McDonald's eyes upscale $1B makeover

McDonald's is spending $1 billion to renovate all its Canadian locations in an effort to look cozier as the fast food giant raises the stakes to grab more customers.

The fast food giant is spending the massive amount of money to spruce up 1,400 stores by next yeartearing out the old plastic interiors, and replacing them with leather furniture, plasma televisions and fireplaces.

The announcement, made Wednesday, follows a similar facelift program announced in the United States earlier this year. The chain says it's a response to changing customer habits in Canada's $19-billion per year fast food industry. Consumers increasingly hang out in environments akin to coffee shop Starbucks which offers sofas and free wireless Internet.

"People tend to linger a little bit more in restaurants today. They want to enjoy their meals take a break from the busy lifestyle that they lead and we think our restaurants today are certainly doing that a lot better than in the past," McDonald's Canada CEO John Betts said.

The Canadian redesigns are based on formats used by McDonald's in Australia and parts of Europe. Construction is complete in some restaurants in Toronto and Montreal, and Betts said renovated stores have already succeeded in bringing in more customers.

"The business we've been enjoying from our reimaged restaurants or remodelled restaurants is close to double digits," he told The Canadian Press in an interview at one of the renovated stores in Toronto's east end.

That's higher foot traffic than the average. Analysts say annual growth in the quick service restaurant industry is normally between two and three per cent per year.

Betts added that while the chain is making the restaurants more comfortable and inviting, it is also increasing fire power in the kitchen to offer new menu items, is enlarging the drive thrus to make them more convenient, and will add McCafe products to a "large portion" of those stores. That includes fruit smoothies, pastries and higher-end coffees like lattes.

'If you stay stale, the next thing you know, another competitor will be taking your customers' CEO John Betts

McDonald's said its renovations are a response to customer and store owner feedback. Remodelling stores is just another way the company is keeping up with changing times as it tries to shed its old fashioned image and become a healthy and hip hangout.

Accordingly, the chain has introduced new menu items like oatmeal and grilled chicken wraps, and offers free wireless Internet access across Canada. This month, McDonald's Canada also said it would revamp its children's Happy Meal by adding a serving of strawberry yogurt and a smaller, 31-gram serving of fries that contains 100 calories.

Retail analyst Brian Yarbrough of Edward Jones said a cross-country renovation that includes McCafes is the right business move as McDonald's tries to better serve changing customer tastes in Canada's "cutthroat" fast food industry, where players face heavy competition from long-established chains.

"I think retailers always are looking to innovate and move forward, because if you stay stale, the next thing you know, another competitor will be taking your customers," he said, but added that while renovations may bring new customers in, what's more important is having innovative products that will keep them coming back.

He said McDonald's Canada is nowhere near to matching the stronghold it has in the breakfast market in the United States, and while McDonald's is trying hard to achieve the same results in Canada, it is has so far been unable to chip away at Tim Hortons' dominance in the coffee industry. Meanwhile, analysts keep pressing Tim Hortons about the growing McCafe presence in Canada.

Competition ramps up

Tim Hortons has said it plans to "vigorously defend" its position as the coffee market leader in Canada as competition from quick service restaurants like McDonald's heats up as they all try to capture a bigger share of the lucrative breakfast and snack markets.

McDonald's has given away 50 million free cups of coffee in the last two and a half years in an attempt to steal away market share from Tims, which Yarbrough said dominates 45 per cent of breakfast sales.

McDonald's isn't the only quick service restaurant to get a facelift as it fights for customers.

In June, Soul Restaurants Canada Inc., the new operator of more than 200 KFC restaurants in Ontario and British Columbia announced an "aggressive renovation initiative" but didn't provide further details.

Burger King has begun swapping its generic fast-food feel for sleek interiors with rotating chandeliers and TV-screen menus and "burger bars,"some of which serve alcohol aiming for a vibe that's more sit-down than drive-through at its worldwide 12,000 locations.

Meanwhile, some Canadian malls and retailers have launched their own renovations in time for 2012.

Major U.S. retailers, department stores and mall moguls are starting their Canadian renovations now so they will be ready in time for 2012, when consumers are expected to begin opening their wallets wider, creating huge demand for new shops and outlets as the economy is expected to grow.