McDonald's Plans Major Makeover

CHICAGO -- McDonald's Corp. is gearing up for a major makeover that will give its fast-food restaurants a more hip, coffeehouse design, Crain's Chicago Business reported.

Over the next five years, McDonald's plans to spend billions to remodel thousands of U.S. restaurants with new features such as plasma TVs, lounge chairs and electric fireplaces. In addition, the chain is replacing its signature mansard roof and brick exteriors with stone facades and contemporary, eyebrow-shaped arches on the sides of the roofs.

McDonald's CEO James Skinner still must persuade franchisees to shoulder more than half of the cost of restaurant remodeling -- an effort that could total as much as $1 million per store -- only a year after asking them to shell out up to $100,000 per restaurant for improvements needed to launch specialty coffee, according to the report.

The sleek new look is critical to McDonald's as its U.S. sales growth slows, and it relies more heavily on pricier new products such as frappes and Angus burgers.

"You can't sell a $4 burger in a $2 (restaurant)," Steve West, an analyst in St. Louis at Stifel Nicolaus & Co., said in the Crain's report. "The restaurants can't just be clean anymore, and if McDonald's wants to boost its average check with more premium products, it has to have better-looking stores."

McDonald's plans to remodel between 400 and 500 U.S. restaurants this year, and has identified 5,500 of its 14,000 locations as major remodeling candidates, according to a note to franchisees. Company executives said the program is a way to "re-brand the system in a contemporary way," and predict the improvements will help boost annual sales per restaurant from $2.3 million to $3.1 million -- or by $11.2 billion across all McDonald's outlets -- in the next four or five years.

Remodeling on average boosts sales 6 percent to 7 percent, according to the company, which wouldn't disclose the cost of the improvements. Industry analysts said remodeling costs could range from $200,000 per store to as much as $1.5 million.

Based on that cost range and the number of restaurants to be remodeled, total spending on the project could come to somewhere between $1.1 billion and $5 billion. McDonald's paid for roughly 40 percent of the cost of its McCafe coffee rollout for franchisees, and executives said they expect to make a similar commitment for the remodeling.

McDonald's previous design was geared toward parents and children, while the new design will attempt to create a more inviting atmosphere for adults and teenagers looking for a place to relax, the report stated.

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