McCafe in the U.S.: More Bad News for Starbucks

Oak Brook / IL. (div) McDonald´s Corporation is relying on the expertise of a former defense engineer to coordinate its foray into specialty coffees. The «Chicago Tribune» reported that company executive Don Thompson, an electrical engineer who once designed radar jamming systems, is charged with completing McDonald´s rollout of its McCafe specialty coffee products in the United States.

In August 2006, Thompson (46) was named president of McDonald´s USA, which has seen profits climb under his leadership. «I think he is a really solid leader and the results speak for themselves», cites the newspaper an analyst at RBC Capital Markets. As head of McDonald´s U.S. operations, Thompson found a way to make the company´s most popular sandwich, the 1,00 USD double cheeseburger, profitable for its franchisees: He raised the double cheeseburger´s price to 1,19 USD and introduced a new double cheeseburger for 1,00 USD with less cheese.

Today McCafe´s continue to spread – almost 70 percent of McDonald´s outlets now offer specialty coffee. «McCafe is a game-changer in coffee», a Deutsche Bank analyst wrote in a recent memo to clients. «We expect McDonald´s will extract a significant toll on Starbucks´ performance, beginning this summer in earnest». Deutsche Bank has downgraded Starbucks stock to «sell».

And as McCafe expands its reach, Starbucks is moving in the opposite direction, closing 200 stores in the United States this year, particularly in areas with high unemployment. But the problem is not just that McDonald´s offers cheaper coffee than Starbucks. The problem is that Starbucks doesn´t necessarily have anything to offer for its higher prices. The Starbucks phenomenon itself led to higher standards, and as a result, more cheap coffee options that do not necessarily taste like dirt water.

In fact, according to the Tibune «QSRWeb» recently did its own blind taste test and found that a majority of its U.S. testers actually preferred McDonald´s coffee drinks to Starbucks. So the question is not «Are customers willing to pay more for a better drink?» but «Is the drink really even better?».

Apparently though, not all of the McDonald´s franchisees are excited about the opportunity to snag market share from Starbucks. There is some fear that the coffee roll-out will be an «expensive flop» and will divert essential advertising Dollars away from more standard McDonald´s fare. In Europe McDonald´s is already a step further and knows that the fears will dissolve into thin air. Not only fast-food-fans are pleased with the enrichment through McCafe. McDonald´s gained new customer groups through its new offer and seems to be on the right way …

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