SYDNEY (Reuters) - The Corner, a new cafe in Sydney’s trendy inner west, looks a lot like its peers - white frontage, rustic wooden seating, potted plants on the counter, quinoa on the menu and servers wearing hemp aprons.
But look a little closer at the black name sign over the door and a visitor will see “McCafe, established 2014” scrawled in small type.
Owner McDonald’s Corp’s (MCD.N) is saying little about the unique cafe and a series of other “learning labs” it is opening in Australia. They include a typical McDonald’s restaurant on the outskirts of Sydney that, in addition to its usual fare, offers “build your own” burgers and table service.
But market experts say they indicate McDonald’s is seriously worried about tough competition from so-called fast-casual chains around the world that offer healthier food choices and more sophisticated service such as private equity-owned Nandos, Shake Shack Inc (SHAK.N) and local chains Grill’d and Mad Mex. The fast-casual segment is outgrowing the fast-food sector.
“McDonald’s globally are going through a transition,” said Rohan Miller, a business academic at Sydney University, who produces studies on the fast-food market for commercial groups.
“This is clearly a soft launch being quietly managed and I imagine there’ll be some tweaking to the concept as they get more experienced.”
McDonald’s would only say it had no plans to roll out The Corner nationally, but acknowledged some of the foods and concepts it is trialling may be adopted elsewhere.
“While we don’t have plans at this stage to roll out The Corner concept nationally, it will be used to gauge customer feedback to enhance the offering in our McCafé’s around the country,” Chris Grant, corporate communications manager for McDonald’s Australia, said in an email. “Products and concepts that our customers love may be included in other restaurants.”
Offerings at The Corner include Moroccan roast chicken breast and chipotle pulled pork and personalised salads of brown rice, lentil and eggplant. Tea and coffee orders are delivered, using crockery, direct to your table.
At the more traditionally styled Castle Hill McDonald’s outlet, in the outer suburbs, “build your own” burgers are presented on wooden boards and fries in a basket. They are offered alongside menu staples such as Big Macs and Quarter Pounders.
McDonald’s has around 930 restaurants in Australia, from which it serves around 1.7 million customers a day - a sizeable chunk of the 23.5 million population.
The country is a perfect test bed both geographically and demographically for the outlet, experts say.
“It’s got a maturing audience, it’s an educated audience, it’s an audience that is very conversant with cafe culture, the urbanisation of food, takeaway, home delivery and it’s one in which service has always been a cornerstone,” said Brian Walker, director of advisory firm the Retail Doctor Group. “And because of its isolation, McDonald’s are able to measure its performance.”
McDonald’s arch rival, Yum Brands Inc (YUM.N), is also branching out. The owner of the KFC brand has applied for a licence to serve beer and cider at a Sydney store, following two pilot projects in Canada last year.
McDonald’s is Australia’s most popular fast-food restaurant, or Quick Service Restaurant (QSR), followed by Subway and KFC. Around 42 percent of Australians visit an outlet each month, Enhanced Media Metrics Australia says.
Still, moves toward healthier eating are slowing revenues for fast-food burger shops in Australia. Annualised growth of 1.2 percent to $4.1 billion over the five years to 2014/15 includes a 0.1 percent decline in the final year, according to business research group IBISWorld.
And globally, the fast-casual sector which includes Chipotle Mexican Grill Inc (CMG.N) and Panera Bread Co PNRA.O, is growing more rapidly, led by the United States, where sales growth of 13.2 percent in 2012 outpaced 4.6 percent for quick-service outlets, according to research and consulting firm Technomic.
McDonald’s does not break out financial results per country, but Global Media Relations Director Becca Hary said Australia was a positive contributor in November 2014.
Global sales at restaurants open at least 13 months, however, were down 3.3 percent in the third quarter, and fell 1 percent for the first nine months of 2014. Expectations for the company’s fourth-quarter results, due later this month, are low.
That’s a sharp contrast with Shake Shack, which earlier this month filed for an initial public offering as it plans to expand its locations beyond its New York base. Investors and analysts are bullish on its prospects, saying there is room for more fast-casual restaurants that offer higher-quality burgers, a variety of toppings and, in some cases, beer and wine.
“The changes afoot from consumers are very apparent,” said Retail Doctor’s Walker. “There’s a growing market that doesn’t want to eat in plastic chairs at plastic tables in a plastic environment.”
Additional reporting by Lisa Baertlein in Los Angeles; Editing by Neil Fullick