Supersize that Latte? McDonald's to Offer Upscale Coffee Drinks

by: SA Editor Judith Levy March 01, 2007 | about stocks: MCD / SBUX    
Judith Levy

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In a shot across the bow at Starbucks Corp., McDonald's has announced it will serve specialty coffee beverages like vanilla lattes and caramel cappuccinos at outlets across the U.S. The drinks are already available at McDonald's restaurants in Michigan, New York and New Jersey. McDonald's is pricing espresso-based drinks between $2 and $3, undercutting Starbucks, many of whose similar offerings are over $3. The high-end coffee drinks will also compete with Dunkin' Donuts, which has McDonalds 01 03 2007 Chartwidened its specialty coffee offerings and plans to offer them nationally. McDonald's new focus on high-end coffee is consistent with an overall strategic shift away from its traditional burger-and-fries offerings and toward more "upscale" food, like chicken and salad. McDonald's specialty coffee drinks will be served from push-button machines, which are faster than Starbucks' labor-intensive hand-made approach. Starbucks, meanwhile, has not been idle: last fall, it announced plans to offer hot breakfast sandwiches in an appeal to fans of the McDonald's Egg McMuffin.

Sources: Wall Street Journal, Reuters
Commentary: Did Starbucks' CEO Really Say That? • McDonald's Beats Q4 Forecasts • McDonald's Profits Climb -- For 10th Straight Quarter
Stocks/ETFs to watch: McDonald's Corporation (MCD). Competitors: Starbucks Corp. (SBUX), Burger King Corp. (BKC), Yum! Brands Inc. (YUM). ETFs: Vanguard Consumer Discretionary ETF (VCR), iShares Dow Jones US Consumer Services (IYC), PowerShares Dynamic Food & Beverage (PBJ)

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This article has 2 comments:

  •  
    Mar 01 03:22 PM
    Whoever wrote this story, clearly doesn't drink coffee or know anything about the specialty coffee industry. There is nothing "specialty" about starbucks, nor anything "high-end" or "upscale" about McDonalds. And it will be real interesting to see how McDonalds convinces customers that it is. Burger King has a much more solid strategy to pursue costomers in its demographic by appealing to customers who "just want a coffee." Meanwhile, McDonalds is racing to the bottom in both price and quality. A "push-button"... machine as you call it, is exactly one of the things that Howard Schultz pointed out as attributing to SBUX losing it soul. A basic truth in coffee as in all food prep is that the shorter the prep, the smaller the quality. Dunkin Donuts has already moderately failed in this same strategy when it set its own super-autos (the push-button machines) to a much faster pull. You simply cannot pull a good shot of espresso in 7 seconds, even if you cover it up with 7 pumps of white mocha.

    I sold out of SBUX and made a pretty penny, but going forward the company has nothing but challenges while competitors continue to nip at their heels and will begin to steal market share. McDonalds won't convert many SBUX users that they have a comparable product, although they could hope to convert some current customers to finally upgrading their coffee.
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  •  
    Mar 01 10:40 PM
    Shot across the bow? McDonald's executives have exhumed the McCafé corpse no fewer than 3-4 times since 2001. This idea is as old as MacGuyver. And each time, Frankenstein dies a horrible death no matter how wishful the thinking that "things will be different this time!" The only difference is it's the same failed idea, repackaged in their franchise stores instead of under the McCafé banner.

    They have to prove the concept works once, and other than with marginal results in Ireland, before anyone can take them seriously in this area. Otherwise, this is just the ego trip that won't die -- McDonald's version of Sony's Mini-Disc.
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