Is McDonald’s turning into the new Starbucks?
The fast food company is expanding it beverage line in select restaurants to include specialty coffee-based drinks served by “coffee experts.” The beverages will be available at designated areas at McDonald’s front counters.
It’s the latest effort in an ongoing battle to take market share away from companies like Starbucks and Dunkin’ Donuts. McDonald’s is testing specialty coffee in 800 stores, including Michigan, Missouri and Kansas City, KS, company spokesperson Danya Proud said.
The chain also plans to test smoothies, frappes, bottled beverages and a variety of fountain drinks.
The additions are part of McDonald’s strategy to meet consumer demand for specialty drinks. The program will be expanded in “as many markets as possible” this year and in 2009, Proud said.
“We’re encouraged by what we’re hearing from customers,” she said. “They’re telling us they appreciate the added value, convenience and selection. McDonald’s USA is committed to offering great-tasting beverage options to our customers.”
McDonald’s drinks will be 60 cents to 80 cents cheaper than competitor prices, according to the Wall Street Journal. Internal documents said the program would add $1 billion to McDonald’s annual sales of $21.6 billion, the report said.
And sampling will play a “significant piece of McDonald’s marketing” of the new drinks, Proud said. Test markets are now offering samples. TV spots and radio ads also support the launch.
The beverage addition, however, is not part of a larger rollout of McCafes, coffee shops inside McDonald’s restaurants. The company operates 31 McCafes in the U.S. The majority are located in other countries.
McDonald’s had its first foray into the coffee business in the fall of 2005 when it launched gourmet coffee in more than 650 restaurants in the Northeast The company supported the effort with free samples to boost sales. Months later, McDonald’s rolled out iced coffee and bakery goods in select restaurants in the Northeast.
“They want to be a one-stop shop for food and beverages, but especially with beverages because the profit margin is higher,” said Scott Hume, editor-in-chief of Restaurants & Institutions. “Part of their strategy is to keep people from buying a sandwich at McDonald’s and buying coffee at Starbucks. It’s important to keep dollars at McDonald’s and not let them wander elsewhere.”
To do that McDonald’s has to prove its products taste good compared to competitors like Starbucks, whose sales have recently fallen in the U.S. for the first time, Hume said. The designated coffee area will also take up valuable space from restaurants, he said.
And finally, Hume questioned whether the McDonald’s units carrying the new drinks would be located in markets where there is high demand for higher priced coffee beverages.
“In urban locations, in major markets, sure,” Hume said. “But in suburban places, that will take some consumer communication.”
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