After opening more than 2,000 new cafes in the U.S. in the past three years, Starbucks now, officially, has a bigger domestic footprint than McDonald’s. Such ubiquity has caused some analysts to cry “oversaturation.”
John Zolidis, president of Quo Vadis Capital, told the Wall Street Journal last week that if coffee shops continue to open at their current rate, “the impact of cannibalization will intensify.”
That hasn’t stopped McDonald’s from intensifying its focus on its McCafé business, however. In fact, just this morning the chain announced a new line of cold brew frozen drinks – Cold Brew Frozen Coffee and Cold Brew Frappé. This launch comes on the heels of McDonald’s jump into the espresso category last September as part of a “McCafé relaunch.”
These moves seem to be working. In a note to investors in May, Bernstein analysts said that McDonald’s may be taking share away from Starbucks in the afternoon daypart, as consumers are “less loyal and more cost-conscious.” That’s a big deal for coffee aficionados who have traditionally thumbed their noses at cheaper offerings, and for Starbucks loyalists who have gravitated toward the brand’s exclusivity.
We’re now solidly in a new iteration of coffee culture, where we can find specialty espresso drinks everywhere from the local 7-Eleven to the grocery checkout aisle refrigerator. It’s an important category to focus on – a strong coffee game drives higher margins and occasions and, according to TDn2K, top-performing brands based on sales growth tend to have a more positive guest sentiment based on beverages than underperforming brands.
By adding cold brew coffee, McDonald’s is leveraging a major driver of this latest iteration. Total U.S. sales of refrigerated cold brew coffee have grown a staggering 460% from 2015-17 to reach an estimated $38.1 million this year, according to Mintel.
Cold brew offerings fit demand for ‘new choices’
Elina Veksler, senior director of McCafé Menu Innovation, said the new cold brew drinks address what customers want – variety, quality and consistency.
“They are looking for new choices,” she said. “Different customers have different needs – energy, refreshment, relaxation and indulgence. Unpacking those is key.”
To keep a strong pulse on consumer trends and preferences, Veksler said McDonald’s works closely with its partners. In April, for example, the company partnered with Coca-Cola to launch a ready-to-drink line of McCafé Frappes at retailers nationwide. Notably, ready-to-drink coffee is the fastest-growing segment of the $13.6 billion retail coffee market, making up 20% market share. Mintel expects this segment to continue to grow – forecasting 67% growth through 2022.
Veksler wouldn’t get too into the weeds about the company’s R&D process, other than noting that the company leverages its global scale to understand what new products have been successful in other markets and then works with customers to see if they would translate successfully here.
“We’re always incorporating the latest consumer and food trends into ongoing research and testing,” she said.
McDonald’s new Chicago headquarters facilitates some of this research, offering specialty beverages – such as the Australian McCafé Flat White – from the company’s international markets.
“Enabling consumers to have these experiences starts by authentically creating them,” Veksler said.
According to Veksler, some of the other emerging beverage trends the McDonald’s team is seeing include:
- Prioritization of discovery, “inspired by consumers who see food and beverage as a gateway for new experiences”
- Beverages that have a story
- Categories inspired by other categories
- Bolder, unique flavors
- A convergence of flavor, function and fun
Veksler wouldn’t speak on other brands’ coffee strategies (including aforementioned brands). She did note, however, that the industry is stronger than ever, and hinted that McDonald’s will continue to focus on its beverage strategy in order to compete.
“Beverages are core to the food service experience and we will continue to raise the bar with beverages by adding more choices,” she said.
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