McDonald's develops own C-store concept

Nation's Restaurant News, August 28, 1995 by Louise Kramer

OAK BROOK, Ill. -- America's convenience store and gas station operators soon may need to look in their rearview mirrors. Burger giant McDonald's Corp. is developing its own convenience store concept to complement its accelerating alliances with oil companies for co-branded sites.

The concept -- which is tentatively called McStop, according to individuals close to the project -- will allow patrons in a hurry to satisfy their appetites while they fuel their cars, and pick up a quart of milk, a magazine and a bag of chips all in one quick stop.

A spokeswoman for McDonald's, Melesia Webb Dunn, said she is unaware of the McStop project. However, several sources close to the project confirmed that the burger giant is developing its own C-store concept. Whether McStop is a limited test or a concept that will dot the landscape like so many 7-Elevens and Circle K's remains to be seen, said sources, who estimated that anywhere from 20 to 200 McStops could be built initially. The development process stands to go on for about nine more months, one source said.

"There are some questions on some of the product lines," said another source close to the project. "I don't think you're going to see a Playboy in them and condoms. There's some question about cigarettes. They are going to have to have them though, I would think."

McDonald's already has units in some 50 combination C-store/gas stations across the country, according to Dunn. In late July, McDonald's, which has partnerships for adding units in C-stores with several oil companies including Mobil Oil Corp., Amoco and Texaco, formed an alliance with Chevron Corp. to develop an undisclosed number of combined convenience store, gas station and fast-food locations throughout their mutual marketing areas in the West and Southwest. Dunn said that deal will not preclude McDonald's from seeking alliances with other operators.

Industry observers say that as McDonald's alliances increase, running the C-store portion of the equation would serve to protect the integrity of the McDonald's brand by providing more control over the entire operation. So far, one observer said, the satellite restaurants in combination C-store/gas stations are posting mixed results and risk diluting the powerful McDonald's brand.

"I think they have their finger on the fact that these little units aren't working. The effect of a McDonald's Express [in a C-store] is to downgrade a real McDonald's," the observer said.

A few progressive franchisees representing other major players, including Burger King Corp. in Miami and Hardee's Food Systems in Rocky Mount, N.C., are starting to test their own C-stores in a limited number of cases. But industry observers said such a move has yet to come from a corporate headquarters, as is the case with McDonald's.

McStop would include, at one site, gas pumps, a convenience store and a McDonald's restaurant, most likely of a smaller scale than a free-standing unit, along with a drive-thru window. McDonald's would operate both the restaurant and the C-store, observers said.

There are some 93,200 convenience stores in America today with 72 percent selling gasoline, according to the National Association of Convenience Stores. In 1994 the industry posted $132.2 billion in sales. Jim Mitchell, president of Mitchell Design Group, Dallas, a retail design firm that specializes in convenience stores, said existing C-stores are showing their age and are ripe for overhauls to bring them into the next century -- overhauls that would involve adding more up-to-date elements, like fast-food brands featured either singly or paired in some kind of food-court line-up.

"You're going to see both of us mixing each other's business," said Mitchell, speaking from the point of view of the convenience-store industry. "Any branded food operators that wanted to get into the C-store business would not find a better time or a more fertile ground than there is now," he said.

McDonald's and other major fast feeders like Burger King, Taco Bell, Hardee's and Subway all started to move satellite units into these non-traditional locations about two years ago. Subway, in fact, recently opened its 1,000th unit in a C-store. But today, the movement is accelerating as prime sites for traditional, freestanding units become scarce.

Both C-store/gas station operators and fast feeders are looking to share operating costs and gain venues for their product alongside strong brands that are attractive to consumers.

"We have found that when we co-develop with another well-known brand we tend to feed off each other's customers," said Joby Humphrey, a spokeswoman for Star Enterprise, Houston, a joint venture between subsidiaries of Texaco Inc. and Saudi Aramco that has developed two locations with McDonald's franchisees and numerous other big names in fast food. "You have someone who helps you with costs. We can split the operating costs and it helps us build more stations."

In the most recently opened co-development with McDonald's, the restaurant franchisee runs the restaurant portion as well as the C-store, Humphrey said. Both the C-store and the gas pumps run under the Texaco banner.