Fast-food chain McDonald’s set tongues wagging when it announced last week it was exploring non-food retailing options in an attempt to grow business. The OakBrook, Ill.-based company controls 13,000 U.S. outlets — a significant amount of valuable real estate for which the company wants to boost profitability. In the past quarter, the burger giant took hits from red-haired competitor Wendy’s, which generated 5.6% sales growth in the face of McDonald’s flat domestic comps.
The Wall Street Journal caught on to the story, and in yesterday’s edition ran an article suggesting that computer kiosks linked to Freddie Mac or Disney, toys, stamps and wristwatches are all in the realm of possible McMerchandise.
"On one hand, it is good to see McDonald’s executives thinking ‘outside the box,’ so to speak," wrote Salomon Smith Barney restaurant analyst Mark Kalinowski in a report yesterday.
"On the other hand, these initiatives could bring about a greater risk of defocusing," Kalinowski wrote, "Also, could the move ‘beyond food’ imply that McDonald’s executives believe the growth prospects for McDonald’s U.S. aren’t as good as the company would like?"
But the initiative is far from original. Starbucks, which currently holds the third-largest market cap in the restaurant biz, has seen attempts to move non-food items flounder. Kalinowski says the Seattle-based coffee chain is decreasing its non-food merchandise levels since the items are only generating 10% of overall sales.
Salomon Smith Barney maintains its neutral rating (3L) for McDonald’s, citing limited second-quarter earnings potential and some downside risk.