Not your average Joe

Fear of the waffle taco has driven McDonald’s to offer free coffee

March 28, 2014
March 28, 2014

Apparently $1 wasn’t cheap enough.

The world’s largest fast food chain, McDonald’s, usually charges a modest buck for coffee, but it will be offering its cups of “joe” for free to customers across the US over a two-week span beginning on March 31 and ending on April 13. This is the first time McDonald’s has ever poured free coffee nationwide, the company says.

The announcement comes on the heels of a series of disappointing quarters—McDonald’s sales in the US fell this past earnings period, and the one prior. Part of that can be blamed on the poor performance of its “value meals” (offering slight discounts for a combination of menu items), which some 77% of its customers order. And it may be a result of McDonald’s spreading itself too thin—that is, offering too many choices on its menu. But the key here is that McDonald’s is paying for everyone’s coffee so that more people start paying for its breakfast.

The morning window, in which the fast-food giant sells egg sandwiches, hash browns and the like, only lasts until 10:30am, but accounts for over a quarter of the chain’s US sales. The US breakfast business at fast food chains, which include Burger King, Dunkin’ Donuts, and others, has ballooned into a $50-billion behemoth. Breakfast accounted for over 90% of growth in the fast-food industry between 2007 and 2012. But competition for those breakfast dollars is growing stiff. Other chains including Taco Bell, which just entered the breakfast market with offerings that include a “waffle taco,” and Starbucks, which has expanded its breakfast menu, are doubling down on the morning rush.

“You definitely have seen the coffee places try to get into the food part of this, and that is pressuring McDonald’s,” said Janna Sampson, co-chief investment officer and managing member at OakBrook Investments LLC, in an interview with the Chicago Tribune.

To keep its foothold, McDonald’s is getting ruthless, a la Amazon (video), by undercutting its competitors. The free morning coffee is an attempt to lure in new customers and convince existing ones to stop by a bit more often. The hope is that many of those who come for a coffee will also pick up an Egg McMuffin, and maybe an order of hash browns, too. Also, that some will try McDonald’s coffee for the first time, and decide that it’s drinkable.

“We know that coffee drives the visits at our breakfast time,” said CEO Donald Thompson in a January earnings call.

Of course it doesn’t hurt that, compared to Starbucks and other premium coffee chains, McDonald’s coffee—which it touts as “premium roast”—is incredibly cheap, even when it isn’t offered free.

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