From Budget Friendly to Premium: Will Consumers Buy Into a Premium Priced McCafe?

I have something I have to get off my chest. I don’t drink coffee. There I said it. I don’t know why I don’t like coffee, but I don’t. Just about every friend and co-worker I’ve ever had has unsuccessfully tried to get me to like coffee.

With that said I was still intrigued when I read the other day in Yahoo! Food that McDonald’s is “jumping headfirst into the retail coffee game early next year with the McCafe “premium roast” coffee line.” I grew up in a very small town with little more than a McDonald’s so I am very familiar with the McCafe brand and how people love how it is budget-friendly, but still good quality. So I assumed that McDonald’s retail strategy would be similar to their strategy in-house: stay at a lower price-point than than Dunkin’ Donuts and Starbucks to gain the edge with budget-conscious consumers.

But it turns out this might not be the case. According to Rachel Tepper at Yahoo! Food, when you look at the cost of a pound of ground coffee across the different brands they found that “although McDonald’s has the cheapest in-house coffee, retail coffee is clearly a whole new (and more expensive) ball game.”
For instance, a large McCafe Premium Roast costs an average of $1.30 in-house, but a pound of Premium Roast is expected to have an average cost of $9.72 at retail. In contrast, a large Dunkin Donuts Original Blend has an average in-house cost of $2.04 and retail cost of $8.99 per pound. The numbers surprised me because I expected McDonald’s to continue to be a cheaper option than Dunkin Donuts at retail, it looks like consumers will be paying a significant premium for McCafe at retail.

A recent article in Business Insider illustrated how Dunkin Brands sees itself as the leader in the retail coffee market stating that according to Nielsen, the Dunkin Donuts 12oz. Original Blend doubled their closest competitor in equivalent units and dollar sales. And with Dunkin Donuts having such a dominate hold on the category and a “3.5% same-store sales growth in 2013, while McDonald’s U.S. comp sales declined by 0.2%” I have to wonder if consumers will be willing to pay this kind of premium at retail for McCafe coffee. I doubt it, but only time will tell.

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