A Caffeinated McDonald's Thinks Big

Fast-Feeder Is Gunning for Starbucks, Pumping Up New-Products Menu

By Published on .

CHICAGO (AdAge.com) -- Take note, Starbucks: McDonald's is coming after you. Yes, that McDonald's.
'We want to move from beverages as an accompaniment to a beverage destination,' says Don Thompson, president of McDonald's U.S.
'We want to move from beverages as an accompaniment to a beverage destination,' says Don Thompson, president of McDonald's U.S.

Emboldened by rave reviews for the relaunch of its coffee business 18 months ago, the company is planning to roll out premium coffee drinks -- including smoothies, frappes and bottled beverages -- priced just below that of Starbucks. The goal: to gain a bigger share of the $60 billion U.S. coffee business, of which the burger chain now says it holds about $6 billion.

Beverage destination
"We want to move from beverages as an accompaniment to a beverage destination," Don Thompson, president of McDonald's U.S., told analysts today, noting the fast-feeder is chasing what it calls an "incremental consumer."

Mr. Thompson predicts the coffees, to be rolled out by mid-2009, will eventually add about $125,000 to each U.S. store's bottom line. The additional sales will come with a start-up cost of $25,000, followed by more if the store wants to sell smoothies. The average U.S. McDonald's brings in about $2.2 million annually.

But coffee is just part of the story. McDonald's popularity has been rising, in part because of its dollar menu, but the company is betting that its domestic business will continue to grow through other higher-margin new products. To that end it's also introducing a Southern-style Chicken Biscuit and Sausage McSkillet Burrito.

"We have tested Southern-style chicken around the U.S. and we've seen good results," Mr. Thompson said, adding that the meat fits well into store operations. "And chicken at breakfast, as a protein, is a huge opportunity."

Growth of new businesses
The fast feeder's breakfast business has grown 45% in the last few years, Mr. Thompson said, and its newer chicken products, including salads, snack wraps and premium chicken sandwiches have all been very successful.

In response to questions about the company's opportunism during the casual-eating slump, Mr. Thompson said that premium chicken sandwiches, salads and better-quality coffee have brought a new customer to McDonald's in recent years.

"We don't want to be a quick-service restaurant alone," he said. "We want to be a restaurant that benefits from quick service and the informal eating-out category. We are continuing to build on our premium products."
In this article:
Most Popular