The McCafé Attack

My favorite quote of 2009 was from Brian Norton, a c-store supply veteran who said: "Convenience stores are in the middle of the morning coffee wars crossfire between Starbucks and McDonald's. They need to decide whether they will be a battle casualty or step up to defend their turf."

The battle between these mismatched giants is more than anyone expected. Morgan Stanley released a study in June 2009 of 2,500 coffee drinking consumers, and found half of Starbucks' heavy users said they also buy coffee at McDonald's at least once a week, while 56 percent of these heavy users said they buy at McDonald's "regularly."

Who expected a decade ago that a failing McDonald's would rise to national attention with specialty coffee? Let's look at the DNA of the Golden Arches program.

According to analysts, McDonald's goal for McCafe was to add $75,000 a year per store from lattes and mochas. That translates to less than 100 lattes and mochas a day per store -- a reasonable return on McDonald's reported investment of $100,000 per store. One hundred drinks per day is a small number compared to most Starbucks locations that each do $1 million a year in coffee sales alone.

McDonald's timing with its coffee improvements also hit a perfect trifecta:

1. A good tasting $1.99, 12-ounce beverage with a simple menu;
2. An upgraded environment; and,
3. Free Wi-Fi access.

How smart is that? McDonald's captured regular traffic from the Starbucks heavy users mentioned above, but more importantly, introduced lattes and mochas to those intimidated by the specialty coffee shop -- a much wider audience.

McDonald's has illustrated that lattes and mochas are viable in every demographic in the country. This signals a fundamental shift in the way Americans are consuming coffee. And the really big prize the quick-service chain is vying for is the future customer -- likely, the same future customer as c-stores. The habits of the Gen Ys and Millenials are forming today, and they are growing up with the notion that "coffee" is a latte.

So, is now a good time for convenience stores to jump in?

Cash flow is tight, sales are down and lending is worse. The tendency in times like this is to just hold on -- a reasonable strategy if you're barely making ends meet. However, if you've got the means to change, coffee is a place to invest. If you make a $20,000 investment and do half of McDonald's goal number, it will likely mean bottom-line success.

The shift in coffee consumption can either strike fear in your heart or signal opportunity.

Tim Cote, vice president of marketing for Plaid Pantries, a 100-store chain in the Portland, Ore., area noted: "Whenever a product in a core category that directly or indirectly competes with us is successfully launched, a certain amount of our customers will be lost. McCafe has closed the gap on price and convenience. I'm sure it has hurt our sales a bit."

Ask yourself, "What if a bunch of my morning regulars try this new stuff at McDonald's and like it?" Well, those customers are yours now. You've got the chance to keep them -- and their kids -- if you grow with them. Keeping them is far easier than getting them back.

I suggest three ways to embrace the shift in consumption and run with it:

Brewed Coffee
Convenience stores must get this right before taking on lattes and mochas. Brewed coffee is what all c-stores should be focusing on first to improve their coffee offering. Most c-stores make some claim of "Great Coffee" regardless of what they actually have. The problem is that every time a c-store chain throws up a billboard with an overstated coffee quality claim, it discredits the whole industry.

The essentials to delivering quality brewed coffee are: having fresh beans; grinding in the store; increasing the throw weight (the amount of coffee grounds in each pot); using equipment that can brew consistently at the correct temperatures; reducing urn holding times; and cleaning brew urns regularly.

Real Espresso Beverages
Starbucks, McDonald's and Dunkin' Donuts have made the real espresso drink (latte or mocha) a foodservice play with the standard of assemble and serve to the customer. For c-stores, this is a bigger step than improving brewed coffee. By the time you buy the right type of machine with an automatic espresso shot maker, pull 220V and do some kind of build-out to look the part, you're $20,000 into it.

Remember one thing: success comes by both shifting existing customers to the lattes and mochas and bringing in new customers. This takes effort and time, and you must plan out how you're going to get your customers to try the beverages. As you'll recall, McDonalds did months of a "free Mocha Monday" with great success.

In terms of self-serve, the technology is here, but no major U.S. retailer has cracked the code on it. Since self-serve espresso in c-stores is equated to powdered cappuccino -- a.k.a. "bubba-chino" -- it's a tough transition. If you have a store with no foodservice, a way to educate your customers and a lot of guts, this is for you. Quality self-serve espresso in the U.S. will become widespread sooner or later.

Frozen Blended Frappes
Call it a frappe, frap, smoothie, blended freeze, or a Frappuccino as Starbucks does, this is the third leg of the specialty coffee stool. It's a frozen, blended iced coffee or fruit beverage, typically made in a commercial blender with flavoring, ice and water, milk or yogurt. It was originally an afternoon, warm-weather drink, but has moved into the morning daypart. These have the longest prep time but carry the highest price and best profit. All the major blender companies are now making powerful hooded blenders, from $500 to $900, that are capable of quickly shearing ice into very small particles for these drinks, plus many suppliers are making excellent bases for these drinks.

With McDonald's introducing specialty coffee at every third off-ramp, there's an indisputable rising tide of quality expectations among customers. As the battle rages over the morning daypart, I hope convenience stores can load their guns, defend their turf and grow their customer base.

Mark Crawford is director of business development for Mont Blanc Gourmet, formulator of custom beverages for national chains. He has 20 years experience in the specialty coffee industry and has been involved in starting espresso programs in many venues across the country. He can be reached at [email protected].

Editor's Note: The opinions expressed in this column are the author's, and do not necessarily reflect the views of Convenience Store News.
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