McDonald's taps into coffee drinkers to give sales a jolt

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McDonald's Corp. is counting on coffee to give sagging U.S. sales a jolt.

One of the chain's top priorities is boosting "coffee-driven visits," according to a document laying out the company's 2014 to 2016 U.S. strategy. In a Jan. 28 memo, U.S. operations chief Jim Johannesen and U.S. brand chief Kevin Newell exhorted franchisees to deliver "a gold-standard cup of coffee with every visit." Earlier this month, in a webcast for restaurant owners, McDonald's vowed to become the "envy" of rivals in the "coffee wars."

McDonald's is battling fast-food chains, coffee sellers and even convenience stores hawking breakfast as cash-strapped Americans eat out less.

Earlier this month, the world's largest restaurant chain said U.S. same-store sales fell 1.4 percent in the fourth quarter; profit barely budged.

The ramped-up coffee effort comes almost five years after the U.S. debut of the McCafe menu, which hasn't lived up to its original intent. Initially, the chain planned to transform thousands of restaurants into Starbucks-style cafes painted in earth tones and offering free Wi-Fi. While its drip coffee has won a following, the company's hot espresso drinks haven't caught on and many franchisees balked at remodeling costs and buying $13,000 espresso machines.

"McDonald's is trying to look and feel more like Starbucks," said Howard Penney, managing director at Hedgeye Risk Management LLC, who has covered the industry for 20 years. "It's actually hurting them, not helping them" because the chain's competitive advantage is food not beverages and because making complicated coffee drinks slows down service.

In the webcast, the Oak Brook, Ill.-based company drew attention to struggles attracting diners in the middle of the day, when Starbucks is starting to get traction with a new line of baked goods.

"As always, our priority is to provide our customers a great restaurant experience," Lisa McComb, a McDonald's spokeswoman, said in an e-mail. "Serving an exceptional cup of coffee along with great-tasting food has been, and will continue to be, a strong area of focus for us."

She declined to provide details of the renewed coffee push and said "stay tuned."

In Europe, there are about 1,600 McCafe locations, typically separate areas inside restaurants that sell specialty coffees, desserts and snacks.

While McDonald's tried to mimic that success in the U.S., most U.S. stores weren't big enough or designed to have separate counters and display cases for coffee and bakery items.

"They basically now just hang a sign from the ceiling that says 'McCafe' over the espresso machine," Mr. Penney said. "It was rolled out very differently than it was first imagined."

About two years ago, McDonald's took a page from Starbucks and began selling seasonal hot coffee beverages, including peppermint mochas in the U.S. In another Starbucks echo, McDonald's introduced pumpkin-spice lattes last year. This week the chain rolled out a new drink: McCafe chocolate-covered strawberry frappes, to be sold until late February.

Pushing coffee is "probably a good idea if they can get their customer to buy more of it," said Peter Saleh, a New York-based analyst at Telsey Advisory Group. "I don't think they're going to be attracting the Starbucks customer to go there -- I really don't."


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