Whose customers is McDonald's luring with coffee?

Posted by: Aaron Pressman on July 18, 2006

Ever see the movie “You’ve Got Mail” starring Tom Hanks as the owner of a Barnes & Noble-like chain of super-size book stores and Meg Ryan as the owner of a cute little children’s book store? Goofy but appeals to the romantic, (former) New Yorker in me. Hanks opens a superstore on the Upper West side prompting protests but he’s confident he can win over the opponents. “We’re gonna seduce them with our square footage, and our discounts, and our deep armchairs, and…our cappuccino.”

I guess I’d admit to being about as snobby as an Upper Westsider when it comes to the golden arches. There’s a McDonald’s (Symbol: MCD) less than a mile from my house and I pass it three or four times a day but I pretty much never go in. That all changed a week or so ago when I saw, horror of horrors, a funny new television commercial Mickey D’s is running touting their new line of Newman’s organic coffee (I’m not sure how I even saw the commercial since we have Tivo - maybe during a Red Sox game).

In the spot, a bunch of teachers send one guy down to try the new McDonald’s coffee as they look down from a window. The guinea pig comes out and thrusts his arms in the air declaring “It’s good.” I not only laughed, I actually tried an iced coffee the next time I went by. Hey, pretty good. So I tried it a few more times. And I noticed that the line of cars outside the local McDonald’s was longer in the mornings that it used to be.

Turns out, coffee is boosting the bottom line big time. The company yesterday reported earnings per shares ahead of analysts’ estimates and same store sales up over 5% due to more customers stopping in. Hmm, what’s up? As a bunch of analysts noted on yesterday’s earnings call, it’s in part the new coffee line luring in folks who aren’t typically McDonald’s customers.

Here’s President and COO Michael Roberts answering one of those questions:

“Our coffee business since we launched is up significantly, double digits in fact. Our breakfast comp is up in Q1 as well. What we learned here is that, you know, we have some breakfast rejecters if you will, who didn’t think our coffee was as good as it could be. Now that they know it’s better they’re coming to McDonalds, so coffee combined with our breakfast sandwiches is leading our breakfast comp. The opportunity here I think is enormous.”

The stock is up about 5% over the past two days but there may be more to this opportunity. It also begs the question — where was everybody buying coffee before?

Update: Looks like they’re adding comfy chairs, too.

Reader Comments

winston

August 2, 2006 12:54 AM

"(I'm not sure how I even saw the commercial since we have Tivo - maybe during a Red Sox game). "


Does anyone have a pure play idea for a stock that could gain because its programming would never be TiVo and result in higher ad revenue. All I got is ESPN or DIS but to much other junk I don't want. I know Comcast made bid of $25 in 2003 for all of DIS to get ESPN but I don't think they wanted the junk either. (im guessing on price and date)

Robert Freedland

August 9, 2006 2:09 PM

O.K. sounds silly, but McDonald's really has improved their coffee. It really isn't that bad! Now, if they would work on their service, and the variability in the cleanliness of their outfits, that would be nice as well.

Reminds me of the old Field of Dreams schtick: If you build it they will come. I guess, with McDonald's it should be "If you grind it they will come?". Nevermind.

How about fixing up the french fries to some healthy fats and what about a little improvement in the menu? Maybe even a healthy bran muffin for breakfast?

jesus jones

July 18, 2007 6:48 AM

can they make a burger that tastes like a whopper? then i'll go. dont' really care for that nasty big mac thing with the gross sauce, etc.

Joselina Isaacs Huber

July 30, 2007 8:18 PM

I have been drinking MCdonald's coffee for many years. I enjoy the taste so well that my husband is now fond of their coffee as well. I do not care about the food and seldom order anything in the menu. The food is not that healthy. Occasionaly, I order few items from the breakfast menu.

DAL

August 7, 2007 9:51 PM

McDonald's should take better care of their stores locally and not be so concerned about STOCK PRICES.

freeSoul

November 18, 2007 8:42 PM

Macdonald's!!! coffee!! may be

But their food sucks....Whenever I have been forced to eat their burger or chicken sandwich, I had to literally vomit to get it off my chest. It is ugly...and nasty.

Loves Coffee

April 3, 2008 8:47 AM

McDonald's will never compete with Starburcks, I ordered a regular skim latte today, I was given a half full cup with some kind of caramel liquid inside.....and not much cheaper than Starbuck's either....ruined my morning.....should have went to Starbucks....

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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