Can McDonald’s Hot Coffee Help Put It Back on Top?
McDonald’s (NYSE:MCD) sales need a shot of caffeine, and the fast food company is calling on coffee to help it attract consumers back to the chain’s stores. Faced with falling same-store sales, stubborn profit figures, and tighter competition, the world’s largest restaurant chain is now pulling out all the stops in order to revive success, and it is even willing to copy Starbucks’ (NASDAQ:SBUX) business strategy.
According to Bloomberg, McDonald’s released a memo on Tuesday that outlined the company’s 2014 to 2016 agenda. The note illuminated that one of the chain’s biggest priorities is boosting “coffee-driven visits” in upcoming years, and McDonald’s wants to eventually upset Starbucks’ sales in the “coffee wars” in order to become the “envy” of rivals. U.S. operations chief Jim Johannesen and U.S. brand chief Kevin Newell are now calling on franchisees to deliver “a gold-standard cup of coffee with every visit,” because coffee is often an impulse purchase, so even if customers aren’t visiting the chain specifically for its caffeine, McDonald’s wants to at least start luring consumers in to buying the coffee while they’re getting their Big Macs.
Bloomberg reports that U.S. coffee and snack-shop sales are projected to surpass that of fast food chains according to industry research. Fast-food restaurant revenue will increase 2.1 percent this year and 2.2 percent in 2015, compared with an increase of 4.1 percent and 2.9 percent, respectively, for the coffee and snack sector. That is not good news for McDonald’s, which has already suffered the rise of health-conscious consumers and the straying away of eating out at night, but it is clear that the chain is responding to forecasts the only way it knows how: preparing for the worst and prepping the coffee.
McDonald’s has already launched Starbucks look-alike beverages, starting with the peppermint mochas in 2012 and the pumpkin spice lattes in 2013, but it is possible that the chain will now expand its line of specialty coffee drinks even more. Coffee drinkers still flood to Starbucks every day to get their caffeine fix, and there is nothing McDonald’s would like more than to direct that traffic to its struggling stores.
McDonald’s new strategy outlined on Tuesday also isn’t the first time the Oak Brook, Illinois-based chain has vocalized its interest in making a mark on the coffee industry. Almost five years ago, McDonald’s brought its McCafe menu and strategy to the U.S., and this change was purposed to evolve thousands of McDonald’s restaurants into Starbucks look-alike cafes that serve coffee, offer free wi-fi, and facilitate the cafe experience. Unfortunately for McDonald’s, the McCafe vision has yet to catch on for consumers in the U.S. and franchisees aren’t crazy about the idea, but the chain maintains hope that it can continue to pump out hot beverages that will eventually upset Starbucks’ business.
Howard Penney, managing director at Hedgeye Risk Management, recognized that goal and explained via Bloomberg Tuesday that, “McDonald’s is trying to look and feel more like Starbucks. It’s actually hurting them, not helping them,” because the chain gains its edge from its food, not its beverages, and making complicated drinks slows the company’s service down.
Thus, it’ll be interesting to see if customers can witness any changes McDonald’s executes over the next two years as it works to resurrect interest in its stores. The chain has orchestrated many menu makeovers and various business strategies as of late, and this just might be its latest effort at appealing to customers while also appeasing investors. New advertising campaigns and publicity are expected to follow McDonald’s investment in its coffee-making abilities, and we’ll have to wait and see whether those efforts pay off.