McDonald’s Turn Up the Heat Under Specialty-Coffee Test

McDonald’s Corp. says that espresso-based specialty coffees are being tested in 1,500 of its U.S. stores and that it plans to continue to look seriously at the viability of a rollout.

By Scott Hume, Editor-in-Chief -- Restaurants & Institutions, 10/19/2007

In a conference call with investors on Oct. 19, McDonald’s Chief Operating Officer Ralph Alvarez announced that U.S. comparative sales were up 5.1% in the third quarter, compared with year-earlier sales, due in part to strong breakfast and beverage sales.

“Overall coffee sales—both Premium Roast and iced coffees—contributed to the sales increases,” Alvarez told analysts. “The credibility we have established in coffee propels us to further expand our tests of specialty coffees such a cappuccino, lattes and mochas.”

Pressed by analysts for details on the coffee test, Chief Financial Officer Matthew Paull said the specialty-coffee market “in the United States alone is a $60 billion market. And if we can find a way to do this, if the speed, convenience and value you expect from McDonald’s [is there]…we have a duty to our customers, our operators and our shareholders to pursue it.”

Alvarez said McDonald’s is testing not only a variety of coffee drinks but also their consumer appeal in a variety of markets. He said the chain wants to know when consumers order the drinks and how they can be effectively advertised.

Equipment concerns, however, is not what is holding back a rolling out, he said. “We’re not hitting anything that you would say the equipment can’t keep up from a service point of view. That would have been thee case with espresso machine equipment four years ago. Today, they can deliver at the speed and recovery rates that can make [such a program] happen.”

“We’ve got the product quality/consumer acceptance piece figured out,” Alvarez said. “Now it’s the operational [piece]. How does it fit into our restaurants and what are the overall economics that come out of it? We are working on that very closely with our franchisees and we won’t go [national] until we are ready to do it the right way.