When McDonald's (NYSE: MCD) went into coffee, the fast-food giant went whole-hog (or bean?). The chain planned to add separate coffee bars to every one of its about 14,000 U.S. stores, and got to about 3,000 when the credit crunch hit and Bank of America pulled back on the availability of funds for its franchisees. This would be a relatively minor setback if it weren't for a problem:McDonald's customers don't really like coffee.
In a Wall Street Journal article today, which examines whether the coffee rollout came at a bad time, I was struck by a couple of "tweaks" McDonald's has made to its coffee strategy. One, changing the title of the employee who prepares the coffee drinks to "beverage specialist" from "barista" betrays a generality that would indicate a widening of the strategy (if not baldly changing the strategy away from coffee to other drinks). The other is that McDonald's is testing drinks made without coffee (think blended cream beverages at Starbucks). "The strategy is to appeal to customers who like the idea of coffee drinks but not the actual taste. Chocolate "gives people permission to introduce themselves to these drinks," says Darci Forrest, a McDonald's senior director of marketing."
So, McDonald's is leading its customers by the hand down the path of coffee drinks, introducing them to chocolate and then upselling them? Doesn't this seem like the most boneheaded competitive strategy ever devised? McDonald's will spend a few hundred million dollars to convince its customers that they should really be drinking fancy blended coffee at Starbucks. And here's the thing: its customers don't like coffee. Shouldn't they just be left alone with their chocolate shake and their Big Mac?
For once, it's not about the coffee. McDonald's investors had better thank their lucky stars for the credit crunch and hope management pulls back before it's too late.
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
11-12-2008 @ 4:39PM
ann cornett said...
I am 65 years old.and drink coffee all my life.but i do not buy macDs coffee.it is almost always stale.and to strong.and i dont like people putting the sugar and creamer in my coffee.I know how i want my coffee.