You Want a Latte With That? McD’s Brews Up Coffee Strategy

A real coffee drinker once observed that it was inhuman to force people who have a genuine medical need for coffee to actually wait in line behind people who regard it as a recreational activity. If that opinion resonates with you, you’ll have a lot shorter wait this year.

McDonald’s – who took some coffee ground away from Starbucks and Dunkin’ Donuts last year – announced that they’ll install coffee bars with Starbucks-like baristas in 14,000 U.S. locations this year.

Along with drip coffee, McDonald’s will be serving high-end coffee drinks like lattes and cappuccinos. Following the successful introduction of their premium drip coffee, this would seem to be a natural, next-step line extension, especially with so many locations to offer up product throughout the United States.

What actually drives loyalty in the coffee category? Some market analysts have suggested that convenience has become the dominant driver in the industry, but that’s not strictly true.

According to the Brand Keys Customer Loyalty Engagement Index, convenience has become table-stakes when it comes to coffee beverages. Consumers are driven more by actual brand loyalty than just convenience. Instead of taking the most expedient, beeline to work, commuters – driven by a lust for a particular brand of caffeine (often accompanied by a side of carbohydrates) actually go out of their way to visit one coffee provider versus another.

Want proof? The Department of Transportation noted that the increase in commuter side-tripping has thwarted attempts to forecast travel patterns that had traditionally been based on models that relied on the predictability of the morning commute.

So, will having lots of coffee beverages at lots of locations do it for McDonald’s?

Not according to our Loyalty Engagement Index. Starbucks lost a lot of ground last year walking away from the critical coffee experience they had imported from Italy and popularized for the U.S. food-service industry.

In the face of long lines of people who did regard the purchase of hot coffee beverages as a recreational activity, the process-re-engineered away the pulling of shots. Instead of the sound and smell of coffee beans being ground, they went with vacuum packed, pre-ground coffee.

It’s not a surprise that loyalty numbers – and attendant profits – went down. Without some entertainment, some theater to fill the wait-time, and aromas to pack their proboscis, where was the added value? Especially when less expensive coffee was to be found at Dunkin’ Donuts, McDonald’s or the local coffee shop or street corner kiosk, although according to the Brand Keys Index, America apparently did run on Dunkin’, at least when it came to “service.”

To address those issues, McDonald’s is apparently borrowing heavily from the Starbucks brand experience and Dunkin’ service standard; they’ll be calling the crew members “baristas,” and will be displaying the equipment in the front of their stores instead of hiding it in the back along with the fryolators.

But it’s also been reported that the McDonald’s process will use a single machine that automatically steams the milk and combines it with the espresso, which cuts down on some of the drama and ceremony that comes with the preparation of a really well prepared espresso. And since selection and variety” is also a category loyalty driver, McDonald’s is bound to have a more narrow selection on offer than the gabillion varieties available at Starbucks.

Sure, everyone laughed when Steve Martin ordered a “half-double-decaffeinated-halfcaf with a twist of lemon” in the movie LA Story, but now it’s expected that coffee purveyors can actually provide such variations.

Yes, “quality and taste” also drive engagement, consumption, and loyalty. Consumer Reports recently rated McDonald’s drip coffee better-tasting than Starbucks. Sure, taste is subjective, but McDonald’s says that the new coffee beverage offerings will be helpful in shifting younger consumers away from Starbucks.

Of course, saying it and doing it are entirely different things. McDonald’s tried to introduce a coffee distribution outlet called “the McCafé” nearly a decade ago. They set up some comfy chairs and a counter that offered cappuccinos and cookies, but a corner of a typical McDonald’s didn’t actually provide an acceptable milieu that lent itself to a cappuccino-sipping experience.

But with the success of its premium drip coffee as a foundation, a recent physical plant re-fit, and cheaper products than Starbucks, McDonald’s feels that introducing coffee bars will help solidify customer loyalty and will be able to address the upturn in consumption of coffee-based beverages and the downturn in carbonated soft drinks.

Opinions regarding flavored coffee beverages may vary, but one thing everyone can agree on is that more loyal customers is a good thing. Having a truly engaged and loyal customer base is not only profitable, but sometimes it can be as stimulating as a really good cup of coffee. With or without foam.

Robert Passikoff, Ph.D. is the founder and president of Brand Keys Inc.