McDonald's launches designer coffee menu in a cafelike setting

Move over, humble cup of joe. McDonald's, purveyor of hamburgers and french fries to the masses, is now serving up lattes, cappuccinos and mochas.

The fast-food chain is launching a new McCafe brand of designer coffees, which will be offered out of a separate area in most restaurants and by drive-thru.

McDonald's has been testining its McCafe concept for several years in select spots around the country. San Diego County will be among the first markets to get McCafes – about 89 out of 118 local McDonald's are expected to have them by the end of the month – with a national rollout to follow next year.

The fast food chain hopes to capture a piece of the gourmet coffee business that Starbucks has dominated for years, even as the ubiquitous Seattle-based coffeehouse chain is struggling with sagging sales after an aggressive expansion.

Despite Starbucks' slump, sales of coffee-based beverages remain strong. In 2006, the latest figures available, retail sales of coffee in U.S. restaurants, coffee shops, convenience stores, supermarkets and other retail outlets totaled $29.2 billion, according to the National Coffee Association.

Last year, 57 percent of the nation's estimated 150 million coffee drinkers drank the brew every day, and on average quaffed about 3.3 cups of coffee daily. That's the highest percentage of coffee consumption since 1984, according to the association.

McDonald's getting into the act with affordable specialty coffees could help expand the market, according to some analysts.

“Assuming the quality is acceptable to a larger base of consumers, it can and should be successful because we have a lot of coffee drinkers,” said Ron Paul, president of Technomic, a Chicago-based restaurant industry consulting firm. “But the key issue is whether they can get enough customers who want to make McDonald's their morning destination for coffee”

Starbucks, facing the challenge of selling pricey coffee in a cooling economy, is taking the competition from the largest restaurant chain in the world seriously.

This month, Starbucks began offering an expanded menu of breakfast foods, focusing on beverage and food pairings and portability. Some stores are pushing various new combinations, such as oatmeal with a vanilla latte, or a apple bran muffin with regularoffee.

And Starbucks also added a “protein power plate,” featuring a hard-boiled egg, bagel, peanut butter and cheese, to its menu.

“Our customers have told us they want delicious choices that offer real nutrition, including whole grains, fruit, and lean protein to help fill them up and give them energy to make it to lunch,” said Katie Thomson, a senior nutritionist for Starbucks.

Paul said McDonald's isn't likely to lure Starbucks' customers, but rather convert regular McDonald's coffee drinkers into spending more for their breakfast beverage.

Though prices can vary among McDonald's franchises, McCafes are expected to start at around $2.39 for a small specialty coffee. In contrast, a small, regular McDonald's coffee costs about $1.69.

“Given McDonald's extensive breakfast menu, the McCafe concept can be successful,” Paul said. “But I don't think it's a threat to Starbucks.”

McDonald's executives say McCafe is a response to consumer demand for more sophisticated products.

“It's a new business opportunity that is grounded on what our customers are asking for,” said Max Gallegos, McDonald's marketing manager for Southern California. “Consumers are very savvy, and our customers are no different than any other – they want fresh, quality coffee products, with the convenience of McDonald's as an added benefit.”