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[12 comments]

McD's makes move on the center store

August 21, 2014

McDonald's has gone to great lengths in recent years to raise the profile of its coffee with consumers in the battle for the breakfast day-part and beyond. Having achieved success on that front, the fast food restaurant operator is now following the lead of Dunkin' Donuts and Starbucks with plans to sell its coffee in food, drug and mass outlets beginning early next year.

"We understand there is huge demand for at home options and we've built great success with our McCafé coffee in restaurants. So, it was a natural next step to provide customers with McCafé coffee to enjoy in their own home," said Greg Watson, senior vice president, McDonald's U.S. Menu Innovation, in a statement.

Kraft Foods is working with McDonald's to distribute the McCafé coffees in grocery stores. The coffee lineup made with 100 percent Arabica beans will be sold in 12 oz. bags including Premium Roast, Breakfast Blend, French Roast, Colombian, Premium Roast Decaf, French Vanilla, Hazelnut and French Roast Whole Bean.

Also available will be K-cup coffees including Premium Roast, French Roast and Premium Roast Decaf. According to Mintel, single-serve coffees may represent up to 50 percent of coffee sales by 2018.

"By tapping into the loyal McCafé fan base already built by McDonald's and leveraging our deep coffee category expertise here at Kraft, we have the ability to reach a larger audience than ever before, really giving this brand room to thrive," said Nina Barton, vice president of Coffee for Kraft Foods, in a statement.

FINANCIALS:     [NYSE:MCD] [ NASDAQ:SBUX]

Discussion Questions:

Do you expect packaged McCafé coffees to be successful in food, drug and mass stores? Will the sale of its coffees in retail outlets have a positive or negative affect on McDonald's core business?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Will the sale of its coffees in retail outlets have a positive or negative affect on McDonald's core business?

Comments:

Starbucks and Dunkin' Donuts have shown that popular coffees can be translated into packaged options. McDonald's coffee always gets high ratings from Consumer Reports taste tests. If they can translate this into a packaged coffee, it should do well. Shouldn't have any effect on their core business.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

Providing the coffee in retail outlets should help to reinforce their core business. I would suspect that very few people go to McDonalds and walk out with just a cup of coffee. This will allow those that like and want the McCafe' coffee to be able to enjoy it without having to drive to their local McDonald's.

Alan Lipson, Retail Industry Marketing Manager, SAS Institute Inc.

This is a win for McDonald's, Kraft and consumers. McDonald's has spent millions of dollars in the past few years introducing and selling its coffee to consumers. As a result, they have developed a loyal following. Why not extend coffee sales into grocery stores and open another revenue stream for the company? Starbucks and Dunkin' Donuts sell their beans in grocery stores without hurting their own store sales; McDonald's can do the same.

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Max Goldberg, President, Max Goldberg & Associates

Its success will be determined by the quality and price of their offering, not by the logo on the packaging. That being said, given the challenges McDonald's is facing with their core business they should be working to leverage their real estate and franchise infrastructure.

With 14,000 brick-and-mortar touchpoints across the U.S., McDonald's has an incredible opportunity to address local shopper expectations within a relatively small ecosystem around each one of those locations. There is a specific community around each McDonald's location (at different times of the day as well!) and creating a relevant dialog within each one of these "communities" would give McDonald's a tremendous advantage. The phrase "think globally, act locally" comes to mind.

Selling branded coffee in other retail outlets may be commercially successful, but it does nothing to reverse or address the problems McDonald's has with their core business. Additionally, if I were a McDonald's franchisee, I wouldn't be very happy with this development. How is this helping them: 65 percent of those 14,000 locations?

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

Maybe I have the taste of a neanderthal when it comes to differentiating between coffees, but does the world really need yet another brand of coffee in retail outlets? And why is claiming "100 percent Arabica Beans" any better than claiming "100 percent Nepal Volcanic Mountain Beans?" And why would I pay an extra $3 to $5 a pound for Starbucks coffee when I can buy Costco's Kirkland Coffee that's "Roasted by Starbucks?"

I can hear the production manager from here: "Stop the line for a minute, it's time to switch bags." Our world would be so dull without marketing!

Here's all you need to know: 1.) Make sure there's fair trade certification on the bag, 2.) Make sure it's dark roast, and 3.) keep it under $10 a pound.

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Ian Percy, President, The Ian Percy Corporation

Packaged McCafe coffees should do quite nicely for grocers and McDonald's. In addition, the added visibility within grocery stores should have a positive bounce for McDonald's restaurants.

The Prosper Insights & Analytics August Monthly Consumer Survey of 6,500+ consumers tells us that 13.6% of consumers choose McDonald's as their restaurant of choice—well ahead of all competitors. That loyalty crosses all age groups, with Millennials (13.4%), Gen X (16.1%), and Boomers (14.8%) making the Golden Arches their preference.

In addition 7.0% of Adults chose to purchase their morning coffee at McDonald's. Still behind Starbucks (13.0%), but a jump ahead of Dunkin' Brands (5.7%), and well ahead of other competitors.

This will work out nicely for McDonald's and be a boost for Kraft, who parted ways with Starbucks for grocery distribution months back.

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Roger Saunders, Managing Director, Prosper Business Development

Would Hilton harm its (core) business if it teamed up with Home Depot or BB&B to offer building or home decor items? Probably not; similarly, since I think people buy coffee from McD's because 1) it's cheap, 2) somebody else made it and/or 3) they're already there buying something else—none of which change with this introduction—I don't see this affecting their restaurants.

The bigger question is whether or not it can differentiate itself from the dozens—hundreds?—of competing brands on the shelf, and if so on what basis... price, brand recognition, or what? Ian, Thag and I will wait for the marketplace to give our Neanderthal taste buds the answer.

'notcom'

This could be a good move for Kraft and McD's, but will be more effective in targeted channels. The shelves are loaded with specialized coffees, and adding McD's should be a thoughtful choice of retailer and promotion potential. Selling at retail will boost core business, increasing brand awareness.

Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

It's hard to tell whether consumers are clamoring for McCafe in a bag, but I'd guess that the Kraft deal is pretty sweet for McDonald's.

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Cathy Hotka, Principal, Cathy Hotka & Associates

It will sell, but the market is flooded with coffee, and if it ends up being a premium priced product, than it won't move as quickly as they might think. If Starbucks and McCafe are at the same retail, Starbucks wins.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

It's reliably good coffee, for a quick-serve restaurant. However, not in the same class as Dunkin' Donuts or Starbucks. I don't see McCafe' being able to generate sufficient volume to raise the bottom line.

'Snicker'

It can only help and in my opinion it will not hurt. There are more customers than you think that only stop at McDonald's for their coffee and nothing more.

David Lubert, Industry Principal, Bridge-x Technologies

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