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McDonald's perks up coffee competition

A McDonald's advertisement for McCafe

TEXT OF STORY

Kai Ryssdal: Among the most brilliant marketing moves ever was convincing us to spend $4 for a cup of coffee that it costs a company maybe, I don't know, maybe 30 cents, half a buck to make. Seen in that light, the news today that McDonald's is going to spend $100 million promoting its specialty coffees makes more sense. Mochas, cappuccinos and lattes on sale now at McCafes around the country. As Marketplace's Jeremy Hobson reports.


JEREMY HOBSON: Here's one of the ads from the new campaign.

MCCAFE COMMERICAL: With McDonald's McCafe, a better day is possible. Introducing hot or iced mocha.

With ads like that McDonald's is hoping to bring in at least $100,000 per store in premium coffee sales. That's about a billion dollars a year, says analyst Steve West of Stifel Nicolaus.

STEVE WEST: You cannot underestimate the might of McDonald's marketing.

West says Starbucks has shown that Americans can be convinced to trade up in the coffee market. In fact, he says, people who buy regular coffee are a dying breed.

WEST: The younger generations tend to drink specialty coffee. And so McDonald's is just going after that big category out there. There's a lot of money and a lot of profit in that category.

HOBSON: So I've brought our intern Rafael Cohen into the studio with me for a quick taste test here, and we've got one McDonald's latte and one Starbucks latte. They're both in the same cup, so I can't tell which one is which, and I'm going to taste this first one: lot more froth there. It tastes like a good, strong latte. And this one, no froth and oh my God, Rafael, this is sweet.

COHEN: What do you think Jeremy?

HOBSON: I'm going to have to say that the super sweet one is from McDonald's.

COHEN: Bingo.

HOBSON: All right, add sugar and everybody'll buy it. There we go, thanks Rafael.

COHEN: No problem.

And in case you were wondering, it took a minute and 5 seconds for a barista to make the Starbucks latte. The slightly cheaper McDonald's latte was made by a machine in 44 seconds.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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