In September, McDonald’s announced that it had added a new set of espresso-based drinks to the menu: a caramel macchiato, a vanilla cappuccino, and an americano.
The new drinks were controversial among franchisees, who said that the new offerings took too long to make and required unnecessary, expensive equipment.
However, on Tuesday, executives said that the McCafe initiatives had paid off in sales. The fast-food chain reported that sales at stores open in the US for at least one year rose 4.1%, marking the chain’s third consecutive quarter of increasing sales.
Coffee is “a $30 million business in the US,” McDonald’s US President Chris Kempczinski said in a call with investors. And, there are four specific things that McCafe can bring to McDonald’s business that other fast-food items can’t.
Here’s why gourmet McCafe is a key part of McDonald’s future:
It provides a reputation boost.
One of franchisees’ biggest complaints about the new drinks was that they were merely copying Starbucks.
“Time-consuming products like this do not belong on McDonald’s menu,” one franchisee told Mark Kalinowski, a Nomura analyst.
However, at $2, McCafe beverages are significantly less expensive than Starbucks’ – and they still push a more gourmet image than most McDonald’s menu items. For comparison, a tall caramel macchiato at Starbucks costs nearly twice as much, at $3.95. A tall Starbucks cappuccino costs $2.95.
Infrequent customers can be turned into regulars.
- Getty Images
According to executives, building out the coffee menu is key to making McDonald’s a habit, not just an infrequent treat.
Customers buy breakfast as well.
- Hollis Johnson
If customers are already at McDonald’s for coffee, they’re primed to buy something off of McDonald’s breakfast menu – and vice versa.
It brings a lot of money back to McDonald’s.
- Mike Mozart/flickr
“It’s high margin, and we’re under-penetrated there,” Kempczinski said.
In other words, even when McDonald’s is selling beverages for half the price of Starbucks, McDonald’s is still turning a sizeable profit on McCafe drinks.