McDonald’s will sell off its British coffee bar chain, Aroma. There is heavy competition in the British coffee bar market, so now McDonald’s has a stake in stronger rival Pret a Manger, Aroma has little to offer. Ditching the chain and putting more money into the expansion of Pret a Manger makes a lot more sense, given McDonald’s current strategy of building global brands to complement its core burger offering.
It looks like the British coffee-bar market is a little too hot for McDonald’s. The American burger giant is planning to sell off the British arm of the Aroma chain. However, it is still planning to retain Aroma’s cafes in Argentina and Switzerland.
Aroma was set up in 1991 with the backing of venture capital group Apax. By 1999, Aroma had 23 outlets, 300 staff and annual sales of GBP10 million. The small chain was enough to tempt McDonald’s, which paid around GBP10 million for the company, hoping to become a notable force in the fast-expanding British market for coffee outlets. Happy with its new purchase, McDonald’s invested into expanding the chain to its current 35-store status, but profits have not been as expected. McDonald’s was not the only company tempted to buy a stake in the promising British market and the competition has been fierce.
McDonald’s first showed signs of wavering earlier this year when it bought a 33% stake in rival UK coffee and sandwich chain Pret a Manger. The company now plans to focus on the expansion of Pret a Manger instead, targeting new areas including Asia and the US. McDonald’s is also trying to grab a piece of the US coffee-bar market through its own brand, trialing McCafes in the Chicago area. If it proves a success, the McCafes will be rolled out to other regions.
The Aroma chain is estimated to be worth around GBP15 million now. Likely bidders include pub groups and rival coffee chains such as Cafe Nero, Costa and Coffee Republic. While the deal won’t make much of a mark on McDonald’s finances, it is still worthwhile. It makes little sense for McDonald’s to hold onto the chain now that it has a stake in a more promising rival. McDonald’s needs to diversify out of the stagnant burger market, and putting more muscle behind Pret a Manger should bring tasty returns for the company.
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