Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=128047
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Jordan Melnick/MEDILL

With the launch of its McCafé national advertising campaign Tuesday, McDonald's is taking on Starbucks in the specialty coffee market. 


McDonald's launches national ad campaign for McCafé, invading territory dominated by Starbucks

by Jordan Melnick
May 05, 2009


McDonald’s Corp. began a national advertising campaign for its McCafé coffee bar Tuesday in an attempt to encroach on coffee giant Starbucks Corp.’s turf.

Since introducing its premium roast drip coffee in late 2006, the Oakbrook-based fast food chain has been phasing in a line of espresso-based specialty beverages, including lattes, cappuccinos and mochas, in select stores nationwide. The McCafé is now in more than 11,000 of McDonald’s 14,000 U.S. stores, including more than 660 in the Chicago region that reaches from Milwaukee to Northwest Indiana.

McDonald’s says the McCafé is the company’s biggest brand product launch in 30 years taking into account advertising, marketing, training, restaurant design and other factors.

The national campaign marks the official start of what some industry experts are calling the coffee wars, as McDonald’s tries to seize a bigger share of the market. With the weather warming up, the new ads focus on iced coffee and ask consumers to “McCafé your day.”

The specialty coffees range from $2.59 to $3.60 at a McDonald’s located at 119 N. Wabash Ave. in downtown Chicago.

On average, McDonald’s coffees are “in the ballpark” of 75 cents cheaper than at Starbucks, according to Jack Russo, an Edward Jones & Co. analyst who covers both companies.

It remains unclear how much of a threat the McCafé poses to Starbucks. Juan Nuñez, store manager at the Wabash location, which opened its McCafé in November, said the specialty coffees have not caught on with customers.

“We don’t sell too much,” Nuñez said. “We average about 40 [specialty] coffees a day.”

Unusual for the Golden Arches, Nuñez said high prices are part of the problem—perhaps a suggestion that McDonald’s is not necessarily nabbing coffee lovers looking to pay less than what they might at a Starbucks or other competitor.

“A lot of customers ask how much is it and then they don’t want it,” Nuñez said.

Starbucks is not taking the McDonald’s assault lying down. It is also ramping up advertising, warning java drinkers against the perils of trading down in a preemptive campaign launched recently. “Beware of a cheaper cup of coffee. It comes with a price," says one print ad. A full-page ad in Sunday’s New York Times read, "They Want You To Think Coffee is Coffee. Well, It's Not Just Coffee. It's Starbucks."

Despite its defensive posture, Starbucks might have less to worry about than its ads suggest. McDonald’s foray into the specialty coffee market could broaden the customer base, benefitting Starbucks in the long run, said Robert W. Baird & Co analyst David Tarantino, who covers both companies.

“This could be an opportunity for everyone to grow as a result of the category growing,” said Tarantino, adding that Starbucks needs to focus on drawing customers looking for a “premium coffee experience as opposed to going through the drive-thru.”

Because of the recession, Starbucks is going to have to go “more mainstream,” offering coffee “not nearly as upscale as in the past,” Russo said. “I think that Starbucks knows that consumers are going to be watching what they spend for a long, long time.”