McDonald’s has launched an in-store television network to be rolled out to 650 California stores.
Beyond any greater cultural implications, the initiative marks yet another step in the continued evolution of the American fast food experience, one that is being constantly retooled to appeal to higher income consumers. As the recovery continues, US operators are being forced to compete at every level for consumer attention, and cash-strapped consumers are opening their minds to a wider variety of foodservice formats. As a result, fast food players are seeing significant opportunities to expand their consumer base, provided they can find ways to appeal to these new demographics. McDonald’s’ recent foray into in-store TV programming is the company’s latest attempt; by significantly improving the consumer dining experience, the company stands a real chance of taking significant share from other categories.
The immediate benefits of this new venture are obvious: The network will broadcast a mix of news, sports and entertainment programming designed to engage viewers while dining, driving dine-in traffic and encouraging longer visits, both of which have been major focuses of McDonald’s’ recent US strategy. As McDonald’s has reported in the past that up to two-thirds of US sales currently come from the drive-thru window, this initiative has the ability to make an immediate impact, boosting average checks through add-on purchases in the process. However, the in-store network also has the ability to produce an entirely new revenue stream for McDonald’s via advertising profits.
With 36,000 outlets in over 100 countries, McDonald’s has access to an enormous captive audience, a valuable commodity in a time when technology improvements have left advertisers facing limited broadcast opportunities. Wal-Mart, a retailer with arguably the most successful in-store television network, counts 125,000 screens in US stores, reaching 127 million shoppers per week and reaping considerable revenue from ad sales. In comparison, McDonald’s completed 33 billion transactions in the US in 2010, which breaks down to approximately 600 million per week, evidence of the sizable platform McDonald’s could achieve should the program be launched on a national scale. Even if only one-third of those transactions happen in-store, that’s still 200 million people hypothetically being exposed to McDonald’s programming per week, almost twice the number of people who watched the Super Bowl in 2010.
Wal-Mart’s television network is also infinitely targeted, allowing advertisers to target ads to specific sections—or even specific shelves—of various stores, reaching only their most relevant demographics. This kind of customisation speaks to further opportunities in the foodservice sector: At McDonald’s outlets, advertisers could target PlayPlace areas for family programming and other areas for advertisements aimed at adults. Similarly, advertisers could easily choose specific dayparts, further targeting their message.
The most important products advertised on McTV, of course, will be McDonald’s’ own menu items, though the company has pledged to limit their own marketing to just 90 seconds per hour of programming. Still, the ads could translate to significant sales increases. A study conducted by Premier Retail Networks in 2008, the company behind Wal-Mart’s in-store network, revealed that 70% of consumers who viewed ads on televisions at retail checkout counters reported being influenced as to their intent to buy the product in the future. As such, there are real opportunities for McDonald’s to drive incremental sales through the promotion of high-margin, add-on items like desserts, snacks and specialty beverages.
Beyond dollars and cents, McTV also has the ability to help rebrand McDonald’s outlets with a more local focus, fostering a sense of community with coverage of nearby high school sports teams and other local interest pieces. This shift away from ubiquity and towards local specialization is a popular one—Starbucks kicked off the trend last year with the start of outlets customised to reflect the personality of various neighbourhoods, and specialist coffee shop competitor Caribou Coffee followed suit in 2011, announcing plans to remodel Chicago-area stores to reflect unique neighbourhood styles. Similar to the company’s recently announced US remodelling strategy, this change will help McDonald’s reinforce its new image as a comfortable, neighbourhood hangout, ultimately serving to encourage longer, more frequent dine-in visits.
Clearly, one of the big drawbacks to this particular strategy is its high cost. The hardware, programming and other infrastructure necessary to implement an in-store network makes it a very expensive strategy, especially for smaller operators. However, there’s a bigger lesson here, one that provides real insights to operators in all developed markets: Beyond pricing, food quality, menu innovation and branding, the dining experience is emerging as a central decision-making factor in the minds of consumers. In times when eating out at any price tier is a luxury, operators must compete on every level, including entertainment value, to appeal to an increasingly discriminating consumer base. More importantly, this creates the potential for operators to cash in on experience-based services that can broaden their appeal and, ultimately, benefit their bottom line.
Ahead of the curve, cafes/bars operators in Vietnam have embraced this idea, implementing entertainment-based services in outlets as a means to draw traffic. Many independent cafes have begun hosting live music, screening 3D films in arena-style seating areas, or simply featuring in-outlet televisions that screen movies and other entertainment. Chained players have begun to catch on as well, with second-ranked cafes/bars player Highland Coffee adding free Wi-Fi to encourage longer stays and KFC adding in-store play areas, both services that are already part of McDonald’s’ US in-store entertainment offer.
Moving forward, this trend is expected to continue, as consumer expectations evolve to align with improved dining experiences. Operators in the US and other developed markets would be wise to stay ahead of the trend, working to improve every act of the consumer dining experience to remain competitive in an increasingly cutthroat market.