By now I would not be surprised if nearly all of us have seen a new ad, heard a radio blurb, or have driven by a new McCafe, adorned with banners and ads for their new coffee and espresso beverages. Yesterday, McDonalds started the launch of a new $100M ad campaign that is promoting their McCafe rollout and an expanded espresso and coffee menu.

Nearly 11,000 out of their 14,000 locations in the US have a McCafe nestled inside and have undergone renovations. I read on Dow Jones NewsPlus page that most of the $100k McD's spent on the McCafe installs went towards the efficiency of their drive-thru systems and how the service time can be optimized while also offering a diverse new menu in addition to burgers and fries.

So how does this effect the "specialty" coffee retailer and indy coffee shop owner?

In my opinion, McDonalds is very optimistic if it plans on becoming a "specialty" coffee destination, as the quality of the espresso and coffee it serves is on par with the quality of their food. This is a given, and I don't think McD's is trying to market their drinks as being better on a quality level, but more so on a price point that meets the needs of consumers who may be searching out a deal. Also, I don't see the majority of their McCafe business coming from "new" customers, but more so from existing McDonalds patrons who may add a latte now to their usual breakfast combo meal. It seems they have found a profit center with a high margin, to increase sales and are capitalizing on it.

Also, I mentioned earlier that most of the McCafe efforts were put into the drive-thru portion of the store. This seems cohesive with the idea that McDonalds is not trying to become the "third place" coffee house that Starbucks has tried to position itself as for decades. McCafe's have put effort into the interiors of the McCafe to make them more comfortable, rustic bronze wallpaper, wood accents, tile, etc. but they have a dubious task of changing the consumers perception of McD's as an upscale establishment across the board in my opinion.

I can see this roll out effecting some business for drive thru coffee shops (and inline stores in some cases) that are not focused 100% on quality. This is nothing new. In today's specialty coffee industry, as a retailer you must do everything right. Offer a great product, great customer service, great ambiance and branding, and most important of all, know how to operate and run a sustainable and successful business.

Over the past 8 years I have seen an escalation of quality focused coffee bars opening up and immediately doing well. It has become even easier to differentiate yourself as a retail from your competition of other mom and pops, the chains and ... now ... Dunkin Donuts and McDonalds.

Similar to great restaurants, those retailers who focus on great customer service, professional training programs, excellent coffee and quality menu items will be in a category of their own. The silver lining is that with the exposure and customer base McDonalds has, they will for sure be selling mochas and lattes to customers who may have yet to try anything beyond a flavored coffee, and we will see the demographic of espresso beverage drinkers increase. Similar to how we sometimes thank Starbucks for broadening the market and developing new markets, McDonalds has this ability and it will happen quick.

McD's has impeccable timing as well ... with the "economic downturn" and a country obsessed now with cutting back and not spending money, the idea of saving a buck seems appealing to many. However, the consumer who is used to having a great latte each day will learn very quickly that you get what you pay for. A mocha made by an untrained barista on a super automatic machine in 44 seconds will not taste like one made from fresh roasted coffee beans, high end chocolate, fresh velvety milk from local dairy and served by a professional who understands the chain of events that coffee has traveled thru to get to that (biodegradable) to go cup.

My advice is to always serve your coffees with a goal of perfection. CHARGE MORE than Starbucks and McDonalds, as your serving a far superior product and at only $1 or so more a cup, you are still serving an affordable luxury. Let's let the big guys battle it out, but together we need to take this as an opportunity to truly separate the "specialty" coffee retailers from the caffeine slingers looking to capitalize on this high margin industry.

Would love to hear your thoughts and continue this discussion to see how the "specialty" industry, who each of us understand our markets better than a corporate giant, can educate our consumers on why they should buy from us.

- Matt

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If anything, this is just going to bring more business to specialty coffee.

It's not such a stretch to pay $5 for a latte when the McCafe down the street is selling their latte for $3. It bridges the gap between gas station brew and what we are creating in our shops. I for one have been seeing noticeably less people balk at the prices at our shop.
I am curious to know which superautomatics they are using, and whether individual McCafes are allowed to choose their own equipment.

