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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And the funniest thing, Burger King has better coffee than McGarbarge and Dunking Doh-nuts. Their "Bold" coffee is not bad. I wouldn't say the BEST, but for fast food it is decent.
I recommend reading Fast Food Nation and also watching Supersize Me.

This so called coffee battle is an opportunity for real cafes to create a distinction by serving excellent espresso that is made by a barista operating an espresso machine.

Both Starbucks and McDonalds use fully automatic machines.

I have seen a few cafes in Seattle install manual lever espresso machines. I predict that we will see more of that as these two fast food giants battle it out.
I have had some experience here in Ireland of training Mc Cafe Staff and they are doing really well, working off Black and White fully automatics and manually steaming milk. They are mostly doing Rosettas on their Caps and have performed credibly at our national Barista Championships. In a recent Coffee Crawl around Dublin, Mc Cafe scored second highest out of 10 cafes for their Cappuccino!
Many of the solutions recommended are right on! That is, with the exception of " boycott the clown." Frankly, I strive to not be mentioned in the same breath as Starbucks, Dunkin Donuts, let alone McDonalds. Essentially, we have another Starbucks moment on our hands and the solutions are similar despite price differences. As much as I have been aggrivated by Starbucks tactics, at times, they have built a much bigger market than would have been imaginable 30 years ago. Frankly, they have also made a much bigger market for us. Yes, we have had to go to the mat to keep and grow marketshare, but they also created customers for us by teaching businesses to brew a better product (than foodservice coffee) and teaching customers to expect better product than the classic American brew ("Don't laugh at American Coffee, someday you too will be old and weak!"). In fact, even food service vendors have had to rise to the occassion. Whereas in the past there was a dramatic difference between specialty coffee and offerings from companies like Dunkin Donuts and McDonalds, the lines have blurred as grocery store roasters have had to improve their offerings. In the end, we need to be ever more vigilant of our own product quality as well as our customer service. Teachable moments are not necessarily comfortable moments.
This is not quite what I'd call latte art, at least not of the free pour variety. Besides, just because it looks halfway decent, doesn't mean it's going to be good.

Bob said:
McCafe, Hong Kong, March, 2008
Excerpt from review -
However, this was one of the absolute best cappaccinos I have had anywhere. Anywhere. Even the presentation was near perfection. Microfoam was nice and tight. Latte art was very good and varied daily.

Link to review w/pic:

http://members.virtualtourist.com/m/cbdf9/5d6/2/
I say let them bring it! Besides the more crap McD's wants to make the less shitty ours looks, right? Am I right? Come on...
Sadly, I have to agree w/ Dr. John & Neal as well. Most of the time I venture out to local shops I'm disappointed, so I just make almost all of my coffee at home now :) Indie shops have a lot of potential and they are the best way to support your local community, but many of them have a long way to go!

Neal Cowan said:

My experiences and observations over the years tell me that ~80-85% of the indie coffee houses/bakery cafes/drive thrus/etc. still sell poor product despite barista contests at trade shows, barista training seminars, barista schools, continuing educational articles in trade publications, and the like.
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.
From what I have seen/heard, this type of business model is not the same as the new McCafe roll out in the US.

Jackie Malone said:
I have had some experience here in Ireland of training Mc Cafe Staff and they are doing really well, working off Black and White fully automatics and manually steaming milk. They are mostly doing Rosettas on their Caps and have performed credibly at our national Barista Championships. In a recent Coffee Crawl around Dublin, Mc Cafe scored second highest out of 10 cafes for their Cappuccino!
As stated by Al Reis and Jack Trout in their classic text..."Marketing is in it's essence Positioning of the Mind."
This is a fundamental law of the land and the McD's, DD's and the SBUX of the world have beaucoup $$$ to position themselves in the consumer mind and create position and perceptions of quality that we in the specialty business only dream of.

A lot of life in the USA is about money, particularly as we all face this incredibly challenging economic environment, and while I wholeheartedly agree with Matt that quality first and always will serve us all well consumers do not always know what quality is.

I have lived this. For a couple of years I had our coffee in some local Costco stores. We we offering prime specialty beans at a very, I say VERY competitive price just about the time when Dunkin Donuts came out with their coffee push and had John Goodman telling all of us that "America runs on Dunkin." We did road shows and demos until our grinding burs wore down! We promoted at the local level and sold about 800lbs of coffee a week in a couple of stores. We had to maintain $500.00/week to keep our pallet spots in the stores. Now before all of you espresso weilding freaksd jump on me and say that isn't specialty please allow me to bring another dog to that fight on another day. In america most people drink brewed coffee and the beans we were selling we everybit as specialty and sweet as anything coming from your portafilters! It was just brewed coffee rather than espresso. That said, we worked our little assess off at great expense to gain even a tiny tiny fraction of the coffee share in the Atlanta market. When we left the coffee alone in the store with no demos, no support, the sales plummeted. But, even while we were there trying to eak out $500.00week (Costco's Minimum for any pallet space) Dunkin was selling at a clip of $1,500-3,000 wk with no demos, no sampling no nothing xcept those orange and purple bags sitting on an endcap and people threw them into their carts like
they were the only coffee on earth. Did we make our minimums, sure..barely but the coffee we were selling was so far superior to the Proctor and Gambel Folger roasted Dunkin Donut coffee that was flying ou of there it wasn't even a fair fight in terms of quality. We had them licked hands down! I even offered one of the store managers a blind taste contest promo to the customers (which of course he declined) to try and prove my point. So to digress, yes, quality matters a lot and again I say MAtt is absolutely right. Buy Quality, hold quality and service quality at all cost, but be aware perception of the mind of the consumer is what is key. We little Specialty coffee people are up against it. I m not sure I have a dog big enough to get into the Starbucks/MickyD fight. Matt didn't mention that Howard Schultz has also launched a huge advertizing campaign to fend off the attack declaring " It isn't just coffee, it's Starbucks!" And as you are probably aware for years Starbucks absolutely abhored the media advertising game, and really didn't need to pay it to much attention because they were the only game in town. Problem now of cours is that Ronald and the boys have now bought a stake to play and they have a lot of freaking chips.

Point is this. Quality is great but when Dunkin, or McD's or Sbux can waylay the consumer with far reaching ad budgets the consumer becomes "positioned" to think that this is what quality is and sadly many times feel no need to look any further.

Remember Juan Valdez...."Colombian Coffee is the Richest Coffee In The World" and so many still buy that madison avenue masterstroke of marketing genius.

"Brew Unto Others"

David
I think for sure the intention, at is in other markets around the world, is to take on Starbucks and the Donut guys. They realise that it is unrealistic to take a share of the quality driven market (did I just allude to Sbux not being in that segment?). Indeed pricing and placement means they are looking for volume business- not those of us who know quality. I always like to think of McD's as being a corporate with a sharp sense of knowing which way the wind is blowing. They realise that while they can fairly easily sell coffee...it is nigh near impossible for Starbucks to start selling hamburgers. Marks for that, and although while it hurts to say it- what the consumer is getting in the cup is not what anyone on BX would be proud to serve
They leveled the McDonalds where I live and are putting in a McCafe, one of the largest in the areas. I couldn't believe how fast they tore the old one down and carried away the debree. We also have a drive through Starbucks in our town. What I can't understand is why there are no other coffee houses in our area. We had one but it didn't last. My town has a lot of people with money so seems like they would enjoy good coffee. I have a feeling the Starbucks and McCafe will do very well here but I would still like to see an independent coffee houes.

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