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The Honolulu Advertiser
Posted on: Tuesday, February 28, 2006

McDonald's banking on richer coffee

By John Schmeltzer
Chicago Tribune

CHICAGO McDonald's Corp. is changing its conventional cup of coffee for the first time in 30 years hoping a stronger, richer blend will boost breakfast sales and better arm the burger giant in the ever hotter battle for coffee drinkers.

McDonald's had been serving the new "premium roast" coffee in some Chicago-area stores, before the full nationwide rollout yesterday. To reinforce its premium name, the more robust coffee comes in a new paper-covered Styrofoam cup and black lid.

The change appears to follow a realization that Dunkin' Donuts, Starbucks and Burger King made years ago: Americans want a richer cup of joe than the nondescript blends they've been offered in the past.

And they're willing to pay for it. Americans spent $34.5 billion on coffee in 2005, up 8.7 percent from 2004, according to Packaged Facts, a division of Market Research.com.

Such a change also could be a risk for Oak Brook, Ill.-based McDonald's. Some may not want to drink, or pay for, anything more than a basic cup of coffee.

But McDonald's executives are convinced that a heartier coffee will bring more customers in for breakfast and, combined with convenience via its nearly 13,000 drive-throughs, help lure more of the just-coffee crowd.

"The objective is to increase both coffee and breakfast sales," said Mike Roberts, McDonald's president and chief operating officer. "Premium coffee and specialty coffee are a really important part of the American breakfast experience."

Coffee is the latest product McDonald's has made premium, joining the ranks of Chicken Selects, new salads and sandwiches designed to increase what the company makes on the average order. The strategy is part of what has helped fuel 33 consecutive months of global sales growth.

Roberts said the company is hoping the new coffee will energize breakfast sales in the same way that the introduction of McGriddles did in 2004. McDonald's added 1.6 million new customers a day in 2004 when it added McGriddles, salads and other new menu items.

McDonald's has priced the premium coffee at approximately $1.20 for a 12-ounce cup, about 20 cents more than the cup of coffee it used to sell. That's about 10 cents more than the price charged by Burger King for its BK Joe and about 9 cents less than the similar sized cup of coffee from Dunkin Donuts.

Starbucks charges $1.50 for its small cup of coffee.

Kenneth Herbst, a marketing professor at the College of William and Mary in Williamsburg, Va., has his doubts about the strategy.

"Although some customers may come to McDonald's to purchase their premium coffee, I do not think that the increased traffic from a more premium form of coffee will be what builds major traffic for McDonald's in terms of breakfast consumption," he said.