McDonald’s Rolls the Dice on Installing TVs at Restaurants

by Trefis Team
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McDonald's
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If you want other reason to go to McDonald’s (NYSE:MCD) and hang out a while you could soon there to watch the tube. McDonald’s has long been associated with its value oriented image and made recent attempts to upgrade stores to improve this image as well as offer premium foods, which calls in to question the rationale behind giving people a reason to veg out and watch TV at restaurants. The thinking is that this will lead to better sales and could attract people to stick around and spend more. [1] The in-store TV channel, known as McTV, is part of $2.9 billion that the company aims to spend in 2012 as part of its capital expenditure. [2] McDonald’s currently competes with Yum! Brands, Subway, Wendy’s (NYSE:WEN), among many others.

See our complete analysis for MCD stock here

Average Spend per Customer Could Go Up

The inception of McTV means customers would spend more time inside the restaurant, which could really boost the Average Spend per Customer (ASC) as people have a tendency to eat more when they are engrossed in watching television, something that sports bars have been doing for years. The combination of these factors could help the company increase the ASC figures.

The current ASC is around $3.80 and we expect this figure to rise gradually especially with commodity and fuel prices expected to remain firm in the foreseeable future.

This is also an opportunity for McDonald’s to generate revenues from advertisement on its TV channel. Currently, the company plans to dedicate 8 minutes of advertisement for each hour of broadcast.

TV Move Could Backfire With Recent Plans to Upgrade Restaurants

The company will spend $400 million in 2012 to revamp its existing restaurants across the country. The revamped, upgraded restaurants will feature wooden tables, padded seats, better interiors and Wi-Fi. In the past couple of years, the company has also launched the premium McCafe brand and Angus Burgers. [1] All these are attempts by the company to associate itself with higher paying, premium seeking customers.

McDonald’s is traditionally viewed as an inexpensive, mass-produced food serving restaurant offering very little exclusivity and is considered a grade lower than its casual dining counterparts such as Chili’s, Chipotle (NYSE:CMG), Starbucks (NYSE:SBUX) to name a few. Mc TV’s launch would certainly help in solidifying the image McDonald’s hopes to create and could counter efforts to improve its brand image.

The influx of customers from a new segment altogether could propel the average annual number of customers per restaurant upward. Currently, around 700,000 customers visit a single McDonald’s restaurant per year. The figure should rise to 775,000 by the year 2016.

We have a $91 price estimate for McDonald’s, which is about in line with the market price.

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Notes:
  1. McDonald’s to Roll Out McTV, WSJ, November 21, 2011 [] []
  2. McDonald’s to Increase Capital Spending in 2012, WSJ, November 10, 2011 []
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