Can McDonald’s challenge Costa in the growing coffee market?

McDonald’s already sells a lot of coffee but now it wants to be seen as a destination for premium beverages to rival pure play market leaders Starbucks and Costa.

The company is to launch “McCafé moments”, a ten-month collaboration with Channel 4 which will see 40 pieces of content aired that showcase a series of conversations between “real people” drinking McCafé beverages.

The Gogglebox inspired clips will see them talking about what’s happening on their favourite Channel 4 programs, such as Location, Location, Location or Made in Chelsea.
The chain first began advertising its coffee in 2009, before introducing the McCafé brand in 2013. In 2014 it rebranded and expanded its coffee offering, which now features the likes of cappuccinos, lattes and mochas.

The aim of the latest push, according to senior vice president and chief marketing officer of McDonald’s UK and Northern Europe Alistair Macrow, is to put McDonald’s front of mind when people are thinking about going for a “quality cup of coffee” in the same way as they do for Costa, Starbucks and Café Nero. The opportunity for McDonald’s is huge. The coffee shop market grew 3.5% to £1.45bn between 2013 and 2014, according to Mintel.

The chain is already a significant player in the market – selling 140 million cups of coffee last year, it claims. Fast-food chains, with McDonald’s by far the biggest contributor, are the third biggest outlet for coffee in the UK behind Costa and independent shops, according to Mintel.

The research company’s report also suggests it is in McDonald’s reach and ability to pitch at a lower price where it is and will continue to win. A quarter (24%) of adults polled by Mintel late last year said that price is more important to them than the brand of coffee chain. It is a fact not lost on Macrow when assessing its strategy for success: “We believe we can offer something which is very differentiated from the rest of the market…We can sell coffees that are just as good quality as anybody else on the high street in a way that is far more convenient, faster, and at an affordable price.”

It wants to move beyond convenience, however. Its plan for growth also includes a huge investment in its in-store environment in a bid to position as a destination. “We want to encourage more people to come and sit in our restaurants,” he says. “You can already go into over 100 of our restaurants in the UK where you can order food via a kiosk and sit and use one of our iPads while enjoying a coffee. That’s an environment that nobody else has managed to deliver at this point in time, and I think that will continue to set us aside. “

Not everyone is convinced of its chances of success, however.

Karla Rendle, UK research analyst at Euromonitor International, says: “McDonalds would need to create a different style of outlet i.e. a stand-alone McCafe for them to compete with the other high street coffee shops. If in addition, they were able to offer the right range of coffee drinks and a competitive price point they could attract perhaps a younger generation of coffee drinkers. In the UK younger consumers are becoming more interested in coffee based drinks, particularly the sweet and cold varieties offered in coffee shops and McDonalds is positioned well to capture this market.”

Perception of quality is also an issue, says senior foods service analyst at Mintel, Helena Childe, pointing to separate research it conducted among UK adults last year.

“Only 16% say that the quality of coffee at fast food venues is now just as good as at specialists shops such as Starbucks, signaling that further work is needed to strengthen their quality credentials in this area to more effectively challenge the specialists.”