More Evidence to Support our Thesis on MCD and Coffee

A Crain’s article reported today that MCD’s specialty beverage rollout is falling short of the company’s target of selling 350 specialty coffees per restaurant each week. The article states that according to MCD documents that sales in the Kansas City test market peaked at 359 coffees in one week in December and have since declined steadily to 217 a week in June. The sales results show that a majority of the specialty coffee sales are not bringing in new customers but rather are coming at the expense of regular coffee sales. Two other test markets in Bakersfield, CA and Raleigh-Durham, NC are showing similar trends.
  • I have been saying for some time now that the specialty coffee rollout would not prove to be another silver bullet for MCD’s U.S. business as I do not think MCD will be able to change consumer perception enough to steal meaningful share from Starbucks. Additionally, it will be difficult in today’s environment to convince the average MCD customer to spend $3 for a cup of coffee (as evidenced by SBUX’s recent traffic trends). This new beverage platform requires franchisee investment (costing the entire system more than $1 billion to implement nationwide) at a time when franchisees’ bottom lines are already under pressure from rising commodity costs and increased dollar menu transactions.