From Fries To Frappe: McDonald's India Brews Up More Profits In Coffee

Fast food chain McDonald's is on an expansion spree, counting on coffee to give sagging sales a jolt.

More than 125 of McDonald’s 244 restaurants in the north and eastern regions of the country now serve McCafe lattes and cappuccinos. That's up from just five restaurants three years ago.

"McCafe is the fastest growing spots for us," Anant Agarwal, vice-chairman, Connaught Plaza Restaurants Pvt., which runs McDonald's (North and East India) told NDTV Profit.

The US fast food chain plans to double the count of McDonald's outlets, as well as its in-store format coffee brand, McCafe, over the next three to four years. This year, the plan is to open about five-six stores.

McCafe is being set up only in upgraded McDonald's outlets. "About 90% of the stores are digitised and reimaged to a new format called EoTF, or experience of the future," Agarwal said.

The coffee-to-burger chain will invest $100-120 million or roughly Rs 800-1,000 crore over the next three-four years for modernising its existing outlets and setting up new stores.

Agarwal emphasises McCafe's price advantage over coffee giants, such as Starbucks and startups like Blue Tokai Coffee Roasters, as it looks to capitalise on the growing coffee culture in India, particularly among millennials and Gen Z. "Affordability has been a challenge. If you look at our competitors, most serve cappuccinos and lattes in the Rs 250-300 price range, while we offer them for just Rs 99," he said.

Moreover, the coffee business is more margin accretive than food, and Agarwal expects McCafe to grow faster and become a Rs 500-crore brand in the next four to five years.

McDonald’s business is split between two master franchisees in India — Connaught Plaza Restaurants Pvt., that operates the chain’s business in north and east, while its south and west operations are managed by the listed entity, Westlife Development Ltd. The quick service restaurant chain major is scripting a turnaround in north and east India, following a partnership with the Agarwal family in 2020, after operations were halted due to a long-standing dispute with former local partner, Vikram Bakshi. In 2019, McDonald's bought Bakshi's stake in CPRL, ending the dispute.

Sharp inflation in coffee is hurting the industry, but McDonald's has decided not to increase the base price of its cappuccino. "It's a relatively new category for us, so the idea is to democratise coffee consumption," said Agarwal. The company is willing to take a short-term hit on margins.

Beyond coffee, the chain is in the process of premiumising its menu on the back of rising demand for gourmet burgers. The other partner has already launched multi-millet burger bun last year, in south and western regions.

India's fast-food chains are struggling to attract diners amid inflation-led consumption slowdown, prompting many, including McDonald's to offer more affordable meals over the past few quarters. However, Agarwal views this trend as temporary. He expects the same-store sales growth—a key performance metric—will turn positive this year.

The company expects to close 2025 with a revenue of Rs 2,000 crore. "Our goal is to double our topline to Rs 4,000 to 5,000 crore within five years," he said.