Mickey D's New Brew

McDonald's is rolling out a premium coffee in a bid to draw the morning crowd from competitors such as Dunkin' Donuts and Starbucks

America has become a nation of gourmet-coffee junkies, thanks to Starbucks (SBUX ). And if anyone doubts that the trend is here to stay, here's a wake-up call: McDonald's (MCD ) is joining the java bandwagon.

Starting Monday, Mar. 6, McDonald's patrons will be able to order a premium roast coffee to go with their Egg McMuffins. The move itself may be less surprising than the fact that the world's largest fast-food chain took so long to make it. Many Americans consider coffee an A.M. essential, and breakfasts make up more than 25% of sales at most McDonald's restaurants, so you would think premium coffee would have made it onto the menu quicker (see BW, 8/25/03, "Saving Mickey D's Bacon").

After all, even the ubiquitous 7-Eleven, with its 5,800 convenience stores across the U.S., jumped on the trend way back in October, 2003, when it started selling gourmet coffee with steamed milk mix and flavored syrups. McDonald's arch rival Burger King introduced its BK Joe coffee last year. Dunkin' Donuts introduced espressos, lattes, and cappuccinos in 2002, and coffee now makes up 60% of overall sales at its 4,800 locations. In fact, there's more information about coffee than doughnuts on its Internet home page.

NO VARIETY. So should Starbucks or Dunkin' Donuts be nervous? Well, not too much, say experts, because research shows that people don't usually change their breakfast venues that often. "The morning coffee ritual is the hardest to break," says John Glass, restaurant analyst with CIBC World Markets (see BW, 10/10/05, "Coffee Drinkers and Their Habit").

Also, Mickey D's version of gourmet lacks the diversity that today's coffee connoisseurs expect from Starbucks and other specialty cafes. Breakfast-goers will be offered only one blend of premium roast coffee. McDonald's already sells organic coffee from Green Mountain Coffee Roasters (GMCR ) at 658 restaurants across New England and in Albany, N.Y. And last year, in California, it introduced a premium coffee made of Arabica coffee beans from South and Central America.

Now, however, McDonald's won't provide any details on whether the premium roast will be the Arabica blend or something completely new. In an e-mail, spokeswoman Danya Proud revealed only that the coffee will be an "exclusive, proprietary blend." She wouldn't give details on how much it would cost, except to say that its price will vary at different locations. Promotional photos show the coffee in both a typical disposable cup and what looks like a round china cup.

WORTH A SHOT? McDonald's isn't really aiming to be a coffee destination. In fact, analysts take its tentative approach as a sign that McDonald's entry into gourmet coffee won't make much of a dent on any of its coffee competitors. After all, Starbucks offers more than 30 types of coffee blends. "If you're a coffee fanatic who likes choices that range from Sumatra to Verona, most likely you won't go to McDonald's," says Marcia Mogelonsky, senior research analyst at Mintel International, a market research firm.

What about Dunkin' Donuts, which competes with McDonald's over breakfast sales? The doughnut chain features flavors such as French Vanilla, Cinnamon Spice, and Hazelnut, as well as whipped cream to top off its java. But such offerings may just point to the differences between their approaches: "Dunkin Donuts has made coffee a dessert item, so it's hardly competing with McDonald's over coffee," says Mogelonsky (see BW, 7/18/05, "Now That's a Rich Market").

Still, McDonald's is the Big Daddy of fast food, with 13,000 restaurants spread across the country. And it's one of America's most popular breakfast destinations, so it's hard to ignore the new offering's effect on even the snobbiest latte lovers. Diners who previously picked up their McMuffins and then sauntered over to Starbucks for their cup of joe might want to at least give this premium blend a try. And that's a lot of beans right there.

BEAN PALATES. Also, McDonald's has a marketing budget that often tops $1 billion annually, which it could use to promote the new offering. That compares to just $25 million at Starbucks and $60 million at Dunkin' Donuts.

Even if McDonald's never bests Starbucks as a java stop, the new brew is evidence that Americans have developed more sophisticated coffee tastes in the past few years. Just don't slip up and ask the counter clerk for a grande, supersized.

READER COMMENTS

Gogoi is a reporter for BusinessWeek Online in New York
Edited by Phil Mintz

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