Mathews Brothers Brew Cafe Concept

For decades, the choice was simple – regular or decaf. And nowhere was this truer than under the golden arches of a McDonald’s.

But times – and tastes – have changed, and froufrou espresso drinks, which industry estimates peg as a $12.3 billion business, are available in more places than ever before.

Soon, Northwest Arkansas coffee connoisseurs can opt for a half-caff, no-foam, low fat, sugar free vanilla latté to go with their Big Mac.

Bill and Walter Mathews own Mathews Management Co., which operates 31 McDonald’s restaurants in Northwest Arkansas, eastern Oklahoma and southwest Missouri.

They are among some of the first franchisees in the country to adopt the McCafé concept. It’s present in about seven markets so far, and is a transition that will add a touch of coffeehouse flavor to the fast food offerings.

The specialty coffee drinks represent the biggest product rollout at McDonald’s in decades.

The company hasn’t yet made a big advertising push for the new line of drinks, nor has it come right out and named its primary competition.

But one can easily read between the lines on the McDonald’s Web site unsnobbycoffee.com.

Its jabs about “crazy names and sizes” and snooty, expensive coffee drinks make it clear that McCafé is intended to take some of the kick out of Starbucks’ market share.

Adding the McCafé offerings is a move that comes with a substantial price tag. Bill Mathews estimated his company is going to spend millions to purchase the espresso machines, remodel older stores and train staff on operations.

The automated, Swiss-manufactured espresso machines are in the neighborhood of $15,000, while remodeling each restaurant will cost $75,000 to $500,000. McDonald’s corporate will pay 40 percent of the leasehold improvements, Bill Mathews said.

Most of the remodel jobs will run about $150,000.

The Mathews brothers are adding other improvements to their stores, such as automated beverage machines that work like an assembly line and orange juice dispensers that will monitor the expiration date of the juice.

McCafés will be installed in each of the 26 freestanding locations in the Mathews’ McDonald’s empire. The first espresso drinks are being sold now at the Stillwell, Okla., store and will be available in late May and early June in locations in Northwest Arkansas, Bill Mathews said.

Bill Mathews got his start with McDonald’s in the mid-1970s as a crewmember, working his way up to management.

In 1983, he and his brother had the opportunity to buy a franchise in Springdale, and their business has grown from there to encompass 31 – soon to be 33 – restaurants.

Based on tax revenue data, the average standalone McDonald’s revenue in Fayetteville was nearly $2 million, while the Bentonville stores (not including the newest store near Bella Vista) averaged more than $2.5 million each.

If each of the Mathews’ 26 standalone stores averaged $2.25 million a year, their annual revenue would be $57.9 million. That figure doesn’t include revenue from their restaurants located inside other businesses.

Assuming an average cost of $150,000 per store – with some of that being paid by McDonald’s corporate and some remodels costing substantially more than that – the Mathews brothers will likely spend a minimum of $3 million on the upgrades.

Express Espresso

In the early days of the stratospheric proliferation of Starbucks (a 1998 headline from humor paper The Onion read, “New Starbucks Opens in Rest Room of Existing Starbucks”) chains like McDonald’s and Dunkin’ Donuts still primarily served up a basic cup of java.

But over the years, those fast food companies’ offerings have expanded as many consumers developed tastes for espresso and iced coffee drinks, often at either their favorite Starbucks location, or at the one across the street.

The McCafé concept revolves around creating high-quality espresso-based drinks very quickly.

McDonald’s corporate has spent years doing research on making espresso drinks, and worked with Swiss manufacturer Franke Group to come up with the Sinfonia, a machine that fit the chain’s needs for a fast, consistent product, Bill Mathews said.

The company is also securing high quality Arabica coffee beans, which are more rare and more expensive than the Robusta beans used for most coffee blends, but which yield a much better tasting espresso.

Although the espresso makers are largely automated, crewmembers will still have to be trained on how to operate the machines.

On average, each of the Mathews’ stores employs about 50 people, 30 to 40 of whom will be trained on the new machines.

Because the machines are automated and self-cleaning, the iced mochas and caramel cappuccinos will be as consistent from store to store as the Big Macs and Chicken McNuggets.

The turnaround time on the drinks will be very fast. It should only take about 45 seconds to make one, Bill Mathews said.

This is especially important for drive-thru customers, who represent about 70 percent of all orders, Walter Mathews said.

In the last few years, the amount of drive-thru traffic has significantly increased at McDonald’s, Bill Mathews said.

Leonard Newbill, manager at the Bentonville store near Bella Vista, said he’s looking forward to selling the espresso drinks and has customers asking about them every day.

“I’m very excited about the product,” he said.

The drinks will be $0.80 to $1 cheaper than their equivalents at other coffee shops, Bill Mathews said.

“Starbucks has created a lot of exposure for coffee and coffee drinkers, so I’m sure there will be some crossover,” he said.

Though McDonald’s will likely take some business away from Starbucks, Mathews said he also expects to convert many of his existing customers into espresso aficionados.

He is also training his employees on how to explain the similarities to and differences between McDonald’s coffee drinks and the Starbucks counterparts.

The Mathews brothers will be running promotions to make customers aware of the new drinks in the coming months.

“We’re going to be giving free drinks away left and right,” Bill Mathews said. “We’re going to be doing things like ‘free coffee Mondays’ to create a lot of exposure for this product.”

Caffeine Concerns

Not all McDonald’s franchisees are excited about McCafé. Some are concerned that their customers won’t respond well to the drinks, said Richard Adams, of Franchise Equity Group, a consultant for McDonald’s franchisees.

Adams has seen more than one side of the company, as he worked for McDonald’s corporate for 18 years, and was a franchisee himself for 12 years. He started his consulting business in 1995 and described himself as an advocate for franchisees.

Many of the McDonald’s franchisees Adams has spoken with are feeling apprehensive about McCafé, he said.

Though McDonald’s corporate will pay for 40 percent of the leasehold improvements (which would make sense because the corporation owns all of the McDonald’s buildings and real estate) the franchisees still have to pony up for the equipment.

To break even on the investment, each store would need to sell about 300 espresso drinks a week, Walter Mathews said, adding that he doesn’t anticipate any difficulty reaching that level.

“The questions arise about this product, because it’s been tested extensively and hasn’t performed well, yet McDonald’s corporate is determined to move forward with it,” Adams said.

Some franchisees have opted to simply purchase the espresso equipment and not upgrade the restaurants, he said.

Though that means they’re leaving money – the 40 percent corporate would pay for remodeling – on the table, some have felt that is the better option for them.

“When I was a franchisee, in other markets they extensively tested pizza and spent a lot of time and money on it, and I was excited about it,” Adams said. “But it didn’t pencil out so they pulled the plug.

“The corporate guys, they’re trapped because they’ve sold Wall Street on the idea [of McCafé],” he said.

But the Mathews brothers are excited and optimistic about the new drinks. Once McCafé drinks are available in 75 percent of stores – which should be about mid-2009 – the company will begin a big national advertising campaign.

“When we first got into breakfast in the early ’70s, it wasn’t really exciting for the operators back then because it was new territory,” Bill Mathews said. “It’s the same thing with the drinks, it’s new territory.”