Business

Envisioning a whole latte new customers

Surely, you've heard of their fries. But what McDonald's really wants to know now is: Do you want a latte with that, Charlotte?

The global fast food giant is betting you will. Starting next week, the company is officially debuting McCafe, its new line of espresso-based specialty coffees, across the region; the drinks are expected to be in 100 of the chain's 115 area restaurants by the end of September.

The goal, McDonald's executives said during a local visit Friday, is to help transform a brand synonymous with burgers and fries into a beverage destination, spurring customers to spend more money and visit at nontraditional times of the day.

“(Offering good coffee) definitely builds the business,” McDonald's USA President Don Thompson said. “There is a huge profit potential. …. When you find opportunities like this, you go after them pretty hard.”

Once primarily lunch and dinner spots, quick-service restaurants such as McDonald's have in recent years worked to boost sales by rolling out a slew of products and promotions designed to get you to show up late at night, for breakfast and for midday snacks. If you've had a McDonald's Snack Wrap, a Wendy's breakfast Frescuit or a Chick-fil-A milkshake, then the strategy has worked on you.

For the U.S. specialty coffee market – which has its roots in small, local businesses and is now $12 billion and growing – the McDonald's coffee represents another watershed. In the 1990s, Starbucks popularized the coffeehouse experience, and espresso drinks, for a mass clientele seeking accessible indulgence. Now, a straightforward, reasonably priced lineup of cappuccino, iced and hot lattes and mochas is hitting the most mainstream restaurant on earth – even as chains such as Starbucks close stores and some consumers cut back on gourmet drinks in a tough economy.

Although McDonald's wants the drinks to bring in new customers, the push will also succeed if the company can convince existing diners to give McCafe a try.

“Their goal isn't to be Starbucks,” said Darren Tristano, an executive vice president at Technomic, a Chicago-based food industry consulting and research firm. “It's not to bring people in to have a date at McDonald's, or work on their mobile computers. But it's, ‘If we're charging $1.40 for coffee, how do we get to $2?' How do we enjoy some of that success based on the Starbucks model?”

Brewing up business

The Golden Arches' coffee campaign began about four years ago, Thompson said, as the company began to focus on improving quality and growing in specific areas – including chicken, breakfast and, especially, beverages. Research turned up big interest in specialty coffee.

McDonald's abroad had been offering gourmet coffee since the early 1990s. But those stores were in countries with more established coffee cultures, chief operating officer Jan Fields said. As the U.S. began to catch up, McDonald's earlier this decade tried opening separate, upscale McCafe areas with pastries in a handful of stores, including in Raleigh. But you couldn't order the McCafe items from the drive-through, 65 percent of the chain's business, Fields said.

To work up to the espresso launch and boost its reputation for coffee, the company introduced a revamped and favorably received “premium roast” blend of regular coffee in 2006, then added iced coffee and sweet tea nationwide last year. In that time, its coffee business has almost doubled, Thompson said.

Now, stores across the country are remodeling and enlarging their drive-through areas and counter space to make way for the espresso equipment and allow employees to make McCafe drinks efficiently.

The drinks are already available in about 2,000 of McDonald's 14,700 U.S. stores, and executives say sales are exceeding their expectations.

The offerings won't receive a national advertising campaign until they're in about 85 to 90 percent of U.S. McDonald's, sometime next year. From there, the company is planning to move into smoothies.

By offering value, convenience and quality, McDonald's can educate its giant pool of customers on specialty drinks and convert skeptics, analysts say. The market is so large, it doesn't necessarily have to grab share from Starbucks to be successful; gas stations and competitors such as Dunkin' Donuts also offer fertile ground for prospective customers.

At the same time, there are some doubts among franchisees whether the investment in equipment and remodeling is worth it, said John Owens, a stock analyst with Morningstar.

“It might not be the best timing to roll out a high-end specialty drink,” he said. “In recent years, you really have to give McDonald's the benefit of the doubt, because a lot of their new products have been extraordinarily successful. But I think this one's a little bit of a higher hurdle.”

If the coffee succeeds, though, it will further help spread was once a hard-to-find product – which could boost the entire industry.

“We see (McDonald's drinks) not so much as a threat as that they will introduce the latte to a customer base…that we would not ordinarily reach,” said Sandy May, president of Dilworth Coffee, a Charlotte-based 16-store chain and roaster founded in 1989. “They're going to create a perfectly acceptable latte for the masses, whereas we are crafting specialty coffees for a niche market.”

Changing perceptions

Franchisee John Link's McDonald's inside the Wal-Mart in Conover, east of Hickory, began the Charlotte region's first test of the drinks last October. The chain, Link said, was interested in seeing how the line would play outside of the urban core. The result: “It's selling like crazy,” Link said.

Other restaurants across the area have been quietly introducing the drinks in recent months. They're also available in the Raleigh and Greenville, N.C., areas, and they're coming to the Greensboro area shortly.

And though the McCafe areas are an unfamiliar sight, patrons may get to know them better soon.

At a McDonald's in Concord on Friday, Tina McKinley, 33, and daughter Haley Chastain, 14, of Kannapolis, said they were planning on trying the coffee, though they hadn't yet.

“I think it looks pretty good, actually,” Haley said, eating a chicken sandwich, sweet tea and fries within view of a window plastered with coffee photos. “I love that kind of stuff.”

But across the restaurant, medical equipment technician Dwayne Sutherland, 41, was unmoved. He visits McDonald's about three times a week, usually ordering the Big Mac combo. But specialty coffee? “I'm not into anything like that,” he said. “I wouldn't want to try it.”

The only kind he likes, he said, is the French vanilla cappuccino at convenience stores such as On The Run.

At a Starbucks a few miles away in University City, UNC Charlotte biology major Matt Yoder, 21, was skeptical for different reasons.

Though he first began coming to Starbucks for the atmosphere, to study with friends, he then began drinking the coffee. Now, he stop by two to three times a week – always opting for a venti (Starbucks-ese for large) white chocolate mocha. “Four shots of espresso to keep me awake,” he joked.

When he goes to McDonald's, he said, he's seeking something convenient and cheap. “I'm not looking for a good cup of coffee,” he said. It's not something that's even on my mind when I pass by McDonald's.”

If company leaders have their way, that's just what will change.

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