Can McDonald's Corporation MCD compete with Starbucks Corporation SBUX in coffee? McDonald's believes an area where it can grow revenues is in its McCafe segment, and it's rolling out new products to test this theory.
The fast food giant is testing several new McCafe drinks in California starting this week, as the chain continues its effort to cut into Starbucks' business.
The drinks are familiar varieties that you would find at a coffee chain: iced Caramel Macchiatos, French Vanilla Cappuccinos and Americanos. The new items will be tested at over 170 locations, and restaurants will be adding equipment to enhance these types of beverages.
McDonald's sees coffee as a $30 billion opportunity that continues to grow year over year.
“Coffee remains a significant opportunity for us,” Chris Kempczinski, president of McDonald’s USA, told analysts in February. “There’s so much more we can do with this.”
At a time when restaurant traffic continues to decline, coffee chains averaged a 2.2 percent same store gain in the fourth quarter. Starbucks sees a third fewer customers than McDonald's per day — yet the coffee chain's annual revenues are higher than McDonald's.
The reason? Starbucks customers on average spend nearly three times that of a McDonald’s customer. The company is hoping that a bolstered gourmet drink menu items can help transform these numbers.
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