Will McDonald's Drive Loyalty In Coffee Category?

McDonald's, which took some coffee ground from Starbucks and Dunkin' Donuts last year, has announced that it will install coffee bars with Starbucks-like baristas in 14,000 U.S. locations. Along with drip coffee, McDonald's will be serving lattes, cappuccinos, and frappes.

So what really drives loyalty in the coffee category? Some market analysts have suggested that convenience, via "Convenient Locations," has become the dominant driver in the industry, but that's not strictly true.

According to Brand Keys' recent Customer Loyalty Engagement Index, Starbucks lost a lot of ground last year walking away from the critical coffee experience--found in the category driver "Service and Surroundings"--it had imported from Italy and popularized for the U.S. food-service industry.

In the face of long lines of people who did regard the purchase of hot coffee beverages as a recreational activity, it process-engineered away the pulling of shots. Instead of the sound and smell of coffee beans being ground, it went with vacuum-packed, pre-ground coffee.



It's not a surprise that loyalty numbers, and attendant profits, went down. Without some entertainment, some theater to fill the time, and aromas to pack their proboscises, where was the added value? This was especially the case when less expensive coffee was to be found at Dunkin' Donuts, McDonald's or the local coffee shop--although, according to the Customer Loyalty Engagement Index, America apparently did run on Dunkin', at least when it came to "Service."

McD's Borrowing Page From Starbucks

To address those areas, McDonald's is apparently borrowing heavily from the Starbucks brand experience and Dunkin' service standards; it will be calling the crew members "baristas" and will be displaying the equipment in the front of its stores.

It's been reported that the McDonald's process will use a single machine to automatically steam the milk and combine it with the espresso. And since "Selection and Variety" is also a category loyalty driver, one needs to keep in mind that McDonald's will have a far narrower selection on offer than Starbucks.

The locations and the distribution system are certainly important, but success will be driven more by brand loyalty than convenience. Today, instead of taking the most convenient beeline to work, commuters--driven by a lust for a particular brand of caffeine (often accompanied by a side of carbohydrates)--actually go out of their way to visit one coffee provider over another, aka "the side-trip."

Want proof? The Department of Transportation noted that the increase in commuter side-tripping has actually thwarted attempts to forecast travel patterns that had traditionally been based on models that relied primarily on the predictability of the morning commute.

But "Quality and Taste" also drive engagement, consumption, and loyalty, and Consumer Reports rated McDonald's drip coffee better-tasting than Starbucks. It's true that taste is a subjective measure, but McDonald's says that the new coffee beverage offerings will be helpful in shifting younger consumers away from Starbucks, and today that's an important issue.

Saying It And Doing It ...

Of course, saying it and doing it--and doing it believably--are three entirely different things. McDonald's tried to introduce a coffee distribution outlet called the McCafé nearly a decade ago. It set up some comfy chairs and a counter that offered cappuccinos and cookies, but a corner of a typical McDonald's didn't actually lend itself to a cappuccino-sipping experience. Servers kept asking: "You want fries with that?" No, only kidding--but you get the point. McDonald's certainly had the real estate and the financial and production wherewithal to offer up the product, but what it didn't have was a believable environment.

But with the success of its premium drip coffee as a foundation, cheaper products and a recent environmental re-fit, McDonald's feels that introducing coffee bars will help solidify customer loyalty and will address the upturn in consumption of coffee-based beverages and the downturn in carbonated soft drinks.

And in today's marketplace, more loyal customers is always a good thing.

Robert Passikoff is founder/president of Brand Keys, a New York-based brand and customer engagement consultancy. The 2008 Brand Keys Customer Loyalty Engagement rankings will be published late this month.

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