By the way, I have never set foot in a Starbuck's - and since they started going superautomatic, I really never will!
This could be a blessing (eventually)....Yes, in Arizona at least, I have seen a major shift to McD'. People who would stop at SBucks are now toting the large plastic 'ice coffee' from McD's. ick... they don't really care either, because it is inexpensive and more readily available at drive through s.

Eventually, I hope that we as a struggling industry can use this to our advantage in selling our expertise! When this thing turns back our way...and I have confidence it will, we will prevail. The ONLY clients I'm currently working with now are aware of the McD's, DD's and SB's out there and know they must set themselves apart from the burger-donut StupidAUtoMatic cafes popping up at each corner. (does Taco Bell have espresso yet?)

Good DESIGN, being GREEN, being EXCELLENT having PASSION about product and TRAINING will prevail.
Matt Milletto said:
Jon,

Without the buying power of a huge company like McD's or SBUX you will have to charge more as your costs are much higher. I understand your demographic is a bit different than Portland for example, but people still have a perceived value on a product based on price ... i.e. a steak at Sizzler for $9.99 already is perceived to most as not being of the same quality as a steak from Ruths Chris for $28 ... and it is not.

Jon Mitchell said:
Matt - Do you really feel that in this time of everyone pinching pennies and looking for a deal that charging $1 or so more than say Starbucks and McDonalds is the right way to go? I mean, you surely know more about this than I do but I'm just not sure about the rationale. In the South, I'm not sure how that'd fly, especially to the non-educated coffee drinker.

As I recall, there is a big difference in price between McD's and Starbies. You probably aren't targeting the cheap coffee consumer anyway, right? People (even in the south) will understand you charging more for coffee than McD's.

We were leery of charging too much more than Starbx at open, just because that's where we felt most of our customers were going to be coming from and using as a reference point. Charge what you need to for the product you carry, people WILL notice that you are a little pricier than Starbux, so you'd better be giving them something more.

We're in a suburban/rural area outside of Charlotte, and have customers that came to us after being gas station cappuccino regulars. People are people - your customers are fundamentally no different than any other and will appreciate something tasty when they have it (once you get them in the door :). The Pacific Northwest has rednecks too, no? You just have the task of educating them. Lucky customer!
Overall I remain convinced that this is a good thing. Like so many others have said, it should have no impact in the already highly coffee-aware areas. It WILL bring non-coffee drinkers into the fold for us.

Speaking as a shop in a coffee growth area that has been looking out our front window at a McCafe for the past 6 months, it is not a bad thing. We frequently see people leave the drive-thru line and come into our store instead... after all, McD's gets a sign on the highway... They say things like "I was waiting at McDonalds, but came in here for some REAL coffee."
VFA_Expres New York said:
I am curious to know which superautomatics they are using, and whether individual McCafes are allowed to choose their own equipment.

By the way, I have never set foot in a Starbuck's - and since they started going superautomatic, I really never will!

The one's I've noticed have all been Franke.
Here in Singapore, McD's rolling out a campaign telling everyone they are serving Premium Coffee (filter style). They are doing well. In a country where the majority of 5 million are still drinking 100% robusta roasted and charred with sugar, butter and corn for US$0.60 per cup, McD's marketing certainly helps. Having said that, it makes even tougher for small coffee shops who wants to focus on quality and craftsmanship to fight those with deep pockets in the near term.
Not Matt (obvioiusly) but I absolutely agree. IF you consistently provide a higher quality product and matching service then some people will and will continue to pay a bit more. Just depends on the market you're going after. Those who know or want to know the difference in quality versus those who just want the fastest, cheapest caffeine fix possible.

Sure provide value and give deals. I offer a 10% discount to students, seniors over 55, active armed forces, law enforcement and fire fighters. People appreciate and look for that type of thing, especially in today's economy. Yesterday a full 1/3 of my sales received a 10% discount. Guess what, as the owner I don't mind. Yesterday was the 2nd biggest grossing day of this year to date. So what if 1/3 of the day's gross income was discounted 10% if the volume is up enough! Oh, and that's in addition to my loyalty "Coffee & Tea" and "Whole Bean" buy ten get one free cards. I LOVE seeing those cards in the register at the end of day. Means they already bought and paid for ten and keep coming back. Some think loyalty cards de-value the product. Hogwash. Just a marketing tool that builds a loyal customer base.

