The Secret Behind McDonald's Coffee

NEW YORK (MainStreet) — About seven or eight years ago, you probably noticed how good Costco's "Kirkland Beer" tasted. That's because the people behind it — Utica, New York-based Matt Brewing Company — were also the people that brewed the Saranac line of beers, which any serious beer buff will tell you is among the best in the United States.

The other great, truly surprising consumer experience was around 2009 when everyone you knew began to whisper, "You know, McDonald's coffee is pretty good." First of all, they were actually drinking Newman's Own organic coffee and, second of all, it was (and is) only in the Northeast that McDonald's is Newman's.

But, that didn't seem to matter, because word spread and, Newman's or not, people started to notice that McDonald's McCafé coffee was pretty darn good. And, as my kin are fond of saying, wicked cheap at only a dollar.

The market responded, in kind. Two years later, in 2011, Ray Kroc's "billons served" helped the company make more than $2.1 billion on coffee alone (out of $34 billion in total revenue).

There's little doubt that the fast food giant wanted in on the take-away coffee industry fueled by—let's face it—Starbucks, alone. There's even less doubt that, in the end, the consumer ended up winning in this expanded marketplace.

But, with investors sharpening their plastic stirrers over McDonald's Q2 failure (with reported earnings of $1.38 per share, missing the $1.40 mark Wall Street wanted) and less than glowing Q3 earnings forecasts, coffee may not be enough to meet analysts' projections. Sure, those numbers (and the ire of investors) is about more than a cup of coffee—it's about the entire brand, its offerings and its ability to grow.

Then, again, maybe it is about a cup of coffee—or coffees.

Right now, the McCafé line encompasses 19 different drinks—from "premium roast" black coffee to the Mango Pineapple Smoothie to the Frappé Mocha (at a whopping 530 calories). It's a flexible line that can expand or contract according to local markets and seasonal preferences.

If we assume, rightly, that Starbucks is the coffee Goliath to McDonald's David (although the latter does more overall business than the former), then it makes sense to catalogue its 50 or so take-away offerings—everything from your standard Pike Place medium roast drip coffee to the macchiatos, mochas, and cappuccinos that have been parodied so much that it's not really that funny any more when someone earnestly orders one.

It's not just that Starbucks offers more than twice the number coffee options for customers than McDonald's, which is likely the reason why Kroc and Company can't find a greater toehold. It's that Starbucks encourages people to brew their product at home by offering them 60 distinct choices, both ground and whole bean—from the standard light, medium and dark drip options to the more exotically named brews like Sumatra Wahana Estate.

I have no idea what a Sumatran bean from the Wahana Estate might taste like, but I'm sure it makes someone happy to drowsily scoop it from a tin in his kitchen.

Can—or should—McDonald's compete with Starbucks in this way? Probably not. Starbucks does it so well and with such élan that it would be a red herring. No, the bread and butter of McDonald's has always been food in a way that Starbucks would be unwise to attempt. Can you imagine asking a barista for a half-caf, soy latté and a Double Quarter Pounder with cheese, hold the pickle?

However, McDonald's would be wise to play up the café part of the McCafé line. Too many McDonald's restaurants are only slightly better than a DMV back office: institutional tiles, molded plastic chairs and some of the worst lighting on the planet.

Give a reason for people to stay and linger and maybe you'll give them a reason to double your coffee earnings. You've already got a great cup of coffee at an incredibly reasonable, Reagan-era price. You've already got a lot of people (billions, apparently) who seek you out. If you can capture them in the same way that Starbucks has captured its customers--pop in that jazzy, but safe, Diana Krall CD, go ahead--then you might become more of a coffee destination.

Just as long as that clown isn't sitting on the couch next to me.

--Written by William Richards for MainStreet

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