Will McCafe Be the Next Starbucks?

American coffee lovers have made high end coffee shops like Starbucks successful. Along the way the price of a good cup of coffee has soared. Is there any hope for the cost conscious lover of healthy organic coffee? There may be according to an article in Fortune. It turns out that McDonald’s wants to be the next Starbucks!

McDonald’s is challenging Starbucks and Dunkin’ Donuts in the coffee business as part of an effort to attract more customers.

The fast food company will reintroduce a newly branded McCafe, complete with upgraded $12,000 espresso machines, special deals for customers and a promise to buy more sustainably sourced coffee, to make McDonald’s a go-to location for a caffeine boost.

To draw customers away from its competitors, McDonald’s will highlight its price advantages over Starbucks with offers including $1 drip coffee and $2 small specialty beverages over the first quarter of next year.

If McDonald’s ends up providing comparable coffee to Starbucks and Dunkin’ Donuts it will be a threat to both. A new coffee chain needs to attract customers as it builds new stores. McDonalds already has 14,157 outlets in the USA. Starbucks has 11,000 compared to 10,858 Dunkin’ Donuts.

Coffee Shop Coffee and a Huge Customer Base

The threat to Starbucks is real. You can drive up to many McDonald’s to get your coffee which is more often not the case with Starbucks. And McDonald’s already has a huge client base already feeding 68 million people a day. By comparison Starbucks sells about 4 million cups of coffee a day. McDonald’s can use cheap but good coffee as a loss leader to bring in more customers while Starbucks will only lose money by discounting its coffee.

How about Image?

Every restaurant business has it image. McDonald’s, in order to keep growing, needs to modify its image and coffee is part of that. Additionally its coffee business currently brings in $4 billion a year. Guru Focus wonders if coffee can help McDonald’s improve its image.

McDonald’s is going through a huge transformation process, moving toward a franchise-heavy model as it faced a huge slowdown in its growth trajectory. Things have picked up in the last 12 months, though, as same-store sales stayed positive.

Coffee is indeed a huge global market and, considering the fast food chain’s footprint of more than 36,000 stores around the world, coffee could well turn out to be a big revenue spinner for the company.

The effort will take time to percolate through to the top line, but a big push can help effectively re-brand the unit. Also under way is a major overhaul of the entire chain with a focus on more personalized service.

With a gigantic worldwide customer base McDonald’s has the capacity to attract many people up to better coffee and steal gourmet coffee lovers who would not mind a little savings from the likes of Starbucks. We will have to wait and see if McCafe will be the next Starbucks.

Leave a Reply