CHICAGO -- With half-moon shaped booths, low stools, wooden blinds and flat-screen TVs, most patrons might expect to pay $8 for a burger, or $4 for a smoothie. But the decor isn't a harbinger of price. This is the new look of a remodeled McDonald's, purveyor of Happy Meals and value deals as well as upscale coffee drinks.
The Oak Brook, Ill.-based burger chain is reaching critical mass on a nearly decade-long, multibillion-dollar global renovation and rebuilding project that it's betting will boost sales, traffic and brand perception. Restaurants undergoing simultaneous interior and exterior remodeling are expected to see a 6 percent to 7 percent increase in same-store sales upon reopening, no matter where they are located.
"We are playing a little bit of catch-up," said Denis Weil, McDonald's vice president of concept and design, adding that retail remodeling needs to happen more frequently. "Styles change faster, and customers have a higher need for novelty, and their tastes change faster as well."
Once an area has reached 40 percent to 60 percent completion in the remodeling process, Weil said, consumers begin to view the brand differently, stop in more often and buy higher-end items. Analysts say at that point they can also see the lift in sales.
Ed Wills demolished his agingMcDonald's on Peace Street inRaleigh in 2008 and replaced it with a larger, more modern restaurant. Wills said the overhaul made a difference, in part because it made the McDonald's a better fit for an area of the city that has added a number of high-end apartment and condominium projects in recent years.
"You need to be a part of the neighborhood that you do business in," said Wills, who also owns a McDonald's on Wilmington Street in downtown Raleigh that he hopes to eventually remodel. "It all helps out."
But Wills also said a new building alone is not enough to boost sales.
"You can't just put up a pretty building and then sales increase," he said. "You also must take care of your customers, have a reasonable price and have good service."
McDonald's plans to open 1,300 restaurants and remodel 2,400 in 2012, spending about $2.9 billion, the company said last week. The chain pays 40 percent to 45 percent of a franchisee's remodeling costs for each restaurant, which averages about $600,000 in the U.S. By year-end, the chain will have completed interior renovations on about half its 33,000 restaurants worldwide.
"We believe now is an opportune time to strategically increase new-store openings while continuing a significant focus on reimaging," McDonald's CFO Pete Bensen said in a call with investors. "We have the financial capacity and talent to invest when many others cannot."
Although McDonald's is on a nearly-nine-year streak of global same-store sales gains - most recently reporting a surge of 7.5 percent during the fourth quarter of 2011 - some fast-casual restaurants such as Chipotle and Panera are posting similar or greater same-store sales gains. By adopting a higher-end look, McDonald's seeks to gain broader acceptance for top-tier items already on themenu, such as smoothies and Angus burgers, and better compete with the fast-casual industry.
"The evolution of the McDonald's brand is, I think, necessary because so many other fast-casual brands are growing up," said Darren Tristano, executive vice president of Technomic, a Chicago food industry consulting firm. He added that McDonald's has done well to offer more premium products, particularly with drinks such as smoothies and specialty coffees.
In the United States, bright red, double mansard roofs are being swapped for a single yellow arch outside, and inside two- and four-top tables are being swapped for long, wide, community tables, tall bar tables and more modern booths. About 33 percent of the chain's 14,098 U.S. units have undergone an interior facelift, and 16 percent have completed an exterior overhaul.
Weil said cultural tastes have necessitated different exterior designs. But needs inside the restaurants are more common. On the inside, he said, major metropolitan areas such as London, New York and Shanghai share a similar look, distinct from suburban or rural areas.
The company is moving to seating "zones," slow zones for coffee sippers enjoying the Wi-Fi, fast zones at high bar tables for single diners wolfing down a sandwich, and family zones with booths for parents to "lock" their children on the inside to prevent them from wandering.
"We have clear standards around the world," Weil said. "Sleek tables and chairs, contemporary graphics, variable lighting, timeless base materials, seating zones, flexible seating ... these are all things you will see in all of the decors."
Morningstar analyst R.J. Hottovy said McDonald's sales case for the investment has been evident in the chain's numbers for areas of the world with a significant number of remodels. He added that the remodels are making restaurants "more inviting to customers," not just because of the upgraded look, but also added features such as Wi-Fi and flat-screen TVs.
Weil said the updates also help the chain sell more of its higher-end items.
"It's about permission," Weil said. "As (President) Don Thompson says, 'You eat with your eyes first.' "
Staff writer David Bracken contributed to this report.
