McD’s Wants Consumers to Smell/Drink Its Organic Coffee
By George Anderson
Make no beans about it. There’s a coffee war brewing in the foodservice world and the battlefield is New England.
McDonald’s made clear its intention to vie with Dunkin’ Donuts, Starbucks and any other company that sells coffee with the announcement the fast food chain will replace all the coffee it currently sells in its restaurants in the region with Newman’s Own Organics Blend, made by Green Mountain Coffee.
Steve Kerley, McDonald’s vice president of operations in New England, told The Boston Globe, “We certainly hope to drive customers into the restaurant more frequently, and if we see some of our competitors’ customers, we’d have no problem with that and welcome them with open arms.”
John Glass, an analyst for CIBC World Markets, said McDonald’s is simply following the dollars in foodservice.
“The coffee market in the United States is the fastest-growing segment within fast food,” he said. “McDonald’s recognizes this and wants to capitalize on it. It’s surprising it’s taken the company this long.”
Skip Weldon, field marketing director for the Northeast for New England-based Dunkin’ Donuts is confident of the chain’s ability to hold its own in the coffee wars. “Our customers buy Dunkin’ Donuts coffee for both the quality and value. For us, a great value means offering the highest-quality products at an affordable price.”
McDonald’s prices will be competitive to its coffee-brewing rivals. A 12-ounce coffee costs $1.19 compared to Dunkin’ Donuts’ 10-ounce ($1.46) and Starbucks’ 12-ounce cup ($1.58).
Rick Peyser, a spokesperson for Green Mountain, said the quality of the new coffee will “easily enable McDonald’s to compete with other outlets in New England. The McDonald’s
franchisees are thrilled to provide their customers with a coffee experience that will be very, very competitive.”
Moderator’s Comment: Will McDonald’s elevate its reputation in coffee and its business in the process? Do you see the move to its new coffee blend as
an indication the chain is looking to upgrade its menu quality across-the-board?
McDonald’s has a number of things going for it in this move.
- It will offer a significantly better-tasting cup of coffee.
- The coffee will be identified with a regional company – Green Mountain.
- It will be associated with a good cause – Newman’s Own.
- It’s prices will be lower than the competition.
- All of the above will create trial. If number one holds up and McD’s doesn’t find a way to brew the flavor out of the coffee, then it will get repeat
business and build up word-of-mouth buzz.
For a typical Dunkin’ Donuts, 100% of the profit comes from the coffee. Most make no money on the donuts or sandwiches. Coffee has great margins, even if bought at a premium wholesale price. This is a great margin and sales opportunity for McDonald’s. If the aroma could be more dominant within the locations, they’d sell even more. Part of the Starbucks and Dunkin’ appeal is the interior aroma of the locations. McDonald’s aroma is of fried food.
One observer has said he was surprised that it took McDonald’s so long to do do this. I have to confess that it never dawned on me that McDonald’s might actually one day sell drinkable coffee. It seemed totally out of their realm, like a zebra growing spots. This sounds silly, but this concept is hard for me to grasp, it’s such a surprise. I definitely believe it will draw them new business. And yes, it could signal a shift to some upscaling, but too much upscaling could turn off the existing base. It’d be smarter to open new stores under a different banner, for a more upscale crowd. Good coffee at McDonald’s. Hard to fathom. I’ll have to go out and buy a cup just to see if it’s really true.
I don’t know that I see how this puts McDonald’s in a better position. It is still only ONE flavor. The strength of coffee shops is their endlessly customizable assortments. And their atmosphere. I don’t see McDonald’s taking any customers away from Starbucks.
If you believe in the experience economy, at least 3/4 of going to Starbucks is the experience. Granted that the experience of going to McDonald’s is comparable to that of going to a Dunkin’ Donuts. But what do you eat to complement your cup of coffee–donuts, bagels, muffins–or hamburgers?
I think this will increase sales somewhat to people already going to McDonald’s but it isn’t likely to change the competitive field very much – just like people don’t go to McDonald’s because they are looking for a great salad.
Price is probably not going to be the deciding factor here. However, the combination of better flavor, association with Newman’s Own, and the ability to get some protein for breakfast with the coffee might be a winner. Creating a more healthful or low carb protein choice would put them one place ahead of the competition.
Three valuable goals are met with this action: 1) ties in with
Newman – perceived healthy products that have upped traffic and sales; 2) strengthened the breakfast offering and traffic flow;
and 3) sets up the possibility of other organic products that
can be higher priced and, therefore, stronger gross margins.
Who goes to McDonald’s for coffee? Who even thinks about McDonald’s for coffee?? This seems to be yet another erratic attempt at gaining market share. In response to their slumping stocks and poor sales, they produced a series of ads where Ronald McDonald was in various commercials, everything from a rock star to the traditional family restaurant guy. They tried to target everyone but spoke to no one. Now they want to gain a share of the coffee market? I predict this won’t last long. McDonald’s is trying to reinvent themselves and this is just another iteration.
I’ll speak only from personal experience here, but on those few occasions when I hit a restaurant for breakfast, the absolute undrinkability of McDonald’s coffee disqualifies it from consideration. So I don’t see how this move can possibly *not* improve McDonald’s competitiveness for breakfast.
In the past two decades, Starbucks and maybe one or two others have developed their stellar reputations by making “great” coffee a fashionable social experience: black as hell, strong as death, sweet as love, and absolutely necessary for one’s social standing.
Conversely McDonald’s has spent the last two decades appealing to people who do not seek elite social positioning with their fast food and cheap albeit hot pedestrian coffee.
Both sectors have served their different audiences’ needs very well … and one might also suspect that McDonald’s has considered serving better coffee in past strategy plans.
The combination of the high quality and popularity of Green Mountain coffee and the magical aura of that old coffee bean grower Paul Newman notwithstanding, an upgraded cup of coffee at McDonald’s for $1.19 will not, in my pallet’s opinion, become a magnet for drawing away many Starbucks’ or Dunkin’ Donut’s fashion-focused coffee addicts. Meanwhile who will capitalize on the “cheap coffee urn?” Wal-Mart?