I only started the 10% discount program a couple months ago. I've seen a substantial increase in seniors frequenting my cafe on a regular basis. And they appreciate good fresh roasted fresh brewed coffee be it drip station or espresso. Many have become wholebean customers too. I don't need to have all my customer be young, hip, slick and cool. Hell, besides I turned 55 myself last month:-)

Jon Mitchell said:
Matt - Do you really feel that in this time of everyone pinching pennies and looking for a deal that charging $1 or so more than say Starbucks and McDonalds is the right way to go? I mean, you surely know more about this than I do but I'm just not sure about the rationale. In the South, I'm not sure how that'd fly, especially to the non-educated coffee drinker.
Thanks! I would have guessed Bunn Tigers (Thermoplan) for the service and support in New York Metro Area at least...

Brady said:
VFA_Expres New York said:
I am curious to know which superautomatics they are using, and whether individual McCafes are allowed to choose their own equipment.

By the way, I have never set foot in a Starbuck's - and since they started going superautomatic, I really never will!

The one's I've noticed have all been Franke.
Last time I was in Singapore had coffee at a McCafe over the road from the Mercure, East Coast. They had a nice looking 2 group Carimali, good grinder... but the coffee was for sure a heavily robusta-ised blend. In another McCafe they were pushing fil had some gnay looking Superauto from China at work...In NZ they only use Arabica, in Indo it is something similar to that in SIngapore. I am wondering...where is the product consistancy that they built the business on?

Danny said:
Here in Singapore, McD's rolling out a campaign telling everyone they are serving Premium Coffee (filter style). They are doing well. In a country where the majority of 5 million are still drinking 100% robusta roasted and charred with sugar, butter and corn for US$0.60 per cup, McD's marketing certainly helps. Having said that, it makes even tougher for small coffee shops who wants to focus on quality and craftsmanship to fight those with deep pockets in the near term.
I sense there is some local relationship market forces at work.

Alun Evans said:
Last time I was in Singapore had coffee at a McCafe over the road from the Mercure, East Coast. They had a nice looking 2 group Carimali, good grinder... but the coffee was for sure a heavily robusta-ised blend. In another McCafe they were pushing fil had some gnay looking Superauto from China at work...In NZ they only use Arabica, in Indo it is something similar to that in SIngapore. I am wondering...where is the product consistancy that they built the business on?

Danny said:
Here in Singapore, McD's rolling out a campaign telling everyone they are serving Premium Coffee (filter style). They are doing well. In a country where the majority of 5 million are still drinking 100% robusta roasted and charred with sugar, butter and corn for US$0.60 per cup, McD's marketing certainly helps. Having said that, it makes even tougher for small coffee shops who wants to focus on quality and craftsmanship to fight those with deep pockets in the near term.
You could be right! I hear from a source that one of those roasters sitting up on the 6th floor of the Gourmet Kitchen in Bedok is the culprit in Singapores Mc D case!

Danny said:
I sense there is some local relationship market forces at work.

Alun Evans said:
Last time I was in Singapore had coffee at a McCafe over the road from the Mercure, East Coast. They had a nice looking 2 group Carimali, good grinder... but the coffee was for sure a heavily robusta-ised blend. In another McCafe they were pushing fil had some gnay looking Superauto from China at work...In NZ they only use Arabica, in Indo it is something similar to that in SIngapore. I am wondering...where is the product consistancy that they built the business on?

Danny said:
Here in Singapore, McD's rolling out a campaign telling everyone they are serving Premium Coffee (filter style). They are doing well. In a country where the majority of 5 million are still drinking 100% robusta roasted and charred with sugar, butter and corn for US$0.60 per cup, McD's marketing certainly helps. Having said that, it makes even tougher for small coffee shops who wants to focus on quality and craftsmanship to fight those with deep pockets in the near term.

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